FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-22340
PALOMAR MEDICAL TECHNOLOGIES, INC.
(Exact name of issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 04-3128178
- ------------------------------------------------------------------ --------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
45 HARTWELL AVENUE, LEXINGTON, MASSACHUSETTS 02421
--------------------------------------------------
(Address of principal executive offices)
(781) 676-7300
-----------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of July 31, 1999, 10,077,987 shares of common stock, $.01 par value
per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Condensed Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Stockholders' (Deficit) Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
RISK FACTORS 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 2. CHANGES IN SECURITIES 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 25
ITEM 5. OTHER INFORMATION 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 26
SIGNATURES 27
</TABLE>
-i-
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<S> <C> <C>
December 31, June 30,
1998 1999
------------------ -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,874,718 $17,518,734
Available-for-sale investments, at market value - 17,796,284
Accounts receivable, net 9,938,121 2,355,955
Inventories 5,416,342 3,978,105
Other current assets 1,056,388 3,477,791
------------------ -------------------
Total current assets 18,285,569 45,126,869
------------------ -------------------
PROPERTY AND EQUIPMENT, AT COST, NET 3,314,087 1,459,757
------------------ -------------------
OTHER ASSETS:
Cost in excess of net assets acquired, net 1,699,983 757,236
Deferred financing costs 58,923 -
Other noncurrent assets 167,352 154,427
------------------ -------------------
Total other assets 1,926,258 911,663
------------------ -------------------
$23,525,914 $47,498,289
================== ===================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $6,290,041 $2,974,907
Accounts payable 6,553,745 581,222
Accrued liabilities 10,301,624 10,669,830
Current portion of deferred revenue 1,143,796 1,214,082
Other current liabilities - 3,239,556
------------------ -------------------
Total current liabilities 24,289,206 18,679,597
------------------ -------------------
NET LIABILITIES OF DISCONTINUED OPERATIONS 1,680,171 -
------------------ -------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 3,150,000 2,844,242
------------------ -------------------
DEFERRED REVENUE, NET OF CURRENT PORTION 870,000 -
------------------ -------------------
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $.01 par value-
Authorized - 1,500,000 shares
Issued and outstanding -
6,993 shares and 6,000 shares
at December 31, 1998 and June 30, 1999, respectively 69 60
Common stock, $.01 par value-
Authorized - 45,000,000 shares
Issued - 10,074,864 shares and 11,028,959 shares
at December 31, 1998 and June 30, 1999, respectively 100,747 110,288
Additional paid-in capital 161,337,926 162,447,380
Accumulated deficit (166,263,346) (133,208,381)
Unrealized loss on available-for-sale investments - (53,964)
Less: Treasury stock - 49,285 and 894,846 shares at cost
at December 31, 1998 and June 30, 1999, respectively (1,638,859) (3,320,933)
------------------ -------------------
Total stockholders' (deficit) equity (6,463,463) 25,974,450
------------------ -------------------
$23,525,914 $47,498,289
================== ===================
</TABLE>
-1-
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1999 1998 1999
------------- -------------- --------------- --------------
REVENUES $9,090,396 $5,529,177 $16,157,801 $19,007,786
COST OF REVENUES 4,812,456 4,237,045 11,148,701 9,207,021
------------- -------------- --------------- --------------
Gross Margin 4,277,940 1,292,132 5,009,100 9,800,765
------------- -------------- --------------- --------------
OPERATING EXPENSES
Research and development 1,943,523 2,504,746 4,108,523 4,630,729
Sales and marketing 3,526,770 1,618,800 6,029,885 5,717,222
General and administrative 2,359,142 1,485,378 5,203,001 3,157,632
Costs incurred for proxy contest - 624,627 - 624,627
Settlement costs - 750,000 - 750,000
------------- -------------- --------------- --------------
Total operating expenses 7,829,435 6,983,551 15,341,409 14,880,210
------------- -------------- --------------- --------------
Loss from operations (3,551,495) (5,691,419) (10,332,309) (5,079,445)
GAIN FROM SALE OF SUBSIDIARY (NOTE 1) - 47,090,876 - 47,090,876
SWISS FRANC REDEMPTION (NOTE 8) - (6,167,369) - (6,167,369)
INTEREST INCOME 1,065 401,937 29,544 407,634
INTEREST EXPENSE (409,088) (192,969) (829,335) (363,916)
OTHER INCOME (EXPENSE), NET (8,935) 257,291 324,965 279,637
------------- -------------- --------------- --------------
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES (3,968,453) 35,698,347 (10,807,135) 36,167,417
PROVISION FOR INCOME TAXES - 2,500,000 - 2,500,000
------------- -------------- --------------- --------------
(LOSS) INCOME FROM CONTINUING
OPERATIONS (3,968,453) 33,198,347 (10,807,135) 33,667,417
LOSS FROM DISCONTINUED OPERATIONS (NOTE 10)
Loss from operations (1,090,885) (435,000) (1,090,885) (435,000)
Loss on disposal (1,533,295) - (1,533,295) -
------------- -------------- --------------- --------------
NET LOSS FROM DISCONTINUED OPERATIONS (2,624,180) (435,000) (2,624,180) (435,000)
============= ============== =============== ==============
NET (LOSS) INCOME $(6,592,633) $32,763,347 $(13,431,315) $33,232,417
============= ============== =============== ==============
BASIC NET (LOSS) INCOME PER SHARE:
Continuing operations $ (0.48) $ 3.22 $ (1.45) $ 3.27
Discontinued operations (0.29) (0.04) (0.32) (0.04)
------------- -------------- --------------- --------------
TOTAL BASIC NET (LOSS) INCOME PER
SHARE $ (0.77) $ 3.18 $ (1.77) $ 3.23
BASIC WEIGHTED AVERAGE NUMBER OF SHARES 9,047,185 10,284,035 8,234,764 10,239,338
============= ============== =============== ==============
DILUTED NET (LOSS) INCOME PER SHARE:
Continuing operations $ (0.48) $ 3.02 $ (1.45) $ 3.03
Discontinued operations $ (0.29) (0.04) (0.32) (0.04)
------------- -------------- --------------- --------------
TOTAL DILUTED NET (LOSS) INCOME PER
SHARE $ (0.77) $ 2.98 $ (1.77) $ 2.99
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES 9,047,185 11,033,819 8,234,764 11,183,627
============= ============== =============== ==============
-2-
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(UNAUDITED)
Preferred Stock Common Stock Treasury Stock
---------------------------------------------------------------------------
Number $0.01 Number $0.01 Number
of Par Value of Shares Par Value of Shares Cost
Shares
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 6,993 $69 10,074,864 $100,747 (49,285) ($1,638,859)
Issuance of common stock for 1998 employer 401(k)
matching contribution - - 32,561 326 - -
Conversion of preferred stock (340) (3) 74,905 749 - -
Conversion of convertible debentures - - 377,760 3,778 - -
Redemption of preferred stock (653) (6) - - - -
Redemption of common stock related to
Swiss Franc convertible debentures - - (130,576) (575,348)
Purchase of treasury stock - - (250,700) (1,102,084)
Issuance of common stock for Employee Stock
Purchase Plan - - 4,584 46 - -
Issuance of escrow shares to treasury - 464,285 4,642 (464,285) (4,642)
Costs incurred related to the issuance of common
stock - - - - - -
Unrealized loss on available-for-sale investments - - - - -
Preferred stock dividends - - - - - -
Net income - - - - - -
===========================================================================
BALANCE, JUNE 30, 1999 6,000 $60 11,028,959 $110,288 (894,846) ($3,320,933)
===========================================================================
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------
Additional Unrealized Loss Total
Paid-in Accumulated on Stockholders'
Capital Deficit Available-for-Sale (Deficit)
Investments Equity
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $161,337,926 $ ($166,263,346) $ - $ (6,463,463)
Issuance of common stock for 1998 employer 401(k)
matching contribution 206,333 - - 206,659
Conversion of preferred stock 62,665 - - 63,411
Conversion of convertible debentures 1,802,296 - - 1,806,074
Redemption of preferred stock (781,381) - - (781,387)
Redemption of common stock related to
Swiss Franc convertible debentures - - - (575,348)
Purchase of treasury stock - - - (1,102,084)
Issuance of common stock for Employee Stock
Purchase Plan 18,041 - - 18,087
Issuance of escrow shares to treasury - - - -
Costs incurred related to the issuance of common
stock (198,500) - - (198,500)
Unrealized loss on available-for-sale investments - - (53,964) (53,964)
Preferred stock dividends - (177,452) - (177,452)
Net income - 33,232,417 - 33,232,417
===========================================================================
BALANCE, JUNE 30, 1999 $162,447,380 $ ($133,208,381) ($53,964) $25,974,450
===========================================================================
</TABLE>
3
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Six Months Ended June 30,
1998 1999
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income $(13,431,315) 33,232,417
Less: Net Loss from discontinued operations (2,624,180) (435,000)
------------------- -------------------
Net (Loss) Income from continuing operations (10,807,135) 33,667,417
------------------- -------------------
Adjustments to reconcile net (loss) income from continuing operations
to net cash used in operating activities-
Depreciation and amortization 1,372,120 873,603
Non-cash interest expense related to debt 171,000 -
Unrealized gain on marketable securities (332,965) -
Gain from sale of subsidiary - (47,090,876)
Redemption of common stock held by Swiss Franc debenture holders - 6,167,369
Changes in assets and liabilities, net of effects from sale of
subsidiary
Net sale of marketable trading securities 1,840,395 -
Accounts receivable (3,033,274) 2,367,166
Inventories 1,785,358 (1,067,763)
Other current assets 604,470 (2,456,403)
Accounts payable (649,765) (4,119,523)
Accrued expenses 400,354 1,589,202
Other current liabilities - 3,239,556
- (799,714)
------------------- -------------------
Net cash used in operating activities (8,649,442) (7,629,966)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (233,069) (249,691)
Purchases of available-for-sale investments - (17,850,248)
Proceeds from the sale of subsidiary, net of cash on hand $288,000 - 49,448,023
Increase in other assets (470,252) 10,925
Increase in notes receivable (86,818) -
------------------- -------------------
Net cash used in investing activities (790,139) 31,359,009
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of convertible debentures (2,196,667) -
Net proceeds from the issuance of notes payable and advances from 3,394,070 750,000
distributor
Proceeds from issuance of common stock 6,874,482 -
Proceeds from exercise of warrants, stock options and Employee Stock
Purchase Plan - 18,087
Costs incurred related to issuance of common stock (100,000) (198,500)
Payments on line of credit - (1,000,000)
Payment on Swiss Franc convertible debentures - (1,365,931)
Purchase of treasury stock - (1,102,084)
Payment on note payable - (2,290,041)
Redemption of preferred stock (3,791,889) (781,387)
------------------- -------------------
Net cash provided by financing activities 4,179,996 (5,969,856)
------------------- -------------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (5,259,585) 17,759,187
NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS 3,462,141 (2,115,171)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 3,003,300 1,874,718
=================== ===================
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $1,205,856 $17,518,734
=================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $1,022,863 $264,934
=================== ===================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Conversion of convertible debentures and related accrued
interest, net of financing fees $6,076,994 $1,806,074
=================== ===================
Conversion of preferred stock $480,659 $63,411
=================== ===================
Issuance of common stock for 1997 and 1998 employer 401(k)
matching contribution $254,282 $206,659
=================== ===================
Unrealized loss on available-for-sale investments $ - $53,964
=================== ===================
</TABLE>
4
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The results of operations for the interim periods shown in
this report are not necessarily indicative of expected results for any future
interim period or for the entire fiscal year. Palomar Medical Technologies, Inc.
and its subsidiaries (the "Company" or "Palomar") believes that the quarterly
information presented includes all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation in accordance with generally
accepted accounting principles. The accompanying financial statements and notes
should be read in conjunction with the Company's Form 10-K as amended, as of and
for the year ended December 31, 1998.
On December 7, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Coherent, Inc. ("Coherent") to sell all of
the issued and outstanding common stock of Palomar's Star Medical Technologies,
Inc. subsidiary ("Star"). This sale was approved by a majority of the
stockholders of Palomar on April 21, 1999 and on April 27, 1999, the Company
completed the sale of Star to Coherent. The total purchase price for all of the
issued and outstanding capital stock of Star was $65 million, paid in cash. The
purchase price was paid to the shareholders of Star in proportion to their
holdings of Star capital stock. On the date of sale, Palomar owned 82.46% of
Star. Palomar received net proceeds of $49,736,023, of which $3,254,908 is being
held in escrow for one year as security for any claims which Coherent may have
under the Agreement, resulting in a gain of $47,090,876. In addition, under the
terms of the Agreement the Company will receive an ongoing royalty of 7.5% from
Coherent on the sale of any products by Coherent that incorporate certain
patented technology or use certain patented methods currently licensed by the
Company on an exclusive basis from Massachusetts General Hospital.
On April 21, 1999, a majority of the Company's stockholders' approved
an amendment to the Company's Certificate of Incorporation to effect a plan of
recapitalization that resulted in a one-for-seven reverse split of the Company's
common stock and that reduced the Company's authorized capital stock to
45,000,000 shares of common stock and 1,500,000 shares of preferred stock. All
share and per share amounts of common stock for all periods presented have been
retroactively adjusted to reflect the reverse stock split.
2. CASH AND CASH EQUIVALENTS
Cash equivalents consists principally of corporate notes, U.S.
government-agency securities, commercial paper, money market funds, and other
marketable securities purchased with an original maturity of three months or
less. These investments are carried at cost, which approximates market value.
3. MARKETABLE SECURITIES
The Company's marketable equity securities with maturities greater than
90 days are considered available-for-sale investments in the accompanying
balance sheet and are carried at market value, with the difference between cost
and market value, net of related tax effects, recorded as a separate component
of shareholders' (deficit) equity. The aggregate market value, cost basis, and
gross unrealized losses of available-for-sale investments are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Market Cost Gross
Value Basis Unrealized Loss
----------- ----------- ---------------
Available-for-sale securities:
Corporate and municipal debt securities $17,796,284 $17,850,248 $53,964
=========== =========== ===============
</TABLE>
5
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Available-for-sale investments in the accompanying balance sheet at
June 30, 1999 include debt securities of $9,708,572 with contractual maturities
of one year or less, $8,141,676 million with contractual maturities of more than
one year through five years. Actual maturities may differ from contractual
maturities as a result of the Company's intent to sell these securities prior to
maturity and as a result of call features of the securities that enable either
the Company, the issuer, or both to redeem these securities at an earlier date.
Unrealized holding losses totaling $53,964 on such debt securities, were
deducted from stockholders' (deficit) equity during six months ended June 30,
1999.
4. INVENTORIES
Inventories are stated at lower of cost (first-in, first-out) or
market. Work in process and finished goods inventories include material, labor
and manufacturing overhead and consist of the following:
<TABLE>
<S> <C> <C> <C>
December 31, June 30,
1998 1999
------------------ ----------------
Raw materials $2,478,289 $1,520,703
Work-in-process 1,330,822 1,341,205
Finished goods 1,607,231 1,116,197
---------------- ----------------
================ ================
$5,416,342 $3,978,105
================ ================
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C> <C> <C>
December 31, June 30,
1998 1999
------------------ ----------------
Machinery and equipment $6,022,320 $4,728,081
Furniture and fixtures 1,120,450 941,790
Leasehold improvements 567,216 0
------------------ ----------------
7,709,986 5,669,871
Less: Accumulated depreciation
and amortization 4,395,899 4,210,114
------------------ ----------------
$3,314,087 $1,459,757
================= ================
</TABLE>
6
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. NET INCOME LOSS PER COMMON SHARE
Basic net income (loss) per share was determined by dividing net income
(loss) by the weighted average common shares outstanding during the period.
Diluted net income (loss) per share was determined by dividing net income by
diluted weighted average shares outstanding. Diluted weighted average shares
reflect the dilutive effect, if any, of common stock options based on the
treasury stock method and the assumed conversion of all debt obligations and
convertible preferred stock and the elimination of related interest expense and
preferred stock dividends. The calculations of basic and diluted weighted
average shares outstanding are as follows:
<TABLE>
<S><C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1998 1999 1998 1999
------------- -------------- ------------- -------------
Basic weighted average common
shares outstanding 9,047,185 10,284,035 8,234,764 10,239,338
Potential common shares pursuant to:
Stock options and warrants - 110,086 - 83,514
Convertible preferred stock - 415,529 - 468,288
Convertible debentures - 224,169 - 392,487
----------------------------------------- --------------
Diluted weighted average common
shares outstanding 9,047,185 11,033,819 8,234,764 11,183,627
========================================= ==============
</TABLE>
The Company's net income (loss) per share from continuing operations
for the three and six months ended June 30, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S><C> <C> <C> <C> <C> <C> <C>
--------------------------------------- ---------------------------------------
1998 1999 1998 1999
------------------ ------------------ ------------------ -------------------
Net (loss) income from $(3,968,453) $33,198,347 $(10,807,135) $33,667,417
continuing operations
Preferred stock dividends (401,614) (80,226) (1,146,435) (177,452)
------------------ ------------------ ------------------ -------------------
Adjusted net (loss) income $(4,370,067) $33,118,121 $(11,953,570) $33,489,965
================== ================== ================== ===================
Basic net (loss) income per common share
from continuing operations $(0.48) $3.22 $(1.45) $3.27
================== ================== ================== ===================
Basic weighted average number of shares
outstanding 9,047,185 10,284,035 8,234,764 10,239,338
================== ================== ================== ===================
</TABLE>
As of June 30, 1998 and 1999, 3,928,083 and 3,010,354 weighted average
common equivalent shares, respectively, were not included in the diluted
weighted average shares outstanding as they were antidilutive.
7
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMPREHENSIVE (LOSS) INCOME
The Company adopted SFAS 130, Reporting Comprehensive Income, effective
January 1, 1998. SFAS 130 established standards for reporting and display of
comprehensive (loss) income and its components in the financial statements. The
Company's only item of other comprehensive income relates to unrealized losses
on its available-for-sale investments and is presented separately on the balance
sheet as required. A reconciliation of comprehensive (loss) income is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
--------------------------------------- ---------------------------------------
1998 1999 1998 1999
------------------ ------------------ ------------------ -------------------
------------------ ------------------ ------------------ -------------------
Net (loss) income from continuing $(3,968,453) $33,198,347 $(10,807,135) $33,667,417
operations
Unrealized loss on available-for-sale
investments --- (53,964) --- (53,964)
------------------ ------------------ ------------------ -------------------
Comprehensive (loss) income from
continuing operations $(3,968,453) $33,144,383 $(10,807,135) $33,613,453
================== ================== ================== ===================
</TABLE>
8. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<S> <C> <C>
December 31, June 30,
1998 1999
----------------- -----------------
Dollar denominated convertible debentures $2,150,000 $500,000
Swiss Franc denominated convertible debentures - 5,319,149
Note payable issued in connection with guaranty on behalf of
discontinued subsidiary 2,290,041 -
Revolving line of credit with a bank 1,000,000 -
Short-term notes payable to Coherent 4,000,000 -
----------------- -----------------
9,440,041 5,819,149
Less - current maturities 6,290,041 2,974,907
----------------- -----------------
$3,150,000 $2,844,242
================= =================
</TABLE>
(A) DOLLAR DENOMINATED CONVERTIBLE DEBENTURES
During the first six months of 1999, the Company converted $1,650,000 of
its 6%, 7% and 8% convertible debentures due March 31, 2002, including $176,483
of accrued interest, into 377,760 shares of the Company's common stock.
8
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) SWISS FRANC DENOMINATED CONVERTIBLE DEBENTURES
During the three months ended June 30, 1999, the Company recorded a
redemption expense of $6,167,369 million as a result of a compromise agreement
between Palomar and certain European banks that had held 4.5% Swiss Franc
subordinated convertible debentures originally totaling approximately $8.2
million due in 2003. Under the terms of this April 21, 1999 agreement, which
resolved a lawsuit, Palomar agreed to rescind its conversion notices issued in
November 1997. Through these conversion notices, Palomar converted the
subordinated debentures into 130,576 shares of the Company's common stock. Since
the conversion date, the Company had treated these shares as issued and
outstanding. Under the terms of the agreement the Company agreed to pay a total
of approximately $6,741,867 to the European banks, of which $1,365,931 has been
paid as of June 30, 1999 and an additional $2,974,659 was paid during July 1999.
The remaining amounts due under this obligation are due in 2001. Accordingly,
the Company has recorded a charge to operations of $6,167,369. This amount
represents the total amount due to the European banks less the fair market value
of the redemption of the common shares previously considered outstanding by the
Company.
(C) NOTE PAYABLE ISSUED IN CONNECTION WITH GUARANTY ON BEHALF OF
DISCONTINUED SUBSIDIARY
In connection with the divestiture of one of its discontinued
operations, the Company entered into a Loan and Subscription Agreement with a
bank for $3,233,000. This promissory note represents the settlement of amounts
owed to the bank by Palomar's former Comtel, Inc. subsidiary and by Palomar in
connection with a guarantee from Palomar in favor of the bank. Principal and
interest payments were being made over 24 months, beginning December 31, 1997,
with interest accruing at the bank's prime rate plus 2.25%. This promissory note
was collateralized by 464,286 shares of the Company's common stock, which was
held in escrow. On May 3, 1999, the Company paid off the balance of this note
(totaling $2,020,625), and the shares of the Company's common stock were
released from escrow and returned to the Company. The Company has accounted for
the return of the shares as an increase to its treasury stock.
(D) REVOLVING LINE OF CREDIT
The Company had a $10,000,000 revolving line of credit with a bank.
This line of credit was to mature on March 31, 2000 and bore interest at the
bank's prime rate. Borrowings under this line of credit were secured by
substantially all assets of the Company and were limited to 80% of qualified
accounts receivable. A director of Palomar personally guaranteed all borrowings
under this line of credit. The Company repaid all amounts outstanding under this
line of credit on April 27, 1999, and cancelled this line of credit.
(E) SHORT-TERM NOTES PAYABLE
Through March 31, 1999, the Company's Star subsidiary borrowed a total
of $4,750,000 from Coherent in the form of notes payable. These notes accrued
interest at 8.5% per annum and were collateralized by Star's inventory. Coherent
assumed this debt in connection with its purchase of all of the issued and
outstanding common stock of Star on April 27, 1999. See Note 1.
9
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCKHOLDERS' (DEFICIT) EQUITY
(A) CONVERTIBLE PREFERRED STOCK
During the first quarter of 1999, the Company converted 340 shares of
Series G Preferred Stock and accrued dividends and interest of $63,411 into
74,905 shares of the Company's common stock.
During the second quarter of 1999, the Company redeemed 403 shares of
Series G Preferred Stock and 250 shares of Series H Preferred Stock for $902,396
including related accrued dividends and interest of $121,009.
(B) OPTIONS TO PURCHASE COMMON STOCK
During the six months ended June 30, 1999, the Company granted options
to purchase 929,327 shares of the Company's common stock at exercise prices
ranging from $3.1875 to $10.50 per share. No options were exercised during the
six months ended June 30, 1999. During the six months ended June 30, 1999
options to purchase 37,238 shares of the Company's common stock at exercise
prices ranging from $3.1875 to $10.50 per share expired.
(C) WARRANTS TO PURCHASE COMMON STOCK
During the six months ended June 30, 1999, the Company granted warrants
to purchase 113,000 shares of the Company's common stock at an exercise price of
$3.1875 per share. No warrants were exercised during the six months ended June
30, 1999. During the six months ended June 30, 1999, warrants to purchase 88,899
shares of the Company's common stock at exercise prices ranging from $14.00 to
$72.625 per share expired.
(D) RESERVED SHARES
As of June 30, 1999, the Company had reserved shares of its common
stock for the following:
<TABLE>
<S> <C> <C>
June 30, 1999
----------------------
Convertible debentures 188,635
Stock option plans 4,686,828
Warrants 2,821,119
Employee 401(k) plan 46,697
Employee Stock Purchase Plan 126,764
Convertible preferred stock 85,714
======================
Total 7,955,757
======================
</TABLE>
Substantially all of the reserved shares reflected above are
exercisable at prices in excess of the current market price of the Company's
common stock.
10
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. DISCONTINUED OPERATIONS
On December 31, 1997 the Company entered into an Exchange Agreement and
sold 500,000 shares of the common stock of Nexar Technologies, Inc. ("Nexar") to
GFL Advantage Fund Limited ("GFL") for $2,000,000. Under the terms of the
Exchange Agreement, Palomar guaranteed GFL a minimum selling price of $5.00 a
share with respect to 400,000 shares of the Nexar common stock over a two year
time period. The Company therefore would have been obligated to pay GFL on
January 1, 2000 the difference between $5.00 and the price at which GFL sold the
shares of Nexar common stock. As of March 31, 1999, the deferred liability
related to this transaction totaled $1,680,171 and represented the total amount
due to GFL after GFL sold all of its 400,000 shares of Nexar common stock. The
Company paid this obligation on May 3, 1999.
During the second quarter of 1998, the Company sold all of the issued
and outstanding common stock of its subsidiary, Dynaco Corp. ("Dynaco"). The
Company recognized a loss from discontinued operations of approximately
$1,091,000 related to operations of Dynaco through disposition that was
previously not accrued. During the second quarter of 1998, the Company recorded
a charge to discontinued operations of $1,525,000 due to management's decision
to write down the carrying value of its investment in Nexar.
During the second quarter of 1999, the Company paid and settled a
lawsuit related to the operations of Dynaco for $435,000.
Summarized financial information for the discontinued operations is as
follows:
<TABLE>
<S> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1999 1998 1999
------------------------------- -----------------------------
Revenues $2,125,580 $-- $5,745,750 $--
Net loss from discontinued operations $(2,624,180) $(435,000) $(2,624,180) $(435,000)
</TABLE>
11. COMMITMENTS
On June 17, 1999, the Company entered into a 10 year lease agreement
for its operating facilities. Under the terms of this lease the annual
commitment is approximately $890,000 for the first five years of the agreement
and $980,000 for the second five years of the agreement.
In July 1999, the Company entered into an amendment to extend its
exclusive research agreement with Massachusetts General Hospital for another
five years. In addition to laser hair removal, the agreement has been expanded
to include research and development in the use of laser to remove fat and treat
acne. Under the terms of this agreement, the Company is obligated to pay MGH
$475,000 for clinical research on an annual basis during the term of this
extension.
11
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(A) OVERVIEW
On December 7, 1998, the Company entered into an Agreement and Plan of
Reorganization with Coherent to sell all of the issued and outstanding common
stock of Star. The total purchase price for all of the issued and outstanding
capital stock of Star was $65 million, paid in cash. The purchase price was paid
to the shareholders of Star in proportion to their holdings of Star capital
stock. This sale was approved by a majority of the stockholders of Palomar on
April 21, 1999, and on April 27, 1999, Palomar completed the sale of Star to
Coherent. On the date of the sale, Palomar owned 82.46% of Star. Palomar
received net proceeds of $49,736,023 of which $3,254,908 is being held in escrow
for one year as security for any claims which Coherent may have under the
Agreement. In addition, under the terms of the Agreement, the Company will
receive an ongoing royalty of 7.5% from Coherent on the sale of any products by
Coherent that incorporate certain patented technology or use certain patented
methods currently licensed by the Company on an exclusive basis from
Massachusetts General Hospital.
As a result of the consummation of the transaction discussed above, the
Company revenues will decline significantly in the near term because Palomar
will no longer be selling the LightSheer(TM) diode laser manufactured by Star.
For the six months ended June 30, 1999 and 1998 gross revenues associated with
Star's LightSheer(TM) diode laser comprised 77.0% and 55.9% of the Company's
total revenues, respectively. Accordingly, the Company expects to incur net
losses from operations over the next few quarters. The successful introduction
and marketing of new products will be critical to the Company's long-term
success, since a significant portion of the Company's revenue base previously
generated from Star's LightSheer(TM) laser will need to be replaced with
revenues from other laser products, including the Palomar E2000TM hair removal
laser introduced in March of 1999 and other products currently in development.
There can be no assurance that the Palomar E2000TM or the Company's future
products will achieve market acceptance or generate sufficient margins. Broad
market acceptance of laser hair removal is also critical to the Company's
success. The Company recognizes the need and intends to broaden its product line
by developing cosmetic laser products other than hair removal lasers.
(B) RESULTS OF OPERATIONS.
(i) REVENUES AND GROSS PROFIT: THREE MONTHS ENDED JUNE 30, 1999,
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1998
For the three months ended June 30, 1999, the Company's revenues
decreased to $5.5 million, as compared to $9.1 million for the three months
ended June 30, 1998. The decrease in the Company's revenues of $3.6 million, or
39% from the three months ended June 30, 1998, was mainly due to the reduction
in sales volume of $4.8 million associated with the LightSheer(TM) diode laser
manufactured by Star. The Company sold Star to Coherent on April 27, 1999 as
discussed above. This decrease was offset by an increase of $1.2 million in
other cosmetic revenues and royalties received by the Company from Coherent. The
Company anticipates that sales volumes from its E2000 TM laser system introduced
during the first quarter of 1999 will not increase substantially until the
Company manufactures this unit in high volume, overcomes product introduction
issues, and achieves further manufacturing efficiencies.
Gross profit for the three months ended June 30, 1999 was approximately
$1.3 million (23% of revenues) compared to $4.3 million (47% of revenues) for
the three months ended June 30, 1998. The decrease in gross profit and gross
profit percentage was mainly due to the reduction in sales volume associated
with the LightSheer(TM) diode laser manufactured by Star and sold to Coherent on
April 27, 1999. The decrease in gross profit dollars was partially offset by the
gross margin related to the sales of the Palomar E2000TM hair removal laser
system and royalties earned from Coherent. The Company anticipates that its
gross profit percentage from sales of the Palomar E2000TM will be significantly
less than the gross profit from its former LightSheer(TM) product, unless and
until the Company achieves volume production and manufacturing efficiencies, and
overcomes product introduction issues related to the Palomar E2000 TM.
12
<PAGE>
(ii) OPERATING AND OTHER EXPENSES: THREE MONTHS ENDED JUNE 30,
1999, COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Research and development costs increased to $2.5 million for the three
months ended June 30, 1999, from $1.9 million for the three months ended June
30, 1998. Research and development expenses as a percentage of revenue totaled
45% for the three months ended June 30, 1999 and 21% for the three months ended
June 30, 1998. The increase as a percentage of sales is directly attributable to
the reduction in sales volume associated with the LightSheer(TM) diode laser
manufactured by Star while the Company continued to increase the overall
spending on research and development. The continued spending on research and
development reflects the Company's commitment to research and development for
devices and delivery systems for cosmetic and medical applications using a
variety of lasers, while continuing dermatology research utilizing the Company's
ruby and diode lasers. Among the Company's research and development goals in
hair removal is to design systems permitting more rapid treatment of large
areas, and to produce systems with high gross margins. Management believes that
research and development expenditures will remain constant over the next year as
the Company continues product development and clinical trials for additional
applications for its lasers and delivery systems in the cosmetic and
dermatological markets. The Company has recently entered into an amendment to
its existing Clinical Trial Agreement with Massachusetts General Hospital,
pursuant to which it will fund a minimum of $475,000 per year for research in
the fields of photo thermal removal/reduction of hair, non-invasive
electromagnetic targeting of subcutaneous fat, and treating sebaceous glands and
related skin disorders (e.g., acne) using infrared light (except when externally
applied chromophores are used), and obtain exclusive license rights in these
fields, over the next five years.
Selling and marketing expenses decreased to $1.6 million (29% of
revenues) for the three months ended June 30, 1999, from approximately $3.5
million (39% of revenues) for the three months ended June 30, 1998. The decrease
in selling and marketing expenses is directly attributable to the reduction in
sales volumes due to the sale of Star to Coherent and related commissions paid
to Coherent as the former exclusive distributor for the LightSheer(TM) diode
laser manufactured by Star.
General and administrative expenses decreased to $1.5 million (27% of
revenues) for the three months ended June 30, 1999, as compared to $2.4 million
(26% of revenues) for the three months ended June 30, 1998. This decrease for
the three months ended June 30, 1999 is attributable to the Company's
restructuring and consolidation of administrative functions related to the
Company's Esthetica Partners, Inc. (formerly Cosmetic Technology International,
Inc.) and Palomar Medical Products, Inc. subsidiaries and general corporate
costs that resulted in respective reductions of approximately $300,000, $150,000
and $475,000 compared to the three months ended June 30, 1998 offset by an
additional $25,000 incurred for general and administrative expenses at the
Company's Star subsidiary. The Company anticipates general and administrative
expense will decrease slightly in the future as a result of the Star sale,
although it expects such expenses to increase as a percentage of revenues as
revenues decline in the near term as the result of the Star sale.
