-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6f0AGl9PqhxhvymBjvCAhMhAg/S3qxPBtKxN6gRrR7DB9vYD8l72uByFzt3qJCk 2k0VAqsa9P0b0uyZ2HkuJA== 0000881695-99-000001.txt : 19990112 0000881695-99-000001.hdr.sgml : 19990112 ACCESSION NUMBER: 0000881695-99-000001 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19990111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PALOMAR MEDICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000881695 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 043128178 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-70391 FILM NUMBER: 99504108 BUSINESS ADDRESS: STREET 1: 45 HARTWELL AVENUE CITY: LEXINGTON STATE: MA ZIP: 02421 BUSINESS PHONE: 7816767300 MAIL ADDRESS: STREET 1: 45 HARTWELL AVENUE CITY: LEXINGTON STATE: MA ZIP: 02421 S-3 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on January 11, 1999 Registration No. ---------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT Under The Securities Act of 1933 PALOMAR MEDICAL TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE -------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 04-3128178 ------------------------------------ (IRS employer identification number) 45 HARTWELL AVENUE, LEXINGTON, MASSACHUSETTS 02421-3102 (781) 676-7300 ---------------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Sarah Burgess Reed General Counsel Palomar Medical Technologies, Inc. 45 Hartwell Avenue Lexington, Massachusetts 02421-3102 (781) 676-7300 --------------------------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: from time to time after the effective date of this Registration statement as determined by market conditions. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______________________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------- ----------------- -------------------- ----------------- --------------------- Title of Shares Amount to be Proposed Proposed to be Registered Registered Maximum Maximum Amount of Offering Price Aggregate Registration Per Share Offering Price Fee - -------------------------------- ----------------- -------------------- ----------------- --------------------- Common Stock, par value $.01 3,000,000 $.84375(2) $2,531,250(2) $767(2) per share. - -------------------------------- ----------------- -------------------- ----------------- --------------------- Common Stock, par value $.01 3,000,000 $3.00(2) $9,000,000(2) $2,727(2) per share. - -------------------------------- ----------------- -------------------- ----------------- ---------------------
(1) Consists of (i) 3,000,000 shares of common stock and (ii) 3,000,000 shares of common stock issuable upon exercise of warrants, all of which were issued pursuant to a Securities Purchase Agreement dated July 24, 1998 and are exercisable at prices and terms described in the Description of Capital Stock and Warrants section of the Prospectus. (2) Estimated solely for purposes of calculation of the fee. The fee for the warrants is estimated pursuant to Rule 457(g) under the Act on the basis of the exercise price. The fee for the common stock is estimated pursuant to Rule 457(c) under the Act on the basis of the average of the high and low sale prices reported on the Nasdaq SmallCap Market on January 8, 1999. Pursuant to Rule 416, there are also registered hereby such additional indeterminate number of shares of such common stock as may become issuable or to prevent dilution resulting from stock splits, stock dividends or similar transactions as set forth in the terms of the warrants referred to above. The Registrant hereby amends this Registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and the selling stockholders are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION DATED JANUARY 11, 1999 2 PROSPECTUS PALOMAR MEDICAL TECHNOLOGIES, INC. 6,000,000 shares of common stock consisting of: (i) 3,000,000 shares of common stock and (ii) 3,000,000 shares of common stock issuable upon exercise of common stock purchase warrants, all of which were issued pursuant to a Securities Purchase Agreement dated July 24, 1998. This prospectus relates to the offer and sale of 6,000,000 shares of common stock, $.01 par value per share (the "SHARES") of Palomar Medical Technologies, Inc., a Delaware corporation, consisting of: (i) 3,000,000 shares of common stock and (ii) 3,000,000 shares of common stock issuable pursuant to certain common stock purchase warrants, all of which were issued pursuant to a Securities Purchase Agreement dated July 24, 1998. All of the shares being registered may be offered and sold from time to time by certain of our stockholders (the "SELLING STOCKHOLDERS"). (See "Selling Stockholders" and "Plan of Distribution.") We will not receive any proceeds from the sale of such shares, other than the $9,000,000 representing the exercise price of the warrants. We have agreed to indemnify the Selling Stockholders against certain liabilities, including certain liabilities under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or to contribute to payments which such Selling Stockholders may be required to make in respect of such liabilities. Our common stock, $.01 par value per share, is listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") and traded on the Nasdaq SmallCap Market under the symbol "PMTI." The last reported bid price of our common stock on the Nasdaq SmallCap Market on January 8, 1999 was $.8125 per share. AN INVESTMENT IN THESE SHARES INVOLVES A HIGH DEGREE OF RISK. SEE "DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS/RISK FACTORS" BEGINNING ON PAGE 8. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. JANUARY 11, 1998. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER WE NOR THE SELLING STOCKHOLDERS HAVE AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THE SELLING STOCKHOLDERS ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. IN THIS PROSPECTUS, REFERENCES TO "WE," "US" AND "OUR" REFER TO PALOMAR MEDICAL TECHNOLOGIES, INC. AND ITS SUBSIDIARIES. 3 TABLE OF CONTENTS PAGE Prospectus Summary............................................................5 Disclosure Regarding Forward-Looking Statements/Risk Factors .................8 Selling Stockholders ........................................................12 Use of Proceeds..............................................................13 Plan of Distribution ........................................................13 Experts......................................................................13 Legal Matters................................................................14 Material Changes.............................................................14 Where You Can Find More Information .........................................19 Disclosure of Commission Position on Indemnification.........................20
It is anticipated that the Selling Stockholders will pay usual and customary brokerage fees on the sale of the common stock registered in this prospectus. We will pay the other expenses of this offering. The offer of shares of common stock by the Selling Stockholders as described in this prospectus is referred to as the "OFFERING." Underwriting Discounts and Proceeds to Issuer or Price To Public Commissions Other Persons - ---------------------------- -------------------------- ---------------------------- ---------------------------- Per Unit.................... $.8125(1) 0(2) $.8125(1)(3) Total....................... $4,875,000(1) 0(2) $4,875,000(1)(3) - ---------------------------- -------------------------- ---------------------------- ----------------------------
(1) Based on the closing bid price of the Company's common stock as reported on the Nasdaq SmallCap Market on January 8, 1999. (2) None, to the Company's knowledge. (3) Less usual and customary brokerage fees. The date of this Prospectus is ____________, 1999. 4 PROSPECTUS SUMMARY Because this is only a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus, including "Disclosure Regarding Forward-Looking Statements/Risk Factors" and the information incorporated by reference, before deciding to invest in shares offered by this prospectus. THE COMPANY BACKGROUND...................... The Company was organized to design, manufacture and market lasers, delivery systems and related disposable products for use in medical procedures. After a period of rapid growth and expansion in which we acquired and invested in a number of businesses, many of which were outside our core laser business, within the last year and a half we have refocused on our core competency and divested those non-core subsidiaries and investments. At this point in time, our exclusive focus is laser hair removal and research and development relating to that and other cosmetic laser products. In addition to manufacturing lasers for hair removal, as a small part of our operations we place our lasers in clinical and cosmetic settings, and receive in exchange a share of the revenue generated from the laser hair removal procedures. OUR PRODUCTS.................... We have three lasers that have been cleared by the FDA for hair removal in addition to other dermatological applications. The first, our EpiLaser(R)hair removal system, is based in part on ruby laser technology originally developed in our corporate headquarters in Massachusetts for tattoo and pigmented lesion removal. (We still manufacture and sell in small quantities a laser cleared by the FDA for the removal of tattoos and benign pigmented lesions.) The EpiLaser(R)is specifically configured to allow the appropriate wavelength, energy and pulse duration to be delivered to the hair follicle without energy being absorbed by the surrounding tissue. That delivery method, combined with our patented cooling handpiece, allows safe and effective hair removal. The EpiLaser(R)is the only hair removal laser on the market that has been cleared by the FDA for "permanent hair reduction" labeling. The EpiLaser(R)is manufactured at our headquarters in Massachusetts. Our second FDA cleared hair removal laser, the LightSheer(TM) diode hair removal laser, is based on diode technology developed at our Star Medical Technologies, Inc. subsidiary in California. The LightSheer(TM) is manufactured at Star, in California. The LightSheer(TM) is the only diode-based hair removal product on the market that has FDA clearance. PENDING SALE OF STAR............ The laser diode stacking technology used in that laser has wide applications across a variety of commercial, industrial and medical lasers, applications which Palomar, as a narrowly focused cosmetic laser company, does not utilize. This technology, however, has enormous value to our exclusive distributor, Coherent, Inc. (also located in California) which does manufacture a wide variety of lasers - medical, commercial and industrial. As a result, Coherent has entered into an agreement with us to buy Star for $65 million in cash. 5 The sale must still be approved by our stockholders and by the Federal Trade Commission, and thus we expect that it may take an additional two to three months to consummate the transaction. As part of the deal, Coherent has agreed to pay us an ongoing 7.5% royalty on future sales of its hair removal lasers. Thus, although the LightSheer(TM) diode laser will no longer be in the Palomar family of products after the sale of Star, Palomar will continue to receive an ongoing royalty on sales of that product. OUR FUTURE STRATEGY............. Assuming the sale of Star to Coherent is completed, we will continue to manufacture and develop cosmetic lasers at our Massachusetts facility. We have recently introduced our second generation ruby laser, the E2000(TM), a product which we anticipate will be superior to hair removal lasers currently on the market in a number of respects, including speed and efficacy. We will consider a number of alternatives with respect to our future products, including manufacturing them ourselves and selling them directly and/or through distributors or (as in the case of Star) selling the product line and/or technology to others. We will continue to choose the alternative in each case which we believe best maximizes long-term shareholder value. If Star is sold to Coherent, Coherent will continue to act as a distributor of our products, but on a non-exclusive basis. Our core research and development also takes place in Massachusetts, under the guidance of a team of scientists who work closely with our partners at Massachusetts General Hospital and the Institute of Fine Mechanics and Optics Laser Center in St. Petersburg, Russia. Among our research and development goals in the field of laser hair removal is to design systems that 1) permit more rapid treatment of large areas, 2) have high gross margins, and 3) are lower cost, thus addressing broader markets. We are also seeking to develop products that address dermatology and cosmetic procedures markets other than hair removal. To enhance shareholder value and increase revenues, we will also consider licensing our intellectual property (in particular, the patents licensed exclusively to us by Massachusetts General Hospital under which we practice our proprietary method of skin cooling and hair removal), selling intellectual property rights that we do not intend to exploit, and mergers, acquisitions or other transactions. 6 THE OFFERING SECURITIES OFFERED.............. 6,000,000 shares of our common stock, $.01 par value per share. The actual number of shares offered by this prospectus, and included in the registration statement of which this prospectus is a part, includes such additional shares of common stock as may be issuable by reason of any stock split, stock dividend or similar transaction involving the common stock, in order to prevent dilution, in accordance with Rule 416 under the Securities Act of 1933. OFFERING PRICE.................. All or part of the Shares offered hereby may be sold from time to time in amounts and on terms to be determined by the Selling Stockholders at the time of sale. USE OF PROCEEDS................. We will receive no part of the proceeds from the sale of the shares registered pursuant to this registration statement, other than the $9,000,000 representing the exercise price of the warrants. SELLING STOCKHOLDERS............ The Shares may be offered for sale from time to time by the Selling Stockholders specified under the caption "Selling Stockholders." NASDAQ TRADING SYMBOL........... PMTI 7 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS/RISK FACTORS An investment in shares of our common stock is risky. You should consider carefully the following risk factors in addition to the remainder of this prospectus, including information incorporated by reference, before purchasing shares offered by this prospectus. Some of the information in this prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate," "continue" and similar words. You should read statements that contain these words carefully because they (1) discuss our future expectations, (2) contain projections of our future operating results or financial conditions or (3) state other "forward-looking" information. We believe it is important to communicate certain of our expectations to our investors. There may be events in the future, however, that we are not accurately able to predict or over which we have no control. The risk factors listed in this section, as well as any other cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of any of the events described in these risk factors and elsewhere in this prospectus could have a material adverse effect on our business, financial condition and results of operations. In such case, the trading price of our commons tock could decline and you could lose all or part of your investment. WE MAY NOT BE ABLE TO CLOSE THE SALE OF OUR STAR MEDICAL TECHNOLOGIES, INC. SUBSIDIARY We have recently signed an agreement with Coherent, Inc. pursuant to which Coherent has agreed to buy our Star Medical Technologies, Inc. subsidiary for 65 million dollars in cash. The sale must be approved by stockholders holding a majority of the shares of our outstanding common stock, and is subject to regulatory approval and other standard closing conditions. We may not receive a sufficient number of stockholder votes to approve the transaction, or the transaction may fail to close for other reasons. Our future operating plan is now to a great extent dependant on completing the sale, in that it will provide us with the money necessary to finance our future operations, including research and product development. WE MAY BE DELISTED FROM NASDAQ We have been notified by the Nasdaq Stock Market that for continued listing on the Nasdaq SmallCap Market we must meet Nasdaq's minimum bid price of $1.00 per share. Because our stock price fell below $1.00 for a 30 day trading period between August 28 and October 9, 1998, it is now subject to delisting. Nasdaq informed us that we have until January 13, 1999 to regain compliance with the $1.00 minimum bid price requirement We have not and will not be able to regain compliance before that date. However, we have requested a hearing and have been informed that the delisting of our common stock will be stayed during the pendency of our appeal. To regain compliance with the minimum bid price requirement, we plan to ask our stockholders to approve a ten-for-one reverse split of our common stock. However, there can be no assurance that we would secure stockholder approval for any reverse split, or that, even if stockholder approval is obtained, a reverse split will enable us to regain compliance with the minimum bid price requirement in time to prevent delisting. 