FORM 10-Q/A-2
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, 1998
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> <C> <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, 1998, 65,558,954 shares of Common Stock, $.01 par value
per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
Page 1 of 19
<PAGE>
PART II - OTHER INFORMATION
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) laser hair removal system infringed a
patent licensed to Selvac (the "Selvac Patent") and that the Company unfairly
competed by promoting the EpiLaser(R) laser hair removal system for hair removal
before it had received FDA approval 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 has since denied Selvac's motion for reconsideration of the summary
judgment ruling. On August 6, 1998, Mehl's principal unsecured creditor filed a
petition for involuntary bankruptcy against Mehl.
On October 16, 1997, the Company brought a declaratory judgment action
in United States 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 are 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 known 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 is in breach of certain protective covenants under the
indenture. The Company believes that it is not in default under any protective
covenants, and the Company's action seeks a declaration from the Court to that
effect. All payments on the Swiss Franc Debentures were current to the time of
suit. On October 22, 1997, the Asserting Holders sued the Company and all of its
principal subsidiaries in the same court; the October 16th and October 22nd
cases have been assigned to the same judge, and the dispute between the
Asserting Holders and the Company is proceeding under the October 22nd case. The
Asserting Holders claim that the Company has breached certain protective
indenture covenants and that the Asserting Holders are entitled to immediate
payment of their indebtedness under the Swiss Franc Debentures (which amounts to
about US$5,000,000 at recent exchange rates). As of November 13, 1997, acting
under applicable provisions of the indenture, the Company notified the holders
of the Swiss Franc Debentures that it is causing the conversion of all of the
Swiss Franc Debentures into an aggregate of 914,028 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 deprives the plaintiffs
of standing to bring a claim. That motion has been denied without prejudice, and
the court also denied the plaintiffs' motion for summary judgment. The case is
scheduled for trial in October 1998. The Company believes that its position in
these matters is correct and intends to contest the claims of the Asserting
Holders vigorously.
On August 27, 1997, Pamela Siegman, as Trustee for the Pamela Siegman
Trust, filed an action in the Court of Chancery of the State of Delaware in and
for New Castle County against the Company and each of its current directors and
two former directors. Siegman, purportedly on behalf of similarly situated
shareholders, claimed disclosure errors and omissions in the Company's annual
meeting proxy statement, and sought a declaration that the Company's preferred
stock is void because of a purported deficiency in the Company's Certificate of
Incorporation. On March 9, 1998, the Court of Chancery ruled against Siegman on
all of her claims (she had abandoned some of her claims prior to the Court's
ruling). On July 13, 1998, the Court allowed (in part) Siegman's request for
attorney fees, reasoning that while the Company's Certificates of Correction of
its Certificate of Incorporation operated retroactively to the date of the
original Certificate of Incorporation to cure any defect of authority to issue
preferred stock in series, those Certificates of Correction were filed after
Siegman's suit was begun, and she was entitled to fees up to the date of that
filing. Siegman took no appeal, and Palomar paid the $125,000 fee award.
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 and broker non-votes, as to each such matter, at the Company's
Annual Meeting of Stockholders held on June 1, 1998.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------- ------------------- --------------- ---------------- ----------------
Votes Votes Broker
Matter For Against Abstentions Non-Votes
- -------------------------------- ------------------- --------------- ---------------- ----------------
Charter Amendment To 45,365,931 4,543,854 315,142 None
increase authorized shares
of common stock from
100,000,000 to 120,000,000
- -------------------------------- ------------------- --------------- ---------------- ----------------
Approval of 1998 Stock 11,224,398 571,629 417,894 33,618,116
Option Plan
- -------------------------------- ------------------- --------------- ---------------- ----------------
Ratification of Selection of 49,768,925 254,877 308,155 None
Arthur Andersen LLP as the
Company's Auditors
- -------------------------------- ------------------- --------------- ---------------- ----------------
Election of Directors
- -------------------------------- ------------------- --------------- ---------------- ----------------
Louis P. Valente 49,572,431 759,526 None None
- -------------------------------- ------------------- --------------- ---------------- ----------------
James G. Martin 49,583,531 748,396 None None
- -------------------------------- ------------------- --------------- ---------------- ----------------
A. Neil Pappalardo 49,583,531 748,398 None None
- -------------------------------- ------------------- --------------- ---------------- ----------------
Nicholas P. Economou 49,581,861 748,396 None None
- -------------------------------- ------------------- --------------- ---------------- ----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1* Second Amended 1996 Employee Stock Purchase Plan.
10.2* Second Loan Agreement between Palomar Medical Technologies, Inc. and Coherent, Inc., dated May 7, 1998.
10.3* Loan Agreement between Palomar Medical Technologies, Inc. and Coherent, Inc., dated May 22, 1998.
(Portions omitted pursuant to a request for confidential treatment.)
10.4 Fifth Amendment to the Schedule to the Loan and Security Agreement between Palomar Medical Technologies,
Inc. and Coast Business Credit, dated April 29, 1998.
27.1* Financial Data Statement, Restated, for the period ended June 30, 1997.
27.2* Financial Data Statement, for the period ended June 30, 1998.
</TABLE>
(b) Reports on Form 8-K.
Form 8-K filed June 3, 1998.
<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 February 12, 1999.
PALOMAR MEDICAL TECHNOLOGIES, INC.