Costs related to solicitation of proxies in connection with the
Company's 1999 Annual Meeting of Stockholders were $625,000 for the three months
ended June 30,1999 due to a proxy contest launched by a dissident shareholder.
Settlement costs were $750,000 for the three months ended June 30, 1999
and are attributable to various lawsuits and other claims made against the
Company.
Gain from the sale of a subsidiary was $47.1 million for the three
months ended June 30, 1999. This amount represents the gain from the sale of
Star to Coherent, which was completed on April 27, 1999.
Redemption expense was $6.2 million for the three months ended June 30,
1999. This amount reflects a redemption expense of $6.2 million as a result of a
settlement agreement between Palomar and certain European banks that had held
4.5% Swiss Franc denominated subordinated convertible debentures originally
totaling $8.2 million, due in 2003. Under the terms of this agreement, which
resolved a lawsuit, Palomar agreed to rescind its conversion notices issued in
November 1997. Through these conversion notices, Palomar converted the
subordinated debentures into 130,576 shares of the Company's common stock. Since
the conversion date, the Company had treated these shares as issued and
outstanding. Under the terms of this compromise, the Company agreed to pay a
total of approximately $6.7 million to the European banks, of which $1.4 million
was paid as of June
13
<PAGE>
30, 1999 and an additional $3 million was paid during July 1999. The balance of
$2.3 million is due 2001. Accordingly the Company has recorded a charge to
operations of approximately $6.2 million. This amount represents the total
amount due to the European banks less the fair market value of the redemption of
the common shares previously considered outstanding by the Company.
Interest expense decreased to $193,000 for the three months ended June
30, 1999, from $409,000 for the three months ended June 30, 1998. This 53%
decrease is primarily the result of a decrease in convertible debenture
financings and the Company's increased use of conventional financing. Also,
operations did not require as much financing in 1999 as compared to 1998. As a
result of the sale of Star, which generated $49.7 million in cash, the Company
anticipates that interest expense will decline significantly because it utilized
a portion of these proceeds to pay down substantially all of its outstanding
debt during the second quarter of 1999.
Interest income increased to approximately $402,000 for the three
months ended June 30, 1999. This amount represents interest earned on the
balance of the funds received from the sale of Star which are invested in
high-grade corporate and government notes and bonds and will be used to fund
future operations and research and development efforts.
Other income (expense) increased to approximately $257,000 for the
three months ended June 30, 1999. This amount compares to approximately $(9,000)
for the three months ended June 30, 1998. Other income for the three months
ended June 30, 1999 consisted of $134,000 of a foreign currency gain related to
the Swiss Franc denominated convertible debentures and other non-operating
income of $123,000.
The loss from discontinued operations for the three months ended June
30, 1999 was $435,000, compared to a loss of $2.6 million for the three months
ended June 30, 1998. The $435,000 loss from discontinued operations incurred
during 1999 was related to a settlement related to the operations of Dynaco.
(iii) REVENUES AND GROSS PROFIT: SIX MONTHS ENDED JUNE 30, 1999,
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
For the six months ended June 30, 1999, the Company's revenues
increased to $19.0 million, as compared to $16.2 million for the six months
ended June 30, 1998. The increase in the Company's revenues of $2.8 million, or
18% from the six months ended June 30, 1998, was mainly due to additional sales
volume of $5.5 million associated with the introduction of the LightSheer(TM)
diode laser, partially offset by a decrease in revenue of approximately $2.7
million in other cosmetic laser product revenue. The Company obtained FDA
clearance to market and sell its LightSheer(TM) laser for hair removal and leg
vein treatment in the United States at the end of 1997. The decrease in sales
volume associated with other cosmetic laser product revenue was principally due
to declining sales of the Company's EpiLaser(R) ruby laser. Palomar introduced
its second generation long pulse ruby laser for hair removal, the Palomar
E2000TM, during the first quarter of 1999. In March of 1999, the Company
obtained FDA clearance to market and sell its Palomar E2000TM laser system in
the United States for "permanent hair reduction." The Company generated revenues
of approximately $1.5 million on the Palomar E2000TM during the first six months
of 1999.
Gross profit for the six months ended June 30, 1999 was approximately
$9.8 million (52% of revenues) compared to $5.0 million (31% of revenues) for
the six months ended June 30, 1998. The increase in gross profit and gross
profit percentage was due to sales of the LightSheer(TM) diode laser system.
This laser system provided a significantly higher gross profit than the
Company's EpiLaser(R) hair removal system and other cosmetic products. The
Company anticipates that its gross profit percentage from sales of the Palomar
E2000TM will be significantly less than the gross profit from its former
LightSheer(TM) product, unless and until the Palomar E2000TM achieves volume
production and further manufacturing efficiencies, and overcomes product
introduction issues.
14
<PAGE>
(iv) OPERATING AND OTHER EXPENSES: SIX MONTHS ENDED JUNE 30, 1999,
COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Research and development costs increased to $4.6 million for the six
months ended June 30, 1999, from $4.1 million for the six months ended June 30,
1998. Research and development expenses as a percentage of revenue totaled 24%
for the six months ended June 30, 1999 and 25% for the six months ended June 30,
1998. The continued spending on research and development reflects the Company's
commitment to research and development for devices and delivery systems for
cosmetic and medical applications using a variety of lasers, while continuing
dermatology research utilizing the Company's ruby and diode lasers. Among the
Company's research and development goals in hair removal is to design systems
permitting more rapid treatment of large areas, and to produce systems with high
gross margins. Management believes that research and development expenditures
will remain constant over the next year as the Company continues product
development and clinical trials for additional applications for its lasers and
delivery systems in the cosmetic and dermatological markets. The Company has
recently entered into an amendment to its existing Clinical Trial Agreement with
Massachusetts General Hospital, pursuant to which it will fund a minimum of
$475,000 per year for research in the fields of photo thermal removal or
reduction of hair, non-invasive electromagnetic targeting of subcutaneous fat,
and treating sebaceous glands and related skin disorders (e.g., acne) using
infrared light (except when externally applied chromophores are used), and
obtain exclusive license rights in these fields over the next five years.
However, research and development as a percentage of revenues will increase
until the Company achieves higher sales volume from its recently introduced
Palomar E2000TM laser system.
Selling and marketing expenses decreased to $5.7 million (30% of
revenues) for the six months ended June 30, 1999, from approximately $6.0
million (37% of revenues) for the six months ended June 30, 1998. The decrease
in selling and marketing expenses as a percentage of revenues is a result of the
Company's introduction of its Palomar E2000(TM) laser system during the first
quarter of 1999, which is being sold through new distribution channels. These
new distribution channels include direct sales by the Company and distribution
though Continuum Biomedical, a distributor of medical products, and the
associated selling and marketing expenses have to date been less than the
commission earned by Coherent, the Company's previous distributor. The Company
also will consider establishing its own direct sales force to compliment these
sales channels. The Company anticipates that, in comparison to the commission
previously paid to Coherent as a percentage of net revenues, its future selling
and marketing costs as a percentage of net revenues will decrease. The Company
will also consider selling entire product lines and/or technology to others, as
in the case of the sale of Star to Coherent.
General and administrative expenses decreased to $3.2 million (17% of
revenues) for the six months ended June 30, 1999, as compared to $5.2 million
(32% of revenues) for the six months ended June 30, 1998. This decrease for the
six months ended June 30, 1999 is attributable to the Company's restructuring
and consolidation of administrative functions related to the Company's Esthetica
Partners, Inc. (formerly Cosmetic Technology International, Inc.) and Palomar
Medical Products, Inc. subsidiaries and general corporate costs that resulted in
respective reductions of approximately $730,000, $450,000 and $2,300,000
compared to the three months ended June 30, 1998. An additional $1,480,000 was
incurred for general and administrative expenses at the Company's Star
subsidiary. The Company anticipates general and administrative expense will
decrease slightly in the future as a result of the Star sale, although it
expects such expenses to increase as a percentage of revenues as sales decline
in the near term as the result of the Star sale.
Cost related to solicitation of proxies in connection with the
Company's 1999 Annual Meeting of Stockholders were $625,000 for the six months
ended June 30,1999 due to a proxy contest launched by a dissident shareholder.
Settlement costs were $750,000 for the six months ended June 30, 1999
and are attributable to various lawsuits and other claims against the Company.
Gain from the sale of a subsidiary was $47.1 million for the six months
ended June 30, 1999 due to the Company completing the sale of Star on April 27,
1999.
Redemption expense was $6.2 million for the six months ended June 30,
1999. This amount reflects a redemption expense of $6.2 million as a result of a
settlement agreement between Palomar and certain European
15
<PAGE>
banks that had held 4.5% Swiss Franc denominated subordinated convertible
debentures originally totaling $8.2 million, due in 2003. Under the terms of
this agreement, which resolved a lawsuit, Palomar agreed to rescind its
conversion notices issued in November 1997. Through these conversion notices,
Palomar converted the subordinated debentures into 130,576 shares of the
Company's common stock. Since the conversion date, the Company had treated these
shares as issued and outstanding. Under the terms of this compromise, the
Company agreed to pay a total of approximately $6.7 million to the European
banks, of which $1.4 million has been paid as of June 30, 1999 and an additional
$3 million was paid during July 1999. The balance of $2.3 million is due 2001.
Accordingly the Company has recorded a charge to operations of approximately
$6.2 million. This amount represents the total amount due to the European banks
less the fair market value of the redemption of the common shares previously
considered outstanding by the Company.
Interest expense decreased to $364,000 for the six months ended June
30, 1999, from $829,000 for the six months ended June 30, 1998. This 56%
decrease is primarily the result of a decrease in convertible debenture
financings and the Company's increased use of conventional financing. Also,
operations did not require as much financing in 1999 as compared to 1998. As a
result of the sale of Star, which generated $49.7 million in cash, the Company
anticipates that interest expense will decline significantly because it utilized
a portion of these proceeds to pay down substantially all of its outstanding
debt during the second quarter of 1999.
Interest income increased to approximately $407,000 for the six months
ended June 30, 1999. This amount represents interest earned on the balance of
the funds received from the sale of Star which are invested in high-grade
corporate and government notes and bonds and will be used to fund future
operations and research and development efforts.
Other income decreased to $280,000 for the six months ended June 30,
1999. This amount compares to $325,000 for the six months ended June 30, 1998.
The loss from discontinued operations for the six months ended June 30,
1999 was $435,000, compared to a loss of $2.6 million for the six months ended
June 30, 1998. The $435,000 loss from discontinued operations incurred during
1999 was related to a settlement related to the operations of Dynaco.
(C) LIQUIDITY AND CAPITAL RESOURCES
On December 7, 1998, the Company entered into an Agreement and Plan of
Reorganization with Coherent to sell all of the issued and outstanding common
stock of Star. The total purchase price for all of the issued and outstanding
capital stock of Star was $65 million, paid in cash. The purchase price was paid
to the shareholders of Star in proportion to their holdings of capital stock of
Star. This sale was approved by a majority of the stockholders of Palomar on
April 21, 1999, and on April 27, 1999, Palomar completed the sale of Star to
Coherent. On the date of the sale, Palomar owned 82.46% of Star. Palomar
received net proceeds of $49,736,023, of which $3,254,908 is being held in
escrow for one year as security for any claims which Coherent may have under the
Agreement. In addition, under the terms of the Agreement, the Company will
receive an ongoing royalty of 7.5% from Coherent on the sale of any products by
Coherent that incorporate certain patented technology or use certain patented
methods currently licensed by the Company on an exclusive basis from
Massachusetts General Hospital.
The Company utilized a portion of the proceeds of the Star sale to pay
down substantially all of its debt during the second quarter of 1999. The
balance of the funds will be invested in high-grade corporate and governmental
notes and bonds to fund future operations and research and development efforts.
Accordingly, the Company will generate additional interest income for the
foreseeable future.
The Company is a holding company with no significant operations.
Operations are carried out at the subsidiary level. The majority of the
operations are research and development. To date, the Company's operating
subsidiaries have required cash advances from the Company to fund their
operations. As of June 30, 1999, the Company had $35.3 million in cash, cash
equivalents and marketable securities. With the proceeds from the Star sale, the
Company has a strong financial position to meet its ongoing cash flow
requirements and fund expected operating losses at its subsidiaries in the near
term.
16
<PAGE>
During the three months ended June 30, 1999, the Company agreed to pay
a total of approximately $6.7 million to the European banks that had held 4.5%
convertible debentures totaling $8.2 million due in 2003, under a settlement
agreement. The Company paid $1.4 million a of June 30, 1999 and an additional
$3.1 million was paid during July 1999. The balance of $2.2 million is due 2001.
During the three months ended June 30, 1999, the Company entered into a
10 year lease agreement for its operating facilities. The annual commitment
under this agreement is approximately $890,000 for the first five years of the
agreement and $980,000 thereafter.
In July 1999, the Company entered into an amendment to extend its
exclusive research agreement with Massachusetts General Hospital for another
five years. In addition to laser hair removal, the agreement has been expanded
to include research and development in the use of laser to remove fat and treat
acne. Under the terms of this agreement, the Company is obligated to pay MGH
$475,000 for clinical research on an annual basis during the term of this
extension.
As of June 30, 1999, the Company's accounts receivable totaled $2.4
million, as compared to $9.9 million as of December 31, 1998. This reduction was
due principally to the sale of Star to Coherent on April 27, 1999. The Company's
allowance for doubtful accounts totaled approximately $400,000 as of June 30,
1999, compared to $364,000 as of December 31, 1998.
As of June 30, 1999, accounts payable totaled approximately $581,000 as
compared to $6.6 million as of December 31, 1998. This decrease is principally
due to paying down debt with money received from the sale of Star and timing of
additional purchases of inventory for the manufacture of the Palomar E2000(TM)
laser systems.
The Company anticipates that capital expenditures for the remainder of
1999 will total approximately $500,000, consisting primarily of machinery,
equipment and computers and peripherals. The Company expects to finance these
expenditures with cash on hand and equipment leasing lines.
The Company had a $10,000,000 revolving line of credit from a bank. A
director of the Company personally guaranteed borrowings under the line of
credit. The Company borrowed an additional $500,000 during April of 1999. The
Company repaid all amounts outstanding under this line of credit ($1,500,000) on
April 27, 1999 and subsequently cancelled this line of credit.
The Company entered into a Loan Agreement with Coherent pursuant to
which Coherent agreed to loan the Company money to help finance the Company's
working capital requirements. These loans were collateralized by Star's
inventory. Coherent assumed the $4.8 million of debt in connection with its
purchase of all of the issued and outstanding common stock of Star on April 27,
1999. See Note 8(e).
(D) MATERIAL UNCERTAINTIES.
(i) YEAR 2000 ISSUES
During 1998 and 1999 the Company has been actively engaged in addressing
Year 2000 (Y2K) issues, which result from the use of two-digit, rather than
four-digit, year dates in software, a practice which could cause date-sensitive
systems to malfunction or fail because they may not recognize or process date
information correctly.
STATE OF READINESS:
To manage its Y2K program, the Company has divided its efforts into
four program areas:
o Information Technology (computer hardware and software)
o Physical Plant (manufacturing equipment and facilities)
o Products (including product development)
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<PAGE>
o Extended Enterprise (suppliers and customers)
For each of these program areas, the Company is using a four-step
approach:
o Ownership (creating awareness, assigning tasks)
o Inventory (listing items to be assessed for Y2K readiness)
o Assessment (prioritizing the inventoried items, assessing
their Y2K readiness, planning corrective actions, developing
initial contingency plans)
o Corrective Action Deployment (implementing corrective actions,
verifying implementation, finalizing and executing contingency
plans)
At June 30, 1999, the Ownership, Inventory and Assessment steps were
essentially complete for all program areas.
COSTS TO ADDRESS Y2K ISSUES:
The Company's estimated aggregate costs for its Y2K activities from
1998 through 2000 are expected to be less than $100,000. Through June 30, 1999
the Company has spent approximately $60,000.
RISKS OF Y2K ISSUES AND CONTINGENCY PLANS:
The Company continues to assess the Year 2000 issues relating to its
physical plant, products and suppliers. The Company intends to develop a
contingency planning process to mitigate worst-case business disruptions, such
as delays in product delivery, which could result from events such as supply
chain disruptions.
RISK FACTORS
In addition to the other information in this Quarterly Report on Form
10-Q, the following cautionary statements should be considered carefully in
evaluating the Company and its business. Statements contained in this Form 10-Q
that are not historical facts (including, without limitation, statements
concerning financial projections, the financing of future operations, product
gross margins, product developments and improvements, research and development
plans and expenditures and Y2K issues) and other information provided by the
Company and its employees from time to time may contain certain forward-looking
information, as defined by (i) the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and (ii) releases by the SEC. The risk factors
identified below, among other factors, could cause actual results to differ
materially from those suggested in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
release publicly the results 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 cautionary
statements below are being made pursuant to the provisions of the Reform Act and
with the intention of obtaining the benefits of safe harbor provisions of the
Reform Act.
OUR FUTURE REVENUE DEPENDS ON OUR DEVELOPING NEW PRODUCTS.
We face rapidly changing technology and continuing improvements in
cosmetic laser technology. In order to be successful, we must continue to make
significant investments in research and development in order to develop in a
timely and cost-effective manner new products that meet changing market demands,
to enhance existing products, and to achieve market acceptance for such
products. We have in the past experienced delays in developing new products and
enhancing existing products. As a result of the sale of Star to Coherent, our
future revenue will be entirely dependent on sales of newly introduced products.
Although we have recently introduced a new hair removal laser, it may not
achieve market acceptance or generate sufficient margins. In addition, the
market for this type of hair removal laser may already be saturated. At present,
broad market acceptance of laser hair
18
<PAGE>
removal is critical to our success. We intend to diversify our product line by
developing cosmetic laser products other than hair removal lasers.
WE FACE INTENSE COMPETITION FROM COMPANIES WITH SUPERIOR FINANCIAL, MARKETING
AND OTHER RESOURCES.
The laser hair removal industry is highly competitive, and companies
frequently introduce new products. We compete in the development, manufacture,
marketing and servicing of hair removal lasers with numerous other companies,
many of which have substantially greater financial, marketing and other
resources than we do. As a result, some of our competitors are able to sell hair
removal lasers at prices significantly below the prices at which we sell our
hair removal lasers. In addition, as a result of the Star sale, Coherent, our
former exclusive distributor and one of the largest and best financed laser
companies, is now our competitor and we have to find new ways to distribute our
products. Our laser products also face competition from alternative medical
products and procedures, such as electrolysis and waxing, among others. We may
not be able to differentiate our products from the products of our competitors,
and customers may not consider our products to be superior to competing products
or medical procedures, especially if competitive products and procedures are
offered at lower prices. Our competitors may develop products or new
technologies that make our products obsolete or less competitive.
OUR QUARTERLY OPERATING RESULTS WILL DECREASE AS A RESULT OF THE STAR SALE, AND
THAT MAY HURT THE PRICE OF OUR COMMON STOCK.
Almost all of our revenues in our most recent two quarters were
attributable to sales of the LightSheer(TM) diode laser manufactured by Star.
Therefore, as a result of the Star sale, our revenues will decline
significantly. If our operating results fall below the expectations of investors
or public market analysts, the price of our common stock could fall
dramatically.
WE COULD BE DELISTED FROM NASDAQ.
For continued listing on the Nasdaq SmallCap Market, a company must
maintain a minimum bid price of $1.00 per share. In March of this year, Nasdaq
held a hearing regarding our continued listing on The Nasdaq SmallCap Market in
light of the fact that our common stock had traded below the $1.00 minimum bid
price requirement for longer than 30 trading days. As a result of our reverse
stock split, we regained compliance with the minimum bid price requirement
before that date, and are now in compliance with all of Nasdaq's requirements
for continued listing on The Nasdaq SmallCap Market. However, there can be no
assurance that we will remain in compliance with Nasdaq's criteria for continued
listing or that we will remain listed on Nasdaq. The delisting of our common
stock would likely reduce the liquidity of our common stock and our ability to
raise capital. If our common stock is delisted from The Nasdaq SmallCap Market,
it will likely be quoted on the "pink sheets" maintained by the National
Quotation Bureau, Inc. or Nasdaq's OTC Bulletin Board. These listings can make
trading more difficult for stockholders.
OUR LASERS ARE SUBJECT TO NUMEROUS FDA REGULATIONS. COMPLIANCE IS EXPENSIVE AND
TIME-CONSUMING. OUR NEW PRODUCTS MAY NOT BE ABLE TO OBTAIN THE NECESSARY FDA
CLEARANCES BEFORE WE CAN SELL THEM.
All of our products are laser medical devices. Laser medical devices
are subject to FDA regulations regulating clinical testing, manufacturing,
labeling, sale, distribution and promotion of medical devices. Before a new
device can be introduced into the market, we must obtain clearance from the FDA.
Compliance with the FDA clearance process is expensive and time-consuming, and
we may not be able to obtain such clearances in a timely fashion or at all.
WE ARE DEPENDENT ON THIRD PARTY RESEARCHERS.
We are substantially dependent upon third party researchers, over whom
we do not have absolute control, to satisfactorily conduct and complete research
on our behalf and to grant us favorable licensing terms for products which they
may develop. At present, our principal research partner is the Wellman
Laboratories of Photomedicine at Massachusetts General Hospital. We provide
research funding, laser technology and optics know-how in return for licensing
agreements with respect to specific medical applications and patents. Our
success will be highly dependent upon the results of this research. We cannot be
sure that such research agreements will provide us with
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<PAGE>
marketable products in the future or that any of the products developed under
these agreements will be profitable for us.
OUR COMMON STOCK COULD BE FURTHER DILUTED AS THE RESULT OF OUTSTANDING
CONVERTIBLE SECURITIES, WARRANTS AND OPTIONS.
In the past, we have issued convertible securities, such as debentures
and preferred stock, and warrants in order to raise money. We have also issued
options and warrants as compensation for services and incentive compensation for
our employees and directors. We have a substantial number of shares of common
stock reserved for issuance upon the conversion and exercise of these
securities. These outstanding convertible securities, options and warrants could
affect the rights of our stockholders, and could adversely affect the market
price of our common stock.
OUR PROPRIETARY TECHNOLOGY HAS ONLY LIMITED PROTECTIONS.
Our business could be materially and adversely affected if we are not
able to protect adequately our proprietary intellectual property rights. We rely
on a combination of patent, trademark and trade secret laws, license and
confidentiality agreements to protect our proprietary rights. We generally enter
into non-disclosure agreements with our employees and customers and restrict
access to, and distribution of, our proprietary information. Nevertheless, we
may be unable to deter misappropriation of our proprietary information, to
detect unauthorized use and to take appropriate steps to enforce our
intellectual property rights. Our competitors also may independently develop
technologies that are substantially equivalent or superior to our technology.
Although we believe that our services and products do not infringe on the
intellectual property rights of others, we cannot prevent someone else from
asserting a claim against us in the future for violating their intellectual
property rights. In addition, costly and time consuming lawsuits may be
necessary to enforce patents issued or licensed exclusively to us, to protect
our trade secrets and/or know-how or to determine the enforceability, scope and
validity of others' intellectual property rights.
The medical laser industry is characterized by frequent litigation
regarding patent and other intellectual property rights. Because patent
applications are maintained in secrecy in the United States until such patents
are issued and are maintained in secrecy for a period of time outside the United
States, we can conduct only limited searches to determine whether our technology
infringes any patents or patent applications. Any claims for patent infringement
could be time-consuming, result in costly litigation, diversion of technical and
management personnel, cause shipment delays, require us to develop
non-infringing technology or to enter into royalty or licensing agreements.
Although patent and intellectual property disputes in the laser industry have
often been settled through licensing or similar arrangements, costs associated
with such arrangements may be substantial and often require the payment of
ongoing royalties, which could have a negative impact on gross margins. There
can be no assurance that necessary licenses would be available to us on
satisfactory terms, or that we could redesign our products or processes to avoid
infringement, if necessary. Accordingly, an adverse determination in a judicial
or administrative proceeding or failure to obtain necessary licenses could
prevent us from manufacturing and selling some of our products. This could have
a material adverse effect on our business, results of operations and financial
condition.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE POTENTIAL TAKEOVER
ATTEMPTS.
Our Second Restated Certificate of Incorporation and our By-laws
contain provisions that could discourage takeover attempts or make more
difficult the acquisition of a substantial block of our common stock. Our
By-laws require a stockholder to provide to the Secretary of the Company advance
notice of business to be brought by such stockholder before any annual or
special meeting of stockholders as well as certain information regarding such
business, the stockholder and others known to support such proposal and any
material interest they may have in the proposed business. These provisions could
delay any stockholder actions that are favored by the holders of a majority of
the outstanding stock of the Company until the next stockholders' meeting. In
addition, the Board of Directors is authorized to issue shares of common stock
and preferred stock which, if issued, could dilute and adversely affect various
rights of the holders of common stock and, in addition, could be used to
discourage an unsolicited attempt to acquire control of the Company.
The Company is also subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law, which prohibits the Company from
engaging in a "business combination" with an "interested
20
<PAGE>
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
may limit the ability of stockholders to approve a transaction that they may
deem to be in their best interests. These provisions of our Second Restated
Certificate of Incorporation, By-laws and the Delaware General Corporation Law
could deter certain takeovers or tender offers or could delay or prevent certain
changes in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over the then
current market prices.
AS WITH ANY NEW PRODUCTS, THERE IS SUBSTANTIAL RISK THAT THE MARKETPLACE MAY NOT
ACCEPT OR BE RECEPTIVE TO THE POTENTIAL BENEFITS OF OUR PRODUCTS.
Market acceptance of our current and proposed products will depend, in
large part, upon our or any marketing partner's ability to demonstrate to the
marketplace the advantages of our products over other types of products. There
can be no assurance that the marketplace will accept applications or uses for
our current and proposed products or that any of our current or proposed
products will be able to compete effectively.
WE FACE RISKS ASSOCIATED WITH PENDING LITIGATION.
We are involved in disputes with third parties. Such disputes have
resulted in litigation with such parties. We have 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 us. An
adverse result in the MEHL patent litigation or the VARLJEN litigation (all
described in detail in Part II, Item 1) could have a material adverse effect on
our business, financial condition and results of operations. We are 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.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL.
As a small company with less than 100 employees after the sale of Star
to Coherent, our success depends on the services of key employees in executive
and research and development positions. The loss of the services of one or more
of these employees could have a material adverse effect on us.
WE FACE A RISK OF FINANCIAL EXPOSURE TO PRODUCT LIABILITY CLAIMS IN THE EVENT
THAT THE USE OF OUR PRODUCTS RESULTS IN PERSONAL INJURY.
Our 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 our products. Further, in the event that any of our products prove to be
defective, we may be required to recall and redesign such products. Although we
have not experienced any material losses due to product liability claims to
date, there can be no assurance that we will not experience such losses in the
future. We maintain general liability insurance in the amount of $1,000,000 per
occurrence and $2,000,000 in the aggregate and maintain 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 us or that such
coverage will be adequate for liabilities actually incurred. In the event we are
found liable for damages in excess of the limits of our insurance coverage, or
if any claim or product recall results in significant adverse publicity against
us, our business, financial condition and results of operations could be
materially and adversely affected. In addition, although our products have been
and will continue to be designed to operate in a safe manner, and although we
attempt to educate medical personnel with respect to the proper use of our
products, misuse of our products by medical personnel over whom we cannot exert
control may result in the filing of product liability claims or significant
adverse publicity against us.
21
<PAGE>
COMPUTER SYSTEMS ON WHICH WE RELY MAY NOT PROPERLY RECOGNIZE DATE SENSITIVE
INFORMATION WHEN THE YEAR CHANGES TO 2000.
Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. We are at this time utilizing internal
resources to identify, correct or reprogram, and test our systems for year 2000
compliance. However, there can be no assurance that the systems of other
companies on which our systems rely will also be converted in a timely manner or
that any such failure to convert by another company would not have an adverse
effect on our systems. Management is in the process of assessing the year 2000
compliance costs; however, based on information to date (excluding the possible
impact of vendor systems), management does not believe that it will have a
material effect on our earnings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
On March 7, 1997, Selvac Acquisition Corp. ("Selvac"), a subsidiary of
Mehl Biophile International, Inc. ("Mehl"), filed a complaint for injunctive
relief and damages for patent infringement and for unfair competition in the
United States District Court for the District of New Jersey against the Company,
two of its subsidiaries and a New Jersey dermatologist. Selvac's complaint
alleged that the Company's EpiLaser(R) ruby laser hair removal system infringed
a patent licensed to Selvac (the "Selvac Patent") and that the Company unfairly
competed by promoting the EpiLaser(R) ruby laser hair removal system for hair
removal before it had received FDA clearance for that specific application. On
May 18, 1998 the court granted the Company's motion for partial summary judgment
on the ground that the Selvac patent is invalid because prior art anticipated
it. The court later denied Selvac's motion for reconsideration of the summary
judgment ruling. On September 25, 1998, the court denied Selvac's motion for
reconsideration of its prior order dismissing so much of Selvac's unfair
competition claim as relied on interpreting the Food, Drug and Cosmetics Act or
FDA regulations, and dismissed without prejudice the state law remainder of
Selvac's unfair competition claim. On October 26, 1998, Selvac filed its notice
of appeal with the Court of Appeals for the Federal Circuit. Selvac subsequently
filed its opening brief on appeal; the Company filed its opposition and Selvac
its reply. The Federal Circuit heard oral argument on August 5, 1999. The
Company is unable to express an opinion as to the likely outcome of Selvac's
appeal. The Federal Circuit will probably issue its opinion this year.
On October 16, 1997, the Company brought a declaratory judgment action
in U.S. District Court for the District of Massachusetts against the holders and
the indenture trustee of the Company's 4.5% Subordinated Convertible Debentures
due 2003, denominated in Swiss francs (the "Swiss Franc Debentures"). The
defendants in this action were Banque SCS Alliance SA, Arbuthnot Fund Managers,
Ltd., Banca Commerciale Lugano, Privatinvest Bank AG (these four defendants
being referred to collectively as the "Asserting Holders"), CUF Finance S.A.,
Fibi Bank (Schweiz) AG, Teawood Nominees, Ltd., JS Gadd & CIE SA, Swedbank
(Luxembourg) SA, Christiana Bank Luxembourg SA (now know as Credit Agricole
Indosuez), Landatina Financiera SA and American Stock Transfer & Trust Co., as
trustee ("Trustee"). Just prior to this suit, the Asserting Holders had alleged
that the Company was in breach of certain protective covenants under the
indenture, and on October 22, 1997 they sued the Company and all of its
principal subsidiaries in the same court; the October 16 and October 22 cases
were assigned to the same judge, and the dispute between the Asserting Holders
and the Company was proceeding under the October 22 case. The Asserting Holders
claimed that the Company had breached certain protective indenture covenants and
that the Asserting Holders are entitled to immediate payment of their
indebtedness under the Swiss Franc Debentures. (The total disputed indebtedness
is approximately $6.2 million at current exchange rates; the Asserting Holders'
portion of the total is approximately $5.6 million.) As of November 13, 1997,
acting under applicable provisions of the indenture, the Company notified the
holders of the Swiss Franc Debentures that it was causing the conversion of all
of the Swiss Franc Debentures into an aggregate of 135,575 shares of the
Company's common stock. Palomar filed a motion for summary judgment, asserting
that its conversion of the debentures into Palomar common stock deprived the
plaintiffs of standing to bring a claim. That motion was denied without
prejudice, and the court also denied the plaintiffs' motion for summary
judgment. By mutual agreement, the Asserting Holders and the Company have
dismissed the case. The parties have resolved the dispute by restructuring the
debentures (whereby Palomar prepays approximately two-thirds of the total
indebtedness, or about $4.2 million, withdraws its forced conversion, and repays
on a modified schedule the original debt). (See Note 8(b) of Notes to
Consolidated Financial Statements.)
On March 11, 1999, the United States District Court for the Southern
District of New York granted plaintiffs leave to amend their complaint in the
action styled VARLJEN V. H.J. MEYERS, INC., ET. AL. to join the Company, its
former chief executive officer and current chief financial officer as
defendants. On March 17, 1999, the Second Amended Class Action Complaint
("Complaint") in VARLJEN was served upon the Company and its current chief
financial officer. The Complaint alleges that the Company and the former and
current officer violated the federal securities laws in various public
disclosures that the Company made directly and indirectly during the period from
February 1, 1996 to March 26, 1997. In particular, the Complaint alleges that
Palomar and the former and current officer misrepresented the Company's future
prospects, including earnings projections and expected shares outstanding,
through their direct disclosures and through disclosures made by securities
analysts and other third parties. The Company and the former and current officer
filed a motion to dismiss the complaint, asserting all
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<PAGE>
claims are barred by the statute of limitations, that the complaint does not
meet federal pleading requirements, and that it fails to state a securities
claim. The Company and the former and current officer have also filed a motion
to transfer the case to the District of Massachusetts. On August 6, 1999, the
District Court denied the Company's motion to dismiss, and scheduled a case
conference for April 28, 2000. The case is in its earliest stages, and the
Company cannot predict its outcome.