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. In addition, a reverse split itself could adversely impact the market price of our common stock. WE WILL CONTINUE TO BE DEPENDENT ON COHERENT IF WE DO NOT SELL STAR Under our sales agency agreement with Coherent, which will remain in effect until November, 2001 if we do not sell Star to Coherent, Coherent receives a marketing and sales commission, based on the end-user price, for each of our lasers that it sells. If Coherent remains as our exclusive distributor because we do not close the Star sale, Coherent may not be successful in distributing our lasers or may not give sufficient priority to marketing our products. In 8 addition, Coherent may develop, market and manufacture its own lasers that incorporate our proprietary technology and compete with our lasers, in which case it must pay us a royalty on such sales. Under our agreement, if we are unable (as defined in the agreement) or unwilling to manufacture the cosmetic laser products to be distributed by Coherent, then we must license to Coherent the technology necessary to make such products. WE NEED TO DEVELOP 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 (a) develop in a timely and cost-effective manner new products that meet changing market demands, (b) enhance existing products and (c) achieve market acceptance for such products. We have in the past experienced delays in developing new products and enhancing existing products. If we sell our Star subsidiary, 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 removal is critical to our success. We need 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 is characterized by the frequent introduction of 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, if and when we sell Star, our current distributor, Coherent, one of the largest and best financed laser companies, will become our competitor, and we will 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 MAY FLUCTUATE Our operating results are difficult to predict and may fluctuate significantly from quarter to quarter, especially if we sell our Star subsidiary. Almost all of our revenues in our most recent quarter were attributable to sales of the LightSheer(TM) diode laser manufactured by Star. If our operating results fall below the expectations of investors or public market analysts, the price of our common stock could fall dramatically. WE MAY NEED TO SECURE ADDITIONAL FINANCING, AND OUR AUDITORS HAVE EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS GOING CONCERN We have a history of losses. As a result, the report of our independent public accountants in connection with our Consolidated Balance Sheets as of December 31, 1997 and 1996, and the related Consolidated Statements of Operations, Stockholders' Equity (Deficit) and Cash Flows for the three years ended December 31, 1997 includes an explanatory paragraph stating that our recurring losses, working capital deficiency and stockholders' deficit raises substantial doubts about our ability to continue as a going concern. If we do not sell our Star subsidiary, we may have to secure additional financing to complete our research and development activities, commercialize our current and proposed cosmetic laser products, and fund ongoing operations. We may also determine, depending upon the opportunities available, to seek additional debt or equity financing to fund the costs of acquisitions or expansion. To the extent that we finance an acquisition with a combination of cash and equity securities, any such issuance of equity securities could result in dilution to the interests of our stockholders. Additionally, to the extent that we incur indebtedness to fund increased levels of accounts receivable or to finance the acquisition of capital equipment or issues debt securities in connection with any acquisition, we will be subject to risks associated with incurring substantial 9 additional indebtedness, including the risks that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on any such indebtedness. WE ARE SUBJECT TO NUMEROUS GOVERNMENT REGULATIONS We are subject to regulation in the United States and abroad. Failure to comply with applicable regulatory requirements can result in fines, denial or suspension of approvals, seizures or recall of products, operating restrictions and criminal prosecutions. All laser medical devices are subject to FDA regulations regulating clinical testing, manufacture, 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 there is no assurance that we will be able to obtain such clearances timely or at all. The FDA also imposes various requirements on manufacturers and sellers of products under its jurisdiction, such as labeling, good manufacturing practices, record keeping and reporting requirements. In order to be sold outside the United States, our products are subject to FDA permit requirements that are conditioned upon clearance by the importing country's appropriate regulatory authorities. Many countries also require that imported products comply with their own or international electrical and safety standards. Additional approvals may be required in other countries. 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 Labs 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 the research, and there can be no assurance that such research agreements will provide us with 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 OUR ISSUING 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/or exercise of these securities. The issuance of any such additional convertible securities, options and warrants could affect the rights of the holders of common shares, and could reduce the market price of the common shares. WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS We face an inherent business risk of financial exposure to product liability claims in the event that 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. OUR PROPRIETARY TECHNOLOGY IS SUBJECT TO 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, detect unauthorized use and take appropriate steps to enforce our intellectual property rights. Our competitors also may independently develop 10 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 litigation 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. OUR PRODUCTS, SERVICES AND SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT Many existing computer systems and software applications use only two digits to identify a year in the date field. These systems and applications were designed and developed without considering the impact of the upcoming change in the century. If not corrected, year 2000 problems may cause many computer applications to fail or create erroneous results for calculations involving years after 1999. We are using internal resources to identify, correct or reprogram, and test our systems for year 2000 compliance. We currently are evaluating the readiness of those of our internal systems that are business-critical. We consider hardware, software, systems, technologies and applications to be "business-critical" if a failure would either have a material adverse impact on our business or involve a safety risk to our employees or customers. We have reviewed certain of our internal systems and future system plans to assess year 2000 compliance. We expect that our internal system development plans will address the year 2000 issue and will correct any existing non-compliant systems without the need to accelerate the overall information systems implementation plans. Our business would be adversely affected if there are unidentified dependencies on internal systems to operate the business, or if any required modifications are not completed on a timely basis or are more costly to implement than currently anticipated. We are in the process of assessing the year 2000 compliance costs; based on information to date (excluding the possible impact of vendor systems), we do not believe that it will have a material effect on our earnings. In addition, 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. OUR ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE POTENTIAL TAKEOVER ATTEMPTS Certain provisions of our Second Restated Certificate of Incorporation and Delaware law could be used by our incumbent management to make it more difficult for a third party to acquire control of us, even if the change in control might be beneficial to our stockholders. This could discourage potential takeover attempts and could adversely affect the market price of our common stock. In particular, we may issue preferred stock in the future without stockholder approval, upon terms determined by our board of directors. The rights of holders of our common stock would be subject to, and may be adversely affected by, the rights of holders of any preferred stock issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding stock. 11 SELLING STOCKHOLDERS All of the shares of common stock are being sold by the Selling Stockholders identified in the following table (including the footnotes). The table (including the footnotes) also sets forth information regarding the beneficial ownership of our outstanding common stock as of the date of the latest reports by the Selling Stockholders received by us. Except as indicated by the notes to the following table, the Selling Stockholders listed below have sole voting power and investment power over the shares beneficially held by them. To the best of our knowledge, except as stated in this prospectus, the Selling Stockholders have not held any office or maintained any material relationship with the Company or any of our predecessors or affiliates over the past three years. The Selling Stockholders may reduce the number of shares offered for sale or decline to sell any or all of the shares registered in the prospectus No predictions can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sales, will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of common stock (including shares issued upon the exercise of stock options or warrants), or the perception that such sales could occur, could adversely affect prevailing market prices for the common stock. Number Number Shares to be of Shares Beneficially of Beneficially Owned Owned Prior Shares After Offering If Selling to Offering(1) Offered All Shares Sold STOCKHOLDERS NUMBER PERCENT NUMBER PERCENT Rockside Foundation(2) 9,330,800 13.5% 3,600,000 5,730,800 8.3% c/o Woodlawn Foundation, Inc. 524 North Avenue New Rochelle, NY 10801 Mark T. Smith(3) 9,330,800 13.5% 2,400,000 6,930,800 10.0% 5090 Warwick Tr. Pittsburgh, PA 15213
1. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Pursuant to the rules of the Securities and Exchange Commission, shares of common stock which an individual or group has a right to acquire within 60 days by exercising options or warrants are counted as outstanding for the purpose of computing the ownership of such individual or group. Percentage of beneficial ownership is based on 69,265,003 shares of common stock outstanding as of January 8, 1999. 2. Based on information provided in Amendment No. 1 to a Schedule 13D, filed on December 22, 1998. Includes 3,922,200 shares beneficially owned with respect to which the Rockside Foundation shares voting and dispositive power with four other individuals and entities. Also includes 3,000,000 shares of common stock beneficially owned which may be acquired with 60 days pursuant to the exercise of warrants. 3. Based on information provided in Amendment No. 1 to a Schedule 13D, filed on December 22, 1998. Includes 6,288,900 shares beneficially owned with respect to which Mark T. Smith shares voting and dispositive power with four other individuals and entities. Also includes 3,000,000 shares of common stock beneficially owned which may be acquired with 60 days pursuant to the exercise of warrants. 12 USE OF PROCEEDS The common stock is being sold by the Selling Stockholders for their own accounts, and we will not receive any of the proceeds from the sale of the Selling Stockholders' common stock or warrants other than $9,000,000 representing the exercise price of the warrants. PLAN OF DISTRIBUTION The Selling Stockholders or their respective pledgees, donees, transferees or other successors in interest may offer shares of our common stock from time to time pursuant to this registration statement, depending on market conditions and other factors, in one or more transactions on Nasdaq or other securities exchanges on which our common stock is traded, in the over the counter market or otherwise, at market prices prevailing at the time of sale, at negotiated prices or at fixed prices. The Selling Stockholders also may sell such shares through the sale and exercise of warrants. Common stock may be offered in any manner permitted by law, including through underwriters, licensed brokers, dealers or agents, and directly to one or more purchasers. Sales of common stock may involve: - sales to underwriters who will acquire shares of common stock for their own account and resell them in one or more transactions at fixed prices or at varying prices determined at time of sale; - block transactions in which the broker or dealer so engaged may sell shares as agent or principal; - purchases by a broker or dealer as principal who resells the shares for its account; - an exchange distribution in accordance with the rules of any such exchange; - ordinary brokerage transactions and transactions in which a broker solicits purchasers; and - privately negotiated sales, which may include sales directly to institutions. Brokers and dealers will receive customary compensation in the form of underwriting discounts, concessions or commissions from the Selling Stockholders and/or purchasers of our common stock in respect of transactions described above (other than privately negotiated sales). The Selling Stockholders and any broker or dealer that participates in the distribution of common stock may be deemed to be underwriters and any commissions received by them and any profit on the resale of our common stock positioned by a broker or dealer may be deemed to be underwriting discounts and commissions under the Securities Act. In the event the Selling Stockholders engage an underwriter in connection with the sale of our common stock, to the extent required, a prospectus supplement will be distributed, which will set forth the number of shares of common stock being offered and the terms of the offering, including the names of the underwriters, any discounts, commissions and other items constituting compensation to underwriters, dealers or agents, the public offering price and any discounts, commissions or concessions allowed or reallowed or paid by underwriters to dealers. In addition, the Selling Stockholders may, from time to time, sell shares in transactions under Rule 144 promulgated under the Securities Act. Certain of the underwriters, brokers, dealers or agents and their associates may engage in transactions with and perform other services for Palomar in the ordinary course of their business. EXPERTS The audited consolidated financial statements incorporated by reference in this registration statement and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein upon the authority of said firm as experts in 13 accounting and auditing. Reference is made to that report, which includes an explanatory paragraph regarding the Company's ability to continue as a going concern. LEGAL MATTERS Our General Counsel has advised us with respect to the validity of the shares of common stock offered by this prospectus. MATERIAL CHANGES INTRODUCTION TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 On December 7, 1998, we entered into an Agreement and Plan of Reorganization to sell all of the issued and outstanding shares of common stock of our majority owned Star subsidiary to Coherent for $65,000,000 in cash. Our fully diluted ownership percentage of Star is 82.46%, assuming the exercise of options issued to purchase 625,507 shares of Star's common stock at exercise prices ranging from $2.50 per share to $19.00 per share. Under the terms of this transaction, we will receive gross proceeds of approximately $54,000,000. We anticipate that we will receive net proceeds of approximately $48,825,000. This amount reflects transaction costs of approximately $600,000, income taxes of approximately $2,500,000, costs associated with the repurchase of Coherent's EpiLaser inventory of $1,125,000 and an earnout bonus of $950,000 for the employees of Star based on the attainment of certain production milestones through the date of closing. The accompanying pro forma consolidated condensed balance sheet as of September 30, 1998 assumes that Coherent purchased Star on the last reported balance sheet date, September 30, 1998. The accompanying pro forma information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations which would have actually been reported had the disposition occurred as assumed, or which may be presented in the future. The accompanying pro forma consolidated condensed Statements of Operations for the year ended December 31, 1997 and nine months ended September 30, 1998 assume the sale of Star took place on December 31, 1996, immediately before the fiscal year presented. The pro forma consolidated condensed statements of operations do not include the effect of the gain from our sale of Star to Coherent. The accompanying pro forma information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations which would actually have been reported had the sale of Star occurred as assumed, or which may be reported in the future. The accompanying pro forma consolidated condensed financial statements should be read in conjunction with the historical financial statements and related notes thereto for Palomar. 14 PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1998 Historical Pro Forma Consolidated Star Other Adjustments Pro Forma --------------- ---------------- ------------------------------ -------------- ASSETS (a) CURRENT ASSETS: Cash and cash equivalents $2,665,686 $(565,395) (b) $ 48,070,092 $ $ - 50,170,383 Marketable securities 15,944 - - - 15,944 Accounts receivable, net 5,901,131 (5,209,070) - - 692,061 Inventories, net 4,117,425 (2,740,453) - - 1,376,972 Escrow amount due from Coherent, Inc. - - (c) 3,254,908 - 3,254,908 Other current assets 1,358,886 (26,395) - - 1,332,491 --------------- ---------------- -------------- ------------ -------------- Total current assets 14,059,072 (8,541,313) 51,325,000 - 56,842,759 --------------- ---------------- -------------- ------------ -------------- PROPERTY AND EQUIPMENT, AT COST, NET 3,517,716 (844,262) - - 2,673,454 --------------- ---------------- -------------- ------------ -------------- OTHER ASSETS: Cost in excess of net assets acquired, 1,850,574 (904,024) - - 946,550 net Deferred financing costs 99,167 - - - 99,167 Other noncurrent assets 160,642 (18,190) - - 142,452 --------------- ---------------- -------------- ------------ -------------- Total other assets 2,110,383 (922,214) - - 1,188,169 --------------- ---------------- -------------- ------------ -------------- $ 19,687,171 $(10,307,789) $51,325,000 $ - 60,704,382 =============== ================ ============== ============ ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $5,765,486 $(4,000,000) $ $ $ 1,765,486 Accounts payable 3,009,978 (1,848,502) - - 1,161,476 Accrued expenses 10,652,657 (2,600,238) - (d) 2,500,000 10,552,419 Current portion of deferred revenue 1,181,213 - - - 1,181,213 --------------- ---------------- -------------- ------------ -------------- Total current liabilities 20,609,334 (8,448,740) - 2,500,000 14,660,594 --------------- ---------------- -------------- ------------ -------------- NET LIABILITIES OF DISCONTINUED OPERATIONS 1,687,079 - - - 1,687,079 --------------- ---------------- -------------- ------------ -------------- LONG-TERM DEBT, NET OF CURRENT PORTION 3,173,542 - - - 3,173,542 --------------- ---------------- -------------- ------------ -------------- DEFERRED REVENUE, NET OF CURRENT PORTION 1,120,000 - - - 1,120,000 --------------- ---------------- -------------- ------------ -------------- INTERCOMPANY PAYABLE - (14,282,944) - (e) 14,282,944 - --------------- ---------------- -------------- ------------ -------------- STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.01 par value- 75 - - - 75 Common stock, $.01 par value- 693,493 (2,220,000) - (e) 2,220,000 693,493 Additional paid-in capital 160,634,871 (1,874,823) - (e) 1,874,823 160,634,871 Accumulated deficit (166,592,364) 16,518,718 (e) 16,518,718 46,965,951 (119,626,413) (f) Less: Treasury stock- (345,000 shares at cost) (1,638,859) - - - (1,638,859) --------------- ---------------- -------------- ------------ -------------- Total stockholders' equity (deficit) (6,902,784) 12,423,895 16,518,718 51,060,774 40,063,167 --------------- ---------------- -------------- ------------ -------------- $ 19,687,171 $(10,307,789) $16,518,718 $67,843,718 $ 60,704,382 =============== ================ ============== ============ ==============