(Registrant)
DATE: February 12, 1999 By: /s/ Louis P. Valente
--------------------
Louis P. Valente
Chief Executive Officer
(Principal Executive Officer)
DATE: February 12, 1999 /s/ Joseph P. Caruso
--------------------
Joseph P. Caruso
Chief Financial Officer and
Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)
<PAGE>
COAST BUSINESS CREDIT
Fifth Amendment to the Schedule to the Loan and Security Agreement
Borrower: Comtel Electronics
Address: 14101 Myford Road
Tustin, California 92680
Date: April 29, 1998
THIS FIFTH AMENDMENT TO THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT is
entered into as of the above date between COAST BUSINESS CREDIT, a division of
Southern Pacific Bank ("Coast"), a California corporation, with offices at 12121
Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and Comtel
Electronics, Inc. ("Borrower"), whose chief executive office is located at the
above address ("Borrower's Address"). This Amendment shall for all purposes be
deemed to be a part of the Schedule to the Loan and Security Agreement
("Schedule"), and the same is an integral part of the Schedule.
AMENDMENTS
1. The following portion of Section 1 of the Schedule is hereby amended to
read as follows:
1. CREDIT LIMIT Loans in a total amount at any time outstanding not to
exceed the lesser of a total of THREE MILLION THREE HUNDRED THOUSAND
DOLLARS ($3,300,000.00) ("Maximum Dollar Amount") or the sum of (a),
(b) and (c) below.
2. The following portion of Section 4 of the Schedule is hereby amended to
read as follows:
4. MATURITY DATE
(Section 6.1)
November 30, 1999, subject to automatic
renewal as provided in Section 6.1 above,
and early termination as provided in Section
6.2 above.
<PAGE>
3. Section 7, Paragraph 3 of the Schedule is hereby amended to read as follows:
3. Borrower shall, at all times during the Term of this Loan and Security
Agreement, maintain a minimum Tangible Net Worth (as defined in
Section 8 above) of One Million Dollars ($1,000,000.00)
4. Section 7, of the Schedule is hereby amended to add an additional
sub-paragraph 15 as follows:
15. Coast shall establish an additional reserve equal to five percent (5%)
of the outstanding Eligible Receivables (as defined in Section 8)
until such time as Coast, in its sole and absolute discretion, is
satisfied with the performance of Borrower's Receivables.
5. Section 7, of the Schedule is hereby amended to add an additional
sub-paragraph 16 as follows:
16. Biometric Technologies, Corp ("Biometric") will subordinate its
existing loans to Borrower in the approximate amount of Three Million
Eight Hundred Eighty Thousand Dollars ($3,880,000.00) plus the
additional Five Hundred Thousand Dollars ($500,000,00) that Biometric
expects to loan to Borrower in May 1998, in form and substance
acceptable to Coast.
TERMS AND CONDITIONS PRECEDENT
1. Biometric shall ratify and reaffirm its full unlimited guaranty of all of
Borrower's obligations, including the increase in the Maximum Dollar Amount
pursuant to this amendment.
2. Palomar Medical Technologies, Inc. ("Palomar Medical") and Palomar
Electronics Corporation ("Palomar Electronics") shall ratify and reaffirm
their respective Continuing Guaranty of amounts up to the first Two Million
Five Hundred Thousand Dollars ($2,500,000.00) but shall not be guarantors
of the increase in the Maximum Dollar Amount pursuant tot his amendment.
3. Borrower shall pay Coast Modification Fee of Eight Thousand Dollars
($8,000.00).
4. Borrower, Palomar Medical, Palomar Electronics and Biometric's execution
and return to Coast of this Fifth Amendment to the Schedule to the Loan and
Security Agreement.
5. Borrower, Palomar Medical, Palomar Electronics and Biometric's execution
and return of all documents reasonably required by Coast, in form and
substance acceptable to Coast, evidencing, supporting and securing the
rights, duties and obligations set forth herein.
EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, ALL OF THE TERMS AND CONDITIONS OF THE
LOAN AGREEMENT AND ALL OTHER DOCUMENTS AND AGREEMENTS BETWEEN COAST AND
BORROWER, AS AMENDED, SHALL CONTINUE IN FULL FORCE AND EFFECT AND THE SAME ARE
HEREBY RATIFIED AND AFFIRMED. THE WAIVERS CONTAINED HEREIN DO NOT CONSTITUTE A
WAIVER OF ANY OTHER PROVISION OR TERM OF THE LOAN
<PAGE>
AGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT, NOR AN AGREEMENT TO WAIVE ANY
TERM OR CONDITION OF THE LOAN AGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT IN
THE FUTURE.
Borrower: Coast:
COMTEL ELECTRONICS COAST BUSINESS CREDIT, a division of
Southern Pacific Bank
By: By:
--------------------- ----------------------------
Lyle Jensen, Chairman Karen Sperry, Vice President
Biometric Technologies, Corp. Hereby acknowledges this Fifth Amendment to the
Schedule and hereby ratifies and affirms its Continuing Guaranty dated as of
December 31, 997 of all amounts and obligations of Borrower.
Biometric Technologies Corp.
By:
-----------------------
Name:
Title:
Palomar Medical Technologies, Inc. and Palomar Electronics Corporation hereby
acknowledge this Fifth Amendment to the Schedule and hereby ratify and affirm
their Continuing Guaranty dated as of December 5, 1996, as amended, and their
respective Security Agreement - Stock Pledge dated as of December 31, 1997 of
all obligations and up to the first Two Million Five Hundred Thousand Dollars
($2,500,000.00) of Borrower.
Palomar Medical Technologies, Inc. Palomar Electronics Corporation
By: /s/ Louis P. Valente By: /s/ Louis P. Valente
----------------------------- -------------------------
Name: Louis P. Valente Name: Louis P. Valente
Title: Chairman and CEO Title Director