On July 20 1999, The Monterey Stockholders Group LLC ("Monterey") filed
a complaint for declaratory judgment and for damages in the United States
District Court for the District of Delaware against the Company. The complaint
alleges that the Company and its directors violated the federal securities laws
in various public disclosures that the Company made in the spring of 1999. The
complaint alleges Palomar failed to disclose that it intended to include 3.25
million escrowed shares in the vote at its annual meeting when such shares were
allegedly non-voting and not outstanding. Monterey seeks, among other forms of
relief, a declaration that no quorum was present in person or by proxy at the
Company's annual meeting. Palomar's answer to the complaint is at present due on
September 8, 1999. The case is in its earliest stages, and the Company cannot
predict its outcome.
The Company is involved in other legal and administrative proceedings
and claims of various types. While any litigation contains an element of
uncertainty, management, in consultation with the Company's general counsel, at
present believes that the outcome of each such other proceeding or claim which
is pending or known to be threatened, or all of them combined, will not have a
material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended June 30, 1999, the following securities were
redeemed by the Company for the dollar amount indicated:
<TABLE>
<S> <C> <C> <C>
Redemption
Type of Security Number of Shares Amount
---------------- ---------------- -----------
Preferred Stock Series G 403 $557,635
Preferred Stock Series H 250 $344,761
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
24
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following table sets forth a brief description of each matter voted
upon and the number of votes cast for or against, as well as the number of
abstentions, as to each such matter, at the Company's Special Meeting of
Stockholders held on April 21, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Votes Votes
Matter For Against Abstentions
--------------------------------------------------- -------------- -------------- ---------------
Agreement and Plan of Reorganization providing 42,098,052 1,378,650 399,505
for sale of Palomar's Star subsidiary to Coherent
--------------------------------------------------- -------------- -------------- ---------------
Plan of recapitalization resulting in 58,323,039 4,810,396 609,002
one-for-seven reverse split of Palomar's common
stock
--------------------------------------------------- -------------- -------------- ---------------
</TABLE>
The following table sets forth a brief description of each matter voted
upon and the number of votes cast for or against, as well as the number of
abstentions and broker non-votes, as to each such matter, at the Company's
Annual Meeting of Stockholders held on June 23, 1999, at which Messrs. Valente,
Martin, Pappalardo, and Economou were elected as directors..
<TABLE>
<S> <C> <C> <C> <C>
Votes Votes
Matter For Against Abstentions
--------------------------------------------------- -------------- -------------- ---------------
Ratification of selection of Arthur Andersen LLP 38,235,369 456,309 243,563
as the Company's auditors
--------------------------------------------------- -------------- -------------- ---------------
Election of Directors:
MANAGEMENT NOMINEES:
--------------------------------------------------- -------------- -------------- ---------------
Louis P. Valente 28,386,054 822,362 -
--------------------------------------------------- -------------- -------------- ---------------
James G. Martin 28,403,209 805,207 -
--------------------------------------------------- -------------- -------------- ---------------
A. Neil Pappalardo 28,402,059 806,357 -
--------------------------------------------------- -------------- -------------- ---------------
Nicholas P. Economou 28,396,609 811,807 -
--------------------------------------------------- -------------- -------------- ---------------
OPPOSITION NOMINEES:
--------------------------------------------------- -------------- -------------- ---------------
Mark T. Smith 9,553,994 172,831 -
--------------------------------------------------- -------------- -------------- ---------------
George F. Murphy 9,546,294 180,531 -
--------------------------------------------------- -------------- -------------- ---------------
Jay Delahanty 9,546,294 180,531 -
--------------------------------------------------- -------------- -------------- ---------------
Michel D. Marks 9,546,294 180,531 -
--------------------------------------------------- -------------- -------------- ---------------
</TABLE>
ITEM 5. OTHER INFORMATION.
Not applicable.
25
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
2.1* By-laws, as amended.
4.1 Second Amended 1991 Stock Option Plan.
4.2 Second Amended 1993 Stock Option Plan.
4.3 Second Amended 1995 Stock Option Plan.
4.4 Second Amended 1996 Stock Option Plan.
4.5 Third Amended 1996 Employee Stock Purchase Plan.
4.6** Rights Agreement dated as of April 20, 1999, between Palomar
Medical Technologies, Inc. and American Stock Transfer and
Trust Company, as Rights Agent.
4.7** Form of Certificate of Designation of Series A Participating
Cumulative Preferred Stock of Palomar Medical Technologies,
Inc. (which is attached as Exhibit A to the Rights Agreement,
Exhibit 4.6 hereto).
4.8** Form of Rights Certificate (which is attached as Exhibit B to
the Rights Agreement, Exhibit 4.6 hereto).
10.1 Amendment No. 1 to Key Employment Agreement between the
Company and Louis P. Valente dated May 15, 1999.
10.2 Amendment No. 1 to Employment Agreement between the Company
and Michael Smotrich dated May 15, 1999.
10.3 Amended and Restated Employment Agreement between the Company
and Joseph P. Caruso dated June 30, 1999.
10.4 Commercial Lease between the Company and CRES Development
Company, Inc., dated June 17, 1999.
27.1 Financial Data Statement for the period ended June 30, 1999.
* Previously filed as an exhibit to Form 10-K for the period ended
December 31, 1996, and incorporated herein by reference.
** Previously filed as an exhibit to Form 8-K, filed on April 21, 1999 and
incorporated herein by reference. (B) REPORTS ON FORM 8-K.
Form 8-K filed on April 21, 1999.
Form 8-K filed on May 10, 1999.
Form 8-K filed on June 29, 1999.
Form 8-K filed on July 1, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Lexington in the
Commonwealth of Massachusetts on August 16, 1999.
PALOMAR MEDICAL TECHNOLOGIES, INC.
(Registrant)
DATE: August 16, 1999 By: /s/ Louis P. Valente
-------------------------------
Louis P. Valente
Chief Executive Officer
(Principal Executive Officer)
DATE: August 16, 1999 By: /s/ Joseph P. Caruso
-------------------------------
Joseph P. Caruso
Chief Financial Officer and
Treasurer
(Principal Financial Officer
and Principal
Accounting Officer)
PALOMAR MEDICAL TECHNOLOGIES, INC.
SECOND AMENDED 1991 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of PALOMAR MEDICAL TECHNOLOGIES, INC. and of its
affiliated corporations upon whose judgment, initiative, and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
Second Amended 1991 -1- Amended 5/21/99
Stock Option Plan
<PAGE>
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a committee of not less than two members of the
Board appointed by the Board to administer the Plan, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, or any successor provision.
2.6 "Corporation" means PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after August 30,
1991.
2.8 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Committee under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Committee may establish.
2.9 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.10 "Plan" means this 1991 Stock Option Plan.
2.11 "Incentive Stock Option" ("ISO") means an option which qualifies
as an incentive stock option as defined in Section 422 of the Code, as amended.
2.12 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
Second Amended 1991 -2- Amended 5/21/99
Stock Option Plan
<PAGE>
2.13 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article IX.
2.14 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.15 "Restricted Period" means the period of time selected by the
Committee during which an Award may be forfeited by the person.
ARTICLE III
Administration of the Plan
3.1 ADMINISTRATION BY THE COMMITTEE. This Plan shall be administered by
the Committee as defined herein. From time to time the Board may increase the
size of the Committee and appoint additional members thereto, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
options granted under it.
3.2 POWERS. The Committee shall have full and final authority to
operate, manage, and administer the Plan on behalf of the Corporation. This
authority includes, but is not limited to:
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(a) The power to grant Awards conditionally or
unconditionally,
(b) The power to prescribe the form or forms of the
instruments evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and rescind
regulations for interpretation, management and administration of the
Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration of the Plan,
(f) The power to delegate to other persons the responsibility
of performing ministerial acts in furtherance of the Plan's purpose,
and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but not
limited to, banks, insurance companies, brokerage firms, and
consultants.
3.3 ADDITIONAL POWERS. In addition, as to each Option to buy Stock of
the Corporation, the Committee shall have full and final authority in its
discretion: (a) to determine the number of shares
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<PAGE>
of Stock subject to each Option; (b) to determine the time or times at which
Options will be granted; (c) to determine the option price of the shares of
Stock subject to each Option, which price shall be not less than the minimum
price specified in Article V of this Plan; (d) to determine the time or times
when each Option shall become exercisable and the duration of the exercise
period (including the acceleration of any exercise period), which shall not
exceed the maximum period specified in Article V; and (e) to determine whether
each Option granted shall be an Incentive Stock Option or a Non-qualified
Option.
In no event may the Corporation grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock options plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such prusuant to Section
422(d)(1) of the Code.
ARTICLE IV
Eligibility
4.1 ELIGIBLE EMPLOYEES. All Employees (including Directors and Officers
who are Employees and who have not irrevocably elected to be ineligible to
participate in the Plan) are eligible to be
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gratned Incentive Stock Optona and Non-Qualified Option Awards under this Plan.
4.2 CONSULTANTS, DIRECTORS AND OTHER NON-EMPLOYEES. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan provided the person has
not irrevocably elected to be ineligible to participate in the Plan, and
provided further that upon appointment to the Committee at the first Board of
Directors meeting following the Annual Meeting of the Shareholders, each
non-employee director appointed to the Committee shall be deemed to be
ineligible to participate under the Plan during his or her period of service on
the Committee.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors, and other Non-Employees to whom Awards shall be granted, the
Committee shall weigh such factors as are relevant to accomplish the purpose of
the Plan as stated in Article I. An individual who has been granted an Award may
be granted one or more additional Awards, if the Committee so determines. The
granting of an Award to any individual shall neither entitle that individual to,
nor disqualify him from, participation in any other grant of Awards.
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ARTICLE V
Stock Option Awards
5.1 NUMBER OF SHARES. Subject to the provisions of Article X of this
Plan, the aggregate number of shares of stock for which Options may be granted
under this Plan shall not exceed 350,000 shares. The shares to be delivered upon
exercise of Options under this Plan shall be made available, at the discretion
of the Committee, either from authorized but unissued shares or from previously
issued and reacquired shares of Stock held by the Corporation as treasury
shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.
5.2 EFFECT OF EXPIRATION, TERMINATION OR SURRENDER. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 TERM OF OPTIONS. The full term of each Option granted hereunder
shall be for such period as the Committee shall determine. In the case of
Incentive Stock Options granted
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hereunder, the term shall not exceed ten (10) years from the date of granting
thereof. Each Option shall be subject to earlier termination as provided in
Section 6.3 and 6.4. Notwithstanding the foregoing, the term of options intended
to qualify as "Incentive Stock Options" shall not exceed five (5) years from the
date of granting thereof if such option is granted to any employee who at the
time such option is granted owns more than ten percent (10% of the total
combined voting power of all classes of stock of the Corporation.
5.4 OPTION PRICE. The option price shall be determined by the Committee
at the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that in the case where an Incentive
Stock Option is granted hereunder to any Employee who at the time of grant owns
Stock possessing more than 10% of the combined voting power of all classes of
stock of the Corporation and its Affiliated Corporations, the Incentive Stock
Option price shall equal not less than 110% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted. In the
case of Non-Qualified Stock Options, the exercise price shall not be less than
par value.
5.5 FAIR MARKET VALUE. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair
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<PAGE>
market value" shall be determined as of the business day for which the prices or
quotes discussed in this sentence are available on the date such Option is
granted and shall mean (i) the average (on that date) of the high and low prices
of the Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not the traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Committee under Section 3.3.
5.6 NON-TRANSFERABILITY OF OPTIONS. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 FOREIGN NATIONALS. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
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Stock Option Plan
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ARTICLE VI
Exercise of Option
6.1 EXERCISE. Each Option granted under the Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Committee shall have the right to accelerate the date of exercise of
any option.
6.2 NOTICE OF EXERCISE. A person electing to exercise an Option shall
give written notice to the Corporation of such electino and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
6.3 DELIVERY OF STOCK. No shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor is
received by the Corporation. Such payment may be made in whole or in part in
cash or, to the extent permitted by the Committee at or after the grant of an
Option, by delivery of a note or shares of the Stock owned by the optionee,
including Restricted Stock, valued at their fair market value on the date of
delivery, or such other lawful consideration as the Committee may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased, he or she shall possess no rights of a record holder with respect
to any of such shares.
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<PAGE>
6.4 OPTION UNAFFECTED BY CHANGE IN DUTIES. No Incentive Stock Option,
and, unless otherwise determined by the Committee, no Non-Qualified Option
granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation, shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing and uninterrupted during any bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Corporation or any Affiliated Corporation to continue the
employment of the optionee after the approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have ac rued as of the date of such cessation;
provided that (i) the Committee may provide in the instrument evidencing any
Option that the Committee may in its absolute discretion, upon any such
cessation of employment, determine (but be under no obligation to determine)
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<PAGE>
that such accrued purchase rights shall be deemed to include additional shares
covered by such Option; and (ii) unless the Committee shall otherwise provide in
the instrument evidencing any Option, upon any such cessation of employment,
such remaining rights to purchase shall in any event terminate upon the earlier
of (A) the expiration of the original term of the Option; or (B) where such
cessation of employment is on account of disability, the expiration of one year
from the date of such cessation of employment and, otherwise, the expiration of
three months from such date. For purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code.
6.5 DEATH OF OPTIONEE. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Committee in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the ate of death; provided, that such
Option or Options shall expire in all events no later than the last day of the
original term of such Option; provided, further, that any such exercise shall be
limited to the purchase rights that have accrued as of the date when the
optionee ceased to be an Employee, whether by death or otherwise, unless the
Committee provides in the instrument evidencing such Option that,
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Stock Option Plan
<PAGE>
in the discretion of the Committee, additional shares covered by such Option may
become subject to purchase immediately upon the death of the optionee.
ARTICLE VII
Reporting Person Limitations
Notwithstanding any other provision of the Plan, to the extent required
to qualify for the exemption provided by Rule 16b-3 under the Securities
Exchange Act of 1934, and any successor provision, (i) any Stock or other equity
security offered under the Plan to a Reporting Person may not be sold for at
least six (6) months after acquisition, except in case of death or disability
and (ii) any Option, or other similar right related to an equity security,
issued under the Plan to a Reporting Person shall not be transferable other than
by will or the laws of descent and distribution, shall not be exercisable for at
least six (6) months except in the case of death or disability, and shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's guardian or legal representative.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and
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Stock Option Plan
<PAGE>
conditions set forth in Article 5 and 6 hereof and may contain such other
provisions as the Committee deems advisable that are not inconsistent with the
Plan, including restrictions applicable to shares of Stock issuable upon
exercise of Options. In granting any Non-Qualified Option, the Committee may
specify that such NonQualified Option shall be subject to the restrictions set
forth herein with respect to Incentive Stock Options, or to such other
termination and cancellation provisions as the Committee may determine. The
Committee may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Committee may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
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Stock Option Plan
<PAGE>
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital
changes, the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in
the Plan. Awards granted prior to suspension or termination of the Plan
may not be cancelled solely because of such suspension or termination,
except with the consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, stock
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<PAGE>
splits, recapitalizations, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in capitalization occurring
after the date of an Award to the same extent as would affect an actual share of
stock issued and outstanding on the effective date of such change. Such
adjustment to outstanding Options shall be made without change in the total
price applicable to the unexercised portion of such options, and a corresponding
adjustment in the applicable option price per share shall be made. In the event
of any such change, the aggregate number and classes of shares for which Options
may thereafter be granted under Section 5.1 of this Plan may be appropriately
adjusted as determined by the Committee so as to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Committee, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 425 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Committee determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
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In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective on August 30, 1991. The Plan shall
continue until such time as it may be terminated by action of the Board;
provided, however, that no Options may be granted under this Plan on or after
the tenth anniversary of the effective date hereof.
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Stock Option Plan
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ARTICLE XIII
Conversion of ISO's into Non-Qualified Options;
Termination of ISO's
The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Committee (with the consent of the optionee) may impose such conditions on the
Exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall be not
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's Incentive Stock Options converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any Incentive Stock Option that has
not been exercised at the time of such termination.
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<PAGE>
ARTICLE XIV
Application of Funds
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Committee in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
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ARTICLE XVII
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
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Stock Option Plan
PALOMAR MEDICAL TECHNOLOGIES, INC.
SECOND AMENDED 1993 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of PALOMAR MEDICAL TECHNOLOGIES, INC. and of its
affiliated corporations upon whose judgment, initiative, and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
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2.4 "Code" means the Internal Revenue Code of 1986, as amended form
time to time.
2.5 "Committee" means a committee of not less than two members of the
Board appointed by the Board to administer the Plan, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, or any successor provision.
2.6 "Corporation" means PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after August 30,
1991.
2.8 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Committee under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Committee may establish.
2.9 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.10 "Plan" means this 1991 Stock Option Plan.
2.11 "Incentive Stock Option" ("ISO") means an option which qualifies
as an incentive stock option as defined in Section 422 of the Code, as amended.
2.12 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
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2.13 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
2.14 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.15 "Restricted Period" means the period of time selected by the
Committee during which an Award may be forfeited by the person.
ARTICLE III
Administration of the Plan
3.1 Administration by the Committee. This Plan shall be administered by
the Committee as defined herein. From time to time the Board may increase the
size of the Committee and appoint additional members thereto, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
options granted under it.
3.2 Powers. The Committee shall have full and final authority to
operate, manage, and administer the Plan on behalf of the Corporation. This
authority includes, but is not limited to:
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(a) The power to grant Awards conditionally or
unconditionally,
(b) The power to prescribe the form or forms of the
instruments evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and rescind
regulations for interpretation, management and administration of the
Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration of the Plan,
(f) The power to delegate to other persons the responsibility
of performing ministerial acts in furtherance of the Plan's purpose,
and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but not
limited to, banks, insurance companies, brokerage firms, and
consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Committee shall have full and final authority in its
discretion: (a) to determine the number of shares
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<PAGE>
of Stock subject to each Option; (b) to determine the time or times at which
Options will be granted; (c) to determine the option price of the shares of
Stock subject to each Option, which price shall be not less than the minimum
price specified in Article V of this Plan; (d) to determine the time or times
when each Option shall become exercisable and the duration of the exercise
period (including the acceleration of any exercise period), which shall not
exceed the maximum period specified in Article V; and (e) to determine whether
each Option granted shall be an Incentive Stock Option or a Non-qualified
Option.
In no event may the Corporation grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock options plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such prusuant to Section
422(d)(1) of the Code.
ARTICLE IV
Eligibility
4.1 Eligible Employees. All Employees (including Directors and Officers
who are Employees and who have not irrevocably elected to be ineligible to
participate in the Plan) are eligible to be
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granted Incentive Stock Optona and Non-Qualified Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan provided the person has
not irrevocably elected to be ineligible to participate in the Plan, and
provided further that upon appointment to the Committee at the first Board of
Directors meeting following the Annual Meeting of the Shareholders, each
non-employee director appointed to the Committee shall be deemed to be
ineligible to participate under the Plan during his or her period of service on
the Committee.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors, and other Non-Employees to whom Awards shall be granted, the
Committee shall weigh such factors as are relevant to accomplish the purpose of
the Plan as stated in Article I. An individual who has been granted an Award may
be granted one or more additional Awards, if the Committee so determines. The
granting of an Award to any individual shall neither entitle that individual to,
nor disqualify him from, participation in any other grant of Awards.
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ARTICLE V
Stock Option Awards
5.1 NUMBER OF SHARES. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of stock for which Options may be granted
under this Plan shall not exceed 500,000 shares. The shares to be delivered upon
exercise of Options under this Plan shall be made available, at the discretion
of the Committee, either from authorized but unissued shares or from previously
issued and reacquired shares of Stock held by the Corporation as treasury
shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.
5.2 EFFECT OF EXPIRATION, TERMINATION OR SURRENDER. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 TERM OF OPTIONS. The full term of each Option granted hereunder
shall be for such period as the Committee shall determine. In the case of
Incentive Stock Options granted
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hereunder, the term shall not exceed ten (10) years from the date of granting
thereof. Each Option shall be subject to earlier termination as provided in
Section 6.3 and 6.4. Notwithstanding the foregoing, the term of options intended
to qualify as "Incentive Stock Options" shall not exceed five (5) years from the
date of granting thereof if such option is granted to any employee who at the
time such option is granted owns more than ten percent (10% of the total
combined voting power of all classes of stock of the Corporation.
5.4 OPTION PRICE. The option price shall be determined by the Committee
at the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that in the case where an Incentive
Stock Option is granted hereunder to any Employee who at the time of grant owns
Stock possessing more than 10% of the combined voting power of all classes of
stock of the Corporation and its Affiliated Corporations, the Incentive Stock
Option price shall equal not less than 110% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted. In the
case of Non-Qualified Stock Options, the exercise price shall not be less than
par value.
5.5 FAIR MARKET VALUE. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair
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market value" shall be determined as of the business day for which the prices or
quotes discussed in this sentence are available on the date such Option is
granted and shall mean (i) the average (on that date) of the high and low prices
of the Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not the traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Committee under Section 3.3.
5.6 NON-TRANSFERABILITY OF OPTIONS. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 FOREIGN NATIONALS. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
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ARTICLE VI
Exercise of Option
6.1 EXERCISE. Each Option granted under the Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Committee shall have the right to accelerate the date of exercise of
any option.
6.2 NOTICE OF EXERCISE. A person electing to exercise an Option shall
give written notice to the Corporation of such electino and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
6.3 DELIVER OF STOCK. No shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor is
received by the Corporation. Such payment may be made in whole or in part in
cash or, to the extent permitted by the Committee at or after the grant of an
Option, by delivery of a note or shares of the Stock owned by the optionee,
including Restricted Stock, valued at their fair market value on the date of
delivery, or such other lawful consideration as the Committee may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased, he or she shall possess no rights of a record holder with respect
to any of such shares.
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6.4 OPTION UNAFFECTED BY CHANGE IN DUTIES. No Incentive Stock Option,
and, unless otherwise determined by the Committee, no Non-Qualified Option
granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation, shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing and uninterrupted during any bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Corporation or any Affiliated Corporation to continue the
employment of the optionee after the approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have ac rued as of the date of such cessation;
provided that (i) the Committee may provide in the instrument evidencing any
Option that the Committee may in its absolute discretion, upon any such
cessation of employment, determine (but be under no obligation to determine)
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that such accrued purchase rights shall be deemed to include additional shares
covered by such Option; and (ii) unless the Committee shall otherwise provide in
the instrument evidencing any Option, upon any such cessation of employment,
such remaining rights to purchase shall in any event terminate upon the earlier
of (A) the expiration of the original term of the Option; or (B) where such
cessation of employment is on account of disability, the expiration of one year
from the date of such cessation of employment and, otherwise, the expiration of
three months from such date. For purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code.
6.5 DEATH OF OPTIONEE. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Committee in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the ate of death; provided, that such
Option or Options shall expire in all events no later than the last day of the
original term of such Option; provided, further, that any such exercise shall be
limited to the purchase rights that have accrued as of the date when the
optionee ceased to be an Employee, whether by death or otherwise, unless the
Committee provides in the instrument evidencing such Option that,
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<PAGE>
in the discretion of the Committee, additional shares covered by such Option may
become subject to purchase immediately upon the death of the optionee.
ARTICLE VII
Reporting Person Limitations
Notwithstanding any other provision of the Plan, to the extent required
to qualify for the exemption provided by Rule 16b-3 under the Securities
Exchange Act of 1934, and any successor provision, (i) any Stock or other equity
security offered under the Plan to a Reporting Person may not be sold for at
least six (6) months after acquisition, except in case of death or disability
and (ii) any Option, or other similar right related to an equity security,
issued under the Plan to a Reporting Person shall not be transferable other than
by will or the laws of descent and distribution, shall not be exercisable for at
least six (6) months except in the case of death or disability, and shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's guardian or legal representative.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and
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<PAGE>
conditions set forth in Article V and VI hereof and may contain such other
provisions as the Committee deems advisable that are not inconsistent with the
Plan, including restrictions applicable to shares of Stock issuable upon
exercise of Options. In granting any Non-Qualified Option, the Committee may
specify that such NonQualified Option shall be subject to the restrictions set
forth herein with respect to Incentive Stock Options, or to such other
termination and cancellation provisions as the Committee may determine. The
Committee may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Committee may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
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ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital
changes, the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in
the Plan.
Awards granted prior to suspension or termination of the Plan may not
be cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, stock
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splits, recapitalizations, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in capitalization occurring
after the date of an Award to the same extent as would affect an actual share of
stock issued and outstanding on the effective date of such change. Such
adjustment to outstanding Options shall be made without change in the total
price applicable to the unexercised portion of such options, and a corresponding
adjustment in the applicable option price per share shall be made. In the event
of any such change, the aggregate number and classes of shares for which Options
may thereafter be granted under Section 5.1 of this Plan may be appropriately
adjusted as determined by the Committee so as to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Committee, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 425 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Committee determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
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In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective on April 23, 1993. The Plan shall
continue until such time as it may be terminated by action of the Board;
provided, however, that no Options may be granted under this Plan on or after
the tenth anniversary of the effective date hereof.
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Stock Option Plan -17- Amended 5/21/99
<PAGE>
ARTICE XIII
Conversion of ISO's into Non-Qualified Options;
Termination of ISO's
The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Committee (with the consent of the optionee) may impose such conditions on the
Exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall be not
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's Incentive Stock Options converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any Incentive Stock Option that has
not been exercised at the time of such termination.
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<PAGE>
ARTICLE XIV
Application of Funds
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Committee in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
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ARTICLE XVII
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
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Stock Option Plan -20- Amended 5/21/99
PALOMAR MEDICAL TECHNOLOGIES, INC.
SECOND AMENDED 1995 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of PALOMAR MEDICAL TECHNOLOGIES, INC. and of its
affiliated corporations upon whose judgment, initiative, and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
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<PAGE>
2.4 "Code" means the Internal Revenue Code of 1986, as amended form
time to time.
2.5 "Committee" means a committee of not less than two members of the
Board appointed by the Board to administer the Plan, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, or any successor provision. In the event that two
"disinterested persons" are not available to administer the Plan, the Board may
appoint to the Committee two members of the Board, either or both of whom are
not "disinterested persons," in which event this Plan shall not qualify under
Rule 16b-3, but this Plan shall be valid and operative in all other respects.
2.6 "Corporation" means PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after August 3,
1994.
2.8 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Committee under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Committee may establish.
2.9 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.10 "Plan" means this 1995 Stock Option Plan.
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<PAGE>
2.11 "Incentive Stock Option" ("ISO") means an option which qualifies
as an incentive stock option as defined in Section 422 of the Code, as amended.
2.12 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.13 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
2.14 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.15 "Restricted Period" means the period of time selected by the
Committee during which an Award may be forfeited by the person.
ARTICLE III
Administration of the Plan
3.1 ADMINISTRATION BY THE COMMITTEE. This Plan shall be administered by
the Committee as defined herein. From time to time the Board may increase the
size of the Committee and appoint additional members thereto, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan. No member of the Committee shall be liable for any
action or determination made in
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<PAGE>
good faith with respect to the Plan or any options granted under it.
3.2 POWERS. The Committee shall have full and final authority to
operate, manage, and administer the Plan on behalf of the Corporation. This
authority includes, but is not limited to:
(a) The power to grant Awards conditionally or
unconditionally,
(b) The power to prescribe the form or forms of the
instruments evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and rescind
regulations for interpretation, management and administration of the
Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration of the Plan,
(f) The power to delegate to other persons the responsibility
of performing ministerial acts in furtherance of the Plan's purpose,
and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but not
limited to,
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Stock Option Plan
<PAGE>
banks, insurance companies, brokerage firms, and consultants.
3.3 ADDITIONAL POWERS. In addition, as to each Option to buy Stock of
the Corporation, the Committee shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted; (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V; and (e) to determine whether each Option granted shall be an
Incentive Stock Option or a Non-qualified Option.
In no event may the Corporation grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock options plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such prusuant to Section
422(d)(1) of the Code.
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Stock Option Plan
<PAGE>
ARTICLE IV
Eligibility
4.1 ELIGIBLE EMPLOYEES. All Employees (including Directors and Officers
who are Employees and who have not irrevocably elected to be ineligible to
participate in the Plan) are eligible to be gratned Incentive Stock Optona and
Non-Qualified Option Awards
under this Plan.
4.2 CONSULTANTS, DIRECTORS AND OTHER NON-EMPLOYEES. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan provided the person has
not irrevocably elected to be ineligible to participate in the Plan, and
provided further that upon appointment to the Committee at the first Board of
Directors meeting following the Annual Meeting of the Shareholders, each
non-employee director appointed to the Committee shall be deemed to be
ineligible to participate under the Plan during his or her period of service on
the Committee.
4.3 RELEVANT FACTORS. In selecting individual Employees, Consultants,
Directors, and other Non-Employees to whom Awards shall be granted, the
Committee shall weigh such factors as are relevant to accomplish the purpose of
the Plan as stated in Article I. An individual who has been granted an Award may
be granted one or more additional Awards, if the Committee so determines. The
granting of an Award to any individual shall neither entitle that
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<PAGE>
individual to, nor disqualify him from, participation in any other grant of
Awards.
ARTICLE V
Stock Option Awards
5.1 NUMBER OF SHARES. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of stock for which Options may be granted
under this Plan shall not exceed 1,000,000 shares. The shares to be delivered
upon exercise of Options under this Plan shall be made available, at the
discretion of the Committee, either from authorized but unissued shares or from
previously issued and reacquired shares of Stock held by the Corporation as
treasury shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.
5.2 EFFECT OF EXPIRATION, TERMINATION OR SURRENDER. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
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Stock Option Plan
<PAGE>
5.3 TERM OF OPTIONS. The full term of each Option granted hereunder
shall be for such period as the Committee shall determine. In the case of
Incentive Stock Options granted hereunder, the term shall not exceed ten (10)
years from the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Section 6.3 and 6.4. Notwithstanding the foregoing,
the term of options intended to qualify as "Incentive Stock Options" shall not
exceed five (5) years from the date of granting thereof if such option is
granted to any employee who at the time such option is granted owns more than
ten percent (10% of the total combined voting power of all classes of stock of
the Corporation.
5.4 OPTION PRICE. The option price shall be determined by the Committee
at the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that in the case where an Incentive
Stock Option is granted hereunder to any Employee who at the time of grant owns
Stock possessing more than 10% of the combined voting power of all classes of
stock of the Corporation and its Affiliated Corporations, the Incentive Stock
Option price shall equal not less than 110% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted. In the
case of
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<PAGE>
Non-Qualified Stock Options, the exercise price shall not be less than par
value.
5.5 FAIR MARKET VALUE. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the business day for which the prices or quotes discussed in
this sentence are available on the date such Option is granted and shall mean
(i) the average (on that date) of the high and low prices of the Stock on the
principal national securities exchange on which the Stock is traded, if the
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Stock on the NASDAQ National Market
List, if the Stock is not the traded on a national securities exchange; or (iii)
the closing bid price (or average of bid prices) last quoted (on that date) by
an established quotation service for over-the-counter securities, if the Stock
is not reported on the NASDAQ National Market List. However, if the Stock is not
publicly traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Stock as determined by the
Committee under Section 3.3.
5.6 NON-TRANSFERABILITY OF OPTIONS. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee. Notwithstanding the above, in the event the
federal securities laws and the relevant tax laws change so as to permit the
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<PAGE>
transferability of the options provided by this Plan, then to such extent
permitted by law, such options may be transferred in accordance with this Plan.
5.7 FOREIGN NATIONALS. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
Exercise of Option
6.1 EXERCISE. Each Option granted under the Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Committee shall have the right to accelerate the date of exercise of
any option.
6.2 NOTICE OF EXERCISE. A person electing to exercise an Option shall
give written notice to the Corporation of such electino and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price, in cash, Corporation Stock, the exchange of
exercisable options, or by such other means as is authorized by the Board of
Directors, for the shares he or she has elected to purchase.