15 PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) Historical Pro Forma Consolidated Star Other Adjustments Pro Forma ---------------- --------------- ---------------------- ---------------- (g) REVENUES $ 20,994,546 $ (394,000) $ - $ 20,600,546 COST OF REVENUES 20,055,963 (180,000) - 19,875,963 ---------------- --------------- ---------------------- ----------------- Gross margin 938,583 (214,000) - 724,583 ---------------- --------------- ---------------------- ----------------- OPERATING EXPENSES Research and development 11,990,332 (8,402,000) 4,000,000 (h) 7,588,332 Sales and marketing 6,959,750 (863) - 6,958,887 General and administrative 17,393,093 (1,077,000) - 16,316,093 Restructuring and asset write-off 3,325,000 - - 3,325,000 Settlement and litigation costs 3,199,000 - - 3,199,000 ---------------- --------------- ---------------------- ----------------- Total operating expenses 42,867,175 (9,479,863) 4,000,000 37,387,312 ---------------- --------------- ---------------------- ----------------- Loss from operations (41,928,592) 9,265,863 (4,000,000) (36,662,729) ---------------- --------------- ---------------------- ----------------- INTEREST EXPENSE (6,993,898) 402,000 1,019,599 (5,572,299) (i) INTEREST INCOME 456,945 456,945 NET LOSS ON TRADING SECURITIES (52,272) - - (52,272) ASSET WRITE-OFF (9,658,000) - - (9,658,000) OTHER INCOME (EXPENSE) (193,262) - - (193,262) ---------------- --------------- ---------------------- ----------------- NET LOSS FROM CONTINUING OPERATIONS $ (58,369,079) $ 9,667,863 $ (2,980,401) $ (51,681,617) ================ =============== ====================== ================= BASIC AND DILUTED NET LOSS PER COMMON SHARE FROM: Continuing Operations $(1.79) $(1.60) ================ ================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 35,105,272 35,105,272 ================ =================
16 PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) Historical Pro Forma Consolidated Star Other Adjustments Pro Forma --------------- ---------------- -------------------- --------------- (g) REVENUES $ 29,968,108 $ (22,006,599) $ - $ 7,961,509 COST OF REVENUES 16,870,561 (8,856,776) - 8,013,785 --------------- ---------------- -------------------- --------------- Gross margin 13,097,547 (13,149,823) - (52,276) --------------- ---------------- -------------------- --------------- OPERATING EXPENSES Research and development 5,653,066 (2,657,435) - 2,995,631 Sales and marketing (9,118,366) - 1,350,481 General and administrative 6,980,037 (4,273,115) 2,706,922 --------------- ---------------- -------------------- --------------- Total operating expenses 23,101,950 (16,048,916) - 7,053,034 --------------- ---------------- -------------------- --------------- Loss from operations (10,004,403) 2,899,093 - (7,105,310) --------------- ---------------- -------------------- --------------- INTEREST EXPENSE (1,013,630) 730,000 (142,887) (i) (426,517) OTHER INCOME 750,781 - - 750,781 --------------- ---------------- -------------------- --------------- NET LOSS FROM CONTINUING OPERATIONS $(10,267,252) $ 3,629,093 $ (142,887) $ (6,781,046) =============== ================ ==================== =============== BASIC AND DILUTED NET LOSS PER COMMON SHARE FROM: Continuing Operations $(0.19) $(0.13) =============== =============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 60,880,311 60,880,311 =============== ===============
17 NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (Unaudited) NOTE (1) PRO FORMA BALANCE SHEET ADJUSTMENTS The following pro forma adjustments are required to reflect the anticipated sale of our majority owned subsidiary, Star, to Coherent as of September 30, 1998 (the balance sheet date). Such allocations may be revised to reflect the actual costs of this transaction as of the closing date. (a) To eliminate Star's assets, liabilities and equity. OTHER PRO FORMA ADJUSTMENTS NET AMOUNT (b) To account for Palomar's net cash received from the sale of Star to Coherent. $48,070,092 (c) To account for the amount due from Coherent for the escrow related to the sale of Star. $3,254,908 (d) To record income taxes due related to the sale of Star. $2,500,000 (e) To eliminate Palomar's intercompany balance due from Star and net investment basis of Star. $1,859,049 (f) To reflect the gain, net of related income taxes, on the sale of Star. $46,965,951
18 NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (Unaudited) NOTE (2) PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS The following pro forma adjustments are required to reflect the pro forma consolidated condensed statements of operations as a result of our anticipated sale of our majority owned subsidiary, Star, to Coherent. For purposes of the pro forma statements of operations, it is assumed that the sale of Star and resulting gain of approximately $47 million, occurred on December 31, 1996 so that the statement of operations would only include results from continuing operations. (g) To eliminate the effects of Star's operations on the consolidated statements of operations for the year ended December 31, 1997 and the nine months ended September 30, 1998. OTHER PRO FORMA ADJUSTMENTS NET AMOUNT FOR THE PERIOD ENDED --------------------------- ------------------------------- DECEMBER 31, 1996 SEPTEMBER 30, 1996 ----------------- ------------------ (h) Represents the add back of research and development expense incurred by Palomar and allocated to Star. $4,000,000 $-- (i) To record additional (excess) interest expense based on Star's percentage of Palomar's total funding. $(142,887) $(1,019,599)
WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the "COMMISSION"). You can inspect and copy these reports, proxy statements and other information at the public reference facilities of the Commission, in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and Suite 1400, Citicorp Center, 500 W. Madison Street, Chicago, Illinois 60661-2511. You can also obtain copies of these materials from the public reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. The Commission also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission (http://www.sec.gov). We have filed a registration statement and related exhibits with the Commission under the Securities Act of 1933, as amended (the "SECURITIES ACT"). The registration statement contains additional information about us and our common stock. You may inspect the registration statement and exhibits without charge at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and you may obtain copies from the Commission at prescribed rates. The Commission allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the Commission will automatically update and supersede this information. We incorporate by reference the following documents we 19 filed with the Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"): - Annual Report on Form 10-K for the year ended December 31, 1997; - Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998; - Current Report on Form 8-K filed on June 3, 1998; - Description of our common stock contained in our registration statement on Form 8-A filed with the Commission on June 6, 1992, including the amendment on Form 8 dated December 17, 1992; and - All documents filed by us with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and before the offering the common stock thereby is stopped (other than those portions of such documents described in paragraphs (i), (k), and (l) of Item 402 of Regulation S-K promulgated by the Commission). You may request a copy of these filings at no cost, by writing or telephoning us at the following address: Investor Relations Palomar Medical Technologies, Inc. 45 Hartwell Avenue Lexington, Massachusetts 02421-3102 (781)676-7300 Attention: John J. Ingoldsby (e-mail: jingoldsby@palmed.com) You should rely only on the information incorporated by reference or provided in this prospectus and any supplement. We have not authorized anyone else to provide you with different information. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 20 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses to be paid by the Registrant in connection with the issuance and distribution of the shares of common stock being registered. All amounts shown are estimates except for the Securities and Exchange Commission registration fee. The Registrant will pay all expenses in connection with the distribution of the shares of common stock being sold by the Selling Stockholders (including fees and expenses of counsel for the Registrant), except for any commission or discounts due to any broker or dealer in connection with sales of shares offered by this prospectus. Securities and Exchange Commission Filing Fee $ 767 Accounting Fees and Expenses 3,000 Legal Fees and Expenses 1,000 Blue Sky Filing Fees and Expenses 500 Printing and Mailing Costs 100 Transfer Agent Fees 500 Miscellaneous 500 ------------------- Total Expenses $6,367 ===================
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Delaware General Corporation Law, Section 102(b)(7), enables a corporation in its original certificate of incorporation or an amendment thereto validly approved by stockholders to eliminate or limit personal liability of members of its Board of Directors for violations of a director's fiduciary duty of care. However, the elimination or limitation shall not apply where there has been a breach of the duty of loyalty, failure to act in good faith, engaging in intentional misconduct or knowingly violating a law, paying a dividend or approving a stock repurchase which was deemed illegal or obtaining an improper personal benefit. The Company's Certificate of Incorporation includes the following language: "To the maximum extent permitted by Section 102(b)(7) of the General Corporation Laws of Delaware, a director of this corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit." Section 145 of the General Corporation Law of the State of Delaware generally provides that a corporation may indemnify any director, officer, employee or agent against expenses, judgments, fines and amounts paid in settlement in connection with any action against him by reason of his being or having been such a director, officer, employee or agent, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful. No indemnification shall be made, however, if he is adjudged liable for negligence or misconduct in the performance of his duty to the corporation, unless a court determines that he is nevertheless entitled to indemnification. If he is successful on the merits or otherwise in defending the action, the corporation must indemnify him against expenses actually and reasonably incurred by him. Article IX of the Company's Bylaws provides indemnification as follows: 21 INDEMNIFICATION SECTION 1. ACTIONS, ETC. OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall, to the full extent legally permissible, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding, and all appeals (but excluding any such action, suit or proceeding by or in the right of the Corporation), by reason of the fact that such person is or was a director, executive officer (as hereinafter defined) or advisory council member of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct in question was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that such person had reasonable cause to believe that the conduct in question was unlawful. As used in this Article IX, an "executive officer" of the Corporation is the president, treasurer, a vice president given the title of executive vice president, or any officer designated as such pursuant to vote of the Board of Directors. SECTION 2. ACTIONS. ETC. BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall, to the full extent legally permissible, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit, including appeals, by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director or executive officer of the Corporation as defined in Section 1 of this Article, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification of a director or officer (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that such indemnification is proper in the circumstances because the director or executive officer has met the applicable standard of conduct as set forth in Sections 1 and 2 hereof. Such a determination shall be reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) (if such a quorum is not obtainable, or, even if obtainable if a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, or (iii) by the stockholders. SECTION 4. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any other provision of this Article, to the extent that a director or officer of the Corporation has been successful in whole or in part on the merits or otherwise, including the dismissal of an action without prejudice, in defense of any action, suit or proceeding or in defense of any claim, issue or matter therein, such person shall be indemnified against all expenses incurred in connection therewith. 22 SECTION 5. ADVANCES OF EXPENSES. Expenses incurred by a director or officer in any action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of thereof, if such person shall undertake to repay such amount in the event that it is ultimately determined, as provided herein, that such person is not entitled to indemnification. Notwithstanding the foregoing, no advance shall be made by the Corporation if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum of disinterested directors, or (ii) (if such a quorum is not obtainable or, even if obtainable, if a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, that, based upon the facts known to the Board of Directors or such counsel at the time such determination is made, such person has not met the relevant standards set forth for indemnification in Section 1 or 2, as the case may be. SECTION 6. RIGHT TO INDEMNIFICATION UPON APPLICATION: PROCEDURE UPON APPLICATION. Any indemnification or advance under Sections 1, 2, 4 or 5 of this Article shall be made promptly, and in any event within ninety days, upon the written request of the person seeking to be indemnified, unless a determination is reasonably and promptly made by the Board of Directors that such person acted in a manner set forth in such Sections so as to justify the Corporation's not indemnifying such person or making such an advance. In the event no quorum of disinterested directors is obtainable, the Board of Directors shall promptly appoint independent legal counsel to decide whether the person acted in the manner set forth in such Sections so as to justify the Corporation's not indemnifying such person or making such an advance. The right to indemnification or advances as granted by this Article shall be enforceable by such person in any court of competent jurisdiction, if the Board of Directors or independent legal counsel denies the claim therefor, in whole or in part, or if no disposition of such claim is made within ninety days. SECTION 7. OTHER RIGHT AND REMEDIES: CONTINUATION OF RIGHTS. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, Vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. All rights to indemnification or advancement under this Article shall be deemed to be in the nature of contractual rights bargained for and enforceable by each director and executive officer as defined in Section 1 of this Article who serves in such capacity at any time while this Article and other relevant provisions of the General Corporation Law of the State of Delaware and other applicable laws, if any, are in effect. All right to indemnification under this Article or advancement of expenses shall continue as to a person who has ceased to be a director or executive officer, and shall inure to the benefit of the heirs, executors and administrators of such a person. No repeal or modification of this Article shall adversely affect any such rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. The Corporation shall also indemnify any person for attorneys' fees, costs, and expenses in connection with the successful enforcement of such person's rights under this Article. SECTION 8. OTHER INDEMNITIES. The Board of Directors may, by general vote or by vote pertaining to a specific officer, employee or agent, advisory council member or class thereof, authorize indemnification of the Corporation's employees and agents, in addition to those executive officers and to whatever extent it may determine, which may be in the same manner and to the same extent provided above. SECTION 9. INSURANCE. Upon resolution passed by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, advisory council member or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article. 23 SECTION 10. CONSTITUENT CORPORATIONS. For the purposes of this Article, reference to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporations (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers so that any person who is or was a director or officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. SECTION 11. SAVINGS CLAUSE. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, executive officer, advisory council member, and those employees and agents of the Corporation granted indemnification pursuant to Section 3 hereof as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding, and all appeals, and any action by the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated or by any other applicable law. SECTION 12. OTHER ENTERPRISES. FINES. AND SERVING AT CORPORATION'S REQUEST. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of any employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation" as referred to in this Article. In addition, the Company maintains a directors' and officers' insurance policy that covers certain liabilities of directors and officers of the Company, including liabilities under the Securities Act of 1933. 24 ITEM 16. EXHIBITS The following are filed as part of this registration statement: EXHIBIT NO. DESCRIPTION 3.1 Second Restated Certificate of Incorporation of the Company 4.2 By-laws of the Company as amended (incorporated by reference to Exhibit 3.5 to the Company's Report on Form 10KSB/A-4 for the period ending December 31, 1996. 4.3 Specimen certificate for the Common Stock (incorporated by reference to Exhibit No. 4.1 of the Company's Annual Report on Form 10-KSB/A-4 for the fiscal year ending December 31, 1996). 4.4 Form of Securities Purchase Agreement. 4.5 Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4(b) of the Company's Form S-3 Registration Statement No. 333-57261). 5 Opinion of General Counsel of Palomar regarding legality of shares registered hereunder. 23.1* Consent of Arthur Andersen LLP, independent public accountants. 23.2 * Consent of General Counsel of Palomar (included in Exhibit 5).