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<PAGE>
6.3 DELIVER OF STOCK. No shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor is
received by the Corporation. Such payment may be made in whole or in part in
cash or, to the extent permitted by the Committee at or after the grant of an
Option, by delivery of a note or shares of the Stock owned by the optionee,
including Restricted Stock, valued at their fair market value on the date of
delivery, or such other lawful consideration as the Committee may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased, he or she shall possess no rights of a record holder with respect
to any of such shares.
6.4 OPTION UNAFFECTED BY CHANGE IN DUTIES. No Incentive Stock Option,
and, unless otherwise determined by the Committee, no Non-Qualified Option
granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation, shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing and uninterrupted during any bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment
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Stock Option Plan
<PAGE>
under the Plan, provided that such written approval contractually obligates the
Corporation or any Affiliated Corporation to continue the employment of the
optionee after the approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have ac rued as of the date of such cessation;
provided that (i) the Committee may provide in the instrument evidencing any
Option that the Committee may in its absolute discretion, upon any such
cessation of employment, determine (but be under no obligation to determine)
that such accrued purchase rights shall be deemed to include additional shares
covered by such Option; and (ii) unless the Committee shall otherwise provide in
the instrument evidencing any Option, upon any such cessation of employment,
such remaining rights to purchase shall in any event terminate upon the earlier
of (A) the expiration of the original term of the Option; or (B) where such
cessation of employment is on account of disability, the expiration of one year
from the date of such cessation of employment and, otherwise, the expiration of
three months from such date. For purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code.
6.5 DEATH OF OPTIONEE. Should an optionee die while in possession of
the legal right to exercise an Option or Options
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<PAGE>
under this Plan, such persons as shall have acquired, by will or by the laws of
descent and distribution, the right to exercise any Options theretofore granted,
may, unless otherwise provided by the Committee in any instrument evidencing any
Option, exercise such Options at any time prior to one year from the ate of
death; provided, that such Option or Options shall expire in all events no later
than the last day of the original term of such Option; provided, further, that
any such exercise shall be limited to the purchase rights that have accrued as
of the date when the optionee ceased to be an Employee, whether by death or
otherwise, unless the Committee provides in the instrument evidencing such
Option that, in the discretion of the Committee, additional shares covered by
such Option may become subject to purchase immediately upon the death of the
optionee.
6.6 RELOAD OPTION GRANTS. The Committee, in its discretion, may also
grant stock options with "reload provisions" that permit the option holder to
exercise his or her stock options and receive new stock option grants for the
equivalent amount of stock underlying the option exercised, at the fair market
value on the date of such exercise. The reload options shall have the same
expiration date as the options they replace.
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Stock Option Plan
<PAGE>
ARTICLE VII
Reporting Person Limitations
Notwithstanding any other provision of the Plan, to the extent required
to qualify for the exemption provided by Rule 16b-3 under the Securities
Exchange Act of 1934, and any successor provision, (i) any Stock or other equity
security offered under the Plan to a Reporting Person may not be sold for at
least six (6) months after grant of an Option to acquire such Stock or other
equity security, except in case of death or disability and (ii) any Option, or
other similar right related to an equity security, issued under the Plan to a
Reporting Person shall not be transferable other than by will or the laws of
descent and distribution or in accordance with section 5.6 hereof, shall not be
exercisable for at least six (6) months except in the case of death or
disability, provided in the provisions of section 5.6 hereof, shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's guardian or legal representative.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in Article V and VI hereof
and may contain such other provisions as the Committee deems advisable that are
not
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Stock Option Plan
<PAGE>
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such NonQualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Committee may
determine. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the Corporation to execute and deliver such instruments. The proper officers of
the Corporation are authorized and directed to take any and all action necessary
or advisable from time to time to carry out the terms of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Committee may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
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Stock Option Plan
<PAGE>
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation, unless and to such extent, that applicable federal or state
law of regulation permit an amendment thereto:
(a) Except as provided in Article XI relative to capital
changes, and except as permitted by law or regulation where such change
is not deemed material, the number of shares as to which Options may be
granted pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in
the Plan.
Awards granted prior to suspension or termination of the Plan may not
be cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
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Stock Option Plan
<PAGE>
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Committee so
as to reflect such change. Notwithstanding the foregoing, any adjustments made
pursuant to this Article XI with respect to Incentive Stock Options shall be
made only after the Committee, after consulting with counsel for the
Corporation, determines whether such adjustments would constitute a
"modification" of such Incentive Stock Options (as that term is defined in
Section 425 of the Code) or would cause any adverse tax consequences for the
holders of such Incentive Stock Options. If the Committee determines that such
adjustments
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Stock Option Plan
<PAGE>
made with respect to Incentive Stock Options would constitute a modification of
such Incentive Stock Options, it may refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective on August 3, 1994. The Plan shall
continue until such time as it may be terminated by action of the Board;
provided, however, that no Options may be granted under
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Stock Option Plan
<PAGE>
this Plan on or after the tenth anniversary of the effective date hereof.
ARTICE XIII
Conversion of ISO's into Non-Qualified Options;
Termination of ISO's
The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Committee (with the consent of the optionee) may impose such conditions on the
Exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall be not
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's Incentive Stock Options converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any Incentive Stock
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Stock Option Plan
<PAGE>
Option that has not been exercised at the time of such termination.
ARTICLE XIV
Application of Funds
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVII) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Committee in its
discretion may
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Stock Option Plan
<PAGE>
condition the exercise of an Option on the payment of such additional
withholding taxes.
ARTICLE XVII
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
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Stock Option Plan
PALOMAR MEDICAL TECHNOLOGIES, INC.
SECOND AMENDED 1996 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. Purpose of the Plan 1
ARTICLE II. Definitions 1
ARTICLE III. Administration of the Plan 2
ARTICLE IV. Eligibility 3
ARTICLE V. Stock Option Awards 4
ARTICLE VI. Exercise of Option 5
ARTICLE VII. Reporting Person Limitations 7
ARTICLE VIII. Terms and Conditions of Options 7
ARTICLE IX. Benefit Plans 8
ARTICLE X. Amendment, Suspension or Termination
of the Plan 8
ARTICLE XI. Changes in Capital Structure 9
ARTICLE XII. Effective Date and Term of the Plan 10
ARTICLE XIII Conversion of ISOs into Non-Qualified
Options; Termination of ISOs 10
ARTICLE XIV. Application of Funds 10
ARTICLE XV. Governmental Regulation 11
ARTICLE XVI. Withholding of Additional Income Taxes 11
ARTICLE XVII. Notice to Company of Disqualifying
Disposition 11
ARTICLE XVIII. Governing Law; Construction 11
</TABLE>
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Stock Option Plan
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of PALOMAR MEDICAL TECHNOLOGIES, INC. and of its
affiliated corporations upon whose judgment, initiative, and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
2.4 "Code" means the internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a committee of not less than two members of the
Board appointed by the Board to administer the Plan, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, or any successor provision. In the event that
two "disinterested persons" are not available to administer the Plan, the Board
may appoint to the Committee two members of the Board, either or both of whom
are not "disinterested persons," in which event this Plan shall not qualify
under Rule 16b-3, but this Plan shall be valid and operative in all other
respects.
2.6 "Corporation" means PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after May 17,
1996.
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Stock Option Plan
<PAGE>
2.8 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Committee under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Committee may establish.
2.9 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.10 "Plan" means this 1996 Stock Option Plan.
2.11 "Incentive Stock Option" ("ISO") means an option which qualifies
as an incentive stock option as defined in Section 422 of the Code, as amended.
2.12 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.13 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
2.14 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934, as amended, or any successor provision.
2.15 "Restricted Period" means the period of time selected by the
Committee during which an Award may be forfeited by the person.
ARTICLE III
Administration of the Plan
3.1 ADMINISTRATION BY THE COMMITTEE. This Plan shall be administered by
the Committee as defined herein. From time to time the Board may increase the
size of the Committee and appoint additional members thereto, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
options granted under it.
3.2 POWERS. The Committee shall have full and final authority to
operate, manage, and administer the Plan on behalf of the Corporation. This
authority includes, but is not limited to:
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<PAGE>
(a) The power to grant Awards conditionally or
unconditionally,
(b) The power to prescribe the form or forms of the
instruments evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and rescind
regulations for interpretation, management and administration of the
Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with the Plan,
as the Committee may establish,
(f) The power to delegate to other persons the responsibility
of performing ministerial acts in furtherance of the Plan's purpose,
and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but not
limited to, banks, insurance companies, brokerage firms, and
consultants.
3.3 ADDITIONAL POWERS. In addition, as to each Option to buy Stock of
the Corporation, the Committee shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted, (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V; and (e) to determine whether each Option granted shall be an
Incentive Stock Option or a Non-Qualified Option.
In no event may the Corporation grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock options plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
ARTICLE IV
Eligibility
4.1 ELIGIBLE EMPLOYEES. All Employees (including Directors and Officers
who are Employees and who have not irrevocably elected to be ineligible to
participate in the Plan) are eligible to be granted Incentive Stock Option and
Non-Qualified Option Awards under this Plan.
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Stock Option Plan
<PAGE>
4.2 CONSULTANTS, DIRECTORS AND OTHER NON-EMPLOYEES. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan provided the person has
not irrevocably elected to be ineligible to participate in the Plan, and
provided further that upon appointment to the Committee at the first Board of
Directors meeting following the Annual Meeting of the Shareholders, each
non-employee director appointed to the Committee shall be deemed to be
ineligible to participate under the Plan during his or her period of service on
the Committee.
4.3 RELEVANT FACTORS. In selecting individual Employees, Consultants,
Directors, and other Non-Employees to whom Awards shall be granted, the
Committee shall weigh such factors as are relevant to accomplish the purpose of
the Plan as stated in Article 1. An individual who has been granted an Award may
be granted one or more additional Awards, if the Committee so determines. The
granting of an Award to any individual shall neither entitle that individual to,
nor disqualify him from, participation in any other grant of Awards.
ARTICLE V
Stock Option Awards
5.1 NUMBER OF SHARES. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 2,500,000 shares. The shares to be delivered
upon exercise of Options under this Plan shall be made available, at the
discretion of the Committee, either from authorized but unissued shares or from
previously issued and reacquired shares of Stock held by the Corporation as
treasury shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.
5.2 EFFECT OF EXPIRATION, TERMINATION OR SURRENDER. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 TERM OF OPTIONS. The full term of each Option granted hereunder
shall be for such period as the Committee shall determine. In the case of
incentive Stock Options granted hereunder, the term shall not exceed ten (10)
years from the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.4 and 6.5. Notwithstanding the foregoing,
the term of options intended to qualify as "Incentive Stock Options" shall not
exceed five (5) years from the date of granting thereof if such option is
granted to any employee who at the time such option is granted owns more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Corporation.
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Stock Option Plan
<PAGE>
5.4 OPTION PRICE. The option price shall be determined by the Committee
at the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that in the case where an Incentive
Stock Option is granted hereunder to any Employee who at the time of grant owns
Stock possessing more than 10% of the combined voting power of all classes of
stock of the Corporation and its Corporations, the Incentive Stock Option price
shall equal not less than 110% of the fair market value of the shares covered
thereby at the time the Incentive Stock Option is granted. In the case of
Non-Qualified Stock Options, the exercise price shall not be less than par
value.
5.5 FAIR MARKET VALUE. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the business day for which the prices or quotes discussed in
this sentence are available on the date such Option is granted and shall mean
(i) the average (on that date) of the high and low prices of the Stock on the
principal national securities exchange on which the Stock is traded, if the
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Stock on the NASDAQ National Market
List, if the Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time in Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Committee under Section 3.3.
5.6 NON-TRANSFERABILITY OF OPTIONS. Except as provided below, no Option
granted under this Plan shall be transferable by the grantee otherwise than by
will or the laws of descent and distribution, and such Option may be exercised
during the grantee's lifetime only by the grantee. Notwithstanding the above, in
the event the federal securities laws and the relevant tax laws change so as to
permit the transferability of the options provided by this Plan then to such
extent permitted by law, such options may be transferred in accordance with this
Plan.
5.7 FOREIGN NATIONALS. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the plan as the Committee considers
necessary or advisable to achieve the purpose of the Plan or comply with
applicable laws.
ARTICLE VI
Exercise of Option
6.1 EXERCISE. Each Option granted under the Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Committee shall have the right to accelerate the date of exercise of
any option.
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Stock Option Plan
<PAGE>
6.2 NOTICE OF EXERCISE AND PAYMENT. A person electing to exercise an
Option shall give written notice to theCorporation of such election and of the
number of shares he or she has elected to purchase and shall at the time of
exercise tender the full purchase price, in cash, Corporation Stock owned by him
or her for at least six months, or by such other means as is authorized by the
Board of Directors, for the shares he or she has elected to purchase.
6.3 DELIVERY OF STOCK. No shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor is
received by the Corporation. Such payment may be made in whole of in part in
cash or, to the extent permitted by the Committee at or after the grant of an
Option, by delivery of a note or shares of the Stock owned by the optionee,
including Restricted Stock, valued at their fair market value on the date of
delivery, or such other lawful consideration as the Committee may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased, he or she shall possess no rights of a record holder with respect
to any of such shares.
6.4 OPTION UNAFFECTED BY CHANGE IN DUTIES. No Incentive Stock Option,
and, unless otherwise determined by the Committee, no Non-Qualified Option
granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation, shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing and uninterrupted during any bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Corporation or any Affiliated Corporation to continue the
employment of the optionee after the approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Committee may in its absolute discretion, upon any
cessation of employment, determine (but be no under no obligation to determine)
that such accrued purchase rights shall be deemed to include additional shares
covered by such Option, and (ii) unless the Committee shall otherwise provide in
the instrument evidencing any Option, upon any such cessation of employment,
such remaining rights to purchase shall in any event terminate upon the earlier
of (A) the expiration of the original term of the Option; or (B) where such
cessation of employment is on account of disability, the expiration of one year
from the date of such cessation of employment and, otherwise, the expiration of
three months from such date. For purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code.
6.5 DEATH OF OPTIONEE. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Committee in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or
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Stock Option Plan
<PAGE>
Options shall expire in all events no later than the last day of the original
term of such Option; provided, further, that any such exercise shall be limited
to the purchase rights that have accrued as of the date when the optionee ceased
to be an Employee, whether by death or otherwise, unless the Committee provides
in the instrument evidencing such Option that, in the discretion of the
Committee, additional shares covered by such Option may become subject to
purchase immediately upon the death of the optionee.
6.6 RELOAD OPTION GRANTS. The Committee, in its discretion, may also
grant stock options with "reload provisions" that permit the option holder to
exercise his or her stock options and receive new stock option grants for the
equivalent amount of stock underlying the option exercise at the fair market
value on the date of such exercise. The reload options shall have the same
expiration date as the options they replace.
ARTICLE VII
Reporting Person Limitations
Notwithstanding any other provision of the Plan, to the extent required
to qualify for the exemption provided by Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and any successor provision, (i) any Stock or
other equity security offered under the Plan to a Reporting Person may not be
sold for at least six (6) months after grant of an option acquire such Stock or
other equity security, except in case of death or disability and (ii) any
Option, or other similar right related to an equity security, issued under the
Plan to a Reporting Person shall not be transferable other than by will or the
laws of descent and distribution or in accordance with section 5.6 hereof, shall
not be exercisable for at least six (6) months except in the case of death or
disability, provided in the provisions of section 5.6 hereof, shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's guardian or legal representative.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in Articles V and VI hereof
and may contain such other provisions as the Committee deems advisable that are
not inconsistent with the Plan, including restrictions applicable to shares of
Stock issuable upon exercise of Options. In granting any Non-Qualified Option,
the Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Committee may
determine. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the Corporation to execute and deliver such instruments. The proper officers of
the Corporation are authorized and directed to take any and all action necessary
or advisable from time to time to carry out the terms of such instruments.
Second Amended 1996 -8- Amended 5/21/99
Stock Option Plan
<PAGE>
ARTICLE IX
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Committee may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation, unless and to such extent, that applicable federal or state
law or regulation permit amendment thereto:
(a) Except as provided in Article XI relative to capital
changes, and except as permitted by law or regulation where such change
is not deemed material, the number of shares as to which Options may be
granted pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in
the Plan.
Awards granted prior to suspension or termination of the Plan may not
be cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends,
Second Amended 1996 -9- Amended 5/21/99
Stock Option Plan
<PAGE>
stock splits, recapitalizations, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in capitalization occurring
after the date of an Award to the same extent as would affect an actual share of
stock issued and outstanding on the effective date of such change. Such
adjustment to outstanding Options shall be made without change in the total
price applicable to the unexercised portion of such options, and a corresponding
adjustment in the applicable option price per share shall be made. In the event
of any such change, the aggregate number and classes of shares for which Options
may thereafter be granted under Section 5.1 of this Plan may be appropriately
adjusted as determined by the Committee so as to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this Article XI
with respect to Incentive Stock Options shall be made only after the Committee,
after consulting with counsel for the Corporation, determines whether such
adjustments would constitute a "modification" of such Incentive Stock Options
(as that term is defined in Section 425 of the Code) or would cause any adverse
tax consequences for the holders of such Incentive Stock Options. If the
Committee determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares,
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective upon its adoption the Board, PROVIDED
THAT the stockholders of the Corporation shall have approved this Plan within
twelve months following the adoption of this Plan by the Board. The Plan shall
continue until such time as it may be terminated by action of the Board;
provided, however, that no Options may be granted under this Plan on or after
the tenth anniversary of the effective date hereof.
Second Amended 1996 -10- Amended 5/21/99
Stock Option Plan
<PAGE>
ARTICLE XIII
Conversion of ISO's into Non-Qualified Options;
Termination of ISO's
The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Committee (with the consent of the optionee) may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's Incentive Stock Options converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any Incentive Stock Option that has
not been exercised at the time of such termination.
ARTICLE XIV
Application of Funds
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition as defined in Article XVII the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. The Committee in its
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Stock Option Plan
<PAGE>
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
Second Amended 1996 -12- Amended 5/21/99
Stock Option Plan
PALOMAR MEDICAL TECHNOLOGIES, INC.
THIRD AMENDED 1996 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of the Plan
The purpose of the Palomar Medical Technologies, Inc. Employee Stock
Purchase Plan is to encourage ownership of the common stock of Palomar Medical
Technologies, Inc. ("Palomar") by its eligible employees and any and each of its
participating subsidiaries, thereby enhancing such employees' personal interest
in the continued success and progress of Palomar. The plan is intended to
facilitate regular investment in the common stock of Palomar by offering
employees a convenient means to make purchases at a discounted price through
payroll deductions. The Plan is intended to comply with the provisions of
Section 423 of the Internal Revenue Code of 1986, as amended.
2. Definitions
For purposes of the Plan, the following terms shall have the meanings
indicated below:
(a) "Business Day" shall mean a day on which there is trading on the
New York Stock Exchange.
(b) "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(c) "Committee" shall mean the Compensation Committee of the Board of
Directors of Palomar.
(d) "Common Stock" shall mean Palomar's common stock, par value $.01
per share.
(e) "Company" shall mean Palomar and any of its subsidiaries (within
the meaning of Section 424(f) of the Code) whose Board of Directors has adopted
the Plan, with approval of the Board of Directors of Palomar, and which has not
terminated participation in or withdrawn from the Plan by action of such
subsidiary's Board of Directors or the Board of Directors of Palomar.
(f) "Compensation" shall mean the amount of a Participant's base wages,
overtime, commissions, cash bonuses, premium pay and shift differential, before
giving effect to any compensation reductions made in connection with any plans
described in Section 401(k) or Section 125 of the Code.
(g) "Custodian" shall mean the custodian appointed by the Committee
pursuant to Section 7 hereof to hold the shares of Common Stock purchased under
the Plan and subsequent Dividends reinvested or paid to Participant in cash.
(h) "Dividends" shall mean all cash dividends paid on shares of Common
Stock held in any Employee's Account.
(i) "Account" shall mean a separate account maintained by the Custodian
for each Participant which reflects, at any time, the number of shares of Common
Stock purchased under the Plan by such Participant as well as reinvested
Dividends held by the Custodian.
REVISED: 5/21/99
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(j) "Entry Date" shall mean the first Business Day of each Purchase
Period.
(k) "Eligible Employee" shall mean, with respect to any Purchase
Period, an employee of the Company who is eligible to participate in the Plan in
such Purchase Period under the rules set forth in Sections 5 and 8 hereof.
(l) The "Fair Market Value" of a share of Common Stock on any Business
Day shall be the closing bid price for such day of the Common Stock on the
principal securities market on which the Common Stock is traded. If on the date
for which Fair Market Value is to be determined the Common Stock is not eligible
for trading on any securities market, the Fair Market Value of a share of Common
Stock shall be determined by the Committee.
(m) "Participant" shall mean, with respect to any Purchase Period, each
Eligible Employee who has elected to have amounts deducted from his or her
Compensation pursuant to Section 6 hereof for such Purchase Period.
(n) "Plan" shall mean this 1996 Employee Stock Purchase Plan, as the
same may be amended from time to time.
(o) "Purchase Date" shall mean the last Business Day of each Purchase
Period.
(p) "Purchase Period" shall mean each of the three month periods ending
on the last days of March, June, September and December during the period when
the Plan is in effect. The first Purchase Period shall begin on October 1, 1996
and end on December 31, 1996.
3. Common Stock Available Under the Plan
The maximum number of shares of Common Stock which may be purchased
under the Plan shall be 142,857 shares, except as such maximum number may be
adjusted as provided in Section 12 hereof. Shares of Common Stock purchased
under the Plan may be authorized and previously unissued shares, treasury shares
(including shares purchased from time to time by Palomar), or any combination
thereof.
4. Administration of Plan
The Plan shall be administered by the Committee. The Committee shall
have the authority, consistent with the Plan, to interpret the Plan, to adopt,
amend and rescind rules and regulations for the administration of the Plan and
to make all determinations in connection therewith which may be necessary or
advisable, and all such actions shall be binding for all purposes under the
Plan. The Plan shall be administered at the expense of the Company.
5. Eligibility
Each employee of the Company shall be eligible to participate in the
Plan during each Purchase Period, provided that he or she is not, as of the
Entry Date for such Purchase Period:
(a) An employee who is customarily employed by the Company for fewer
than 20 hours per week, or for five or fewer months in any calendar year; or
(b) An employee who owns (within the meaning of Section 424(d) of the
Code) stock possessing 5% or more of the total combined voting power or value of
all classes of stock of Palomar,
REVISED: 5/21/99
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<PAGE>
treating as owned on Entry Date, for purposes of this clause, Common Stock which
such employee would be entitled to purchase on Purchase Date for such Purchase
Period but for this Section 5(c).
6. Participation
(a) On the Entry date for each Purchase Period, Palomar shall grant to
each Participant in the Plan for such Purchase Period an option to purchase on
the Purchase Date for such Purchase Period, at the applicable price specified in
Section 7 hereof, the number of shares of Common Stock which may be purchased,
at such price, with such participant's payroll deductions received during such
Purchase Period, subject to the terms and conditions of the Plan.
(b) Eligible Employees may elect to participate in the Plan as follows:
(i) Each Eligible Employee may elect to participate in the
Plan, effective on the Entry Date for any Purchase Period, by making an election
to participate at least 1 day prior to such Entry Date. Such election shall
authorize the Company to deduct an amount chosen by the employee equal to any
whole percentage between 1 and 15 percent, inclusive from such Employee's
Compensation paid during such Purchase Period.
(ii) After making the election pursuant to Section 6(b)(i)
hereof, a Participant shall automatically continue to participate in the Plan
during subsequent Purchase Periods until the Participant either withdraws from
the Plan or ceases to be an Eligible Employee. The percentage of the
Participant's Compensation deducted in subsequent Purchase Periods shall be the
percentage specified in the election made pursuant to Section 6(b)(i), as it may
be changed from time to time pursuant to Section 6(b)(iii) or 6(b)(iv) hereof.
(iii) Except as provided in Section 6(b)(iv) hereof, after the
last date for making an election described in Section 6(b)(i) hereof for the
Purchase Period, a Participant shall not be permitted to increase or reduce the
percentage of Compensation deducted from his or her Compensation paid during
each Purchase Period. A Participant may elect to reduce or increase the
percentage of his or her Compensation deducted pursuant to the Plan to any whole
percentage between 1 and 15, inclusive, effective for a subsequent Purchase
Period by filing an election not later than 1 day prior to the Entry Date for
such Purchase Period.
(iv) A Participant may elect at any time to reduce the
percentage of his or her Compensation deducted pursuant to the Plan to zero,
effective commencing with the next payroll period beginning after the making
of such election. All cash amounts already deducted during a Purchase Period
prior to the effectiveness of any such election shall be refunded to the
Participant.
(c) No interest will be paid to Participants on any payroll deductions.
(d) A Participant may at any time elect to withdraw from further
participation in the Plan, effective as of the next Business day following such
election. Any Participant whose employment with the Company terminates for any
reason (including without limitation termination by reason of death or
disability) shall be deemed to have made a withdrawal, effective the next
Business Day following such termination of employment. Upon any withdrawal, (i)
no further amounts shall be deducted from such Participant's Compensation
effective for any payroll period beginning after the effective date of
withdrawal, (ii) any outstanding option granted to such Participant under the
Plan shall terminate as of the effective date of the withdrawal, and no further
purchases of Common Stock under the Plan shall be made for such Participant or
after such date, and (iii) as soon as possible the Company will refund all cash
REVISED: 5/21/99
3
<PAGE>
deducted during the Purchase Period. Following any such withdrawal from the
Plan, an employee's eligibility to participate again in the Plan will be subject
to all provisions of Section 5 and 8 hereof.
(e) Notwithstanding any other provision of the Plan, an employee who
has withdrawn from the Plan pursuant to Section 6(d) hereof shall be deemed to
have made an irrevocable election not to participate in the Plan during the two
consecutive Purchase Periods immediately following the one in which such
withdrawal was made.
(f) Any election permitted by this Section 6 (other than an election
deemed made pursuant to Section 6(e)) shall be made in writing on the form
prescribed for such purpose by the Committee from time to time and shall be
delivered to the person or persons designated by the Committee. Any such
election shall be deemed made when such form is completed, signed by the
Participant and received by such designee.
7. Purchases of Common Stock
On the Purchase Date for each Purchase Period, all options granted
under the Plan on the first Business Day of such Purchase Period shall be deemed
to be exercised, and all amounts deducted pursuant to Section 6 hereof from the
Participant's Compensation during such Purchase Period shall be applied on such
date to purchase whole shares of Common Stock from the Company, unless such
Participant has withdrawn from the Plan during such Purchase Period effective on
or prior to such Purchase Date. With respect to shares of Common Stock
purchased, the purchase price per share shall be the lesser of (i) eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the Entry
Date of the Purchase Period, or (ii) eighty-five percent (85%) of the Fair
Market Value of a share of Common Stock on the Purchase Date of the Purchase
Period. The Committee shall appoint the Custodian for the Plan and to hold all
whole shares purchased under the Plan and to maintain a separate Account for
each Participant, in which Common Stock purchased by such Participant under the
Plan shall be held and Dividends received will be reinvested. Each Participant
shall receive a statement as soon as practicable after the end of each Purchase
Period reflecting purchases for his or her account under the Plan through the
end of such Purchase Period.
8. Limitation on Number of Shares purchased
Notwithstanding any other provision of the Plan, a Participant may
purchase up to a maximum of $25,000 worth of Common Stock during any calendar
year under the Plan and under all other "employee stock purchase plans" (within
the meaning of Section 423 of the Code) maintained by Palomar and its
subsidiaries (within the meaning of Section 424(f) of the Code). The value of
the shares of Common Stock purchased shall be based on the Fair Market Value of
a share of Common Stock on the Entry Date for each Purchase Period. In the event
that the amount of payroll deductions is greater than $25,000 in any given
calendar year, the Company will refund the excess to the Participant as soon as
practicable after such Purchase Date.
9. Rights as a Stockholder
From and after the Purchase Date on which shares of Common Stock are
purchased by the Participant under the Plan, such Participant shall have all of
the rights and privileges of a stockholder of Palomar with respect to such
shares. Prior to the Purchase Date on which shares of Common Stock may be
purchased by a Participant, such Participant shall not have any rights as a
stockholder of Palomar.
REVISED: 5/21/99
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<PAGE>
10. Notice of Disposition of Stock
Each Participant agrees, by his or her participation in the Plan, to
promptly notify Palomar in writing of any disposition of any Common Stock
purchased under the Plan occurring within 2 years after the Entry Date of the
Purchase Period in which such stock was purchased.
11. Rights Not Transferable
Rights under the Plan are not transferable, except that the right to
receive shares pursuant to the Plan may be transferred by will or the laws of
descent and distribution. Options granted to a Participant hereunder may be
exercised only by such Participant.
12. Adjustment for Capital Changes
In the event of any capital change by reason of any stock dividend or
split, recapitalization, merger in which Palomar is the surviving entity,
combination or exchange of shares or similar corporate change, the number and
type of shares or other securities of Palomar which Participants may purchase
under the Plan, and the maximum aggregate number of such shares or securities
which may be purchased under the Plan, shall be appropriately adjusted by the
Board of Directors of Palomar.
13. Amendments
The Board of Directors of Palomar may at any time, or from time to
time, amend the Plan in any respect, except that, without stockholder approval,
no amendment shall be made (a) increasing the number of shares which may be
purchased under the Plan (other than as provided in Section 12 herein), (b)
materially increasing the benefits accruing to Participants or (c) materially
modifying the requirements as to eligibility for participation in the Plan.
14. Laws and Regulations
(a) Notwithstanding any other provision of the Plan, the rights of
Participants to purchase Common Stock hereunder shall be subject to compliance
with all applicable Federal, state and foreign laws, rules and regulations and
the rules of each stock exchange upon which the Common Stock is from time to
time listed.
(b) The Plan and the purchase of Common Stock hereunder shall be
subject to additional rules and regulations, not inconsistent with the Plan,
that may be promulgated from time to time by the Committee regarding purchases
and sales of Common Stock.
15. Employment
The Plan shall not confer any right to continued employment upon any
employee of the Company.
16. Effective Date of the Plan; Termination
(a) The Plan shall become effective on October 1, 1996, subject to
approval by the shareholders of Palomar in accordance with applicable law and
the requirements of Section 423 of the Code.
REVISED: 5/21/99
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<PAGE>
(b) The Plan and all rights hereunder shall terminate on the earliest
to occur of:
(i) the date on which the maximum number of shares of Common
Stock available for purchase under the Plan as specified in Section 3 hereof has
been purchased;
(ii) the termination of the Plan by the Board of Directors of
Palomar; or
(iii) the effective date of any consolidation or merger in
which Palomar is not the surviving entity, any exchange or conversion of
outstanding shares of Palomar for or into securities of another entity or other
consideration, or any complete liquidation of Palomar.
In the event that on any Purchase Date the remaining shares of Common
Stock available for purchase under the Plan are insufficient to fully satisfy
Participants' outstanding options, such remaining available shares shall be
apportioned among and sold to such Participant in proportion to the amounts of
payroll deductions and the excess payroll deduction shall be returned to the
Participant as soon as practicable thereafter.
Upon any termination of the Plan, any shares in the employee's Account
shall be delivered by the Custodian to the employee or his or her legal
representative as soon as practicable following such termination.
REVISED: 5/21/99
6
AMENDMENT NO. 1 TO KEY EMPLOYEE AGREEMENT
AMENDMENT NO. 1, by and among Palomar Medical Technologies, Inc., a
Delaware corporation (the "Company") and Louis P. Valente ("Employee"), dated as
of May 15, 1999 (this "Amendment"), to Key Employee Agreement, dated as of May
15, 1997, between the Company and Employee.
W I T N E S S E T H :
WHEREAS, the Company and Employee are parties to a Key Employee
Agreement dated as of May 15, 1997 (the "Agreement");
WHEREAS, the Company and Employee wish to amend the Agreement upon the
terms and subject to the conditions set forth herein; and
NOW THEREFORE, in consideration of the premises and the covenants
contained in this Amendment and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMENDMENTS. (a) Section 2.2(e) of the Agreement is amended by
deleting the final two sentences thereof and replacing them in their entirety by
the following: "If, however, a change in control of the Company should occur
followed by termination of your employment (either by the Company without Cause
or as a result of your resignation) at any time during the term of this
Agreement, then you shall be entitled to receive as severance pay three times
your Base Salary as then in effect in a lump sum payment in addition to all
earned incentive compensation in accordance with EXHIBIT A attached. For
purposes of this Agreement "change in control" shall be deemed to be (i) the
sale of all or substantially all of the assets of the Company; (ii) any person,
together with its affiliates and associates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, or any successor rule thereto) shall become the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act),
including by merger or otherwise, of more than fifty percent (50%) of the total
voting power of all classes of voting stock of the Company; or (iii) that any
person, together its affiliates and associates (as defined in Rule 12b-2 under
the Securities Exchange Act of 1934, or any successor rule thereto) has
succeeded as the result of or in response to actual or threatened election
contests, whether by settlement or otherwise, in having elected to the Board of
Directors of the Company, whether at one time or on a cumulative basis, a
sufficient number of nominees who were not nominees of the Board of Directors or
the management of the Company to constitute (x) more than thirty percent (30%)
of the members of the Company's Board of Directors, rounded down to the nearest
whole number, if the number of directors on the Company's Board is eight or
less, or (y) more than forty percent (40%) of the members of the Company's
Board, rounded down to the nearest whole number, if the number of directors on
the Company's Board is nine or more."
(b) Section 2 (Compensation) of Exhibit A to the Agreement is amended
by deleting the figure TWO HUNDRED AND SEVENTY-FIVE THOUSAND DOLLARS ($275,000)
and replacing it with the figure THREE HUNDRED THOUSAND DOLLARS ($300,000).
2. EFFECTIVENESS. From and after the date hereof, all references in the
Agreement to the Agreement shall be deemed to be references to such Agreement as
amended hereby.
<PAGE>
3. AGREEMENT. Except as amended by this Amendment, the Agreement shall
remain in effect in accordance with its terms.
4. MISCELLANEOUS. (a) This Amendment shall be construed and interpreted
in accordance with the laws of the Commonwealth of Massachusetts.
(b) This Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts,
each of which counterparts when so executed and delivered, shall be
deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same instrument. This Amendment may be
executed and delivered by a party by a telephone line facsimile
transmission bearing a signature on behalf of such party transmitted by
such party to the other party.
(c) Section and paragraph headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
(d) Any provision of this Amendment that is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the
remaining provisions hereof or affecting the validity, enforceability
or legality of such provision in any other jurisdiction.
(e) No amendment or waiver of any provision of this Amendment
shall in any event be effective unless the same shall be in writing and
signed by the party to be charged with enforcement thereof and any such
waiver shall be effective only in the specific instance and for the
specific instance and for the specific purpose for which given. No
failure on the part of any party to exercise, and no delay in
exercising, any right under this Amendment shall operate as a waiver
thereof by such party. No single or partial exercise of any right under
this Amendment shall preclude any other or further exercise thereof or
the exercise of any other right.
IN WITNESS WHEREOF, the parties hereto have executed, delivered and
made effective this Amendment as of May 15, 1999.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Sarah Burgess Reed
----------------------------
Name: Sarah Burgess Reed
Title: General Counsel
/s/ Louis P. Valente
- -----------------------------
Louis P. Valente
AMENDMENT NO. 1 TO KEY EMPLOYEE AGREEMENT
AMENDMENT NO. 1, by and among Palomar Medical Technologies, Inc., a
Delaware corporation (the "Company") and Michael H. Smotrich ("Employee"), dated
as of May 15, 1999 (this "Amendment"), to Key Employee Agreement, dated as of
April 1, 1998, between the Company and Employee.
W I T N E S S E T H :
WHEREAS, the Company and Employee are parties to a Key Employee
Agreement dated as of April 1, 1998 (the "Agreement");
WHEREAS, the Company and Employee wish to amend the Agreement upon the
terms and subject to the conditions set forth herein; and
NOW THEREFORE, in consideration of the premises and the covenants
contained in this Amendment and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMENDMENT. Section 2.2(e) of the Agreement is amended by deleting
the final two sentences thereof and replacing them in their entirety by the
following: "If, however, a change in control of the Company should occur
followed by termination of your employment (either without Cause or as a result
of your resignation) at any time during the term of this Agreement, then you
shall be entitled to receive as severance pay three times your Base Salary as
then in effect in a lump sum payment in addition to all earned incentive
compensation in accordance with EXHIBIT A attached. For purposes of this
Agreement "change in control" shall be deemed to be (i) the sale of all or
substantially all of the assets of the Company; (ii) any person, together with
its affiliates and associates (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, or any successor rule thereto) shall become the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act), including by
merger or otherwise, of more than fifty percent (50%) of the total voting power
of all classes of voting stock of the Company; or (iii) that any person,
together its affiliates and associates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, or any successor rule thereto) has succeeded as
the result of or in response to actual or threatened election contests, whether
by settlement or otherwise, in having elected to the Board of Directors of the
Company, whether at one time or on a cumulative basis, a sufficient number of
nominees who were not nominees of the Board of Directors or the management of
the Company to constitute (x) more than thirty percent (30%) of the members of
the Company's Board of Directors, rounded down to the nearest whole number, if
the number of directors on the Company's Board is eight or less, or (y) more
than forty percent (40%) of the members of the Company's Board, rounded down to
the nearest whole number, if the number of directors on the Company's Board is
nine or more.
2. EFFECTIVENESS. From and after the date hereof, all references in the
Agreement to the Agreement shall be deemed to be references to such Agreement as
amended hereby.
3. AGREEMENT. Except as amended by this Amendment, the Agreement shall
remain in effect in accordance with its terms.
<PAGE>
4. MISCELLANEOUS. (a) This Amendment shall be construed and interpreted
in accordance with the laws of the Commonwealth of Massachusetts.
(b) This Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts,
each of which counterparts when so executed and delivered, shall be
deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same instrument. This Amendment may be
executed and delivered by a party by a telephone line facsimile
transmission bearing a signature on behalf of such party transmitted by
such party to the other party.
(c) Section and paragraph headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
(d) Any provision of this Amendment that is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the
remaining provisions hereof or affecting the validity, enforceability
or legality of such provision in any other jurisdiction.
(e) No amendment or waiver of any provision of this Amendment
shall in any event be effective unless the same shall be in writing and
signed by the party to be charged with enforcement thereof and any such
waiver shall be effective only in the specific instance and for the
specific instance and for the specific purpose for which given. No
failure on the part of any party to exercise, and no delay in
exercising, any right under this Amendment shall operate as a waiver
thereof by such party. No single or partial exercise of any right under
this Amendment shall preclude any other or further exercise thereof or
the exercise of any other right.
IN WITNESS WHEREOF, the parties hereto have executed, delivered and
made effective this Amendment as of May 15, 1999.
PALOMAR MEDICAL TECHNOLOGIES, INC.
BY: /s/ Louis P. Valente
---------------------------------
Name: Louis P. Valente
Title: Chief Executive Officer
/s/ Michael H. Smotrich
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Michael H. Smotrich
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT")
entered into as of this 30 day of June, 1999, amends and restates the Employment
Agreement made as of January 1, 1997, between Palomar Medical Technologies,
Inc., a Delaware corporation (the "COMPANY"), and Joseph Caruso, an individual
(the "EXECUTIVE"),
WITNESSETH THAT:
WHEREAS, the Company desires to employ Executive as its Chief Financial
Officer for the period and upon and subject to the terms herein provided; and
WHEREAS, the Company desires to be assured that Executive will not
compete with the Company for the period and within the geographical areas
hereinafter specified; and
WHEREAS, Executive is willing to agree to be employed by the Company
for the period and upon and subject to the terms herein provided; and
WHEREAS, Executive does not desire to work for the Company in a
position lower than that of Chief Financial Officer and is willing to agree not
to compete with the Company;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
SECTION 1. TERM OF EMPLOYMENT; COMPENSATION. The Company agrees to
employ Executive from January 1, 1997 until December 31, 1999 (the "Term") as
its Chief Financial Officer, with the responsibilities normally associated with
such position (the "EXECUTIVE POSITION"). The Company will pay Executive for his
services during the term of his employment hereunder at an annual rate of Two
Hundred Thousand Dollars ($200,000), subject to a 15% increase per year, payable
in arrears, in equal installments, in accordance with standard Company practice,
but in any event not less often than monthly, subject only to such payroll and
withholding deductions as are required by law.
SECTION 2. OFFICE AND DUTIES. Executive shall have the usual duties,
responsibilities and authority (the "EXECUTIVE'S AUTHORITY") of a Chief
Financial Officer, and shall report to the Board of Directors of the Company,
and shall perform such specific other tasks, consistent with his position as
Chief Financial Officer, as may from time to time be assigned to him by the
Board of Directors. Executive shall devote substantially all of his business
time, labor, skill, undivided attention and best ability to the performance of
his duties hereunder. Executive may not, without Executive's consent, be
required to perform Executive's duties at any location that is more than fifty
(50) miles from the Company's principal office in Beverly, Massachusetts, except
that Executive agrees that he will travel to whatever extent is reasonably
necessary in the conduct of the Company's business.
SECTION 3. EXPENSES. Executive shall be entitled to reimbursement for
expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers therefor in accordance with such procedures
as the Company has heretofore or may hereafter establish.
<PAGE>
SECTION 4. VACATION DURING EMPLOYMENT. Executive shall be entitled to
such reasonable vacations as may be allowed by the Company in accordance with
general practices to be established, but in any event not less than four (4)
weeks during each twelve (12) month period.
SECTION 5. ADDITIONAL BENEFITS. The Company shall make available to
Executive at least those perquisites presently granted to Executive. Nothing
herein contained shall preclude Executive, to the extent he is otherwise
eligible, from participation in all group insurance programs or other fringe
benefit plans which the Company may hereafter in its sole and absolute
discretion make available generally to its employees, but the Company shall not
be required to establish or maintain any such program or plan.
SECTION 6. TERMINATION BY THE COMPANY. The Company shall have the right
to terminate Executive's employment at any time for "Cause". For purposes of
this Agreement, "Cause" shall mean (a) termination by action of a majority of
the members of the Company's Board of Directors, acting on the written opinion
of counsel, because of Executive's willful and continued refusal, without proper
cause, to perform substantially Executive's duties under this Agreement; or (b)
the conviction of Executive of a felony or an act of fraud or embezzlement
against the Company or any of its divisions, subsidiaries of affiliates (which
through lapse of time or otherwise is not subject to appeal). Such termination
shall be effected by written notice thereof, personally hand delivered by the
Company to Executive, and, except as hereinafter provided, shall be effective as
of the thirtieth (30th) calendar day after such notice; PROVIDED, however, that
if within such thirty (30) calendar day period Executive shall cease Executive's
reftisal and shall use Executive's best efforts to perform such obligations, the
termination shall not be effective.
SECTION 7. TERMINATION BY DEATH. In the event Executive dies during the
Term, Executive's employment shall terminate (effective on the date of
Executive's death) and the provisions of Section 10 shall be applicable.
SECTION 8. TERMINATION BY Disability. In the event that Executive
suffers a disability which prevents Executive from substantially performing
Executive's duties under this Agreement for a period of at least one hundred
eighty (180) consecutive or nonconsecutive calendar days within any three
hundred sixty-five (365) calendar day period, the Company shall have the right,
after such one hundred eighty (180) calendar day period has elapsed, to
terminate Executive's employment hereunder upon thirty (30) calendar days
written notice to Executive and the provisions of Section 10 shall be
applicable.
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Section 9. TERMINATION BY EXECUTIVE. Notwithstanding any other
provisions of this Agreement, Executive may terminate Executive's employment
either (i) in the event of a "Change in Control" or (ii) by written notice
served upon the Company within thirty (30) calendar days after Executive has
knowledge of an event constituting "GOOD REASON."
For purposes of this Agreement, the term "CHANGE IN CONTROL" shall mean
either (i) that, after January 1, 1997, any person (an "ACQUIRING Person"),
together with its affiliates and associates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, or any successor rule thereto) shall become the
beneficial owner (as defined in Rule 13d-3 under the Securities and Exchange
Act), including by merger or otherwise, of more than fifty percent (50%) of the
total voting power of all classes of voting stock of the Company or (ii) that
one or more Acquiring Persons has succeeded as the result of or in response to
actual or threatened election contests, whether by settlement or otherwise, in
having elected to the Board of Directors of the Company, whether at one time or
on a cumulative basis, a sufficient number of its nominees to constitute (x)
more than thirty percent (30%) of the members of the Company's Board of
Directors, rounded down to the nearest whole number, if the number of directors
on the Company's Board is eight or less, or (y) more than forty percent (40%) of
the members of the Company's Board, rounded down to the nearest whole number, if
the number of directors on the Company's Board is nine or more.
For purposes of this Agreement, the term "Good Reason" shall mean:
(i) any action by the Company which results in a diminution in
the Executive Position or in the Executive's Authority;
(ii) any failure by the Company to timely pay the amounts or
provide the benefits described in this Agreement, other than an
isolated failure not occurring in bad faith and which is remedied
promptly after receipt of written notice thereof given by Executive; or
(iii) a material breach by the Company of any of the
provisions of this Agreement which failure or breach shall have
continued for thirty (30) days after written notice from Executive to
the Company specifying the nature of such failure or breach; or
(iv) any action by the Company that would result in a
violation of SECTION 2.
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<PAGE>
SECTION 10. EFFECT OF TERMINATION. (a) FOR CAUSE; WITHOUT GOOD REASON
AND NO CHANGE IN CONTROL; AND DEATH. In the event of termination of this
Agreement (i) by the Company for Cause, (ii) by the Executive without Good
Reason or Change in Control or (iii) by reason of the death of the Executive,
the Company shall pay Executive (or Executive's beneficiary in the event of the
Executive's death) any base salary or other compensation earned (and a pro rata
portion of the bonus payable with respect to the year in which termination
occurred) but not paid to Executive prior to the effective date of such
termination and, in the case of termination by reason of death, the Company
shall pay Executive's beneficiary (i) the base salary that Executive would have
earned for a period of six (6) months following his death, plus (ii) a pro rata
portion of any bonuses or other incentive compensation that Executive would have
earned if he had been employed for the full fiscal year in which he died payable
at the time of payment of similar bonuses made to other Executives of the
Company, plus (iii) any death benefits that Executive is entitled to under the
Company's policies in effect on Executive's date of death.
(b) WITHOUT CAUSE; FOR GOOD REASON. In the event of (i) termination of
this Agreement by the Company other than for Cause, (ii) termination of this
Agreement by Executive for Good Reason without a Change in Control, the Company
shall pay Executive, in a lump stun within thirty (30) days after termination
under this Section 10(B), the sum of (A) the amount described in Section 10(a)
of this Agreement (other than the payments to be paid in case of termination by
death), and (B) the amount equal to one time (lx) the Executive's annual base
salary in effect at the time of termination under this SECTION 10(B), and the
Company shall continue during the Term all of the benefits and perquisites set
forth in SECTION 5, notwithstanding the fact that Executive may no longer be an
employee eligible to participate in one or more of the employee benefit plans
maintained by the Company.
(c) CHANGE IN CONTROL (OTHER THAN AN APPROVED CHANGE IN CONTROL). In
the event of termination of this Agreement by Executive within one (1) year
after a Change in Control (other than an Approved Change in Control), the
Company shall pay Executive, in a lump sum payment within thirty (30) days after
termination under this SECTION 10(C), the sum of (A) the amount described in
Section 10(a) of this Agreement (other than the payments to be made in case of
termination by death), and (B) the amount equal to four (4x) times Executive's
Annual Compensation, and the Company shall continue during the Term all of the
benefits and perquisites set forth in Section 5, notwithstanding the fact that
Executive may no longer be an employee eligible to participate in one or more of
the employee benefit plans maintained by the Company.
For purposes of this Agreement, the term "APPROVED CHANGE IN CONTROL"
shall mean a Change of Control that has occurred with the prior approval of a
majority of the Continuing Directors and the term "CONTINUING DIRECTOR" shall
mean any member of the Board of Directors of the Company who is not an Acquiring
Person or a nominee or representative of an Acquiring Person or of any affiliate
or associate of an Acquiring Person and any successor to a Continuing Director
who was recommended for election or elected to succeed a Continuing Director by
a majority of the Continuing Directors then on the Board of Directors of the
Company.
For purposes of this SECTION 10(C) of this Agreement the term
"EXECUTIVE'S ANNUAL COMPENSATION" shall mean (i) the sum of (A) the Executive's
base salary set forth in Section I and
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(B) any bonus compensation to which Executive would have been entitled if
Executive continued to be employed under this Agreement to the end of 1996,
PROVIDED that if the Executive's base salary or bonuses compensation is
increased after 1996 the term shall mean the higher of the Executive annual
salary immediately prior to such change or the sum of (a) the base salary in
effect at the time of termination and (b) any bonus compensation to which
Executive would have been entitled if Executive had continued to be employed
under this Agreement to the end of the Company's fiscal year in which his
employment terminated.
(d) WITH GOOD REASON FOLLOWING AN APPROVED CHANGE IN CONTROL. In the
event of termination of this Agreement by Executive with Good Reason within one
(1) year after an Approved Change in Control, the Company shall pay Executive,
in a lump sum payment within thirty (30) days after termination under this
SECTION 10(C), the sum of (A) the amount described in Section 10(A) of this
Agreement (other than the payments to be made in case of termination by death),
(B) the amount equal to four (4x) times the sum of (i) Executive's annual base
salary in effect at the time of termination, and (ii) any bonus compensation to
which Executive would have been entitled if Executive had remained as an
employee under this Agreement to the end of the Company's fiscal year in which
his employment terminated, and the Company shall continue during the Term all of
the benefits and perquisites set forth in Section 5, notwithstanding the fact
that Executive may no longer be an employee eligible to participate in one or
more of the employee benefit plans maintained by the Company.
(e) DISABILITY. In the event of termination of this Agreement by reason
of disability, the Company shall continue to pay Executive's base salary at the
time of such termination for the remainder of the Term, reduced by the maximum
amount of salary which may be insured under the Company's Long Term Disability
Plan at the time of disability.
SECTION 11. EXCISE TAXES. In the event that Executive shall have
imposed upon him the tax which is imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "CODE"), or by any successor provision, by
reason of any payment or benefit which Executive has received under this
Agreement, the Company shall pay as additional compensation to Executive an
amount equal to the amount of the tax imposed by Code Section 4999 (the "SPECIAL
TAX PAYMENT") as a result of the receipt of such payment, or benefit; provided
that the Special Tax Payment shall NOT be increased to account for excise or
other tax imposed as a result of the making of the Special Tax Payment.
SECTION 12. ACCELERATION AND EXPIRATION OF OPTIONS. Any options or
warrants to purchase capital stock of the Company (collectively, the
"OPTIONS") granted by the Company to Executive that have not yet become
exercisable shall become exercisable upon the earliest to occur of (a) the
termination of Executive's employment as a result of Executive's death or
disability; (b) the termination by Executive with Good Reason; or (c) the
termination by Executive after a Change in Control (other than an Approved
Change in Control). Notwithstanding the foregoing, all Options, whether
currently exercisable or not, shall expire and cease to be exercisable as
follows:
(a) if the Company terminates Executive's employment for
Cause, immediately upon the effective date of such termination;
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<PAGE>
(b) if Executive terminates Executive's employment with the
Company other than for Good Reason, a Change in Control, death, or
disability, immediately upon the effective date of such termination;
(c) if Executive terminates Executive's employment with the
Company with Good Reason or after a Change in Control (other than an
Approved Change in Control), ninety (90) days after the effective date
of such termination (but in no event later than the date the Term would
expire without giving effect to any automatic renewal).
(d) if Executive dies while employed by the Company, six (6)
calendar months after Executive's death (but in no event later than the
date the Term would expire without giving effect to any automatic
renewal); and
(e) if Executive's employment is terminated as a result of
disability, six (6) calendar months after the effective date of such
termination (but in no event later than the date the Term would expire
without giving effect to any automatic renewal).
SECTION 13. NO MITIGATION; NO OFFSET. Executive shall be under no
obligation to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, and there shall be no
offset against amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that Executive may
obtain.
SECTION 14. DISCLOSURE AND ASSIGNMENT OF INTELLECTUAL PROPERTY.
(a) Executive agrees that the Company, and its successors and
assigns shall own all right, title and interest throughout the world in
and to all research, information, inventions, designs, procedures,
developments, discoveries, improvements, patents and applications
therefor, trademarks and applications therefor, copyrights and
applications therefor, trade secrets, drawings, plans, systems,
methods, specifications, and all other manufacturing, engineering,
technical, research and development data and know-how (herein sometimes
"INTELLECTUAL PROPERTY") made, conceived, developed and/or acquired by
him solely or jointly with others during the period of his employment
with the Company or within one year thereafter, which relate to the
manufacture, production or processing of any products developed or sold
by the Company during the term of this Agreement or which are within
the scope of or usable in connection with the Company's business as it
may, from time to time, hereafter be conducted or proposed to be
conducted, whether or not made during my regular working hours and
whether or not made on the Company's premises.
(b) Executive agrees that any such Intellectual Property shall
constitute a work made for hire under the copyright laws of the United
States and, to the extent any such Intellectual Property shall be
determined not to be a work made for hire, Executive hereby assigns,
and, to the extent any such assignment cannot be made at the present
time, Executive hereby agrees to assign, to the Company all of my
right, title and interest throughout the world,
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including, without limitation, copyright, patent and trade secret
rights, in and to the Intellectual Property, together with Executive's
right to file for and/or own wholly without restriction United States
and foreign patents, trademarks and copyrights with respect thereto.
Executive specifically agrees and acknowledges that the foregoing
assignment covers all results, outputs and products of his work for the
Company prior to January 1, 1997, whether as an employee or as a
consultant, and all related copyrights, patents and other proprietary
rights, and that all such results, outputs and products shall be
Intellectual Property hereunder and the sole property of the Company
hereafter.
(c) Executive agrees to execute all appropriate patent
applications securing all United States and foreign patents on all
Intellectual Property, and to do, execute and deliver any and all acts
and instruments that may be necessary or proper to vest all
Intellectual Property in the Company or its nominee or designee and to
enable the Company, or its nominee or designee, to obtain all such
patents; and Executive agrees to render to the Company, or its nominee
or designee, all such assistance as it may require in the prosecution
of all such patent applications and applications for the re-issue of
such patents, and in the prosecution or defense of all interferences
which may be declared involving any of said patent applications or
patents, but the expense of all such assignments and patent
applications, or all other proceedings referred to herein above, shall
be borne by the Company. Executive shall be entitled to fair and
reasonable compensation for any such assistance requested by the
Company or its nominee or designee and furnished by him after the
termination of his employment. Executive shall make and maintain
adequate and current written records of all Intellectual Property, and
Executive shall disclose all Intellectual Property promptly, fully and
in writing to the Company immediately upon development of the same and
at any time upon request.
SECTION 15. CONFIDENTIALITY. Executive shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any Confidential Information, as
hereinafter defined. The term "CONFIDENTIAL INFORMATION" as used throughout this
Agreement shall mean all trade secrets, proprietary information and other data
or information (and any tangible evidence, record or representation thereof),
whether prepared, conceived or developed by an employee of the Company or
received by the Company from an outside source, which is in the possession of
the Company (whether or not the property of the Company), which in any way
relates to the present or future business of the Company, which is maintained in
confidence by the Company, or which might permit the Company or its customers to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. All
originals and copies of any of the foregoing, relating to the business of the
Company, however and whenever produced, shall be the sole property of the
Company, not to be removed from the premises or custody of the Company without
in each instance first obtaining written consent or authorization of the
Company. Upon the termination of Executive's employment in any manner or for any
reason, Executive shall promptly surrender to the Company all copies of any of
the foregoing, together with any other documents, materials, data, information
and equipment belonging to or relating to the Company's business and in his
possession, custody or control, and Executive shall not thereafter retain or
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deliver to any other person, any of the foregoing or any sunnnary or memorandum
thereof.
SECTION 16 .RESTRICTION. The Company has invested and may in the future
be required to invest substantial sums of money, directly or indirectly, to
continue and expand the business heretofore conducted by it and in connection
therewith, and as Executive recognizes that the Company would be substantially
injured by Executive disclosing to others, or by Executive using for his own
benefit, any Intellectual Property or any of the other types of information
referred to in Section 15 as Confidential Information, Executive agrees that
during the period of his employment hereunder and for a period ending
twenty-four (24) months after the term of this Agreement:
(a) Neither he nor any member of his family will be
interested, directly or indirectly, as an investor in any other business or
enterprise similar to that of the Company or in competition with the Company
(except as an investor in securities listed on a national securities exchange or
actively traded over the counter; and
(b) He will not, directly or indirectly, for his own account
or as employee, officer, director, partner, joint venturer or otherwise, engage
within the United States or Canada, in any phase of the business of
manufacturing, distributing or selling of lasers for use in medical or cosmetic
procedures.
(c) Executive shall not solicit, induce, attempt to hire, or
hire any employee of the Company (or any other person who may have been employed
by the Company during the term of his employment with the Company), or assist in
such hiring by any other person or business entity or encourage any such
employee to terminate his or her employment with the Company.
Executive and the Company are of the belief that the period of time,
the geographic area and the range of activities limited by this SECTION 16 are
reasonable, in view of the nature of the business in which the Company is
engaged and proposes to engage, the state of its product development and
Executive's knowledge of this business. However, if such period, or range of
activities area should be adjudged unreasonable in any judicial proceeding, then
the period of time shall be reduced by such number of months, such area shall be
reduced by elimination of such portion of such area, and/or such range of
activities shall be reduced by elimination of such activities, as are deemed
unreasonable, so that this covenant may be enforced in such area and during such
period of time as is adjudged to be reasonable.
SECTION 17. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered or
three (3) days after mailing if mailed by first- class, registered or certified
mail, postage prepaid, addressed (a) if to Executive, at the address set forth
below his name on the signature page hereof, or to such other person(s) or
addresses) as Executive shall have furnished to the Company in writing; and (b)
if to the Company, at 45 Hartwell Avenue, Lexington, MA 02421, Attn: Mr. Louis
P. Valente, with a copy to Foley, Hoag & Eliot, One Post Office Square, Boston,
Massachusetts 02109, Attn: David A. Broadwin, Esq. or to such other person(s) or
addresses) as the Company shall have furnished to Executive in writing.
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SECTION 18. ASSIGNABILITY. In the event that the Company shall be
merged with, or consolidated into, any other corporation, or in the event that
it shall sell and transfer substantially all of its assets to another
corporation, the terms of this Agreement shall inure to the benefit of, and be
assumed by, the corporation resulting from such merger or consolidation, or to
which the Company's assets shall be sold and transferred. This Agreement shall
not be assignable by Executive, but it shall be binding upon, and shall inure to
the benefit of, his heirs, executors, administrators and legal representatives.
SECTION 19. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the Company and Executive with respect to the subject matter
hereof and there have been no oral or other agreements of any kind whatsoever as
a condition precedent or inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof. This Agreement
supersedes the Employment Agreement dated January 1, 1997 by and between the
Executive and the Company.
SECTION 20 .EXPENSES. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise herein specifically provided.
SECTION 21. EQUITABLE RELIEF. Executive recognizes and agrees that the
Company's remedy at law for any breach of the provisions of SECTIONS 14, 15 or
16 hereof would be inadequate, and he agrees that for breach of such provisions,
the Company shall, in addition to such other remedies as may be available to it
at law or in equity or as provided in this Agreement, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by law. Should Executive engage in any activities prohibited by
this Agreement, he agrees to pay over to the Company all compensation,
remunerations or moneys or property of any sort received in connection with such
activities; such payment shall not impair any rights or remedies of the Company
or obligations or liabilities of Executive which such parties may have under
this Agreement or applicable law.
SECTION 22. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; PROVIDED, HOWEVER, THAT no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
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SECTION 23. AMENDMENTS. This Agreement may not be amended, nor shall
any waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
SECTION- 24. SEVERABILITY. If any provision of this Agreement shall be
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflicting of any provision
with any constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
or provisions in question, invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
SECTION 25. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
SECTION 26. SECTION HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 27. GENERAL PROVISIONS.
(a) Executive further agrees that his obligations under SECTIONS 14, 15
and 16 of this Agreement shall be binding upon him irrespective of the duration
of his employment by the Company, the reasons for any cessation of his
employment by the Company, or the amount of his compensation and shall survive
the termination of this Agreement (whether such termination is by the Company,
by Executive, upon expiration of this Agreement or otherwise).
(b) Executive represents and warrants to the Company that he is not now
under any obligations to any person, firm or corporation, and has no other
interest which is inconsistent or in conflict with this Agreement, or which
would prevent, limit or impair, in any way, the performance by him of any of the
covenants or his duties in his said employment.
SECTION 28. GENDER. Whenever used herein, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
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SECTION 92. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Louis P. Valente
--------------------
Name: Louis P. Valente
Title: Chief Executive Officer
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE READ ALL
THE PROVISIONS OF THIS AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
EXECUTIVE:
/s/ Joseph P. Caruso
--------------------
Notice Address:
30 Zachary Lane
------------------
Reading, MA 01867
------------------
CRES DEVELOPMENT COMPANY, INC.
COMMERCIAL LEASE
In consideration of the components herein contained, 82 Cambridge
Street Associates, LLC (an entity controlled by CRES Development Company, Inc.),
hereinafter called LESSOR, does hereby lease to Palomar Medical Technologies,
Inc., hereinafter called LESSEE, the following described premises, hereinafter
called the leased premises: A portion of the first floor of 82 Cambridge Street,
Burlington, Massachusetts, consisting of approximately 44,000 rentable square
feet and a portion of the lower level, consisting of approximately 859 square
feet, all as shown on Exhibit "A" attached hereto. LESSEE shall have, as
appurtenant to the leased premises, the right to use in common with others
entitled thereto the common facilities and areas included in the building (as
defined below) and the land on which the building is located including without
limitation common walkways, driveways, parking areas, freight or loading areas,
lobbies, hallways, stairways and elevators, ramps necessary or desirable in
conjunction with the use and occupancy of the leased premises.
TO HAVE AND TO HOLD the leased premises for a term of ten (10) years
commencing on the Commencement Date (defined below), provided, however, that if
the Commencement Date is other than the first day of a calendar month, the term
of this Lease shall expire on the last day of the calendar month in which the
tenth anniversary of the Commencement Date occurs. As used herein the term
?Commencement Date? shall be the date LESSOR delivers the leased premises to
LESSEE in accordance with the terms and conditions of this Lease. The
anticipated Commencement Date is August 20, 1999. If the leased premises have
not been delivered on or before October 1, 1999, AND if LESSOR (or Owner, as
LESSOR's contractor) shall not have been diligently and continuously prosecuting
the work to be performed under Section 35 hereof, then LESSEE may elect, upon
written notice to LESSOR, given before October 15, 1999, to either (i) assume
the performance of such work and to complete the same in accordance with
approved plans and specifications described in Exhibit C hereto, or (ii)
terminate this Lease, whereupon this Lease and all of the rights and obligations
of the parties shall terminate with the same force and effect as if such date
were the date originally set forth herein as the expiration date hereof. If
LESSEE elects to perform such work, then after such election, neither LESSOR nor
Owner shall have any further responsibility or obligation to complete the same,
and LESSEE shall diligently and continuously complete the same, and LESSOR shall
reimburse LESSEE for the out-of-pocket costs and expenses actually and
reasonably incurred by LESSEE in so doing (and any sum not so reimbursed within
thirty days after receipt of an invoice therefor, together with lien waivers and
evidence of amounts paid to subcontractors and suppliers, shall bear interest at
eighteen percent (18%) per annum). If LESSEE does not elect to terminate this
Lease, and the leased premises have not, despite diligent and continuous efforts
on the part of LESSOR, been delivered on or before December 31, 1999, LESSEE
shall have the right to terminate this Lease upon written notice to LESSOR,
given before January 15, 2000, whereupon this Lease and all of the rights and
obligations of the parties shall terminate with the same force and effect as if
such date were the date originally set forth herein as the expiration date
hereof, and such rights of self-help and termination shall be LESSEE's sole and
exclusive remedy for LESSOR's failure to so deliver the leased premises. LESSOR
and LESSEE now convenant and agree that the following terms and conditions shall
govern this lease during the term hereof and for such further time as LESSEE
shall hold the leased premises.