25 ITEM 17. UNDERTAKINGS (a) We hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that information required to be included in a post-effective amendment by paragraphs (a)(1)(i) and (a)(1)(ii) above may be contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) We hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, each filing of our annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Safeway pursuant to the provisions described in this registration statement above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted against us by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. 26 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Lexington, Commonwealth of Massachusetts, on January 11, 1999. PALOMAR MEDICAL TECHNOLOGIES, INC. By: /S/ LOUIS P. VALENTE ------------------------------- Louis P. Valente, Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration statement has been signed by the following persons, in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Louis P. Valente Chairman of the Board January 11, 1999 - ------------------------------ President and Chief Executive Louis P. Valente Officer (Chief Executive Officer) /s/ Joseph P. Caruso Chief Financial Officer and Treasurer January 11, 1999 - ------------------------------ (Principal Financial and Accounting Joseph P. Caruso Officer) /s/ Nicholas P. Economou Director January 11, 1999 - ------------------------------ Nicholas P. Economou /s/ A. Neil Pappalardo Director January 11, 1999 - ------------------------------ A. Neil Pappalardo /s/ James G. Martin Director January 11, 1999 - ------------------------------ James G. Martin
EX-3.(I) 2 SECOND RESTATED CERTIFICATE OF INCORPORATION SECOND RESTATED CERTIFICATE OF INCORPORATION OF PALOMAR MEDICAL TECHNOLOGIES, INC. The following Second Restated Certificate of Incorporation of Palomar Medical Technologies, Inc., originally known as Dynamed, Inc. (the "CORPORATION"), (i) only restates and integrates and does not further amend the provisions of the Restated Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware on August 14, 1996, as heretofore amended, corrected or supplemented and; (ii) contains no discrepancy with the provisions of such Restated Certificate of Incorporation, as heretofore amended, corrected or supplemented; and (iii) has been duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 245 of the Delaware General Corporation Law. FIRST: The name of the Corporation is Palomar Medical Technologies, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business or purposes to be conducted or promoted is as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares which the Corporation shall have the authority to issue is one hundred and twenty-five million (125,000,000) shares, consisting of one hundred twenty million (120,000,000) shares of common stock, having a par value of one cent ($.01) per share (the "Common Stock") and five million (5,000,000) of preferred stock, having a par value of one cent ($.01) per share (the "Preferred Stock"). Additional designations and powers, the rights and preferences and the qualifications, limitations or restrictions with respect to each series of such class of stock of the Corporation shall be as determined by the Board of Directors from time to time. A. SERIES F CONVERTIBLE PREFERRED STOCK SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "SERIES F CONVERTIBLE PREFERRED STOCK" (the "SERIES F CONVERTIBLE PREFERRED STOCK"), and the number of shares constituting the Series F Convertible Preferred Stock shall be 6,000. 1 SECTION 2. STATED CAPITAL. The amount to be represented in stated capital at all times for each share of Series F Convertible Preferred Stock shall be the sum of (i) $60.00, (ii) to the extent legally available, the accrued but unpaid dividends on such share of Series F Convertible Preferred Stock, and (iii) to be determined on at least a quarterly basis, an amount equal to the accrued and unpaid interest on dividends in arrears through the date of determination (as provided in Section.4). SECTION 3. RANK. All Series F Convertible Preferred Stock shall rank (i) senior to the Common Stock, par value $.01 per share (the "COMMON STOCK"), of the Corporation, now or hereafter issued, as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, and (ii) on a parity with the Series A Convertible Preferred Stock, $.01 par value per share, the Series B Convertible Preferred Stock, $.01 par value per share, the Series C Convertible Preferred Stock, $.01 par value per share, the Series D Convertible Preferred Stock, $.01 par value per share, the Series E Convertible Preferred Stock, $.01 par value per share, the Series I Class A Preference Shares, $.01 par value per share, and the Series II Class A Preference Shares, $.01 par value per share, of the Corporation, both as to payment of dividends and as to distributions of assets upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary. SECTION 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of Series F Convertible Preferred Stock shall be entitled to receive, when, as, and if declared by the Board of Directors of the Corporation (the "BOARD OF DIRECTORS" or the "BOARD") out of funds legally available for such purpose, dividends at the rate of 8% of the Per Share Price (as defined in Section 5 per annum per share during the first twelve (12) months after the date of original issuance, 6 % of the Per Share Price per annum during the second twelve months after the date of original issuance and 4% of the Per Share Price per annum thereafter, and no more,-.which shall be fully cumulative, shall accrue without interest from the date of original issuance and shall be payable in cash quarterly on March 31, June 30, September 30 and December 31 of each year commencing September 30, 1996 (except that if any such date is a Saturday, Sunday, or legal holiday, then such dividend shall be payable on the next succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of record as they appear on the stock books of the Corporation on such record dates, not more than 20 nor less than 10 days preceding the payment dates for such dividends, as shall be fixed by the Board. The amount of the dividends payable per share of Series F Convertible Preferred Stock for each quarterly dividend period shall be computed by dividing the annual dividend amount by four. The amount of dividends payable for the initial dividend period and any period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends not paid on a payment date, whether or not such dividends have been declared, will bear interest at the rate of 10% per annum until paid. No dividends or other distributions, other than dividends payable solely in shares of Common Stock or other capital stock of the Corporation ranking junior as to dividends to the Series F Convertible Preferred Stock (collectively, the "JUNIOR DIVIDEND Stock"), shall be paid or set apart for payment on, and, except for the use of Common Stock to pay for the exercise price of stock options issued pursuant to the stock option plans of the 2 Corporation and its subsidiaries, no purchase, redemption, or other acquisition shall be made by the Corporation of, any shares of Junior Dividend Stock unless and until all accrued and unpaid dividends on the Series F Convertible Preferred Stock and interest on dividends in arrears at the rate specified herein shall have been paid or declared and set apart for payment. If at any time any dividend on any capital stock of the Corporation ranking senior as to dividends to the Series F Convertible Preferred Stock (the "SENIOR DIVIDEND STOCK") shall be in default, in whole or in part, no dividend shall be paid or declared and set apart for payment on the Series F Convertible Preferred Stock unless and until all accrued and unpaid dividends with respect to the Senior Dividend Stock, including the full dividends for the then current dividend period, shall have been paid or declared and set apart for payment, without interest. No dividends shall be paid or declared and set apart for payment on any class or series or the Corporation's capital stock ranking, as to dividends, on a parity with the Series F Convertible Preferred Stock (the "PARITY DIVIDEND STOCK") for any period unless all accrued but unpaid dividends (and interest on dividends in arrears at the rate specified herein) have been, or contemporaneously are, paid or declared and set apart for such payment on the Series F Convertible Preferred Stock. No dividends shall be paid or declared and set apart for payment on the Series F Convertible Preferred Stock for any period unless all accrued but unpaid dividends have been, or contemporaneously are, paid or declared and set apart for payment on the Parity Dividend Stock for all dividend periods terminating on or prior to the date of payment of such full dividends. When dividends are not paid in full upon the Series F Convertible Preferred Stock and the Parity Dividend Stock, all dividends paid or declared and set apart for payment upon shares of Series F Convertible Preferred Stock (and interest on. dividends in arrears at the rate specified herein) and the Parity Dividend Stock shall be paid or declared and set apart for payment pro rata, so that the amount of dividends paid or declared and set apart for payment per share on the Series F Convertible Preferred Stock and the Parity Dividend Stock shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of Series F Convertible Preferred Stock and the Parity Dividend Stock bear to each other. Any references to "distribution" contained in this Section 4 shall not be deemed to include any stock dividend or distributions made in connection with any liquidation, dissolution, -or winding up of the Corporation, whether voluntary or involuntary. SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the holders of Series F Convertible Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets constitute stated capital or surplus of any nature, an amount per share of Series F Convertible Preferred Stock equal to the sum of (i) all dividends accrued and unpaid thereon to the date of final distribution to such holders, (ii) accrued and unpaid interest on dividends in arrears to the date of distribution, and (iii) $1,000.00 (the "PER SHARE PRICE" and collectively with the amounts described in CLAUSES (I) AND (II) above, the "LIQUIDATION PREFERENCE"), and no more, before any payment shall be made or any assets distributed to the holders of Common Stock or any other class or series of the Corporation's capital stock ranking junior as to liquidation rights to the Series F Convertible Preferred Stock (collectively, the "JUNIOR LIQUIDATION STOCK"); PROVIDED, HOWEVER, that such rights shall accrue to the holders of 3 Series F Convertible Preferred Stock only in the event that the Corporation's payments with respect to the liquidation preference of the holders of capital stock of the Corporation ranking senior as to liquidation rights to the Series F Convertible Preferred Stock (the "SENIOR LIQUIDATION STOCK") are fully met. After the liquidation preferences of the Senior Liquidation Stock are fully met, the entire assets of the Corporation available for distribution shall be distributed ratably among the holders of the Series F Convertible Preferred Stock and any other class or series of the Corporation's capital stock having parity as to liquidation rights with the Series F Convertible Preferred Stock (the "PARITY LIQUIDATION STOCK") in proportion to the respective preferential amounts to which each is entitled (but only to the extent of such preferential amounts). After payment in full of the liquidation price of the shares of the Series F Convertible Preferred Stock and the Parity Liquidation Stock, the holders of such shares shall not be entitled to any further participation in any distribution of assets by the Corporation. Neither a consolidation or merger of the Corporation with another corporation nor a sale or transfer of all or part of the Corporation's assets for cash, securities, or other property in and of itself will be considered a liquidation, dissolution, or winding up of the Corporation. SECTION 6. NO MANDATORY REDEMPTION. The shares of Series F Convertible Preferred Stock shall not be subject to mandatory redemption by the Corporation. SECTION 7. NO SINKING FUND. The shares of Series F Convertible Preferred Stock shall not be subject to the operation of a purchase, retirement, or sinking fund. SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is in compliance in all material respects with its obligations to the holders of shares of Series F Convertible Preferred Stock, the Corporation shall have the right, exercisable on not less than 10 days or more than 30 days written notice to the holders of record of the shares of Series F Convertible Preferred Stock to be redeemed, at any time after the sooner to occur of (i) three (3) years after the date of original issuance or (ii) such time as the closing bid price of the Common Stock shall exceed $16.80 per share (the "ALTERNATIVE MINIMUM REDEMPTION PRICE") for 60 or more consecutive trading days (provided that for purposes of this CLAUSE (II), the closing bid price of the Common Stock shall exceed 16.80 on the day that the shares of, Series F Convertible Preferred Stock are called for redemption) to redeem all of the shares or any part thereof not less than 1,000 shares (or such lesser number of shares of Series F Convertible Preferred Stock as shall remain outstanding at the time of exercise of such redemption right) of Series F Convertible Preferred Stock in accordance with this Section 8; provided that (i) the Corporation shall not exercise its right to redeem shares of Series F Convertible Preferred Stock prior to the Registration Effective Date (as hereinafter defined) and (ii) if within five (5) days of receipt of a Notice of Redemption (as hereinafter defined) Travelers (as hereinafter defined) shall notify the Corporation in writing that Travelers cannot exercise its right of conversion by reason of the operation of the proviso to the first sentence of Section 9(a) the Notice of Redemption shall not be effective as to any shares of Series F Preferred Stock owned by Travelers and the such shares shall no longer be entitled to the accrual and cumulation of dividends under Section 4. The Alternative Minimum Redemption Price shall be subject to equitable adjustments for stock splits, stock dividends, combinations, recapitalizations, reclassifications and similar events. Any notice of redemption (a "NOTICE OF REDEMPTION") under this Section shall be delivered to the holders of 4 the shares of Series F Convertible Preferred Stock at their addresses appearing on the records of the Corporation; PROVIDED, HOWEVER, that any failure or defect in the giving of notice to any such holder shall not affect the validity of notice to or the redemption of shares of Series F Convertible Preferred Stock of any other holder. Any Notice of Redemption shall state (1) that the Corporation is exercising its right to redeem all or a portion of the outstanding shares of Series F, Convertible Preferred Stock pursuant to this Section 8, (2) the number of shares of Series F Convertible Preferred Stock held by such holder which are to be redeemed, (3) the Redemption Price (as hereinafter defined) per share of Series F Convertible Preferred Stock to be redeemed, determined in accordance with this Section and (4) the date of redemption of such shares of Series F Convertible Preferred Stock, determined in accordance with this Section (the "REDEMPTION DATE"). On the Redemption Date, the Corporation shall make payment in immediately available funds of the applicable Redemption Price (as hereinafter defined) to each holder of shares of Series F Convertible Preferred- Stock to be redeemed to or upon the order of such holder as specified by such holder in writing to the Corporation at least one business day prior to the Redemption Date. If the Corporation exercises its right to redeem all or a portion of the outstanding shares of Series F Convertible Preferred Stock, the Corporation shall make payment to the holders of the shares of Series F Convertible Preferred Stock to be redeemed in respect of each share of Series F Convertible Preferred Stock to be redeemed of an amount equal to the amount of the Liquidation Preference determined as of the applicable Redemption Date (the "REDEMPTION PRICE"). Upon redemption of less than all of the shares of Series F Convertible Preferred Stock evidenced by a particular certificate, promptly, but in no event later than three business days after surrender of such certificate to the Corporation, the Corporation shall issue a replacement certificate for the shares of Series F Convertible Preferred Stock which have not been redeemed. Only whole shares of Series F Convertible Preferred Stock may be redeemed. If the Corporation exercises its right to redeem less than all outstanding shares of Series F Convertible Preferred Stock, then such redemption shall be made, as nearly as practical, pro rata among the holders of record of the Series F Convertible Preferred Stock. Notwithstanding any other provision of this Certificate of Designations, no share of Series F Convertible Preferred Stock as to which the holder has exercised the right of conversion pursuant to Section 9 hereof may be redeemed by the Corporation on or after the date of exercise of such conversion right. SECTION 9. CONVERSION. (a) CONVERSION AT OPTION OF HOLDER. The holders of the Series F Convertible Preferred Stock may, upon surrender of the certificates therefor, convert any or all of their shares of Series F Convertible Preferred Stock into fully paid and nonassessable shares of Common Stock and such other securities and property as hereinafter provided. Commencing on the date which is 20 days after the Registration Effective Date (as hereinafter defined) and at any time thereafter, each share of Series F Convertible Preferred Stock initially may be converted at the office of any transfer agent for the