1. RENT. LESSEE shall pay to LESSOR base rent as per Exhibit "B" payable in
advance in monthly installments on the first day in each calendar month, the
first monthly payment (or the fraction of a monthly payment for any portion of a
month occurring at the commencement of the lease term) to be made upon the
Commencement Date. All payments shall be made to LESSOR c/o CRES Development
Company, Inc., 50
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Salem Street, Lynnfield, MA 01940, or at such other place as LESSOR shall from
time to time in writing designate.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the amount
of $111,073.75 dollars, 50% thereof to be paid upon the execution of this lease
by LESSEE, and the remainder to be paid on the Commencement Date, which shall be
held as security for LESSEE's performance as herein provided and refunded to
LESSEE without interest pursuant to the terms hereof, subject to LESSEE's
satisfactory compliance with the conditions hereof. If LESSEE terminates this
Lease due to LESSOR's failure to deliver the leased premises, as hereinabove
provided, LESSOR shall promptly refund the 50% portion paid by LESSEE on
execution hereof. LESSEE may not apply the security deposit to payment of the
last months rent. In the event of any default or breach of this Lease by LESSEE,
LESSOR shall immediately apply the security deposit to any outstanding invoice
or other payment due to LESSOR, with the balance applied to outstanding rent. If
after any portion of the security deposit is applied to cure a default or breach
during the term of the lease, LESSEE shall be responsible for restoring said
deposit forthwith, and failure to do so, or failure to pay the full security
deposit or any portion thereof when due, shall be considered a substantial
default under the lease.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the purposes
of General Office Use, Light Manufacturing, Research and Development and
Distribution. LESSEE shall have twenty four (24) hour access to the leased
premises and the building in which they are located seven (7) days a week,
subject to reasonable security considerations and to emergency conditions.
4. REAL ESTATE TAXES. LESSEE shall pay LESSOR during the term hereof as
additional rent a proportionate share ("LESSEE's Proportionate Share") of any
increase in (x) the real estate taxes levied against the land and building of
which the leased premises are a part (hereinafter called the "building"), over
(y) "Base Taxes" (as hereinafter defined), whether such increase is caused by an
increase in the tax rate or the assessment of the property, or a change in
method of determining real estate taxes. For purposes of this Lease, LESSEE's
Proportionate Share shall be based on a fraction, the numerator of which is the
rentable square footage leased by LESSEE, and the denominator of which is the
total rentable square footage of the building of which the leased premises are a
part. LESSEE shall make payment within thirty (30) days of written notice from
LESSOR (which shall include a copy of the applicable tax bill and a calculation
of LESSEE's Proportionate Share) that such increased taxes are payable, and any
additional rent shall be prorated should the lease terminate before the end of
any tax year. LESSEE shall make such payments on account of Real Estate Taxes,
at the option of LESSOR, on a monthly basis on the days on which the rent under
Paragraph 1 of this lease is payable, in amounts reasonably estimated by LESSOR
(or as otherwise billed by LESSOR, but not more frequently than monthly), so
that LESSOR shall have received from LESSEE, by February 1, May 1, August 1, and
November 1st of each year (or other applicable dates, if the present real estate
tax payment dates are modified) LESSEE's full share of the real estate tax. For
purposes of this Lease, "Base Taxes" shall be the rate and the assessment in
effect as of the date of this lease. In the event that the building was not
assessed as a completed structure as of the aforementioned date, then Base Taxes
shall be as of the first date when the building and supporting facilities are
assessed as a completed office building. LESSOR shall have the exclusive right
to pursue an abatement in the real estate taxes, and if such abatement is
obtained a proportionate adjustment or refund shall be made in LESSEE's favor,
less the cost of obtaining such abatement.
5. OPERATING COSTS. LESSEE shall pay to LESSOR as additional rent a
proportionate share (based on square footage leased by LESSEE compared with the
square footage of all premises to which such costs and expenses are
attributable) of any increase in (x) the aggregate of all costs and expenses
incurred by LESSOR in connection with the operation, maintenance, insurance and
management of the building of which the leased premises are a part (hereinafter
the "Operating Costs"), over (y) the "Base Operating Costs" (as hereinafter
defined). Operating Costs shall include a reasonable annual charge-off of the
cost of any capital
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repairs or improvements made by LESSOR for the building or the leased premises
during the term of this lease and which are for the purpose of reducing
Operating Costs, the schedule for which shall be based on the useful life (under
generally accepted accounting principles, consistently applied) of the repair or
improvement, provided that no such capital repairs or improvements made prior to
the fifth anniversary of the Commencement Date shall be included in Operating
Costs. In the event that during any calendar year (or part thereof) occurring
during the Term, the building has an annual occupancy rate of less than one
hundred percent (100%), for purposes hereof, any Operating Costs that vary with
the level of occupancy of the building with respect to such calendar year (or
part thereof) shall be extrapolated as though the annual occupancy rate were one
hundred percent (100%) for such calendar year (or part thereof). LESSEE shall
make payment within thirty (30) days of written notice from LESSOR that such
increased Operating Costs are payable, and any additional rent shall be prorated
should the lease terminate before the end of any calendar year. LESSEE shall
make such payments on account of Operating Costs, at the option of LESSOR, on a
monthly basis on the days on which the rent under Paragraph 1 of this lease is
payable, in amounts reasonably estimated by LESSOR. Notwithstanding anything to
the contrary contained in this Section 5, Operating Costs shall not include any
capital expenditures arising out of or resulting from (i) defective work,
construction or materials by or on behalf of LESSOR, (ii) the failure of LESSOR
to perform any scheduled maintenance or service, or (iii) the gross negligence
or willful misconduct of LESSOR or its agents, employees, or contractors.
Management fees incurred in favor of related entities shall not exceed market
rates (and in no event exceed four percent (4%) of the actual gross rent from
the building, whether or not such fee is actually paid), nor shall Operating
Costs include the following:
a) Costs billed to another tenant;
b) Costs of repairs or replacements resulting from casualty
losses that would be covered under a standard "all-risk" or
"special form" policy of casualty insurance (but any
deductible will be included, up to $10,000), or eminent domain
takings, to the extent of the settlement or award proceeds;
c) Depreciation or amortization of the building, lot or any part
thereof or improvements thereto;
d) Principal or interest payments on loans secured by mortgages
on the Property;
e) Replacement or contingency reserves;
f) Ground lease rents or payments of any fees relating to
leasing, financing or other services;
g) Brokerage commissions and legal fees payable by LESSOR for or
with respect to new leases for the Building;
h) Legal or professional fees relating to new leasing or
financing;
i) Promotional, advertising or public relations expenses;
j) Services provided for a particular tenant (other than LESSEE)
and not tenants in general;
k) Any costs or expenses relating to (1) any breach by LESSOR of
its obligations hereunder, or (2) the compliance with any
applicable laws, rules, orders, regulations, ordinances,
permits or approvals in effect as of the date of this Lease;
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l) Any costs or expenses relating to environmental remediation
unless the need for such remediation arose as a result of the
negligent act or omission of LESSEE or LESSEE's agents,
employees or contractors (in which case LESSEE shall be solely
liable for such costs or expenses);
m) Any costs or expenses reimbursed to LESSOR by tenants or third
parties, including without limitation, costs of convenience
electricity (lights and plugs) supplied to other tenants of
the Building;
n) Any costs or expenses relating to any in-Building food service
facilities; and
o) Compensation, fringe benefits, insurance premiums and payroll
taxes of any person not engaged in such operation, management
or maintenance work at the Building on a full-time basis (but
such expenses shall be ratably allocated to Operating Costs
based on the time devoted to the Building) or other
administrative overhead or profit increment fees and costs
paid by LESSOR to itself (or to its affiliates or
subsidiaries) except the management fee referred to herein.
For purposes of this Lease, "Base Operating Costs" shall mean (i) during the
period commencing on the Commencement Date and ending on the last day of the
calendar month in which the first anniversary of the Commencement Date occurs,
$4.85 per square foot of rentable area in the building, and (ii) thereafter, the
actual Operating Costs incurred during the first twelve full calendar months of
this Lease. LESSOR's notice of LESSOR's share of operating costs shall include a
reasonably detailed statement setting forth the Operating Costs and the
calculation of LESSOR's proportionate share thereof (the "Statement"). If LESSEE
disputes any items set forth in the Statement, LESSEE shall have the right, upon
notice to LESSOR not later than sixty (60) days following receipt of such
Statement (which notice shall set forth in reasonable detail the particular
respects in which LESSEE disputes the Statement), to audit LESSOR's records and
statements of Operating Costs for the calendar year which is the subject of the
Statement. Such audit shall be conducted by an independent certified public
accountant selected by LESSEE and reasonably acceptable to LESSOR. The audit
shall take place at the offices of LESSOR where its books and records are
located at a mutually convenient time during LESSOR's regular business hours. In
the event that such audit discloses that LESSEE paid in excess of its actual
proportionate share of Operating Costs, then LESSOR shall apply such overpayment
to the next due payment obligation on account of Operating Costs and, if such
refund exceeds such next due payment obligation, refund such excess to LESSEE
within thirty (30) days after LESSOR's receipt of such audit report. In
addition, in the event that such audit discloses that LESSEE paid ten percent
(10%) or more in excess of its actual proportionate share of Operating Costs for
any particular cost item or items, then LESSEE shall have the right, to be
exercised by written notice to LESSOR within fifteen (15) days after delivery of
the results of LESSEE's audit, to review the same cost item(s) for prior
calendar years (and any overpayments discovered with respect to such item(s) in
prior years shall likewise be applied to the next due payment, as stated above).
Notwithstanding the foregoing, LESSEE shall be entitled to continue to review
additional prior years only so long as its audit of such particular cost items
continue to reflect overpayments of 10% or more. The accountant conducting the
audit shall be compensated on an hourly basis and shall not be compensated based
upon a percentage of overcharges it discovers. LESSEE shall pay the cost of any
such audit unless such audit discloses an overpayment (whether for the year in
question or any prior year) in excess of five percent (5%) in which case the
cost of such audit shall be paid for by LESSOR. Any dispute regarding the
results of any such audit, which is not resolved by agreement of the parties
within sixty (60) days after delivery of such audit report, shall be resolved by
arbitration under the Commercial Arbitration Rules of the American Arbitration
Association, except that there shall be only one arbitrator, who shall not have
had a professional relationship with either during the preceding one year
period, and who shall be a certified property manager having at least ten (10)
years' experience in the management of
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commercial properties in the northern suburban Boston market. If LESSOR and
LESSEE are unable to agree on a mutually acceptable arbitrator within twenty-one
(21) days after the expiration of such 60-day period, then either party may ask
the then-president of the Greater Boston Real Estate Board to name a qualified
arbitrator.
6. UTILITIES AND SERVICES. As part of the improvements to the leased premises
being provided by LESSOR, LESSOR shall provide water and sewer service,
equipment to heat and cool the leased premises as provided in EXHIBIT C, and
LESSOR shall provide janitorial services as set forth on EXHIBIT D. LESSEE shall
pay for such services as Operating Costs). LESSEE shall pay directly to the
utility provider for all convenience electricity (lights and plugs) in the
leased premises, as determined by a separate meter serving the leased premises.
LESSEE shall pay for all charges that exceed $1.75 per square foot annually for
electricity and gas for the heat and air conditioning serving the leased
premises. LESSEE shall also pay LESSOR as an Operating Cost a proportionate
share of any other fees and charges relating to utility use for the common areas
of the building and the property. No plumbing, construction or electrical work
of any type (other than repair or replacement of minor fixtures or equipment by
qualified personnel) shall be done without LESSOR's prior written approval
(which shall not be unreasonably withheld or delayed) and LESSEE obtaining the
appropriate municipal permit. LESSOR represents and warrants that as of the
Commencement Date of this Lease, the leased premises shall be connected to
electricity, gas, water, sewer and telephone service.
7. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation, activity
or work shall be conducted in the leased premises or use made thereof which may
be unlawful, improper, noisy, offensive, or contrary to any applicable statute,
regulation, ordinance or bylaw. LESSEE shall keep all employees working in the
leased premises covered by Worker's Compensation Insurance and shall obtain any
licenses and permits necessary for LESSEE's specific occupancy. LESSEE shall be
responsible for causing the leased premises and any alterations by LESSEE which
are allowed hereunder to be in full compliance with any applicable statute,
regulation, ordinance, or bylaw as a result of LESSEE's particular use of the
leased premises, provided that LESSOR shall be required to make alterations to
the leased premises on account of any such statute, regulation, ordinance, or
bylaw that is generally applicable to general office, light manufacturing,
research and development and distribution facilities (subject always to LESSOR's
right, in its sole discretion, to contest the applicability of such statute,
regulation, ordinance, or bylaw). LESSOR hereby represents that, to the best
actual knowledge of LESSOR, as of the Commencement Date, the leased premises and
the improvements described on EXHIBIT C to be performed (or caused to be
performed) by LESSOR shall comply (to the extent that non-compliance would
adversely affect the use and occupancy of the leased premises) with all
applicable laws, codes, rules, regulations, ordinances, permits, approvals and
insurance requirements.
8. FIRE, CASUALTY, EMINENT DOMAIN. Should greater than fifty percent (50%) of
the square footage of either the leased premises or the building of which they
are a part be substantially damaged by fire or other casualty or be taken by
eminent domain, LESSOR may elect to terminate this lease. When such fire,
casualty or taking renders the leased premises substantially unsuitable for
their intended use, a just and proportionate abatement of base rent and
additional rent shall be made (until such time as the leased premises have been
restored or this Lease has been terminated). When such fire, casualty or taking
renders the leased premises (or access thereto or facilities relating thereto)
substantially unsuitable for their intended use, LESSEE may elect to terminate
this lease if: (a) LESSOR fails to give written notice within thirty (30) days
of intention to restore the leased premises; or (b) LESSOR fails to restore the
leased premises to a condition substantially suitable for their intended use
within one hundred and twenty (120) days of said fire, casualty or taking.
LESSOR reserves all rights for damages or injury to the leased premises for any
taking by eminent domain, except for damage to LESSEE's property or equipment.
9. FIRE INSURANCE. LESSEE shall not permit any use of the leased premised which
will adversely affect or make voidable any insurance on the property of which
the leased premises are a part, or on the contents
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of said property, or which shall be contrary to any law or regulation from time
to time established by the Insurance Services Office (or successor), local Fire
Department, LESSOR's insurer, or any similar body. LESSEE shall on demand
reimburse LESSOR, and all other tenants, all extra insurance premiums caused by
LESSEE's use of the leased premises. LESSOR acknowledges and agrees that the
uses set forth in Section 4 above do not currently require extra or increased
insurance premiums. If LESSEE shall vacate the leased premises or permit same to
be unoccupied other than during LESSEE's customary non-business days or hours,
and other than as a result of a fire, casualty or taking, and such vacancy
causes an increase in LESSOR's risk rating, insurance rates or premiums, then
LESSEE shall be solely responsible for the same and shall pay the same as
additional rent within ten days after demand therefor, and if LESSEE had not
given LESSOR notice of such vacancy, and such vacancy shall adversely affect
LESSOR's insurance coverage, LESSOR shall advise LESSEE as soon as LESSOR
becomes aware of such effect, and LESSEE shall be solely responsible for any
loss or costs that would otherwise have been covered prior to the date on which
LESSEE gave such notice.
10. MAINTENANCE OF PREMISES. LESSOR will be responsible for all structural
maintenance of all the leased premised, but specifically excluding all
maintenance of any non "building standard" leasehold improvements installed by
or for LESSEE after the Commencement Date. "Structure" or "structural" for
purposes of this lease shall mean and include only the following: foundation;
roof framing (specially excluding, without limitation, the ceiling (of which the
underdeck of the roof is not to be considered a part); bearing columns; bearing
walls (specially excluding without limitation the interior surfaces thereof),
floor slab and subflooring; space heating and cooling equipment; sprinklers; and
utility supply lines that serve the leased premises in common with premises
other than the leased premises. The costs of such maintenance shall be included
in the Operating Costs, as defined under Section 5 hereof. LESSEE agrees to
maintain at its expense all other aspects of the leased premises in the same
condition as they are at the commencement of the term or as they may be put in
during the term of this lease, excepting only (i) normal wear and tear, (ii)
damage by fire or other casualty, and (iii) damage caused by the negligent acts
or omissions of LESSOR or its agents or contractors, and whenever necessary, to
replace light bulbs and interior glass therein. At LESSEE's request, LESSOR will
replace interior glass and light bulbs and LESSEE shall pay LESSOR's invoices
therefor. LESSEE will properly control or vent all solvents, degreasers, smoke,
odors, etc., and shall not cause the area surrounding the leased premises to be
in anything other than a neat and clean condition, depositing all waste in
appropriate receptacles. LESSEE shall be solely responsible for any damage to
plumbing equipment, sanitary lines, or any other portion of the building which
results from the discharge or use of any acid or corrosive substance by LESSEE.
LESSEE shall not permit the leased premises to be overloaded, damaged, stripped
or defaced, nor suffer any waste, and will not keep animals within the leased
premises. LESSEE shall, however, have the right to keep a small number of
laboratory animals from time to time in accordance with all applicable laws,
codes and ordinances or governmental permits or licenses, which LESSEE shall
first obtain. Any increase in air conditioning equipment or electrical capacity,
or any installation and/or maintenance of equipment which is necessitated by
some specific aspect of LESSEE's change in use of the leased premises from
permitted uses shall be at the LESSEE's expense. All maintenance provided by
LESSOR shall be during LESSOR's normal business hours; provided that LESSOR
shall use commercially reasonable efforts not to materially interfere with
LESSEE's use or occupancy of the leased premises, and provided further that
janitorial services shall be supplied after normal office hours. LESSOR shall
also maintain and repair the common areas and facilities serving the leased
premises and Building, including without limitation common walkways, driveways,
parking areas and lighting, freight or loading areas, lobbies, hallways,
stairways, elevators and ramps in good order and repair, consistent with other
first-class office buildings in the north suburban Boston market. To the extent
that LESSOR shall receive written notice from any governmental agency having
jurisdiction that the Building or the Property is in violation of any applicable
law, regulation or ordinance, and such violation does not arise from the
LESSEE's breach of this Lease or from LESSEE's specific use of the leased
premises, LESSOR shall be responsible for taking such steps as LESSOR may deem
commercially reasonable to contest such notice or cure
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such violation (provided that no contest shall cause LESSEE to incur any
criminal or civil liability or substantially impede access to or occupancy of
the leased premises).
11. ALTERATIONS. LESSEE shall not make structural alterations or additions of
any kind to the leased premises, but may make nonstructural alterations provided
LESSOR consents thereto in writing, which consent shall not be unreasonably
withheld or delayed as to non-structural alterations or additions that do not
adversely affect (in other than a DE MINIMUS way) the building's plumbing,
electrical or mechanical systems. All such alterations shall be at LESSEE's
expense and shall conform with LESSOR's reasonable construction specifications.
If LESSOR or LESSOR's agent provides any services or maintenance for LESSEE in
connection with such alterations or otherwise under this lease, any just invoice
will be promptly paid. LESSEE shall not permit any mechanics' liens or similar
liens to remain upon the leased premises in connection with work of any
character performed or claimed to have been performed at the direction of the
LESSEE and shall cause any such lien to be released or removed forthwith without
cost to LESSOR. Any alterations or additions shall (except to the extent
specified by LESSEE as provided in Section 27) become part of the leased
premises and the property of LESSOR. LESSOR shall have the right at any time to
change the arrangement of parking areas, stairs, walkways or other common areas
of the building, provided that such change does not materially and adversely
affect LESSEE's use or occupancy of or access to the leased premises.
12. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet or
allow any other firm or individual to occupy the whole or part of the leased
premises without LESSOR's prior written consent, which consent shall not be
unreasonably withheld or delayed. Notwithstanding such assignment or subleasing.
LESSEE shall remain liable to LESSOR for the payment of all rent and for the
full performance of the covenants and conditions of this lease. LESSEE shall pay
LESSOR promptly for reasonable legal expenses incurred by LESSOR in connection
with any consent requested thereunder by LESSEE.
13. SUBORDINATION AND ESTOPPEL. This lease shall be subject and subordinate to
any and all mortgages and other instruments in the nature of a mortgage, now or
any time hereafter affecting the leased premises, and LESSEE shall, when
requested, promptly execute and deliver such written instruments as shall be
reasonably customary and necessary to show the subordination of this lease to
said mortgage or other such instruments in the nature of a mortgage. Each party
agrees from time to time, within ten (10) days after written request by the
other, to execute, acknowledge and deliver to the requesting party (and/or, the
case of LESSOR, to any mortgagee or prospective purchaser) a statement in
writing certifying that this lease is unmodified and in full force and effect
and that the certifying party has no defenses, offsets, or counterclaims against
its obligations, including as to LESSEE the obligation to pay rent and any
additional rent or other charges and to perform its other covenants under this
lease, and the dates to which the rent and any additional rent or other charges
have been paid. Notwithstanding the foregoing, such subordination shall be
conditioned on LESSOR's obtaining the holder's written agreement that, subject
to such reasonable qualifications as such holder may reasonably impose, in the
event that the holder shall succeed to the interests of LESSOR hereunder
pursuant to such mortgage, ground lease or other encumbrance, then so long as no
Default of LESSEE exists hereunder, LESSEE's right to possession of the leased
premises shall not be disturbed and LESSEE's other rights hereunder shall not be
adversely affected (and this Lease shall not be terminated) by any foreclosure
of such mortgage or encumbrance or by termination of such ground lease.
14. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at any reasonable time, and
upon reasonable advance notice (which need not be in writing and which need not
be given at all in the event of any emergency) enter to view the leased
premises, to make repairs and alterations as LESSOR should elect to do for the
leased premises, the common areas or any other portions of the building, to make
repairs which LESSEE is required but has failed to do, and to show the leased
premises to others.
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15. SNOW REMOVAL. LESSOR shall be responsible for the prompt plowing of snow
from all roadways and unobstructed parking areas and from the walkways, steps,
and loading areas serving the leased premises.
16. ACCESS & PARKING. LESSEE shall have the right without any additional charge
to use the parking facilities provided for the leased premises in common with
others entitled to the use thereof. The building has three spaces per 1,000
square feet of rentable area, all such spaces to be on an unreserved unallocated
basis. LESSOR shall maintain the foregoing parking ratio, and shall not grant
rights to other tenants or third parties which would be inconsistent with there
remaining three spaces per 1,000 square feet of rentable area in the leased
premises. Subject to final measurement of the leased premises pursuant to
Section 34, LESSEE will be entitled to use 132 parking spaces. LESSEE will not
obstruct in any manner any portion of the building or the walkways or approaches
to the building and will conform to all reasonable rules and regulations now or
hereafter made by LESSOR for parking and for the care, use, or alteration of the
building, its facilities and approaches. LESSOR shall use commercially
reasonable efforts to enforce such rules and regulations in a uniform manner.
LESSEE further warrants that LESSEE will not permit any employee or visitor to
violate this or any other covenant or obligation of LESSEE. All loading and
unloading shall be by a side loading dock or entrance, if such access is
available. No unattended parking will be permitted between 7:00PM and 7:00AM
without LESSOR's prior written approval, which shall not be unreasonably
withheld or delayed. Unregistered or disabled vehicles, or storage trailers of
any type, may not be parked at any time. LESSOR may tow, at LESSEE's sole risk
and expense, any misparked vehicle belonging to LESSEE or LESSEE's agents,
employees, invitees or callers, at any time. LESSOR shall not be responsible for
providing any security services for the leased premises.
17. LIABILITY. To the extent permitted by law, and except with respect to damage
to the Building or leased premises by fire or other casualty, LESSEE shall be
solely responsible as between LESSOR and LESSEE for (i) deaths or personal or
bodily injuries to all persons whomsoever occurring in or on the leased
premises, from whatever cause arising, and (ii) deaths or personal or bodily
injuries to all persons whomsoever occurring outside of the leased premises,
where the same result from the negligent or willful acts or omissions of LESSEE
or its agents, contractors or employees, and (iii) damage to property to
whomsoever belonging arising out of the use, control, condition or occupation of
the leased premises by LESSEE; and LESSEE agrees to indemnify, defend and save
harmless LESSOR from any and liability, including but not limited to costs,
expenses, damages, causes of action, claims, judgments and attorney's fees
caused by or in any way growing out of any matters aforesaid.
18. INSURANCE. LESSEE shall maintain at its own expense with respect to the
leased premises and LESSEE's property which is not a part of the demised
premises a comprehensive public liability insurance policy, insuring LESSEE and
LESSOR against any claims based on bodily injury (including death) or property
damage arising out of the condition of the leased premises (including any common
areas that are considered part of the leased premises hereunder) or their use by
LESSEE, with coverage in the amount of Two Million Dollars ($2,000,000). LESSEE
shall further obtain and keep in force during the term of this Lease "all risk"
extended coverage property insurance on LESSEE's personal property, all tenant
improvements installed at the leased premises by LESSEE, LESSEE's trade fixtures
and other property. LESSOR shall be included in each such policy as an
additional insured using ISO Form CG 20 26 11 85 (or comparable ACORD form) or
some other form approved by LESSOR. LESSEE will file with LESSOR prior to
occupancy certificates and any applicable riders or endorsements showing that
such insurance is in force, and thereafter will file renewal certificates prior
to the expiration of any such policies. All such insurance certificates shall
provide that such policies shall not be canceled without at least ten (10) days'
prior written notice to LESSOR. In the event LESSEE shall fail to furnish
evidence of renewal of any policy prior to the planned renewal date shown on
such certificate, then LESSOR may elect to contract for such insurance at
LESSEE's expense, and LESSOR shall give notice thereof
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simultaneously or promptly thereafter. LESSOR shall maintain throughout the term
of this Lease a policy or policies of insurance covering loss or damage to the
building (including LESSOR installed improvements to the leased premises) and
all related improvements in an amount approximately equal to the full insurable
replacement cost thereof, and such insurance shall provide coverage against fire
and other perils customarily covered by an "all-risk" or "special form" policy.
LESSOR shall also carry a policy or policies of general liability insurance in
such amounts and coverages as commercially reasonable against liability arising
out of the ownership, operation and management of the building and all areas
relating thereto.
19. SIGNS. LESSOR shall, at LESSEE's expense (and provided LESSEE shall have
obtained any necessary governmental approvals or permits) erect signage for the
leased premises that will be located on the building pediment and visible to
Cambridge Street, as well as a monument sign in the front of the building.
LESSOR shall cooperate with and assist LESSEE's efforts to obtain such approvals
or permits. LESSEE shall obtain the prior written consent of LESSOR before
erecting any other sign on the leased premises, which consent shall not be
unreasonably withheld, but may include approval as to size, wording, design and
location. LESSOR may remove and dispose of any sign not approved, erected or
displayed in accordance with this lease.
20. BROKERAGE. LESSEE and LESSOR each warrants and represents to the other that
each has dealt with no broker or third party with respect to this lease, except
for SPAULDING & SLYE/COLLIERS (whose fee shall be paid by LESSOR) and each
agrees to indemnify the other against any brokerage claims by any other broker
or third person arising by virtue of this lease.
21. DEFAULT AND ACCELERATION OF RENT. In the event that: (a) any assignment for
the benefit of creditors, trust mortgage, receivership or other insolvency
proceeding shall be made or instituted with respect to LESSEE or LESSEE's
property and not cured, discharged or released within 90 days (provided that
such grace period shall not apply to any proceeding commenced by LESSEE); (b)
LESSEE shall default in the observance or performance of any of LESSEE's
covenants, agreements, or obligations hereunder, other than monetary payments,
and such default shall not be corrected within thirty (30) days after written
notice thereof (or, if such default cannot reasonably be cured within such
30-day period, despite diligent and continuous efforts to cure the same begun
promptly after notice thereof, then such 30-day period shall be extended for an
additional reasonable time, so long as LESSEE continues such efforts); or (c)
LESSEE shall fail to pay the security deposit, rent, taxes, any substantial
invoice from LESSOR or LESSOR's agent for goods and/or services or other sum
herein specified, and such default shall continue for ten (10) days after
written notice specifying such failure; then in any such case LESSOR shall have
the right thereafter, without demand or further notice, to re-enter and take
possession of the leased premises, to declare the term of this lease ended, and
to remove LESSEE's effects, all in accordance with applicable law, without being
guilty of any manner of trespass, and without prejudice to any remedies which
might be otherwise used for arrears of rent or other default of breach of the
lease. In the event of any termination, LESSEE shall pay the rent and other sums
payable hereunder up to the time of such termination, and thereafter LESSEE,
until the end of what would have been the term of this Lease in the absence of
such termination, and whether or not the leased premises shall have been relet,
shall be liable to LESSOR for, and shall pay to LESSOR as liquidated current
damages the rent and other sums that would be payable hereunder if such
termination had not occurred, less the net proceeds, if any, of any reletting of
the leased premises, after deducting all expenses in connection with such
reletting, including, without limitation, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees, advertising, expenses of
employees, alteration costs and expenses of preparation for such reletting. At
any time after such termination, whether or not LESSOR shall have collected any
such current damages, as liquidated final damages and in lieu of all such
current damages beyond the date of such demand, at LESSOR's election LESSEE
shall pay to LESSOR an amount equal to the excess, if any, of the rent and other
sums as hereinabove provided that would be payable hereunder from the date of
such demand, over the then fair net rental value of the leased premises for the
same period, discounted to then net present value at a rate equal to the WALL
STREET JOURNAL prime rate.
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LESSOR, without being under any obligation to do so and without thereby waiving
any default, may remedy same for the account and at the expense of LESSEE. If
LESSOR pays or incurs any obligation for the payment of money in connection
therewith, such sums paid or obligations incurred plus interest and costs, shall
be paid to LESSOR by LESSEE as additional rent. Provided LESSOR uses
commercially reasonable efforts to do so, LESSOR shall in no event be liable in
any way whatsoever for failure to relet the Leased premises. For purposes
hereof, marketing of the Leased premises in a manner similar to the manner in
which LESSOR markets other leased premises within LESSOR's control in the
Building shall be deemed to have satisfied LESSOR's obligation to use
"reasonable efforts." In no event shall LESSOR be required to (i) relet the
leased premises before leasing similar vacant space in the Building, (ii) lease
the leased premises for a rental less than the current fair market rental then
prevailing for office space in the Building, or (iii) enter into a lease with
any proposed tenant that does not have, in LESSOR's reasonable opinion,
sufficient financial resources or operating experience to operate the leased
premises in a first-class manner. Any sums received by LESSOR from or on behalf
of LESSEE at any time shall be applied first to any unamortized improvements
completed for LESSEE's occupancy then to offset any outstanding invoice or other
payment due to LESSOR, with the balance applied to outstanding rent. LESSEE
agrees to pay reasonable attorney's fees and/or administrative costs incurred by
LESSOR in enforcing any or all obligations of LESSEE under this lease at any
time. LESSEE shall pay LESSOR interest at the rate of eighteen (18) percent per
annum on any payment from LESSEE to LESSOR which is past due.
22. NOTICE. Any notice from LESSOR to LESSEE relating to the leased premises or
to the occupancy thereof shall be deemed duly served when served by constable,
or sent to the leased premises by certified mail, return receipt requested,
postage prepaid, or sent by nationally recognized overnight delivery or courier
service, and in any case addressed to LESSEE: if prior to the Commencement Date,
addressed to 45 Hartwell Avenue, Lexington, Massachusetts 02421, Attention: Paul
S. Weiner; and if after the Commencement Date, then to the leased premises,
Attention: Paul S. Weiner; or at such other address as LESSEE may from time to
time request. The LESSOR will send a copy of any notice to LESSEE alleging a
failure or default on the part of LESSEE to Sherin and Lodgen LLP, 100 Summer
Street, Boston, Massachusetts 02110, Attention: Robert M. Carney. Any notice
from LESSEE to LESSOR relating to the leased premises or to the occupancy
thereof shall be deemed duly served when served by constable or delivered to
LESSOR by certified mail, return receipt requested postage prepaid, or sent by
nationally recognized overnight delivery or courier service, and in any case
addressed to LESSOR at 50 Salem Street, Lynnfield, MA 01940 or at LESSOR's last
designated address. No oral notice or representation shall have any force or
effect. Time is of the essence in service of any notice.
23. OCCUPANCY. Unless LESSOR and LESSEE shall then be actively engaged in good
faith negotiations regarding extension of the term (and in that case for no more
than thirty (30) days after the scheduled termination), in the event that LESSEE
continues to occupy or control all or any part of the leased premises after the
agreed termination of this lease without written permission of LESSOR, then
LESSEE shall be liable to LESSOR for any and all loss, damaged or expenses
incurred by LESSOR and all other terms of this lease shall continue to apply
except that rent shall be due in full monthly installments at a rate of one
hundred fifty (150) percent of that which would otherwise be due under this
lease, it being understood between the parties that such extended occupancy is
as a tenant at sufferance and is solely for the benefit and convenience of
LESSEE and as such has a greater rental value. LESSEE's control or occupancy of
all or any part of the leased premised beyond the last day of any monthly rental
period shall constitute LESSEE's occupancy for an entire additional month, and
increased rent as provided in this section shall be due and payable immediately
in advance. LESSOR's acceptance of any payments from LESSEE during such extended
occupancy shall not alter LESSEE's status as a tenant at sufferance.
24. FIRE PREVENTION. LESSOR and LESSEE each agree to use reasonable precautions
against fire and LESSOR agrees to provide and maintain (except as may be
required solely as a result of LESSEE's
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particular type of business in the leased premises) approved, labeled fire
extinguishers, emergency lighting equipment, and exit signs and complete any
other modifications within the leased premises as required or recommended by the
Insurance Services Office (or successor organization), OSHA, the local Fire
Department, or any similar body. To the extent required solely as a result of
LESSEE's particular type of business in the leased premises, LESSEE shall
maintain approved, labeled fire extinguishers, emergency lighting equipment, and
exit signs and complete any other modifications within the leased premises as
required or recommended by the Insurance Services Office (or successor
organization), OSHA, the local Fire Department, or any similar body.
25. OUTSIDE AREA. No goods, equipment, or things of any type or description
shall be held or stored outside the leased premises at any time without prior
written consent from LESSOR. If LESSEE obtains all necessary approvals and
permits from governmental authorities, LESSEE shall be allowed to place and use
a gas barbeque and lawn/deck furniture on the deck to be constructed and
attached to the leased premises. Any goods, equipment or things left outside the
leased premises without LESSOR's prior written consent shall be deemed abandoned
and may be removed at LESSEE's expense without notice by LESSOR. LESSOR shall
provide a shared dumpster or compactor for use by LESSEE in common with others,
and LESSEE shall pay its proportionate share (based on LESSOR's reasonable
estimate of LESSEE's use) of any costs associated therewith.
26. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as not
to interfere in any way with the use and enjoyment of other portions of the same
or neighboring buildings by others by reason of odors, smoke, smells, noise,
pets, accumulation of garbage or trash, vermin or other pests, or otherwise and
will at its expense employ a professional pest control service if necessary.
LESSEE agrees to maintain efficient and effective devices for preventing damage
to heating equipment from solvents, degreasers, cutting oils, propellants, etc.,
which may be present at the leased premises. No hazardous materials or wastes
shall be stored, disposed of or allowed to remain at the leased premises at any
time (except in strict accordance with applicable laws), and LESSEE shall be
solely responsible for any and all corrosion or other damage associated with the
use, storage and/or disposal of same by LESSEE. LESSOR represents and warrants
that LESSOR has no actual knowledge of, and LESSOR has not received written
notice from any governmental agency having jurisdiction of, any release or
threat of release of any such hazardous materials or waste or oil on, at, in or
under the building or lot on which it is located. LESSOR shall indemnify and
hold LESSEE harmless from and against any and all claims, loss, cost, expense
and damage resulting from and breach of the foregoing representation and
warranty.
27. SURRENDER. Subject to the terms and conditions of this Section, LESSEE shall
at the termination of this lease remove all of LESSEE's goods and effects from
the leased premises, including any and all fixtures and LESSEE-installed
improvements (to the extent specified by LESSOR at the time of initial approval
thereof), and furniture and equipment, and LESSEE shall repair any damage to the
leased premises caused by such removal. LESSEE shall deliver to LESSOR the
leased premises and all keys and locks thereto, all fixtures and equipment
connected therewith (to the extent not to be removed by LESSEE). Not more than
nine (9) months, and not less than three (3) months, prior to the end of the
term of this lease, LESSOR may request that LESSEE specify in writing (to be
delivered within 15 days after such request) those alterations, additions,
fixtures and improvements made to or upon the leased premises by or for LESSEE,
including but not limited to any offices, partitions, window blinds,
manufacturing and research & development fixtures, floor covering (including
computer floors), water coolers, telephone wiring, telephone equipment and
counters, that LESSEE proposes to remove at the expiration of the term. To the
extent that any such alterations, additions and improvements are not listed in
LESSEE's response, then LESSEE shall have no right to remove the same. LESSEE
shall in any event remove all furniture, trade fixtures and business equipment
that, in LESSOR's reasonable judgment, is not readily re-usable for other
business office, warehousing, light manufacturing and research and development
uses, provided that LESSOR gives LESSEE notice of LESSOR's determination not
less than thirty (30) days
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prior to the expiration of the Term. LESSEE shall not remove plumbing or
electrical equipment or HVAC equipment, except that LESSEE may remove its
particularly specialized plumbing, electrical equipment and HVAC equipment and
trade fixtures, provided that LESSEE shall restore the remaining systems and
equipment to that which was originally present in the leased premises. LESSEE
shall deliver the leased premises sanitized from any chemicals or other
contaminants, and broom clean and in the same condition as they were at the
commencement of this lease or any prior lease between the parties for the leased
premises, or as they were modified during said term with LESSOR's written
consent, reasonable wear and tear and damage by fire or other casualty excepted.
In the event of LESSEE's failure to remove any of LESSEE's property from the
leased premises upon termination of the lease, LESSOR is hereby authorized,
without liability to LESSEE for loss or damage thereto and at the sole risk of
LESSEE, to remove and store any such property at LESSEE's expense, or to retain
same under LESSOR's control, or to sell at public or private sale (without
notice), any or all property not so removed and to apply the net proceeds of
such sale to the payment of any sum due hereunder, or to destroy such abandoned
property. In no case shall the leased premises be deemed surrendered to LESSOR
until the termination date provided herein or such other date as may be
specified in a written agreement between the parties, notwithstanding the
delivery of any keys to LESSOR.
28. RESPONSIBILITY. To the maximum extent permitted by law, LESSOR shall not be
held liable to anyone for loss or damage caused in any way by the LESSEE's use
of the leased premises, leakage, seepage or escape of water from any source or
for the cessation of any service rendered customarily to the leased premises or
building, or agreed to by the terms of this lease, due to any accident, the
making of repairs, alterations or improvements, labor difficulties, weather
conditions, mechanical breakdowns, trouble or scarcity in obtaining electricity,
service or supplies from the sources from which they are usually obtained for
said building, or any cause beyond LESSOR's immediate control. Notwithstanding
the foregoing, in the event that (i) LESSEE shall be deprived of any essential
service and utility that is to be provided by LESSOR hereunder, and the cause of
such deprivation is within LESSOR's reasonable control, and (ii) such
deprivation shall continue for five (5) business days after LESSOR has received
written notice thereof from LESSEE, and (iii) within such 5-business day period
LESSOR shall not have commenced to repair or restore such service or utility and
thereafter diligently pursue such repair or restoration to completion, then
commencing on the sixth business day after such notice, all Rent payable
hereunder shall be abated until such time as such services and/or utilities
shall be restored. For purposes hereof, the term "business day" shall mean a day
on which LESSEE would otherwise normally be open for business in the leased
premises. Notwithstanding the foregoing, with respect to any such deprivation
that makes it impracticable for LESSEE to continue its business in the leased
premises, and if LESSEE actually causes LESSEE to stop conducting its business
in the leased premises, then such rent abatement shall take effect on the
business day next following such notice from LESSEE.
29. SUBROGATION. LESSOR and LESSEE hereby release each other and each other's
officers, directors, employees and agents, to the extent of the insurance
coverage which each is required to carry hereunder, from any and all liability
for any loss or damage caused by fire or any of the extended coverage casualties
or any other casualty insured against, even if such fire or other casualty shall
be brought about by the fault or negligence of a party or parties for whose
conduct a party is legally responsible. This waiver shall be in force and effect
only with respect to loss or damage occurring during such time as the insurance
policy or policies covering such loss or damage shall contain a clause to the
effect that this waiver shall not affect said policies or the right of the
insured party to recover thereunder. Each party hereby agrees that its policy or
policies will include such a clause if such is available. If such is not
available without extra cost, if the other party pays such extra cost. Each
party shall promptly notify the other party of any such extra cost.
30. GENERAL. (a) The invalidity or unenforceability of any provision of this
lease shall not affect or render invalid or unenforceable any other provision
hereof; (b) The obligations of this lease shall run with the land, and this
lease shall be binding upon and inure to the benefit of the parties hereto and
their respective
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successors and assigns, except that LESSOR shall be liable only for obligations
occurring while LESSOR of the leased premises; (c) Any action or proceeding
arising out of the subject matter of this lease shall be brought by LESSEE only
in a court of the Commonwealth of Massachusetts; (d) If LESSOR is acting under
or as agent for any trust or corporation, the obligations of LESSOR shall be
binding upon the trust or corporation, but not upon any trustee, officer,
director, shareholder, or beneficiary of the trust or corporation individually;
(e) This lease is made and delivered in the Commonwealth of Massachusetts, and
shall be interpreted, construed, and enforced in accordance with the laws
thereof; (f) This lease was the result of negotiations between parties of equal
bargaining strength, and when executed by both parties shall constitute the
entire agreement between said parties, and no other oral or written
representation shall have any effect hereon, and this agreement may hot be
altered, extended or amended except by written agreement attached hereto or as
otherwise provided herein, (g) Except as set forth herein, LESSOR makes no
warranty, express or implied, concerning the suitability of the leased premises
for LESSEE's intended use; (h) LESSEE agrees that if LESSOR does not deliver
possession of the leased premises as herein provided for any reason, LESSOR
shall not (except as expressly provided herein) be liable for any damages to
LESSEE for such failure, but LESSOR agrees to use reasonable efforts to deliver
possession to LESSEE at the earliest possible date, and a proportionate
abatement of rent for such time as LESSEE may be deprived of possession of said
leased premised shall be LESSEE's sole remedy; (i) Neither the submission of
this lease form nor the prospective acceptance of the security deposit and/or
rent shall constitute a reservation of or option for the leased premises, or an
offer to lease, it being expressly understood and agreed that this lease shall
not bind either party in any manner whatsoever until it has been executed by
both parties, (j) LESSEE shall not be entitled to exercise any option contained
herein if LESSEE is in default of any terms or conditions hereof beyond the
expiration of any applicable notice or grace periods; (k) The headings on this
lease are for convenience only and shall not be considered part of the terms
hereof; (l) No endorsement by LESSEE on any check shall bind LESSOR in any way;
and (m) LESSEE agrees that it will not record this Lease, but at the request of
either party, the parties will execute a suitable notice of lease setting forth
the names of the parties, the description of the leased premises and a statement
of the term of this Lease.
31. INTENTIONALLY OMITTED.
32. WAIVERS, ETC. No consent or waiver, express or implied, by LESSOR, to or of
any breach of any covenant, condition or duty of LESSEE shall be construed as a
consent or waiver to or of any other breach of the same or any other covenant,
condition or duty. If LESSEE is several persons, several corporations or a
partnership, LESSEE's obligations are joint or partnership and also several.
Unless repugnant to the context "LESSOR" and "LESSEE" mean the person or
persons, natural or corporate, named above as LESSOR and as LESSEE respectively,
and their respective heirs, executors, administrators, successors and assigns.
33. ADDITIONAL PROVISIONS. Exhibit "A (Plans)," "B (Rent/Expenses/Extension
Terms)," "C (Plans and Specifications)," "D (Janitorial Standards)" and "E
(Rules and Regulations)" attached hereto are hereby incorporated.
34. FINAL MEASUREMENT OF LEASED PREMISES; ARCHITECT'S CERTIFICATE.
Notwithstanding anything to the contrary contained in this Lease, upon
Substantial Completion (as defined in Paragraph 35) of the leased premises,
LESSOR shall deliver to LESSEE a certificate from LESSOR's architect setting
forth the actual square footage of the leased premises and the Building. The
leased premises shall be calculated in accordance with BOMA standards of
measuring rentable square feet. If the square footage calculation of the leased
premises changes after this Lease is executed by LESSOR and LESSEE, the rent,
security deposit, LESSEE's Proportionate Share of Taxes and Operating Costs and
the number of parking spaces to which LESSEE shall be entitled, shall be
adjusted accordingly.
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35. TENDER OF POSSESSION; SUBSTANTIAL COMPLETION. The parties acknowledge that
LESSOR has an agreement with the current owner of the building (the "Owner") to
purchase the property on which the building is located. LESSEE has heretofore
negotiated directly with the Owner a purchase contract, which has been assigned
to LESSOR. The Owner is currently in the process of constructing the building,
as well as tenant improvements required by LESSEE. LESSEE acknowledges that the
base building work has been substantially completed, and at the time of
execution of this Lease, LESSEE has approved plans and specifications for the
remainder of work to be done. The Owner, as LESSOR's contractor shall continue
to perform such work. LESSOR shall deliver possession of the leased premises
vacant and Substantially Completed. As used herein, the term "Substantially
Completed" shall mean that (i) the leased premises have been constructed and
completed by (or on behalf of) LESSOR as aforesaid in accordance with the plans
and specification approved by LESSOR and LESSEE (described on Exhibit C hereto,
as such plans and specifications may be changed or altered only in mutual
agreement between the parties hereto) in a good and workmanlike manner, except
for so called punch list items or defects which can be completed or remedied by
LESSOR or Owner after LESSEE occupies the leased premises without causing
substantial interference with LESSEE's use of the leased premises, and (ii) all
necessary and applicable governmental permits and approvals (including a final
Certificate of Occupancy on the leased premises and building) have been issued
to allow the LESSEE to use and occupy the leased premises in accordance with the
terms and conditions hereof. LESSEE and LESSOR acknowledge that, under LESSOR's
agreement with Owner, LESSOR is entitled under certain circumstances to recover
liquidated damages from Owner for late completion of such work. In the event
that Owner becomes entitled to, and actually recovers such liquidated damages
from Owner, then LESSOR shall pay over to LESSEE thirty-three and one-third
percent (33.3%) of any amounts actually recovered, but in no event shall LESSOR
be obligated to pay over to LESSEE more than $1,000.00 per day of such late
completion. LESSOR shall cause to be completed and/or repaired such punch list
items as soon as practicable but in any event within sixty (60) days after the
Commencement Date, and LESSEE shall allow access to the leased premises for such
purposes. This Lease, and all of the obligation and rights hereunder, are
expressly contingent on LESSOR's purchase of the building as currently
contemplated. In the event that LESSOR has not so purchased the building on or
before July 15, 1999, then either LESSEE or LESSOR may terminate this Lease by
notice to the other, whereupon this Lease shall cease and be void and without
further force or effect.
36. EARLY POSSESSION. Subject to approval by governmental authorities and
LESSOR's or Owner's contractors, LESSEE may enter the leased premises not sooner
than four (4) weeks prior to the anticipated Commencement Date, provided that
LESSEE does not interfere with or delay the completion by LESSOR or its agents
or contractors of the construction of any tenant improvements, for the purpose
of installing furniture, trade fixtures, equipment, wiring and similar items.
Provided that LESSEE has not begun operating its business from the leased
premises, and subject to all of the terms and conditions of the Lease, the
foregoing activity shall not constitute the delivery of possession of the leased
premises to LESSEE and the Lease term shall not commence as a result of said
activities. Prior to entering the leased premises, LESSEE shall obtain all
insurance it is required to obtain by the Lease and shall provide certificates
of said insurance to LESSOR. LESSEE shall coordinate such entry with LESSOR's
construction manager, and such entry shall be made in compliance with all terms
and conditions of this Lease and the Rules and Regulations attached hereto as
EXHIBIT E.
37. RIGHT OF FIRST OFFER. Subject to rights heretofore granted to Mediacom,
another tenant in the Building, if during the term of this Lease LESSOR desires
to lease all or a portion of the building not included in the leased premises
(the "First Refusal Space"), LESSOR shall so notify LESSEE setting forth the
terms and conditions on which LESSOR is willing to so lease the First Refusal
Space, and including a form of amendment to this Lease, which terms and
conditions shall reflect (among other terms) LESSOR's then good faith
determination ("LESSOR's Designation") of the then market rental value for the
First Refusal Space (the "Expansion Rent"). LESSEE may, by giving LESSOR notice
within fifteen (15) days after receipt of LESSOR's notice, irrevocably elect to
lease the First Refusal Space on the terms and conditions set forth in LESSOR's
notice. If LESSEE shall so elect, LESSEE shall, with its notice of exercise,
advise LESSOR of whether LESSEE accepts or disputes LESSOR's Designation, but
LESSEE's exercise shall be irrevocable nonetheless. Failure by LESSEE to advise
LESSOR that LESSEE disputes LESSOR's Designation shall be conclusive evidence
that LESSEE accepts the same. In either case, LESSEE shall within ten (10) days
after such election enter into such amendment incorporating the terms and
conditions set forth in LESSOR's
14
<PAGE>
notice. If LESSEE shall fail to exercise its right within such 15-day period,
then at LESSOR's option, LESSEE shall have no further rights with respect to the
First Refusal Space, and LESSOR shall thereafter be free to lease any or all of
the First Refusal Space to such party or parties, and on such terms and
conditions, as LESSOR may deem appropriate. If LESSEE has exercised its right to
lease the First Refusal Space as herein provided, and notified LESSOR that
LESSEE disputes LESSOR's Designation, and if the Expansion Rent has not been
determined by the day on which the First Refusal Space becomes a part of the
leased premises, then LESSOR's Designation shall (notwithstanding LESSEE's
disagreement therewith) be deemed the Expansion Rent until the Expansion Rent is
otherwise determined pursuant to the provisions of EXHIBIT B relating to Current
Market Rent. For purposes hereof, the "Adjustment Date" referred to in EXHIBIT B
shall be the day on which the First Refusal Space becomes a part of the leased
premises.
38. RIGHT OF FIRST OPPORTUNITY. LESSOR agrees that it will not enter into any
agreement to sell or otherwise transfer LESSOR's interest in all or any portion
of the building (or land or facilities relating thereto) unless and until LESSOR
shall have first complied with all of the provisions of this Section. If during
the term of this Lease, LESSOR proposes or desires to sell all or any part of
the building (or land or facilities relating thereto), LESSOR shall give LESSEE
written notice of such intention, which notice (LESSOR's Offer") shall set forth
all material terms and conditions of such proposed sale (including, without
limitation, the gross cash price and any payment terms which LESSOR is willing
to accept) and shall constitute an offer to sell the building to LESSEE at the
gross cash price and upon the terms stated therein. LESSOR's Offer shall be
accompanied by a list of all tenants and occupants in the building (whether
under leases or otherwise) as of the date of LESSOR's Offer. LESSOR's Offer
shall also be accompanied by a schedule including the size of each tenant's
premises, the base rent and escalation reimbursements, the permitted use, length
of term and length and number of extension and/or expansion options. LESSEE's
acceptance of LESSOR's Offer shall be by written notice given within thirty (30)
days following receipt of LESSOR's Offer. LESSEE's acceptance shall set a date
of closing not less than fourteen (14), nor more than sixty (60), days after
receipt by LESSOR of LESSEE's acceptance. It is the contemplation of the parties
that LESSOR's Offer to LESSEE pursuant hereto shall be made by LESSOR in good
faith and that the offering price will be based upon LESSOR's then good faith
estimate of the then fair market value of the property, and that the other terms
and conditions of the offer shall be in accordance with normal and customary
practice in the metropolitan Boston area. If LESSEE fails to accept LESSOR's
Offer within thirty (30) days of receipt, or if prior to thirty (30) days LESSEE
rejects LESSOR's Offer, LESSOR shall be free to sell the Building to such third
party as LESSOR may desire upon terms and conditions not materially more
favorable (I.E., at a purchase price not less than 90% of that proposed to
LESSEE) than those set forth in LESSOR's Offer, and LESSEE shall execute and
deliver to LESSOR, in recordable form, a certificate reciting that LESSEE
received LESSOR's Offer and rejected or failed to accept said offer. If LESSEE
accepts LESSOR's Offer, (i) LESSOR shall deliver to LESSEE copies of such
reports, inspections, surveys, title insurance policies and like due diligence
material as LESSOR may then have in its possession as to the Property (which
shall be kept in confidence by LESSEE, and shall be without any representation
or warranty whatsoever by LESSOR), and (ii) LESSOR shall, on the date specified
in LESSEE's notice of acceptance, deliver the deed conveying the building to
LESSEE or its nominee or assignee, and (iii) LESSEE shall pay LESSOR the price
specified in LESSOR's Offer, making payment in cash (subject to ordinary and
customary adjustments consistent with local conveyancing practices). The deed
shall be at least the equivalent of a so-called "Massachusetts statutory
quitclaim deed," and shall convey a good and clear record and marketable title
to the building, free from all encumbrances and restrictions except (a) this
lease; (b) the existing tenancies; (c) provisions of local zoning laws and other
laws, codes and ordinances then in effect; (d)
15
<PAGE>
such real estate taxes for the current tax year as are not yet due and payable
on the date of the delivery of the deed; (e) liens for municipal betterments
assessed after the mailing of lessee's acceptance of LESSOR's Offer; and (f) any
other encumbrance or restriction which LESSEE accepts by written instrument
delivered to LESSOR at the time of the delivery of the deed.
39. TITLE/AUTHORITY. (i) LESSOR represents and warrants to LESSEE that, as of
the Commencement Date, the only liens and encumbrances affecting LESSOR's title
to the property of which the leased premises are a part shall be (x) as set
forth on Schedule B of the owner's title policy to be issued by Chicago Title
Insurance Policy in accordance with Commitment No. 22 0066 106 00000463, and (y)
such other liens and encumbrances as LESSOR may advise LESSEE between the date
hereof and the Commencement Date (none of which shall adversely affect LESSEE's
rights and occupancy hereunder); and (ii) LESSEE and LESSOR each represents and
warrants to the other that each person executing this Lease on such party's
behalf has full right and authority to do so, and that all requisite actions and
approvals have been taken or obtained, as the case may be.
IN WITNESS WHERE OF, LESSOR and LESSEE have hereunto set their hands and common
seals and intend to be legally bound hereby this 17th day of June, 1999.
LESSOR: LESSEE
Palomar Medical Technologies, Inc.
By: By: /s/ Louis P. Valente
-------------------------- -------------------------------
Its President
Print Name: Louis P. Valente
<PAGE>
EXHIBIT A
PREMISES
<PAGE>
EXHIBIT B
RENT/EXPENSES
DATES RENT PER MONTH
----- --------------
Years 1-5 $74,049.16
Years 6-10 $81,454.09
OPTION
Years 11-15 * (See Extension Term)
The foregoing calculations are based on the following bases: (i) the rent for
years 1-5 is computed at $20.00 per rentable square foot of first floor space
and $10.00 per rentable square foot for below grade space; and (ii) the rent for
years 1-5 is computed at $22.00 per rentable square foot of first floor space
and $10.00 per rentable square foot for below grade space.
* EXTENSION TERM: Provided that LESSEE is not in default of any of the Terms,
Covenants and Conditions of this Lease (beyond the expiration of applicable
notice and grace periods) at the time LESSEE exercises such right or at the time
of the expiration of the Term, LESSEE shall have the right to one (1) extension
term of five (5) years in addition to the period of the Term described in this
Lease. Said right to extension term shall be exercised by LESSEE if at all, by
written notice received by LESSOR not later than nine (9) months prior to the
expiration of the original term, time being of the essence with respect to such
notice. Not more than 45 days prior to the last day on which LESSEE may exercise
its extension option as herein provided, LESSEE may request that LESSOR advise
LESSEE of LESSOR's then good faith determination ("LESSOR's Designation") of
then Current Market Rent for the leased premises. LESSOR shall, within 30 days
after receipt of LESSEE's request, give LESSOR's Designation of the Current
Market Rent for the extension term. In the event LESSEE does exercise its right
to the extension term, then such notice shall be irrevocable and (i) LESSEE
shall, with its notice of exercise, advise LESSOR of whether LESSEE accepts or
disputes LESSOR's Designation, and (ii) all Terms and Conditions herein set
forth shall continue to apply during the extension term, except that (a) Base
Rent shall increase as indicated below and (b) LESSEE shall have no right to any
additional extension term.
Provided that LESSEE notifies LESSOR of its exercise of the extension term, the
Base Rent shall be determined on the basis of ninety-five (95%) percent of
Current Market Rent. If LESSEE shall not have advised LESSOR that it contests
LESSOR's Designation, the Current Market Rent shall be as set forth in LESSOR's
Designation. If LESSEE has duly contested LESSOR's Designation and the Current
Rent shall not have been determined prior to the extension term commencement,
then LESSOR's Designation shall (notwithstanding LESSEE's disagreement
therewith) be deemed Current Market Rent until Current Market Rent is otherwise
determined pursuant to applicable provisions of this paragraph. On final
determination of Current Market Rent, if such determination would be the basis
on which Base Rent is to be paid, retroactive adjustment shall be made in order
to give it effect to the determination of Current Market Rent. The Adjustment
Date shall be the first day of the extension term.
CURRENT MARKET RENT: The phrase "Current Market Rent" shall mean the rental and
all other monetary payments and escalations that LESSOR could obtain from a
third party desiring to lease space in the Greater Boston Suburban Office Market
as of the Adjustment Date, taking into account the type of building, the size,
location and floor levels and then condition of the leased premises, the quality
of construction of the building and
<PAGE>
of the leased premises, the services provided under the terms of the Lease,
including without limitation any special rights hereunder, the rental then being
attained for new Leases of space comparable to the leased premises in the
Greater Boston Suburban Office Market and all other factors that would be
relevant to a third party desiring to lease the leased premises; provided
however that no reduction, deduction or allowance for the construction of lessee
improvements shall be taken into account in determining Current Market Rent. In
the event that within sixty (60) days prior to the Adjustment Date the parties
hereto shall not have agreed in writing (or to be deemed to have agreed pursuant
to the preceding paragraphs) as to the Current Market Rent, each party shall,
within thirty (30) days thereafter appoint an appraiser. Each appraiser so
appointed shall be instructed to determine independently the Current Market
Rent. If the difference between the amounts so determined by such appraisers
shall not exceed ten percent (10%) of the lesser of such amounts, then the
Current Market Rent shall be an amount equal to fifty percent (50%) of the total
of the amounts so determined. If the difference between the amounts so
determined shall exceed ten percent (10%) of the lesser of such amounts, then
such two (2) appraisers shall have ten (10) days thereafter to appoint a third
appraiser, but if such appraisers fail to do so within such ten (10) day period,
then either LESSOR or LESSEE may request the American Arbitration Association or
any successor organization thereto to appoint an appraiser within ten (10) days
of such request, and both LESSOR and LESSEE shall be bound by any appointment so
made within such ten (10) day period. If no such appraiser shall have been
appointed within such ten (10) days either LESSOR or LESSEE may apply to any
court having jurisdiction to have such appointment made by such court. Any
appraiser appointed by the original appraisers, by the American Arbitration
Association or by such court shall be instructed to determine the Current Market
Rent in accordance with the definition of such term contained herein and within
twenty (20) days after its appointment. If the third appraisal shall exceed the
higher of the first two appraisals, the Current Market Rent shall be the higher
of the first two appraisals; if the third appraisal is less than the lower of
the first two appraisals, the Current Market Rent shall be the lower of the
first two appraisals. In all other cases, the Current market Rent shall be equal
to the third appraisal. All such determinations of the Current Market Rent shall
be final and binding upon LESSOR and LESSEE as the Current Market Rent for the
Adjustment Date. Notwithstanding the foregoing, if either party shall fail to
appoint its appraiser within the 30 day period specified above (such party being
referred to herein as the "failing party"), the other party may serve notice on
the failing party requiring the failing party to appoint its appraiser within
then (10) days of the giving of such notice. If the failing party shall not
respond by appointment of its appraiser within said ten day period, then the
appraiser appointed by the other party shall be the sole appraiser whose
determination of the Current Market Rent shall be binding and conclusive upon
LESSEE and LESSOR.
This provision for determination by appraisal shall be specifically enforceable
to the extent such remedy is available under applicable law, and any
determination hereunder shall be final and binding upon the parties except as
otherwise provided by applicable law. Each party shall pay for the fees and
expenses of the appraiser appointed by it, but the fees and expenses of the
third appraiser shall be shared equally by the parties. All appraisers appointed
hereunder shall be MAI appraisers, so-called.
<PAGE>
EXHIBIT C
PLANS & SPECIFICATIONS
Work Letter - Enclosed pages 21-34
Construction Drawings created by Visnick & Caulfield dated 5/27/99 incorporated
by reference
Drawing Number A-1 Partition Plan
Drawing Number A-2 Power and Tel/Data Plan (as amended for moving one
electrical and data outlet and adding 15 data outlets)
Drawing Number A-3 Reflected Ceiling Plan
Drawing Number A-4 Finish Plan (as amended for using higher grade 32 oz
carpet in board room, corner meeting room and CEO office; stone floor
within entire reception area; additional changes from carpet to vinyl
flooring as indicated)
Drawing Number A-5 Elevations, Door/Frame/Hardware, Door Schedule (as
amended for adding cabinet and fake drawer below cooktop stove and
raising electrical outlet)
Drawing Number A-6 Details
Drawing Number A-7 Details
In the case of any conflicts between the work letter and the drawings, the work
letter shall supercede the drawings.
PALOMAR MEDICAL TECHNOLOGIES, INC.
WORK LETTER FOR 80-82 CAMBRIDGE STREET, BURLINGTON, MA
JUNE 17, 1999
AREA: Approximately 44,000 RSF located on the East side of the
building and 859 RSF on the Lower Level of the building.
ENTRANCES: Entrances will be as follows:
o One (1) entrance (existing) on Cambridge Street with
white columns. This entrance needs to be fully ADA
compliant and also requires the installation of a
doorbell which will ring in both the left and right
corridors off the Reception area beyond the interior
glass doors in each corridor (meaning in the office area
of each corridor).
o One (1) side employee entrance glass door with a
doorbell, which will ring in both the Loading Docks and
Receiving areas.
EXTERIOR: Installation of a concrete dumpster pad capable of accommodating
a thirty (30) cubic yard roll off container and placed next to
the loading dock in a location suitable to Palomar.
WINDOWS: One (1) large French door sized paired window, 1" insulated
green glass in green frames to match existing to be installed in
the Controller's Office as indicated on the floor plan. Two (2)
continuous 1" insulated green ribbon glass in green frames to be
removed for two (2) loading docks.
One (1) pyramid style skylight to be installed in the reception
area as indicated on the floor plan (at Palomar expense).
Perimeter vertical blinds with 3" vinyl blades to be installed
on all exterior windows. Also, the same vertical blinds to be
installed on the Board Room 1/2 height glass wall.
Interior glass panels as shown on the floor plan to be installed
as follows: three (3) 1/2 height X 6' glass panels to be
installed in walls of the R&D and Optics Assembly Clean Rooms;
1/2 height glass in the Board Room wall facing the Reception
Area glass.
PARTITIONS: Partitions to be installed as follows:
o Type 1 - Partitions at exterior wall: 3-5/8" 25 gauge steel
studs at 16" O.C. (existing), 1 layer 5/8" gypsum wallboard.
Wallboard to be taped and spackled. The inside of walls to have
appropriate fiberglass insulation and a vapor barrier (existing)
Height of partition to underside of existing slab above
(existing).
<PAGE>
o Type 2 - Partitions at core toilets, mechanical rooms,
sprinkler rooms, electrical rooms, Loading Docks, R&D Machine
Shop and tenant demising: 3-5/8" 25 gauge steel studs at 16"
O.C., 1 layer 5/8" gypsum wallboard. Wallboard to be taped and
spackled. The inside of walls, excluding the walls abutting
hallways, to receive 3" of fiberglass insulation (at Palomar
expense). Height of partition to underside of existing slab
above.
o Type 3 - Partitions for standard interior walls: 3-5/8" 25
gauge steel studs at 16" O.C., 1 layer 5/8" gypsum wallboard.
Wallboard to be taped and spackled. The inside of walls,
excluding the walls abutting hallways, to receive 3" of
fiberglass insulation (at Palomar expense). Height of partition
to exceed ceiling height by 6".
o Type 4 - Partitions for interior walls in the Test Bay Area:
3-5/8" 25 gauge steel studs at 16" O.C., 1 layer 5/8" gypsum
wallboard. Wallboard to be taped and spackled. The inside of
walls, excluding the walls abutting hallways, to receive 3" of
fiberglass insulation (at Palomar expense). Height of partition
to underside of acoustical tile ceiling (10') to under ceiling
grid. GWB detail at ceiling to be double row foam tape at top
runner with continuous metal casing bead (USG# 200-B) having
spackled finish.
Partitions to include: window sills; "boxing" of columns in
office areas; "special" round enclosure of column in reception
area as shown on floor plan; "special" ceiling treatment in
reception area to accommodate pyramid skylight and accent
lighting (at Palomar expense); and full height chain link fence
with sliding gates (to be installed from floor slab to the
underside of ceiling above) as shown on floor plan.
BATHROOMS: Men's and women's bathrooms with showers will be constructed.