Series F Convertible Preferred Stock, if any, the office of any transfer agent for the Common Stock or at such other office or offices, if any, as the Board of Directors may designate, into whole shares of Common Stock at the rate equal to the number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) determined by dividing (y) the sum of (I) the Conversion Amount, (ii) accrued but unpaid dividends to the Conversion Date, and (iii) accrued but unpaid interest on the 5 dividends in arrears to the Conversion Date by (z) 80% of the daily mean average of the Closing Price of the Common Stock on the ten consecutive trading days immediately preceding the Conversion Date (but in no event shall the amount determined pursuant to this CLAUSE (z)) be less that $7.00 (subject to equitable adjustments for stock splits, stock dividends, combinations, recapitalizations, reclassifications and similar events) regardless of the actual amount otherwise determined pursuant to this CLAUSE (Z) or more than $16.00 (subject to equitable adjustments for stock splits, stock dividends, combinations, recapitalizations, reclassifications and similar events) regardless of the actual amount otherwise determined pursuant to this CLAUSE (Z), in each case subject to adjustment as hereinafter provided (the "CONVERSION RATE"); provided, however, that The Travelers Life Insurance Company ("TRAVELERS") and any Travelers Person (as defined herein) shall only be entitled to convert any shares of Series F Convertible Preferred Stock from time to time to the extent that Travelers or such Travelers Person will, through such conversion, obtain that number of shares of Common Stock (the "CONVERSION SHARES") that, together with shares of Common Stock directly or indirectly beneficially owned by Travelers, its subsidiaries and affiliated persons including persons serving as exclusive full time advisors of Travelers (each a "TRAVELERS PERSON" and, collectively, "TRAVELERS PERSONS"), would not result in direct and indirect beneficial ownership by all Travelers Persons that would exceed 10% of the outstanding shares of Common Stock, as calculated in accordance with Rule 16a-1(a)(1). For purposes of calculating the number of Conversion Shares, Travelers shall be entitled to use the outstanding number contained in the Company's most recent Quarterly Report on Form 10-QSB or Annual Report on Form 10-KSB in accordance with Rule 13D-1(e). For purposes of determining the number of Conversion Shares, the Company shall be entitled to rely, and shall be fully protected in relying, on any statement or representation made by Travelers to the Company without any obligation on the part of the Company to make any inquiry or investigation or to examine its records or the records of any transfer agent for the Common Stock to confirm such calculation. The "CONVERSION PRICE" shall be equal to the Conversion Amount divided by the Conversion Rate. Notwithstanding any other provision of this Section, the Corporation shall not be required to permit a conversion of shares of Series F Convertible Preferred Stock on any Conversion Date unless the aggregate number of shares of Series F Convertible Preferred Stock to be converted by all holders on such Conversion Date is 1,000 shares (or such lesser number of shares of Series F Convertible Preferred Stock as shall remain outstanding at the time of exercise of such conversion right). (b) CERTAIN DEFINITIONS. As used herein, the "CLOSING PRICE" of any security on any date shall mean the closing bid price of such security on such date on the principal securities exchange on which such security is traded. As used herein, the "CONVERSION AMOUNT" initially shall be equal to $1,000 subject to adjustment as hereinafter provided. 6 As used herein, "CONVERSION DATE" shall mean the date on which the notice of conversion is actually received by the Corporation, in case of a conversion at the option of the holder pursuant to Section 9(a). As used herein, "REGISTRATION EFFECTIVE DATE" shall mean, with respect to any share of Series F Convertible Preferred Stock, the date on which the Registration Statement required to be filed by the Corporation pursuant to Section 8 of, the Securities Purchase Agreement, dated as of July 12, 1996, by and between the Corporation and The Travelers Insurance Company is first declared effective by the Securities and Exchange Commission. (c) OTHER PROVISIONS. Notwithstanding anything in this Section 9 to the contrary, no change in the Conversion Amount shall actually be made until the cumulative effect of the adjustments called for by this Section 9 since the date of the last change in the Conversion Amount would change the Conversion Amount by more than I However, once the cumulative effect would result in such a change, then the Conversion Rate shall actually be changed to reflect all adjustments called for by this Section.9 and not previously made. Notwithstanding anything in this Seetion.9, no change in the Conversion Amount shall be made that would result in a Conversion Price of less than the par value of the Common Stock into which shares of Series F Convertible Preferred Stock are at the time convertible. The holders of shares of Series F Convertible Preferred Stock at the close of business on the record date for any dividend payment to holders of Series F Convertible Preferred Stock shall be entitled to receive the dividend payable on such shares on the corresponding dividend payment date notwithstanding the conversion thereof after such dividend payment record date or the Corporation's default in payment of the dividend due on such dividend payment date; PROVIDED, HOWEVER, that shares of Series F Convertible Preferred Stock surrendered for conversion during the period between the close of business on any record date for a dividend payment and the opening of business on the corresponding dividend payment date must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date. A holder of shares of Series F Convertible Preferred Stock on a record date for a dividend payment who (or whose transferee) tenders 'any of such shares for conversion into shares of Common Stock on or after such dividend payment date will receive the dividend payable by the Corporation on such shares of Series F Convertible Preferred Stock on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of shares of Series F Convertible Preferred Stock for conversion. Except as provided above, no adjustment shall be made in respect of cash dividends on Common Stock or Series F Convertible Preferred Stock that may be accrued and unpaid at the date of surrender for conversion. The right of the holders of Series F Convertible Preferred Stock to convert their shares shall be exercised by delivering to the Corporation or its agent, as provided above, a written notice, duly signed by or on behalf of the holder, stating the number of shares of Series F Convertible Preferred Stock to be converted. Promptly, but in no event later than 10 business days after delivery of a notice of conversion, such holder shall surrender for such purpose to the Corporation or its agent, as provided above, certificates representing shares to be converted, duly 7 endorsed in blank or accompanied by proper instruments of transfer. If such holder shall fail to deliver certificates representing shares to be converted in such form on or prior to such tenth business day, such notice of conversion shall not be effective, unless otherwise agreed by the Corporation, but such failure shall not affect such holder's right to convert such shares at a date after the date such notice of conversion was given. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery upon conversion of shares of Common Stock or other securities or property in a name other than that of the holder of the shares of the Series F Convertible Preferred Stock being converted, and the Corporation shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of any such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation (and any successor corporation) shall take all action necessary so that a number of shares of the authorized but unissued Common Stock (or common stock in the case of any successor corporation) sufficient to provide for the conversion of the Series F Convertible Preferred Stock outstanding upon the basis hereinbefore provided are at all times reserved by the Corporation (or any successor corporation), free from preemptive rights, for such conversion, subject to the provisions of the next succeeding paragraph. If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Series F Convertible Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Series F Convertible Preferred Stock on the new basis. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all of the outstanding shares of Series F Convertible Preferred Stock, the Corporation promptly shall seek such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. In case of any consolidation or merger of the Corporation with any other corporation (other than a wholly-owned subsidiary of the Corporation) in which the Corporation is not the surviving corporation, or in case of any sale or transfer of all or substantially all of the assets of the Corporation, or in the case of any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property, the Corporation shall make appropriate provision or cause appropriate provision to be made so that each holder of shares of Series F Convertible Preferred Stock then outstanding shall have the right thereafter to convert such shares of Series F Convertible Preferred Stock into the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale, transfer, or share exchange by a holder of the number of shares of Common Stock into which such shares of Series F Convertible Preferred Stock could have been converted immediately prior to the effective date of such consolidation, merger, sale, transfer, or share exchange. If, in connection with any such consolidation, merger, sale, transfer, or share exchange, each holder of shares of Common Stock is entitled to elect to receive either securities, 8 cash, or other assets upon completion of such transaction, the Corporation shall provide or cause to be provided to each holder of Series F Convertible Preferred Stock the right to elect the securities, cash, or other assets into which the Series F Convertible Preferred Stock held by such holder shall be convertible after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election shall be made, and the effect of failing to exercise the election). The Corporation shall not effect any such transaction unless the provisions of this paragraph have been complied with. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers, or share exchanges. Upon surrender of certificates representing shares of Series F Convertible Preferred Stock for conversion, the Corporation shall issue and deliver to such person certificates for the Common Stock issuable upon such conversion within three business days after such surrender and the person converting shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and all rights with respect to the shares surrendered shall forthwith terminate except the right to receive the Common Stock or other securities, cash, or other assets as herein provided. No fractional shares of Common Stock shall be issued upon conversion of Series F Convertible Preferred Stock but, in lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of the aggregate number of such shares surrendered for conversion at one time by the same holder, the Corporation at its option (a) may pay in cash an amount equal to the product of (i) the daily mean average of the Closing Price of a share of Common Stock on the ten consecutive trading days before the Conversion Date and (ii) such fraction of a share or (b) may issue an additional share of Common Stock. The "CLOSING PRICE" for each day shall be the closing price regular way on such day as reported on the New York Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which Common Stock is, listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, the closing bid price as reported on the Nasdaq Stock Market (or, if not so reported, the closing price), or, if not admitted for quotation on the Nasdaq Stock Market, the average of the high bid and low asked prices on such day as recorded by the National Association of Securities Dealers, Inc. through the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), or if the National Association of Securities Dealers, Inc. through NASDAQ shall not have reported any bid and asked prices for the Common Stock on such day, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation for such purposes, or, if no such bid and asked prices can be obtained from any such firm, the fair market value of one share of Common Stock on such day as determined in good faith by the Board of Directors. Such determination by the Board of Directors shall be conclusive. 9 The Conversion Amount shall be adjusted from time to time under certain circumstances, subject to the provisions of the first three sentences of the first paragraph of this Section 9(c), as follows: (i) In case the Corporation shall issue rights or warrants to all holders of the common Stock entitling such holders to subscribe for or purchase Common Stock on the record date referred to below at a price per share less than the average daily Closing Prices of the Common Stock on the 30 consecutive business days commencing 45 business days before the record date (the "CURRENT MARKET Price"), then in each such case the Conversion Amount in effect on such record date shall be adjusted in accordance with the formula C1 C x O + N ------- O + N X P ----- M where C1 = the adjusted Conversion Amount C = the current Conversion Amount O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock issuable pursuant to the exercise of such rights or warrants. P = the offering price per share of the additional shares (which amount shall include amounts received by the Corporation in respect of the issuance and the exercise of such rights or warrants). M = the Current Market Price per share of Common Stock on the record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. If any or all such rights or warrants are not so issued or expire or terminate before being exercised, the Conversion Amount then in effect shall be readjusted appropriately. (ii) In case the Corporation shall, by dividend or otherwise, distribute to all holders of its Junior Stock (as hereinafter defined) evidences of its indebtedness or assets (including securities, but excluding any warrants or subscription rights referred to in SUBPARAGRAPH (i) above and any dividend or distribution paid in cash out of the retained earnings of the Corporation), then in each such case the Conversion Amount then in effect shall be adjusted in accordance with the formula C1 = C x M --- M-F where C1 = the adjusted Conversion Amount C = the current Conversion Amount 10 M = the Current Market Price per share of Common Stock on the record date mentioned below. F = the aggregate amount of such cash dividend and/or the fair market value on the record date of the assets or securities to be distributed divided by the number of shares of Common Stock outstanding on the record date. The Board of Directors shall determine such fair market value, which determination shall be conclusive. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution. For purposes of this subparagraph (ii), "JUNIOR STOCK" shall include any class of capital stock ranking junior as to dividends or upon liquidation to the Series F Convertible Preferred Stock. (iii) All calculations hereunder shall be made to the nearest cent or to the nearest 1/100 of a share, as the case may be. (iv) If at any time as a result of an adjustment made pursuant to the fifth paragraph of this Section 9(c), the holder of any Series F Convertible Preferred Stock thereafter surrendered for conversion shall become entitled to receive securities, cash, or assets other than Common Stock, the number or amount of such securities or property so receivable upon conversion shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in SUBPARAGRAPHS (i) TO (iii) above. Except as otherwise provided above in this Section 9, no adjustment in the Conversion Amount shall be made in respect of any conversion for share distributions or dividends theretofore declared and paid or payable on the Common Stock. Whenever the Conversion Amount is adjusted, (i) the Corporation shall send to each transfer agent, if any, for the Series F Convertible Preferred Stock and the Common Stock, and to the principal securities exchange, if any, on which the Series F Convertible Preferred Stock and the Common Stock is traded, or the Nasdaq Stock Market if the Series F Convertible Preferred Stock or the Common Stock is admitted for a quotation thereon, a statement signed by the Chairman of the Board, the President or any Vice-President of the Corporation and by its Treasurer or its Secretary or Assistant Secretary stating the adjusted Conversion Amount determined as provided in this Section 9, and any adjustment so evidenced, given in good faith, shall be binding upon all stockholders and upon the Corporation and (ii) the Corporation will give notice by mail to the holders of record of Series F Convertible Preferred Stock, which notice shall be made within 45 days after the effective date of such adjustment and shall state the adjustment and the Conversion Amount. Notwithstanding the foregoing notice provisions, failure by the Corporation to give such notice or a defect in such notice shall not affect the binding nature of such corporate action of the Corporation. 