The bathrooms will be constructed with separate air supply and
exhaust directly to the outside and will include all bathroom
fixtures and all accessories such as mirrors, toilet partitions,
toilet tissue dispensers, paper towel dispensers, sanitary
napkin dispensers, soap dispensers. The bathrooms will also
include GFI outlets at the sinks and coat hooks on the shower
walls and on the toilet partition doors. The bathrooms shall be
fully ADA compliant.
<PAGE>
PLUMBING: Fixtures will be installed in the bathrooms, showers and
janitor's closet as shown on floor plan and shall be ADA
compliant. Break Room water cooler shall be installed where
shown on floor plan.
Provision for and installation of appropriate plumbing for all
appliances in the Break Room requiring plumbing. The appliances
include a kitchen stainless steel "double" sink with hot and
cold water faucets and spray; piping for a coffee machine; a 1/2
HP garbage disposal; a dishwasher (to be supplied by the
contractor); and one (1) water filter to be placed in a location
as designated by Palomar.
In the production and laboratory areas, eight (8) sinks (of
which the rough plumbing and final connections will be at
contractor expense and the provision of the sinks in laminate
cabinet units will be at Palomar expense) with hot and cold
water faucets and placed in three (3) proximate areas of the
building (to facilitate stacking of common piping) as shown on
floor plan.
Sufficient domestic hot water heating and plumbing shall be
installed to supply an adequate hot water supply to all the
above fixtures with the final engineering calculations and
design to be reviewed by Palomar before installation.
GAS: Gas service via Boston Gas is installed and will be piped to all
units requiring gas. At least two (2) gas meters will be
installed to enable gas to be metered separately for Palomar and
as needed for the other tenant in the building .
ELECTRICAL: Three phase 480 volt, 2,000 amp electrical service provided by
Boston Edison to one (1) electrical panel. At least three (3)
electric meters will be installed to enable electricity to be
metered separately for Palomar's HVAC, Palomar's lights and
plugs and as needed for the other tenant in the building. Also,
a device to measure Palomar's lights and plugs usage in the
manufacturing area for audit purposes as designated by Palomar
to be installed (at Palomar expense).
<PAGE>
The distribution of electrical outlets will be as follows:
GENERAL BUILDING REQUIREMENTS
o Enclosed offices, small meeting rooms (10' X 12'), file room,
etc. - Three (3) duplex 20 amp outlets per room.
o Paneled workstations and individual work desks - Two (2)
duplex 20 amp outlets per workstation. The outlets at paneled
workstations to be included as Palomar furniture. Contractor to
make all final connections.
o Large meeting rooms - Four (4) duplex 20 amp outlets per room.
o Corridors - One (1) duplex 20 amp outlet per 30 linear feet of
corridor space.
o Copier/Printer areas - Either one (1) quad or two (2) duplex
20 amp outlets per area.
o All storage rooms, Supply, and Sprinkler & Electrical rooms -
Two (2) duplex 20 amp outlets per room.
SPECIFIC ROOM REQUIREMENTS
o Type 1 - 110/115 volt 20 amp with duplex outlet
o Type 2 - 110/115 volt 20 amp with quad outlet
o Type 3 - 110/115 volt 20 amp duplex outlet dedicated circuit
o Type 4 - 220 volt 30 amp single phase outlet with lockout
switch
o Type 5 - 220 volt 30 amp 50 Hz outlet with lockout switch
o Type 6 - 220 volt 50 amp 3 phase outlet with lockout switch
<TABLE>
<CAPTION>
TYPE 1 TYPE 2 TYPE 3 TYPE 4 TYPE 5 TYPE 6
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
LOCATION:
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D OPTICAL SHOP 4 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D ELECTRICAL SHOP 4 2 2 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D MACHINE SHOP 7 2 2 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D LAB 1 6 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D LAB 2 6 2 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D LAB 3 6 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D LAB 4 6 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D LAB 5 6 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R&D MGH LAB 6 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
ENG. LAB 1 6 1 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
ENG. LAB 2 6 1 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
ENG. LAB 3 6 1 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TBD LAB 6 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TRAINING ROOM 6 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
MFG. MECH. & ELEC. LAB 4 2 1 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
DEPOT REPAIR 4 2 1 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
<PAGE>
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
DOCUMENTATION 8 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 1 1 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 2 1 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 3 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 4 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 5 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 6 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 7 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 8 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 9 1 2 1 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 10 1 2 1 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 11 1 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEST BAY 12 1 2 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
OPTICS ASSEMBLY ROOM 16 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
R & D CLEAN ROOM 5
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
CHASSIS & SUB ASSEMBLY 8 3
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
MAIN STORES 5
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
QA INSPECTION 4
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
MRB 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
RECEIVING 3
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
FINISHED GOODS 3
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
LOADING DOCK 4
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
BREAK ROOM 10
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TEL ROOM 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
IS MGR. 6 3
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
BOARD ROOM 3 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
SALES/MARKETING DEMO ROOM 4 2 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
RECEPTION 4 1
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
COPY/FAX/MAIL 4 2
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
EXERCISE ROOM 4
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
BATHROOM 4
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
TOTAL 86 149 19 47 7 2
</TABLE>
Additional outlet requirements will be as follows:
o Break Room will require four (4) GFI (of the 10 outlets
specified above) duplex outlets along counter top and an
electric stove outlet as required by the stove manufacturer.
o Bathroom will require GFI outlets (2 per each side). o Deck
will require two (2) outside/protected GFI duplex outlets.
<PAGE>
The distribution of electrical circuits will be as follows:
GENERAL BUILDING REQUIREMENTS
o Lighting circuits will be distributed as per good engineering
practice and reviewed with Palomar before installation.
o Enclosed offices, meeting rooms, file room, etc. - Three (3)
rooms per circuit. o Paneled workstations and individual work
desks - Four (4) workstations per circuit.
o Corridors - Ten (10) outlets per circuit.
o Copier areas - One (1) area per circuit.
o All storage rooms, Supply, and Sprinkler & Electrical rooms -
Ten (10) outlets per circuit.
SPECIFIC ROOM REQUIREMENTS
o Type 1 & 2 (20 amp circuits) unless otherwise stated below not
to exceed 20 plugs (5 quads or 10 duplex) per circuit.
o Type 3 each duplex outlet to be on a dedicated circuit.
o Type 4 & 6 not to exceed two (2) plugs per circuit.
o Type 5 to require two (2) 50 Hz generators and to be split
into two (2) circuits. One circuit will have the R&D and
Engineering Lab outlets (totaling 4 outlets) and the other
circuit will have the Mfg. Mech. & Elect. Lab and Test Bays 9 &
10 (totaling 3 outlets).
o The Exercise Room will have two (2) circuits (2 quads per
circuit).
o Break Room to require one (1) circuit for each individual
appliance (each refrigerator, dishwasher, double oven, and stove
top), one (1) circuit for the vending machines and two (2)
circuits for the remaining outlets.
o IS Mgr will have three (3) circuits (2 duplex & 1 quad per
circuit).
o Tel Room will have one (1) circuit for both quad outlets.
Switches to be located as per Palomar direction maintaining ADA
compliance. All light switches to be flat rocker style switches.
All dimmer switches to be lever style switches.
The Chassis and Sub Assembly areas will require two (2) overhead
bus bars running the length of the entire area.
Electrical to also include the purchase and installation on a 8'
X 10' flush ceiling mounted electrically operated projection
screen for the Board Room (to be purchased and installed at
Palomar expense); and the coordination of voice & data cabling,
paging and cable for cable television (the installation costs of
these items at Palomar expense).
<PAGE>
LIGHTING: The lighting will be as follows:
o Type 1 - One (1) 2' X 4' fluorescent fixture with 1/2" X 1/2"
paracube lenses per 60 square feet of enclosed offices, Exercise
Room, Bathrooms, all meeting rooms, Coat Room and the
Copy/fax/mail area (except the Board Room, CEO Office and the
Corner Meeting Room). In place of the above paracube fixtures,
equivalent indirect lighting fixtures are to be installed (at
Palomar expense for the premium cost of the indirect lighting
fixtures over paracube fixtures).
o Type 2 - One (1) 2' X 4" fluorescent fixture with solid lenses
per 60 square feet of enclosed space for all labs, all R&D
shops, Optics Assembly Room, the R&D Clean Room, all Test Bays,
Depot Repair, Training Room, all Storage Rooms, Supply and all
Electrical & Sprinkler rooms. R& D Clean Room to be "clean room"
fixtures (at Palomar expense for the premium of clean room
fixtures over standard solid lense fixtures).
o Type 3 - One (1) 2' X 4' fluorescent fixture with solid lenses
per 80 square feet of all remaining open production and
caged/chain link fenced space and loading dock (including
corridors in those areas).
o Type 4 - One (1) 2' X 4' fluorescent fixture with 1/2" X 1/2"
paracube lenses per 80 square feet of remaining office space and
Break Room (including paneled workstations and corridors in
those areas). In place of the above paracube fixtures,
equivalent indirect lighting fixtures are to be installed (at
Palomar expense for the premium cost of the indirect lighting
fixtures over paracube fixtures).
o Type 5 - One (1) 2' X 2' fluorescent fixture with 1/2" X 1/2"
paracube lenses per 60 square feet of space for the Board Room,
CEO office and the Corner Meeting Room, (at Palomar expense for
the premium cost in excess of the Type 1 lighting fixture). In
place of the above paracube fixtures, equivalent indirect
lighting fixtures are to be installed (at Palomar expense for
the premium cost of the indirect lighting fixtures over paracube
fixtures).
o Type 6 - Special Lighting requirements:
1. Incandescent red lights (60 watt) in globes as a laser
warning light above every lab, Test Bay, Training, Depot Repair
and Sales/Marketing Demo Room entrance doorway to be switched
with an indicator light on each switch at each door for these
rooms. Switches to be linked such that turning on one switch in
a room will activate all room laser warning lights and
indicators.
<PAGE>
2. Two (2) outdoor spot lights to be located outside the Break
Room to illuminate the Deck with the switch in the Break Room.
3. Interior spot lights to be located in the Reception area
ceiling for accent and general lighting.
4. Interior "high hat" ceiling lights (at Palomar expense) to be
located in the Board Room ceiling as detailed under "SPECIAL
AREAS" and three (3) interior high hat ceiling lights to be
installed on a single dimmer switch in each of the large meeting
rooms (4 rooms in total).
All fluorescent fixtures to be 277 volts and approved by Palomar
before installation.
HVAC: The building will be heated and cooled by rooftop mounted units,
gas fired, packaged air handling units with integral air-cooled
condensing units so as to provide sufficient heating and cooling
distribution and controls shall be installed in all areas as per
good engineering practice so as to maintain 68 degrees F in the
summer and 72 degrees F in the winter in all areas of the
building in full use and occupancy. Temperature/thermostatic
controls in all areas shall be distributed to meet the
requirements stated above.
It should be noted, that in any room in which a laser can be
fired (every lab, all Test Bays, Training Room and Depot
Repair), the laser generates 20,000 BTU's per hour. As such,
special care must be taken in designing the HVAC system for
these rooms to both exhaust the heat and provide sufficient air
flow & cooling.
A total of four (4) adjacent labs (2 in R&D and 2 in Engineering
to be specified by Palomar) and four (4) Test Bays (Test Bays 7
- 10) will be designated as "burn in capable". "Burn in capable"
shall mean that these labs must be able to handle the full heat
load (20,000 BTU's per hour) for up to twenty four (24) hours.
These areas will require individual room controlled air supply
dampers that will allow each room to be supplied with up to 800
CFM of air. In addition, each room will require forced ducted
exhaust to the outside of the building.
The standard for all other labs, all other Test Bays, Depot
Repair and Training Room shall be at a minimum 1/2 the above
requirement (10,000 BTU's per hour). However, these areas will
require individual room controlled air supply dampers that will
allow each room to be supplied with up to 800 CFM of air. In
addition, each of these rooms will require an exhaust (not
forced to the outside as in the "burn in capable" rooms).
<PAGE>
Supply air to all labs, Training Room, all assembly areas
(including the Optics Assembly, Chassis Assembly and Sub
Assembly), Depot Repair, Training Room and all Test Bays must be
distributed such that supply air filters can be changed as often
as required and upgraded as needed.
The R&D Clean Room (at Palomar expense for the premium cost in
excess of a lab build out) must be able to achieve a Class
10,000 level of clean room performance (as per Federal Standard
209E and applicable ISO standards). As such, this room will
require HEPA filter(s) on the supply air and all other necessary
construction requirements to meet certification testing.
The distribution of supply air and temperature/thermostatic
controls in all other areas (ie. offices, meeting rooms, paneled
workstations, etc.) shall be as per good engineering practice
and sufficient to meet the temperature standards listed above.
Please note that the IS Manager's room will contain 12
PC's/Servers and be able to run 24 hours each day.
Treated (heated and/or cooled) fresh air will be supplied per
the Massachusetts Building Code and ASHRAE guidelines, and an
economizer cycle will be provided. The system shall be capable
of providing 100% fresh air intake. External venting to be
provided for two (2) exhaust hoods to be placed in locations by
Palomar.
FIRE PROTECTION: A fire protection system including all devices shall be
installed as per all state and local requirements. This system
shall include a main fire alarm panel, all signaling devices,
exit signs, emergency egress lighting, fire extinguisher
cabinets with fire extinguishers and fire hose cabinets with
fire hose (if required by code). A capped sprinkler system with
heads turned up (existing) and all downward turned heads
distributed throughout the entire area will be provided in
accordance with applicable code requirements.
SECURITY: A card access security system shall be installed. The system
shall include a main control panel, card key swipes at all
entrance doors and either room motion detection or perimeter
glass sensors to fully secure the perimeter of the building. The
system shall include security devices on the loading dock doors
and the lower level doors. Palomar shall be supplied with 150
card keys and the ability to be able to program card key
changes.
<PAGE>
CEILINGS: Suspended acoustical ceilings shall be installed in all areas.
The ceiling height in all areas except the Reception and
caged/chain link fenced area will be 10' and shall enable a
finished soffit above front windows of at least 6". In the
caged/chain link fence area, the ceiling height shall be as high
as possible. See "SPECIAL AREAS" listed below for the Reception
Area ceiling.
Ceiling tile in all labs, R&D Clean Room, the Optics Assembly
Room, all Test Bays, Training and Depot Repair, will be
installed in a 2' X 4' grid with 2' X 4' flat acoustical vinyl
coated tiles.
Ceiling tile in all other assembly, R&D shops, electrical &
sprinkler rooms, all Storage Rooms, Supply and caged/chain link
fence areas, Loading Docks and including all related corridors
will be installed in a 2' X 4' grid with 2' X 4' flat acoustical
tiles.
Ceiling tile in all offices (including File Room, Interview Room
TBD rooms), all paneled workstation areas, all meeting rooms
(including the Sales/Marketing Demo Room), related common areas
(including Bathrooms, Exercise Room, Reception, Break Room,
Coats and Copy/Fax/Mail), and related corridors will be
installed in a 2' X 4' grid with 2' X 4' acoustical, second look
(Fissuard) tiles.
DOORS & HARDWARE: All doors are to have metal frames and are to be 3' wide X 7'
high X 1 3/4" solid core birch veneer finished with two (2)
coats of stain and two (2) coats of clear polyurethane. Hardware
will be ADA compliant Schlage or comparable, dull chrome. All
locks will be on a master key system and will be placed on all
external doors, all caged/chain link fence gates and 30 other
internal doors to be determined by Palomar. Palomar will be
provided with two keys per each lock and five (5) master keys
with appropriate submasters at Palomar's direction(submasters at
Palomar expense).
Additional door related hardware to be as follows:
1. Floor door stops on all appropriate doors.
2. Coat hooks on interior of office doors.
3. Door closers for the two (2) R&D Clean Room entrance doors
(at Palomar expense).
4. Ten (10) door glass vision panels to be placed in the four
(4) large meeting room entrance doors, Break Room entrance
doors, and the door between the R&D office and Sub Assembly
areas (at Palomar expense for the glass vision panel only).
<PAGE>
FLOORING: Flooring for all office areas, paneled workstation areas,
Exercise Room, all meeting rooms, Sales/Marketing Demo room and
related corridors (except as noted below under "SPECIAL AREAS")
shall be 32 oz. carpet of usual commercial cut loop type with
manufacturer and style to be approved by Palomar.
Flooring in the Break Room, all enclosed R&D areas (except the
R&D machine shop), all enclosed Engineering areas, the R&D Clean
Room, Optics Assembly Room, TBD Lab, Training, all Test Bays,
Depot Repair, Mfg. Mech./Elect. Lab, Documentation, IS Mgr., Tel
room and related corridors shall be vinyl tile with the style to
be approved by Palomar.
Flooring in all remaining areas including the R&D Machine Shop,
all caged/chain link fenced areas, loading docks, chassis and
sub assembly areas, mechanical/electrical/sprinkler rooms to be
painted with a polyurethane paint including walkway paths with
the product and colors to be approved by Palomar.
Ceramic tile will be on all floors and the wet areas of the core
toilets, showers and the janitor's closet.
The Reception Area shall require the installation of higher
grade flooring (to be approved by Palomar). (Should any higher
grade flooring be installed, the premium cost of that flooring
over higher grade carpet to be at Palomar expense.)
Vinyl cove base shall be installed in all areas.
PAINT: All walls to be finished with one (1) coat of latex quick seal
primer and two (2) coats of Benjamin Moore Spec. No. 2-3
(eggshell finish latex base). All door frames to be finished
with one (1) coat latex quick seal primer and two (2) coats of
Benjamin Moore or comparable Spec. No. 4-6 (semi-gloss
finish/alkyd base).
LOADING DOCKS: Installation of two (2) loading docks as per floor plan. The
installation to include all related fixtures including two (2)
electrically operated dock doors, two (2) dock levelers, a
single ceiling mounted heating/forced air unit and all exterior
treatments such as dock bumpers, leveling of pavement in dock
area and pavement striping.
<PAGE>
LOWER LEVEL: Lower Level to be built out as follows:
o Clean exposed ceiling.
o Florescent strip lighting.
o All walls painted (as per above specification).
o All flooring to be painted concrete (as per above
specification). o Electrical outlets to be installed as per
corridor specification above.
o Entrance to storage area to be an overhead rolling door and a
single door.
o HVAC system distribution and controls able to maintain 60
degrees F in winter.
MILLWORK: Millwork to be provided and installed as follows:
o Break Room - Kitchen cabinets above and below a counter top
(containing the sink) placed as shown on floor plan.
o Copy/Fax/Mail - Counter top placed along walls as shown on
floor plan with shelves above and locked cabinets below.
o Coats - A coat rack with shelf above as indicated on floor
plan.
SPECIAL AREAS: The following areas will be finished accordingly:
o Board Room:
1. 2' X 2' suspended ceiling grid with 2' X 2' raised
ceiling tiles.
2. Four (4) incandescent "high hat" ceiling fixtures
controlled by one (1) dimmer circuits (at Palomar
expense).
3. Flush mounted electrically operated 8' X 10' projection
screen (at Palomar expense).
4. Higher grade carpet.
5. Vertical blinds on all glass as shown on floor plan.
6. 6" of fiberglass insulation to be installed above the
ceiling tiles (at Palomar expense).
7. Installation of wall mounted "white board" unit (to be
supplied by Palomar).
<PAGE>
o Corner Meeting Room (12' X 20' meeting room in front left
corner of the building):
1. 2' X 2' suspended ceiling grid with 2' X 2' raised
ceiling tiles.
2. Higher grade carpet.
o CEO Office:
1. 2' X 2' suspended ceiling grid with 2' X 2' raised
ceiling tiles.
2. Higher grade carpet.
o Break Room - Millwork (as detailed under "MILLWORK") and
double sink unit as shown on floor plan; the installation of all
appliances as shown on the floor plan; one (1) double exterior
glass door; and deck at the same floor height as interior
flooring with railing as shown on floor plan.
o Reception - incandescent accent and general lighting, as
specified previously under "LIGHTING"; special ceiling treatment
to accommodate pyramid skylight (at Palomar expense), as
specified previously under "WINDOWS"; special flooring, as
specified previously under "FLOORING".
WATER/SEWER: Water and sewer provided by the Town of Burlington. All required
plumbing connections to be installed as per applicable codes and
Town of Burlington requirements.
ROOF: Schuller rubber membrane roof (existing). All required roof
penetrations to be done in accordance with Schuller requirements
so as to not effect in any way the roof warranty.
GENERAL: All colors to be selected by Palomar.
Y2K: All products, equipment, and systems (including hardware,
software and embedded chips) incorporated into or used in
connection with this site shall be year 2000 compliant, that is,
the products or systems, independently and when incorporated
into this site, will be capable of accurately processing,
providing and/or receiving date data prior to, during, or after
the calendar year 2000 a.d. Such year 2000 compliant products,
equipment, and systems:
1. Will operate during such time period without error of
any nature relating to date data that includes,
represents, or references the year 2000 or later years,
or resulting from the passage of time from the year 1999
to the year 2000;
2. Will not terminate ordinary operations nor produce
invalid or incorrect results as a result of date data
that includes, represents or references the year 1999,
the year 2000 or later years, or the passage of time
from the year 1999 to the year 2000;
<PAGE>
3. Will specify the year in any date data either explicitly
or by unambiguous implication in all interfaces and data
storage; and
4. Will recognize and correctly process year 2000 date data
as a leap year.
<PAGE>
EXHIBIT D
JANITORIAL STANDARDS
A. GENERAL
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed
flooring to be swept nightly on Business Days, using approved
dust-down preparation; wash flooring once a month.
2. All linoleum, rubber, asphalt tile and other similar types of
flooring (that may be waxed) to be swept nightly on Business Days,
using approved dust-down preparation. Waxing, if any, shall be done
at LESSEE's expense.
3. All carpeting and rugs to be carpet swept or vacuum cleaned
nightly on Business Days, as may be required.
4. Hand dust and wipe clean all furniture, files, fixtures and window
sills nightly on Business Days;
5. Dust interior of all waste paper disposal cans and baskets nightly
on Business Days; damp dust as necessary.
6. Wash clean all water coolers nightly on Business Days;
7. Dust all door and other ventilating louvers within reach, as
necessary.
8. Dust all telephones as necessary.
9. Sweep all private stairway structures nightly on Business Days.
10. Wipe clean all bright work weekly.
11. Interior and exterior of metal elevator car and hatch doors,
including saddles, to be properly cleaned and treated as necessary.
12. Vacuum clean and change filters in air conditioning units
semi-annually.
B. LAVATORIES (BUILDING)
1. Sweep and wash all lavatory floors nightly on Business Days, wash
and polish all mirrors, powder shelves, bright work and enameled
surfaces in lavatories, weekly.
2. Scour, wash and disinfect all basins, bowls and urinals throughout
all lavatories nightly on Business Days.
3. Wash all toilet seats nightly on Business Days.
4. Hand dust and clean all partitions, tile wall dispensers and
receptacles in all lavatories nightly on Business Days.
5. Empty paper towel receptacles and transport wastepaper from the
demised leased premises nightly on Business Days.
6. Fill toilet tissue holders nightly on Business Days (tissue to be
furnished by Owner).
7. Empty sanitary disposal receptacles nightly on Business Days.
8. Wash interior of waste cans and receptacles at least once a week.
9. Thoroughly wash all wall tile and stall surfaces as often as
necessary but in no event less than once every two weeks.
10. Fill soap dispensers and paper towel dispensers (dispensers, soap
and paper towels to be furnished by LESSOR at LESSOR's expense).
C. HIGH DUSTING
Do all high dusting quarterly, which includes the following:
1. Dust clean all vertical surfaces, such as walls, partitions, doors
and bucks and other surfaces not reached in nightly cleaning.
2. Dust clean all pipes, ventilating and air conditioning louvers,
ducts, high moldings and other high areas not reached in nightly
cleaning.
3. Dust all lighting fixtures, including glass or plastic enclosures
(exterior only).
D. WINDOW CLEANING
1. All windows to be cleaned inside and outside, two times a year.
2. LESSEE's entrance doors and lobby glass to be cleaned daily on
Business Days.
3. All other interior glass and a normal amount of partition glass,
glass doors and fan lights are to be cleaned twice a year.
4. Mail chute glass to be kept in a clean condition at all times.
E. DAY PORTERS
1. Service, during Business Days all public and operating space
throughout the Building.
2. Keep elevator cars clean and neat during the day on Business Days.
3. Insert toilet tissue in lavatories (tissue to be furnished by
LESSOR) as necessary on Business Days.
4. Keep staircases policed as necessary on Business Days.
5. Fill soap dispensers and paper towel dispensers on Business Days
(dispensers, soap and paper towels to be furnished by LESSOR at
LESSOR's expense).
<PAGE>
EXHIBIT E
RULES & REGULATIONS
I. The following regulations are generally applicable:
1. The public sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by LESSEE (except as necessary for deliveries) or used for any purpose other
than ingress and egress to and from the leased premises.
2. No awnings, curtains, blinds shades, screens or other projections
shall be attached to or hung in, or used in connection with, any window of the
leased premises or any outside wall of the Building unless the same are of a
quality, type, design and color, and attached in the manner, reasonably approved
by LESSOR.
3. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor places in the halls,
corridors or vestibules.
4. The water and wash closets and other plumbing fixtures shall not
be used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or like substances shall be
deposited therein.
5. LESSEE shall not use the leased premises or any part thereof or
permit the leased premises or any part thereof to be used as a public employment
bureau or for the sale of property of any kind at auction, except in connection
with LESSEE's business as permitted in the Lease.
6. LESSEE must, upon the termination of its tenancy, restore to the
LESSOR all locks, cylinders and keys to offices and toilet rooms of the leased
premises.
7. The LESSOR reserves the right (but assumes no obligation) to
exclude from the Building between the hours of 6 p.m. and 8 a.m. and at all
hours on Sunday and holidays all persons connected with or calling upon the
LESSEE who do not present a pass to the Building signed by the LESSEE.
8. The requirements of LESSEE will be attended to only upon
application at the Building manager's office. Employees of LESSOR shall not
perform any work or do anything outside of the regular duties, unless under
special instructions from the office of the LESSOR.
9. There shall not be used in any space, or in the public halls of
the Building, either by LESSEE or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
10. No bicycles, vehicles or animals of any kind shall be brought
into or kept in or about the leased premises.
11. No LESSEE shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building. No
LESSEE shall throw anything out of the doors, windows or skylights or down the
passageways.
12. The leased premises shall not be used for lodging or sleeping or
for any immoral or illegal purpose.
13. LESSEE shall co-operate with LESSOR in obtaining maximum
effectiveness of the cooling system by closing draperies when sun's rays fall
directly on windows of leased premises.
14. LESSOR shall have the right, exercisable without notice and
without liability to any LESSEE, to change the name and street address of the
Building.
II. The following regulations are applicable to any additions, alterations or
improvements being undertaken by or for LESSEE in the leased premises:
A. GENERAL
1. All alterations, installations or improvements ("Alterations") to
be made by LESSEE in, to or about the leased premises shall be made in
accordance with the requirements of this Exhibit and by contractors or mechanics
approved by LESSOR.
2. LESSEE shall, prior to the commencement of any work, submit for
LESSOR's written approval, complete plans for the Alterations. Drawings are to
be complete with full details and specifications for all of the Alterations.
3. Alterations must comply with the Building Code applicable to the
Property and the requirements, rules and regulations and any other governmental
agencies having jurisdiction.
4. To the extent that the same is required by applicable law or
regulation, no work shall be permitted to commence without the LESSOR being
furnished with a valid building or demolition permit and all other necessary
approvals from agencies having jurisdiction.
5. All demolition, removals or other categories of work that may
inconvenience other LESSEEs or disturb Building operations, must be scheduled
and performed before or after normal working hours and LESSEE shall provide the
Building manager with at least 24 hours' notice prior to proceeding with such
work.
6. All inquiries, submissions, approvals and all other matters shall
be processed through the Building manager.
B. PRIOR TO COMMENCEMENT OF WORK
1. LESSEE shall submit to the Building manager a request to perform
the work. To the extent that the same are required by applicable law or
regulation, or are customarily produced for similar work, the request shall
include the following enclosures:
(i) A list of LESSEE's contractors and/or subcontractors for LESSOR's
reasonable approval.
(ii) Four complete sets of plans and specifications properly stamped
by a registered architect or professional engineer.
(iii) A properly executed building permit application form.
(iv) Four executed copies of the insurance policies or certificates
from LESSEE's contractor and, if requested by LESSOR, from the
contractor's subcontractors.
2. LESSOR will return to LESSEE two sets of plans approved or a
disapproval with specific comments as to the reasons therefor (such approval or
comments shall not constitute a waiver of approval of governmental agencies).
3. LESSEE shall obtain a building permit from the Building Department
and necessary permits from other governmental agencies. LESSEE shall be
responsible for keeping current all permits. LESSEE shall submit copies of all
approved plans and permits to LESSOR and shall post the original permit on the
leased premises prior to the commencement of any work. All work, if performed by
a contractor or subcontractor, shall be subject to reasonable supervision and
inspection by LESSOR's representative. Such supervision and inspection shall be
at LESSEE's sole expense and LESSEE shall pay LESSOR's reasonable charges for
such supervision and inspection.
C. REQUIREMENTS AND PROCEDURES
1. All structural and floor loading requirements shall be subject to
the prior approval of LESSOR's structural engineer.
2. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the approval of LESSOR's mechanical and
electrical engineers and all mechanical and electrical work shall be performed
by contractors who are reasonably approved by LESSOR or engaged by LESSOR in
maintaining the Building. When necessary, LESSOR will require engineering and
shop drawings, which drawings must be approved by LESSOR before work is started.
Drawings are to be prepared by LESSEE and all approvals shall be obtained by
LESSEE.
3. Elevator service for construction work shall be charged to LESSEE
at standard Building rates. Prior arrangements for elevator use shall be made
with Building manager by LESSEE. No material or equipment shall be carried under
or on top of elevators. If an operating engineer is required by any union
regulations, such engineer shall be paid for by LESSEE.
4. If shutdown of risers and mains for electrical, HVAC, sprinkler
and plumbing work is required, such work shall be supervised by LESSOR's
representative. No work will be performed in Building mechanical equipment rooms
without LESSOR's approval and under LESSOR's supervision.
5. LESSEE's contractor shall:
(i) have a superintendent or foreman on the leased premises at all
times;
(ii) police the job at all times, continually keeping the leased
premises orderly;
(iii) maintain cleanliness and protection of all areas, including
elevators and lobbies.
(iv) protect the front and top of all peripheral HVAC units and
thoroughly clean them at the completion of work;
(v) block off supply and return grills, diffusers and ducts to keep
dust from entering into the Building air conditioning system; and
(vi) avoid the disturbance of other LESSEEs.
6. If LESSEE's contractor is negligent in any of its
responsibilities, LESSEE shall be charged for corrective work.
7. All equipment and installations must be equal to the standards
generally in effect with respect to the remainder of the Building. Any deviation
from such standards will be permitted only if indicated or specified on the
plans and specifications and approved by LESSOR.
8. A properly executed air balancing report signed by a professional
engineer shall be submitted to LESSOR upon the completion of all HVAC work.
9. Upon completion of the Alterations, LESSEE shall submit to LESSOR
a permanent certificate of occupancy and final approval by the other
governmental agencies having jurisdiction.
10. LESSEE shall submit to LESSOR a final "as-built" set of drawings
showing all items of the Alterations in full detail.
11. Additional and differing provisions in the Lease, if any, will be
applicable and will take precedence.
12. LESSOR's approval of the plans, drawings, specifications or other
submissions in respect of any work, addition, alteration or improvement to be
undertaken by or on behalf of LESSEE shall create no liability or responsibility
on the part of LESSOR for their completeness, design sufficiency or compliance
with requirements of any applicable laws, rules or regulations of any
governmental or quasi-governmental agency, board or authority.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000881695
<NAME> Palomar Medical Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,518,734
<SECURITIES> 17,796,284
<RECEIVABLES> 2,755,955
<ALLOWANCES> 400,000
<INVENTORY> 3,978,105
<CURRENT-ASSETS> 45,126,869
<PP&E> 5,669,871
<DEPRECIATION> 4,210,114
<TOTAL-ASSETS> 47,498,289
<CURRENT-LIABILITIES> 18,679,597
<BONDS> 2,844,242
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<COMMON> 110,288
<OTHER-SE> 25,864,102
<TOTAL-LIABILITY-AND-EQUITY> 47,498,289
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<TOTAL-REVENUES> 19,007,786
<CGS> 9,207,021
<TOTAL-COSTS> 9,207,021
<OTHER-EXPENSES> 279,637
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 36,167,417
<INCOME-TAX> 2,500,000
<INCOME-CONTINUING> 33,667,417
<DISCONTINUED> (435,000)
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<NET-INCOME> 33,232,417
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