11 Whenever the Corporation shall propose to take any of the actions specified in the fifth paragraph of this Section 9(c) or in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) which would result in any adjustment in the Conversion Amount under this Section 9(c), the Corporation shall cause a notice to be mailed at least 30 days prior to the date on which the books of the Corporation will close or on which a record will be taken for such action, to the holders of record of the outstanding Series F Convertible Preferred Stock on the date of such notice. Such notice shall specify the action proposed to be taken by the Corporation and the date as of which holders of record of the Common Stock shall participate in any such actions or be entitled to exchange their Common Stock for securities or other property, as the case may be. Failure by the Corporation to mail the notice or any defect in such notice shall not affect the validity of the transaction. Notwithstanding any other provision of this Section 9, no adjustment in the Conversion Amount need be made (a) for a transaction referred to in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if holders of Series F Convertible Preferred Stock are to participate in the transaction or distribution on a basis 'and with notice that the Board of Directors determines to be fair to the holders of the Series F Convertible Preferred Stock and appropriate in light of the basis on which holders of the Common Stock or, in the case of a transaction referred to in said SUBPARAGRAPH (II), holders of Junior Stock participate in the transaction; (b) for sales of Common Stock pursuant to a plan for reinvestment of dividends and interest, PROVIDED that the purchase price in any such sale is at least equal to the fair market value of the Common Stock at the time of such purchase, or pursuant to any plan adopted by the Corporation for the benefit of its employees, directors, or consultants; or (c) after the Series F Convertible Preferred Stock becomes convertible into cash (no interest shall accrue on the cash). SECTION 10. VOTING RIGHTS. Except as otherwise required by law, shares of Series F Convertible Preferred Stock shall not be entitled to vote on any matter. The affirmative vote or consent of the holders of a majority of the outstanding shares of the Series F Convertible Preferred Stock, voting separately as a class, will be required for (1) any amendment, alteration, or repeal, whether by merger or consolidation or otherwise, of the Corporation's Certificate of Incorporation if the amendment, alteration, or repeal materially and adversely affects the powers, preferences, or special rights of the Series F Convertible Preferred Stock, or (2) the creation and issuance of any Senior Dividend Stock or Senior Liquidation Stock; PROVIDED, HOWEVER, that any increase in the authorized preferred stock of the Corporation or the creation and issuance of any stock which is both Junior Dividend Stock and Junior Liquidation Stock or any other capital stock of the Corporation ranking on a parity with the Series F Convertible Preferred Stock shall be deemed not to affect materially, and adversely such powers, preferences, or special rights. SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate of Designations, all shares of Series F Convertible Preferred Stock shall be deemed outstanding except (i) from the date of surrender of certificates representing shares of Series F Convertible Preferred Stock for conversion into Common Stock, all shares of Series F Convertible Preferred Stock converted into Common Stock; and (ii) from the date of registration of transfer, all shares 12 of Series F Convertible Preferred Stock held of record by the Corporation or any subsidiary or Affiliate (as defined herein) of the Corporation. For the purposes of this Certificate of Designations, "Affiliate" means any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Corporation. 'Control" is the power to direct the management and policies of a person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise. B. SERIES G CONVERTIBLE PREFERRED STOCK SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series G Convertible Preferred Stock" (the "SERIES G CONVERTIBLE PREFERRED STOCK"), and the number of shares constituting such series shall be 10,000 and shall not be subject to increase. The Series G Convertible Preferred Stock shall be divided into two ranches, referred to herein as "Tranche 1 Series G Convertible Preferred Stock" (the "TRANCHE 1 SERIES G CONVERTIBLE PREFERRED STOCK"), which shall consist of 4,000 shares, and "Tranche 2 Series G Convertible Preferred Stock" (the "TRANCHE 2 SERIES G CONVERTIBLE PREFERRED STOCK"), which shall consist of 6,000 shares. SECTION 2. STATED CAPITAL. The amount to be represented in stated capital at all times for each share of Series G Convertible Preferred Stock shall be the sum of (i) $1,000, (ii) to the extent legally available, the accrued but unpaid dividends on such share of Series G Convertible Preferred Stock, and (iii) to be determined on at least a quarterly basis, an amount equal to the accrued and unpaid interest on dividends in arrears through the date of determination (as provided in Section 4). SECTION 3. RANK. All Series G Convertible Preferred Stock shall rank (i) senior to the Common Stock, par value $.01 per share (the "COMMON STOCK"), of the Corporation, now or hereafter issued, as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, and (ii) on a parity with the Series E Convertible Preferred Stock of the Corporation, the Series F Convertible Preferred Stock of the Corporation and any additional series of preferred stock of any class which the Board of Directors or the stockholders may from time to time authorize, both as to payment of dividends and as to distributions of assets upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary. SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Series G Convertible Preferred Stock shall be entitled to receive, when, as, and if declared by the Board of Directors of the Corporation (the "BOARD OF DIRECTORS" or the "BOARD") out of funds legally available for such purpose, dividends at the rate of $70.00 per annum per share, and no more, which shall be fully cumulative, shall accrue without interest (except as otherwise specifically provided herein) from the date of original issuance and shall be payable in cash quarterly on January 1, April 1, July 1, and October 1 of each year commencing January 1, 1997 (except that if any such date is a Saturday, Sunday, or legal holiday, then such dividend shall be payable on the next succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of record as they appear on the stock books of the Corporation on such record dates, not more than 20 nor less than 10 days preceding 13 the payment dates for such dividends, as shall be fixed by the Board. Dividends on the Series G Convertible Preferred Stock shall be paid in cash or, subject to the limitations in Section 4(b) hereof, shares of Common Stock or any combination of cash and shares of Common Stock, at the option of the Corporation as hereinafter provided. The amount of the dividends payable per share of Series G Convertible Preferred Stock for each quarterly dividend period shall be computed by dividing the annual dividend amount by four. The amount of dividends payable for the initial dividend period and any period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends not paid on a payment date, whether or not such dividends have been declared, will bear interest at the rate of 12% per annum until paid. No dividends or other distributions, other than dividends payable solely in shares of Common Stock or other capital stock of the Corporation ranking junior as to dividends to the Series G Convertible Preferred Stock (collectively, the "JUNIOR DIVIDEND STOCK"), shall be paid or set apart for payment on any shares of Junior Dividend Stock, and no purchase, redemption, or other acquisition shall be made by the Corporation of any shares of Junior Dividend Stock (other than purchases, redemptions or other acquisitions of a number of shares of Common Stock in the aggregate not in excess of 2 percent of the shares of Common Stock outstanding on the date this Certificate of Designations is filed with the Secretary of State of the State of Delaware, at prices not in excess of the fair market value thereof at the time of purchase, redemption or acquisition) unless and until all accrued and unpaid dividends on the Series G Convertible Preferred Stock and interest on dividends in arrears at the rate specified herein shall have been paid or declared and set apart for payment. If at any time any dividend on any capital stock of the Corporation ranking senior as to dividends to the Series G Convertible Preferred Stock (the "SENIOR DIVIDEND STOCK") shall be in default, in whole or in part, no dividend shall be paid or declared and set apart for payment on the Series G Convertible Preferred Stock unless and until all accrued and unpaid dividends with respect to the Senior Dividend Stock, including the full dividends for the then current dividend period, shall have been paid or declared and set apart for payment, without interest. No full dividends shall be paid or declared and set apart for payment on any class or series or the Corporation's capital stock ranking, as to dividends, on a parity with the Series G Convertible Preferred Stock (the "PARITY DIVIDEND STOCK") for any period unless all accrued but unpaid dividends (and interest on dividends in arrears at the rate specified herein) have been, or contemporaneously are, paid or declared and set apart for such payment on the Series G Convertible Preferred Stock. No full dividends shall be paid or declared and set apart for payment on the Series G Convertible Preferred Stock for any period unless all accrued but unpaid dividends have been, or contemporaneously are, paid or declared and set apart for payment on the Parity Dividend Stock for all dividend periods terminating on or prior to the date of payment of such full dividends. When dividends are not paid in full upon the Series G Convertible Preferred Stock and the Parity Dividend Stock, all dividends paid or declared and set apart for payment upon shares of Series G Convertible Preferred Stock (and interest on dividends in arrears at the rate specified herein) and the Parity Dividend Stock shall be paid or declared and set apart for payment pro rata, so that the amount of dividends paid or declared and set apart for payment per share on the Series G Convertible Preferred Stock and the Parity Dividend Stock shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of Series G Convertible Preferred Stock and the Parity Dividend Stock bear to each other. 14 Any references to "distribution" contained in this Section 4 shall not be deemed to include any stock dividend or distributions made in connection with any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary. (b) If the Corporation elects in the exercise of its sole discretion to issue shares of Common Stock in payment of dividends on the Series G Convertible Preferred Stock, the Corporation shall issue and dispatch, or cause to be issued and dispatched, to each holder of such shares a certificate representing the number of whole shares of Common Stock arrived at by dividing the per share Computed Price of such shares of Common Stock into the total amount of cash dividends such holder would be entitled to receive if the aggregate dividends on the Series G Convertible Preferred Stock held by such holder which are being paid in shares of Common Stock were being paid in cash; PROVIDED, HOWEVER, that if certificates representing shares of Common Stock are issued and dispatched to holders of Series G Convertible Preferred Stock subsequent to the third trading day after a dividend payment date, the percentage used to calculate the Computed Price will be reduced by one for each trading day after the third trading day following such dividend payment date to the date of dispatch of shares of Common Stock. No fractional shares of Common Stock shall be issued in payment of dividends. In lieu thereof, the Corporation may issue a number of shares of Common Stock to each holder which reflects a rounding to the nearest whole number of shares of Common Stock or may pay cash. The Corporation shall not exercise its right to issue shares of Common Stock in payment of dividends on Series G Convertible Preferred Stock if: (i) the number of shares of Common Stock at the time authorized, unissued and unreserved for all purposes, or held in the Corporation's treasury, is insufficient to pay the portion of such dividends to be paid in shares of Common Stock; (ii) the issuance or delivery of shares of Common Stock as a dividend payment would require registration with or approval of any governmental authority under any law or regulation, and such registration or approval has not been effected or obtained; (iii) the shares of Common Stock to be issued as a dividend payment have not been authorized for listing, upon official notice of issuance, on any securities exchange or market on which the Common Stock is then listed; or have not been approved for quotation if the Common Stock is traded in the over-the-counter market; (iv) the Computed Price (determined without regard to the proviso to the definition thereof) is less than the par value of the shares of Common Stock; (v) the shares of Common Stock (A) cannot be sold or transferred without restriction by unaffiliated holders who receive such shares of Common Stock as a dividend payment or (B) are no longer listed on a national securities exchange, on the Nasdaq National Market or the Nasdaq SmallCap Market; or 15 (vi) the issuance of shares of Common Stock in payment of dividends on Series G Convertible Preferred Stock held by any GFL Person (as defined in Section 9(a) hereof) would result in any GFL Person beneficially owning more than 4.9% of the Common Stock, determined as provided in the proviso to the second sentence of Section 9(a) hereof. Shares of Common Stock issued in payment of dividends on Series G Convertible Preferred Stock pursuant to this Section shall be, and for all purposes shall be deemed to be, validly issued, fully paid and nonassessable shares of Common Stock of the Corporation; the issuance and delivery thereof is hereby authorized; and the dispatch thereof will be, and for all purposes shall be deemed to be, payment in full of the cumulative dividends to which holders are entitled on the applicable dividend payment date. "Computed Price" of shares of Common Stock means the price equal to 85 percent of the arithmetic mean of the per share Closing Price (as defined in Section 9(b)) of the Common Stock for the three consecutive trading days ending on the third trading day prior to the applicable dividend payment date; PROVIDED HOWEVER, THAT, notwithstanding the foregoing, in no event shall the Computed Price be less than $.01 per share. SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the holders of Series G Convertible Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets constitute stated capital or surplus of any nature, an amount per share of Series G Convertible Preferred Stock equal to the sum of (i) all dividends accrued and unpaid thereon to the date of final distribution to such holders, (ii) accrued and unpaid interest on dividends in arrears to the date of distribution, and (iii) $1,000.00 (collectively, the "LIQUIDATION PREFERENCE"), and no more, before any payment shall be made or any assets distributed to the holders of Common Stock or any other class or series of the Corporation's capital stock ranking junior as to liquidation rights to the Series G Convertible Preferred Stock (collectively, the "JUNIOR LIQUIDATION STOCK"); PROVIDED, HOWEVER, that such rights shall accrue to the holders of Series G Convertible Preferred Stock only in the event that the Corporation's payments with respect to the liquidation preference of the holders of capital stock of the Corporation ranking senior as to liquidation rights to the Series G Convertible Preferred Stock (the "SENIOR LIQUIDATION STOCK") are fully met. After the liquidation preferences of the Senior Liquidation Stock are fully met, the entire assets of the Corporation available for distribution shall be distributed ratably among the holders of the Series G Convertible Preferred Stock and any other class or series of the Corporation's capital stock having parity as to liquidation rights with the Series G Convertible Preferred Stock (the "PARITY LIQUIDATION STOCK") in proportion to the respective preferential amounts to which each is entitled (but only to the extent of such preferential amounts). After payment in full of the liquidation price of the shares of the Series G Convertible Preferred Stock and the Parity Liquidation Stock, the holders of such shares shall not be entitled to any further participation in any distribution of assets by the Corporation. Neither a consolidation or merger of the Corporation with another corporation nor a sale or transfer of all or part of the Corporation's assets for cash, securities, or other property in and of itself will be considered a liquidation, dissolution, or winding up of the Corporation. 16 SECTION 6. NO MANDATORY REDEMPTION. The shares of Series G Convertible Preferred Stock shall not be subject to mandatory redemption by the Corporation. SECTION 7. NO SINKING FUND. The shares of Series G Convertible Preferred Stock shall not be subject to the operation of a purchase, retirement, or sinking fund. SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is in compliance in all material respects with its obligations to the holders of shares of Series G Convertible Preferred Stock (including, without limitation, its obligations under the Registration Rights Agreement between the Corporation and the original holders of the Series G Convertible Preferred Stock (the "REGISTRATION RIGHTS AGREEMENT") and the provisions of this Certificate of Designations), the Corporation shall have the right, exercisable on not less than 15 days or more than 20 days written notice to the holders of record of the shares of Series G Convertible Preferred Stock to be redeemed, at any time which is (x) 90 days or more after the Tranche 1 Registration Effective Date (as defined in Section 9(b)) to redeem all of the shares or any part of not less than 600 shares (or such lesser number of shares of Tranche 1 Series G Convertible Preferred Stock as shall remain outstanding at the time of exercise of such redemption right) of Tranche 1 Series G Convertible Preferred Stock or (y) 90 days or more after the Tranche 2 Registration Effective Date (as defined in Section 9(b)) to redeem all of the shares or any part of not less than 600 shares (or such lesser number of shares of Tranche 2 Series G Convertible Preferred Stock as shall remain outstanding at the time of exercise of such redemption right) of Tranche 2 Series G Convertible Preferred Stock, in either case in accordance with this Section 8. Any notice of redemption (a "NOTICE OF REDEMPTION") under this Section shall be delivered to the holders of the shares of Series G Convertible Preferred Stock at their addresses appearing on the records of the Corporation; PROVIDED, HOWEVER, that any failure or defect in the giving of notice to any such holder shall not affect the validity of notice to or the redemption of shares of Series G Convertible Preferred Stock of any other holder. Any Notice of Redemption may, subject to the 15 and 20 day restrictions stated above, be given prior to the date which is 90 days after the Tranche 1 Registration Effective Date or the Tranche 2 Registration Effective Date, as the case may be, but in any such case may not specify a Redemption Date (as herein defined) prior to the date which is 90 days after the Tranche 1 Registration Effective Date or the Tranche 2 Registration Effective Date, as the case may be. Any Notice of Redemption shall state (1) that the Corporation is exercising its right to redeem all or a portion of the outstanding shares of Series G Convertible Preferred Stock pursuant to this Section 8, (2) the number of shares of Series G Convertible Preferred Stock held by such holder which are to be redeemed and the tranche of the shares to be redeemed, (3) the Redemption Price (as hereinafter defined) per share of Series G Convertible Preferred Stock to be redeemed, determined in accordance with this Section, and (4) the date of redemption of such shares of Series G Convertible Preferred Stock, determined in accordance with this Section (the "REDEMPTION DATE"). On the Redemption Date, the Corporation shall make payment in immediately available funds of the applicable Redemption Price (as hereinafter defined) to each holder of shares of Series G Convertible Preferred Stock to be redeemed to or upon the order of such holder as specified by such holder in writing to the Corporation at least one business day prior to the Redemption Date. If the Corporation exercises its right to redeem all or a portion of the outstanding shares of Series G Convertible Preferred Stock the Corporation shall make payment to the holders of the shares of Series G Convertible Preferred Stock to be redeemed in respect of each share of Series G 17 Convertible Preferred Stock to be redeemed of an amount equal to the sum of (A) the amount of the Liquidation Preference determined as of the applicable Redemption Date and (B) $176.50 (such sum being referred to herein as the "REDEMPTION PRICE"). Upon redemption of less than all of the shares of Series G Convertible Preferred Stock evidenced by a particular certificate, promptly, but in no event later than three business days after surrender of such certificate to the Corporation, the Corporation shall issue a replacement certificate for the shares of Series G Convertible Preferred Stock which have not been redeemed. Only whole shares of Series G Convertible Preferred Stock may be redeemed. If the Corporation exercises its right to redeem less than all outstanding shares of Series G Convertible Preferred Stock, then such redemption shall be made, as nearly as practical, pro rata among the holders of record of the Series G Convertible Preferred Stock. Notwithstanding any other provision of this Certificate of Designations, no share of Series G Convertible Preferred Stock as to which the holder exercises the right of conversion pursuant to Section 9 hereof may be redeemed by the Corporation on or after the date of exercise of such conversion right. SECTION 9. CONVERSION. (a) CONVERSION AT OPTION OF HOLDER. (i) The holders of the Series G Convertible Preferred Stock may, upon surrender of the certificates therefor, convert any or all of their shares of Series G Convertible Preferred Stock into fully paid and nonassessable shares of Common Stock and such other securities and property as hereinafter provided. Commencing on the date which is the earliest of (i) the Tranche 1 Registration Effective Date, (ii) or the Tranche 2 Registration Effective Date and (iii) the date which is 90 days after the date of initial issuance of shares of Series G Convertible Preferred Stock (the "ISSUANCE DATE") and at any time thereafter, each share of Series G Convertible Preferred Stock initially may be converted at the principal executive offices of the Corporation, the office of any transfer agent for the Series G Convertible Preferred Stock, if any, the office of any transfer agent for the Common Stock or at such other office or offices, if any, as the Board of Directors may designate, into whole shares of Common Stock at the rate equal to the number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) determined by dividing (y) the sum of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the Conversion Date, and (iii) accrued but unpaid interest on the dividends on the shares of Series G Convertible Preferred Stock being converted in arrears to the Conversion Date by (z) the lesser of (I) $11.50 (subject to equitable adjustments for stock splits, stock dividends, combinations, recapitalizations, reclassifications and similar events) and (II) the product of (A) the Tranche 1 Conversion Percentage or the Tranche 2 Conversion Percentage, as the case may be, TIMES (B) the arithmetic average of the Closing Price of the Common Stock on the three consecutive trading days immediately preceding the Conversion Date (but in no event shall the amount determined pursuant to subclause (II) of this clause (z) be less than $7.00 (subject to equitable adjustments for stock splits, stock dividends, combinations, recapitalizations, reclassifications and similar events), regardless of the actual amount otherwise determined pursuant to this clause (z)) (the "MINIMUM CONVERSION PRICE"), in each case subject to adjustment as hereinafter provided (the "CONVERSION RATE"); PROVIDED, HOWEVER, that in no event shall Genesee Fund Limited ("GENESEE") be entitled to convert any shares of Series G Convertible Preferred Stock in excess of that number of shares of Series G Convertible Preferred Stock upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by Genesee and any person whose beneficial ownership of shares of Common Stock would be aggregated with 18 Genesee's beneficial ownership of shares of Common Stock for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (THE "EXCHANGE ACT"), and Regulation 13D-G thereunder (each a "GFL PERSON" and collectively, the "GFL PERSONS") (other than shares of Common Stock deemed beneficially owned through the ownership of unconverted shares of Series G Convertible Preferred Stock and unexercised Common Stock Purchase Warrants issued to Genesee in connection with the issuance of the Series G Convertible Preferred Stock) and (2) the number of shares of Common Stock issuable upon the conversion of the number of shares of Series G Convertible Preferred Stock with respect to which the determination in this proviso is being made, would result in beneficial ownership by any GFL Person of more than 4.9% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of the proviso to the immediately preceding sentence. For purposes of the proviso to the second preceding sentence, the Corporation shall be entitled to rely, and shall be fully protected in relying, on any statement or representation made by Genesee to the Corporation in connection with a particular conversion, without any obligation on the part of the Corporation to make any inquiry or investigation or to examine its records or the records of any transfer agent for the Common Stock. (ii) Each certificate for shares of Series G Convertible Preferred Stock initially issued shall bear a legend identifying it as either "TRANCHE 1" or "TRANCHE 2," as agreed in writing with the Corporation by the initial holder of shares of Series G Convertible Preferred Stock. Any new certificate issued upon transfer of any shares of Series G Convertible Preferred Stock or, in connection with a conversion of shares of Series G Convertible Preferred Stock, to evidence the unconverted balance of shares of Series G Convertible Preferred Stock shall bear the same legend as the certificate surrendered to the Corporation in connection therewith, if applicable. (b) CERTAIN DEFINITIONS. As used herein, the "CLOSING PRICE" of any security on any date shall mean the closing bid price of such security on such date on the principal securities exchange on which such security is traded. As used herein, the "CONVERSION AMOUNT" initially shall be equal to $1,000.00, subject to adjustment as hereinafter provided. As used herein, "CONVERSION DATE" shall mean the date on which the notice of conversion is actually received by the Corporation, in case of a conversion at the option of the holder pursuant to Section 9(a). As used herein, "SEC" shall mean the United States Securities and Exchange Commission. As used herein, "TRANCHE 1 COMPUTATION DATE" means (1) January 1, 1997, unless the Tranche 1 Registration Statement theretofore has been declared effective by the SEC, and, (2) if 19 the Tranche 1 Registration Statement has not theretofore been declared effective by the SEC, each date which is 30 days after a Tranche 1 Computation Date. As used herein, "TRANCHE 2 COMPUTATION DATE" means (1) February 1, 1997, unless the Tranche 2 Registration Statement theretofore has been declared effective by the SEC, and, (2) if the Tranche 2 Registration Statement has not theretofore been declared effective by the SEC, each date which is 30 days after a Tranche 2 Computation Date. As used herein, "TRANCHE 1 CONVERSION PERCENTAGE" shall mean, with respect to any conversion of shares of Tranche 1 Series G Convertible Preferred Stock, 85 percent, except that, if the Tranche 1 Registration Statement is not ordered effective by the SEC by the Tranche 1 Computation Date, then the percentage stated above in this paragraph shall be reduced by two percentage points on each Tranche 1 Computation Date, and except that the percentage stated above in this paragraph, as so adjusted, is also subject to adjustment as provided in Section 3(f)(iii) of the Registration Rights Agreement. As used herein, "TRANCHE 2 CONVERSION PERCENTAGE" shall mean, with respect to any conversion of Tranche 2 Series G Convertible Preferred Stock, 85 percent, except that, if the Tranche 2 Registration Statement is not ordered effective by the SEC by the Tranche 2 Computation Date, then the percentage stated above in this paragraph shall be reduced by two percentage points on each Tranche 2 Computation Date, and except that the percentage stated above in this paragraph, as so adjusted, is also subject to adjustment as provided in Section 3(f)(iii) of the Registration Rights Agreement. As used herein, "TRANCHE 1 REGISTRATION EFFECTIVE DATE" shall mean the date on which the Tranche 1 Registration Statement is first ordered effective by the SEC. As used herein, "TRANCHE 2 REGISTRATION EFFECTIVE DATE" shall mean the date on which the Tranche 2 Registration Statement is first ordered effective by the SEC. As used herein, "TRANCHE 1 REGISTRATION STATEMENT" shall mean the Registration Statement required to be filed by the Corporation with the SEC pursuant to Section 2(a)(i) of the Registration Rights Agreement. As used herein, "TRANCHE 2 REGISTRATION STATEMENT" shall mean the Registration Statement required to be filed by the Corporation with the SEC pursuant to Section 2(a)(ii) of the Registration Rights Agreement. (c) OTHER PROVISIONS. Notwithstanding anything in this Section 9 to the contrary, no change in the Conversion Amount shall actually be made until the cumulative effect of the adjustments called for by this Section 9 since the date of the last change in the Conversion Amount would change the Conversion Amount by more than 1%. However, once the cumulative effect would result in such a change, then the Conversion Rate shall actually be changed to reflect all adjustments called for by this Section 9 and not previously made. Notwithstanding anything in this Section 9, no change in the Conversion Amount shall be made that would result in a 20 Conversion Price of less than the par value of the Common Stock into which shares of Series G Convertible Preferred Stock are at the time convertible. The holders of shares of Series G Convertible Preferred Stock at the close of business on the record date for any dividend payment to holders of Series G Convertible Preferred Stock shall be entitled to receive the dividend payable on such shares on the corresponding dividend payment date notwithstanding the conversion thereof after such dividend payment record date or the Corporation's default in payment of the dividend due on such dividend payment date; PROVIDED, HOWEVER, that shares of Series G Convertible Preferred Stock surrendered for conversion during the period between the close of business on any record date for a dividend payment and the opening of business on the corresponding dividend payment date must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date. A holder of shares of Series G Convertible Preferred Stock on a record date for a dividend payment who (or whose transferee) tenders any of such shares for conversion into shares of Common Stock on or after such dividend payment date will receive the dividend payable by the Corporation on such shares of Series G Convertible Preferred Stock on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of shares of Series G Convertible Preferred Stock for conversion. Except as provided above, no adjustment shall be made in respect of cash dividends on Common Stock or Series G Convertible Preferred Stock that may be accrued and unpaid at the date of surrender for conversion. The right of the holders of Series G Convertible Preferred Stock to convert their shares shall be exercised by delivering to the Corporation or its agent, as provided above, a written notice, duly signed by or on behalf of the holder, stating the number of shares of Series G Convertible Preferred Stock to be converted and, in the case of Genesee, stating that such conversion will not result in Genesee beneficially owning a number of shares of Common Stock in excess of that number permitted by Section 9(a). Promptly, but in no event later than 10 business days after delivery of a notice of conversion, such holder shall surrender for such purpose to the Corporation or its agent, as provided above, certificates representing shares to be converted, duly endorsed in blank or accompanied by proper instruments of transfer. If such holder shall fail to deliver certificates representing shares to be converted in such form on or prior to such tenth business day, such notice of conversion shall not be effective, unless otherwise agreed by the Corporation, but such failure shall not affect such holder's right to convert such shares at a date after the date such notice of conversion was given. The Corporation shall pay any tax arising under United States federal, state or local law in connection with any conversion of shares of Series G Convertible Preferred Stock except that the Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery upon conversion of shares of Common Stock or other securities or property in a name other than that of the holder of the shares of the Series G Convertible Preferred Stock being converted, and the Corporation shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of any such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. 21 The Corporation (and any successor corporation) shall take all action necessary so that a number of shares of the authorized but unissued Common Stock (or common stock in the case of any successor corporation) sufficient to provide for the conversion of the Series G Convertible Preferred Stock outstanding upon the basis hereinbefore provided are at all times reserved by the Corporation (or any successor corporation), free from preemptive rights, for such conversion, subject to the provisions of the next succeeding paragraph. If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Series G Convertible Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Series G Convertible Preferred Stock on the new basis. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all of the outstanding shares of Series G Convertible Preferred Stock, the Corporation promptly shall seek such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. In case of any consolidation or merger of the Corporation with any other corporation (other than a wholly-owned subsidiary of the Corporation) in which the Corporation is not the surviving corporation, or in case of any sale or transfer of all or substantially all of the assets of the Corporation, or in the case of any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property, the Corporation shall make appropriate provision or cause appropriate provision to be made so that each holder of shares of Series G Convertible Preferred Stock then outstanding shall have the right thereafter to convert such shares of Series G Convertible Preferred Stock into the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale, transfer, or share exchange by a holder of the number of shares of Common Stock into which such shares of Series G Convertible Preferred Stock could have been converted immediately prior to the effective date of such consolidation, merger, sale, transfer, or share exchange. If, in connection with any such consolidation, merger, sale, transfer, or share exchange, each holder of shares of Common Stock is entitled to elect to receive either securities, cash, or other assets upon completion of such transaction, the Corporation shall provide or cause to be provided to each holder of Series G Convertible Preferred Stock the right to elect the securities, cash, or other assets into which the Series G Convertible Preferred Stock held by such holder shall be convertible after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election shall be made, and the effect of failing to exercise the election). The Corporation shall not effect any such transaction unless the provisions of this paragraph have been complied with. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers, or share exchanges. If a holder shall have given a notice of conversion of shares of Series G Convertible Preferred Stock, upon surrender of certificates representing shares of Series G Convertible Preferred Stock for conversion, the Corporation shall issue and deliver to such person certificates for the Common Stock issuable upon such conversion within three business days after such 22 surrender of certificates and the person converting shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and all rights with respect to the shares surrendered shall forthwith terminate except the right to receive the Common Stock or other securities, cash, or other assets as herein provided. No fractional shares of Common Stock shall be issued upon conversion of Series G Convertible Preferred Stock but, in lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of the aggregate number of such shares surrendered for conversion at one time by the same holder, the Corporation at its option (a) may pay in cash an amount equal to the product of (i) the arithmetic average of the Closing Price of a share of Common Stock on the three consecutive trading days before the Conversion Date and (ii) such fraction of a share or (b) may issue an additional share of Common Stock. The "Closing Price" for each day shall be the closing price regular way on such day as reported on the New York Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which Common Stock is listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, the closing bid price as reported on the Nasdaq National Market (or, if not so reported, the closing price), or, if not admitted for quotation on the Nasdaq National Market, the average of the high bid and low asked prices on such day as recorded by the National Association of Securities Dealers, Inc. through the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), or if the National Association of Securities Dealers, Inc. through NASDAQ shall not have reported any bid and asked prices for the Common Stock on such day, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation for such purposes, or, if no such bid and asked prices can be obtained from any such firm, the fair market value of one share of Common Stock on such day as determined in good faith by the Board of Directors. Such determination by the Board of Directors shall be conclusive. The Conversion Amount shall be adjusted from time to time under certain circumstances, subject to the provisions of the first three sentences of the first paragraph of this Section 9(c), as follows: (i) In case the Corporation shall issue rights or warrants on a pro rata basis to allholders of the Common Stock entitling such holders to subscribe for or purchase Common Stock on the record date referred to below at a price per share less than the average daily Closing Prices of the Common Stock on the 30 consecutive business days commencing 45 business days before the record date (the "CURRENT MARKET PRICE"), then in each such case the Conversion Amount in effect on such record date shall be adjusted in accordance with the formula C1 = C x O + N ------- O + N x P ------- M where 23 C1 = the adjusted Conversion Amount C = the current Conversion Amount O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock issuable pursuant to the exercise of such rights or warrants. P = the offering price per share of the additional shares (which amount shall include amounts received by the Corporation in respect of the issuance and the exercise of such rights or warrants). M = the Current Market Price per share of Common Stock on the record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. If any or all such rights or warrants are not so issued or expire or terminate before being exercised, the Conversion Amount then in effect shall be readjusted appropriately. (ii) In case the Corporation shall, by dividend or otherwise, distribute to all holders of its Junior Stock (as hereinafter defined) evidences of its indebtedness or assets (including securities, but excluding any warrants or subscription rights referred to in subparagraph (i) above and any dividend or distribution paid in cash out of the retained earnings of the Corporation), then in each such case the Conversion Amount then in effect shall be adjusted in accordance with the formula C1 = C x M --- M - F where C1 = the adjusted Conversion Amount C = the current Conversion Amount M = the Current Market Price per share of Common Stock on the record date mentioned below. F = the aggregate amount of such cash dividend and/or the fair market value on the record date of the assets or securities to be distributed divided by the number of shares of Common Stock outstanding on the record date. The Board of Directors shall determine such fair market value, which determination shall be conclusive. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution. For purposes of this subparagraph (ii), "JUNIOR STOCK" shall include any class of capital stock ranking junior as to dividends or upon liquidation to the Series G Convertible Preferred Stock. (iii) All calculations hereunder shall be made to the nearest cent or to the nearest 1/100 of a share, as the case may be. 24 (iv) If at any time as a result of an adjustment made pursuant to the fifth paragraph of this Section 9(c), the holder of any Series G Convertible Preferred Stock thereafter surrendered for conversion shall become entitled to receive securities, cash, or assets other than Common Stock, the number or amount of such securities or property so receivable upon conversion shall be subject to adjustment from time to time in a manner and on terms nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subparagraphs (i) to (iii) above. Except as otherwise provided above in this Section 9, no adjustment in the Conversion Amount shall be made in respect of any conversion for share distributions or dividends theretofore declared and paid or payable on the Common Stock. Whenever the Conversion Amount is adjusted as herein provided, the Corporation shall send to each transfer agent, if any, for the Series G Convertible Preferred Stock and the Common Stock, a statement signed by the Chairman of the Board, the President, or any Vice President of the Corporation and by its Treasurer or its Secretary or Assistant Secretary stating the adjusted Conversion Amount determined as provided in this Section 9, and any adjustment so evidenced, given in good faith, shall be binding upon all stockholders and upon the Corporation. Whenever the Conversion Amount is adjusted, the Corporation will give notice by mail to the holders of record of Series G Convertible Preferred Stock, which notice shall be made within 15 days after the effective date of such adjustment and shall state the adjustment and the Conversion Amount. Notwithstanding the foregoing notice provisions, failure by the Corporation to give such notice or a defect in such notice shall not affect the binding nature of such corporate action of the Corporation. Whenever the Corporation shall propose to take any of the actions specified in the fifth paragraph of this Section 9(c) or in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) which would result in any adjustment in the Conversion Amount under this Section 9(c), the Corporation shall cause a notice to be mailed at least 20 days prior to the date on which the books of the Corporation will close or on which a record will be taken for such action, to the holders of record of the outstanding Series G Convertible Preferred Stock on the date of such notice. Such notice shall specify the action proposed to be taken by the Corporation and the date as of which holders of record of the Common Stock shall participate in any such actions or be entitled to exchange their Common Stock for securities or other property, as the case may be. Failure by the Corporation to mail the notice or any defect in such notice shall not affect the validity of the transaction. Notwithstanding any other provision of this Section 9, no adjustment in the Conversion Amount need be made (a) for a transaction referred to in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if holders of Series G Convertible Preferred Stock are to participate in the transaction or distribution on a basis and with notice that the Board of Directors determines such transaction to be fair to the holders of the Series G Convertible Preferred Stock and appropriate in light of the basis on which holders of the Common Stock or, in the case of a transaction referred to in said subparagraph (ii), holders of Junior Stock participate in the 25 transaction; (b) for sales of Common Stock pursuant to a plan for reinvestment of dividends and interest, PROVIDED that the purchase price in any such sale is at least equal to the fair market value of the Common Stock at the time of such purchase, or pursuant to any plan adopted by the Corporation for the benefit of its employees, directors, or consultants; or (c) after such time as a holder of shares of Series G Convertible Preferred Stock becomes entitled to receive only cash upon conversion of such shares (in which case no interest shall accrue on the amount of such cash for any period prior to the date which is three business days after surrender of the certificates for such shares for conversion). (d) CONVERSION AT OPTION OF CORPORATION. So long as the Corporation shall be in compliance in all material respects with its obligations to the holders of the Series G Convertible Preferred Stock (including, without limitation, its obligations under the Registration Rights Agreement and the provisions of this Certificate of Designations) and so long as the Tranche 1 Registration Statement and the Tranche 2 Registration Statement shall be effective, the Corporation shall have the right, exercisable at any time or from time to time on or after the date which is one year after the later of (x) the Tranche 1 Registration Effective Date and (y) the Tranche 2 Registration Effective Date, by at least 15 business days but not more than 20 business days prior notice (a "CORPORATION CONVERSION NOTICE") to the holders of the Series G Convertible Preferred Stock, to require such holders to convert, in accordance with the provisions, and subject to the limitations, of this Section 9, all or any part of the outstanding shares of Series G Convertible Preferred Stock into shares of Common Stock to the extent the same are at such time convertible into shares of Common Stock. The Corporation Conversion Notice shall state (1) the number of shares of Series G Convertible Preferred Stock which the Corporation seeks to require to be converted into shares of Common Stock and the tranche of the shares to be converted and (2) the conversion date (which shall not be less than 15 business days or more than 20 business days after the date the Corporation Conversion Notice is given). If the Corporation shall give a Corporation Conversion Notice, then, unless theretofore converted by the holder or redeemed by the Corporation in accordance herewith, and, so long as the Tranche 1 Registration Statement and the Tranche 2 Registration Statement shall remain effective on such conversion date and the Corporation shall be in compliance in all material respects with its obligations under the Registration Rights Agreement on such conversion date, on the conversion date properly set forth therein, the lesser of (A) the number of shares of Series G Convertible Preferred Stock which the Corporation seeks to require to be converted, as set forth in such Corporation Conversion Notice or (B) the maximum number of shares of Series G Convertible Preferred Stock which on such conversion date is convertible in accordance with Sections 9(a) hereof, shall be converted into such number of shares of Common Stock as shall be determined pursuant to this Section 9 (but without regard to the Minimum Conversion Price) as if the conversion of such number of shares of Series G Convertible Preferred Stock were made by the holders thereof in accordance herewith without any further action on the part of the holders of such shares of Series G Convertible Preferred Stock. Upon receipt by the Corporation of certificates for shares of Series G Convertible Preferred Stock converted into shares of Common Stock in accordance with this Section 9(d) after a Corporation Conversion Notice is given, the Corporation shall issue and, within three trading days after such surrender, deliver to or upon the order of such holder (1) that number of shares of Common Stock for the number of shares of Series G Convertible Preferred Stock converted as shall be determined in accordance herewith, (2) a new certificate for the balance of shares of Series G Convertible 26 Preferred Stock, if any, and (3) payment of the accrued and unpaid dividends on the shares of Series G Convertible Preferred Stock so converted (which payment of dividends may be made in accordance with Section 4 if the Corporation satisfies the requirements thereof). SECTION 10. VOTING RIGHTS. Except as otherwise required by law or expressly provided herein, shares of Series G Convertible Preferred Stock shall not be entitled to vote on any matter. The affirmative vote or consent of the holders of a majority of the outstanding shares of the Series G Convertible Preferred Stock, voting separately as a class, will be required for (1) any amendment, alteration, or repeal, whether by merger or consolidation or otherwise, of the Corporation's Certificate of Incorporation if the amendment, alteration, or repeal materially and adversely affects the powers, preferences, or special rights of the Series G Convertible Preferred Stock, or (2) the creation and issuance of any Senior Dividend Stock or Senior Liquidation Stock; PROVIDED, HOWEVER, that any increase in the authorized preferred stock of the Corporation or the creation and issuance of any stock which is both Junior Dividend Stock and Junior Liquidation Stock or any other capital stock of the Corporation ranking on a parity with the Series G Convertible Preferred Stock shall not be deemed to affect materially and adversely such powers, preferences, or special rights. SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate of Designations, all shares of Series G Convertible Preferred Stock shall be deemed outstanding except (i) from the date of surrender of certificates representing shares of Series G Convertible Preferred Stock for conversion into Common Stock, all shares of Series G Convertible Preferred Stock converted into Common Stock; (ii) from the date of registration of transfer, all shares of Series G Convertible Preferred Stock held of record by the Corporation or any subsidiary or Affiliate (as defined herein) of the Corporation and (iii) from the Redemption Date, all shares of Series G Convertible Preferred Stock which are redeemed, so long as in each case the Redemption Price of such shares of Series G Convertible Preferred Stock shall have been paid by the Corporation as and when required hereby. For the purposes of this Certificate of Designations, "AFFILIATE" means any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Corporation. "CONTROL" is the power to direct the management and policies of a person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise. C. SERIES H CONVERTIBLE PREFERRED STOCK SECTION 1. DESIGNATION AND AMOUNT. The designation of this series, which consists of 20,000 shares of Preferred Stock, is the Series H Convertible Preferred Stock (the "SERIES H PREFERRED STOCK") and the face amount shall be One Thousand U.S. Dollars ($1,000.00) per share (the "FACE AMOUNT"). SECTION 2. NO DIVIDENDS. The Series H Preferred Stock will bear no dividends, and the holders of the Series H Preferred Stock shall not be entitled to receive dividends on the Series H Preferred Stock. 27 SECTON 3. CERTAIN DEFINITIONS. For purposes of this Certificate of Designations, the following terms shall have the following meanings: A. "CLOSING BID PRICE" means, for any security as of any date, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series H Preferred Stock if Bloomberg Financial Markets is not then reporting closing bid prices of such security (collectively, "BLOOMBERG"), or if the foregoing does not apply, the last reported sale price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series H Preferred Stock, with the costs of such appraisal to be borne by the Corporation. B. "CLOSING DATE" means the Closing Date under that certain Securities Purchase Agreement dated March 27, 1997 by and among the Corporation and the initial purchasers of the Series H Preferred Stock (the "SECURITIES PURCHASE AGREEMENT"). C. "CONVERSION DATE" means, for any Optional Conversion, the date specified in the notice of conversion in the form attached hereto (the "NOTICE OF CONVERSION"), so long as the copy of the Notice of Conversion is taxed (or delivered by other means resulting in notice) to the Corporation before Midnight, New York City time, on the Conversion Date indicated in the Notice of Conversion. If the Notice of Conversion is not so delivered before such time, then the Conversion Date shall be the date the holder delivers the Notice of Conversion to the Corporation. The Conversion Date for the Required Conversion at Maturity shall be the Maturity Date (as such terms are defined in Paragraph D of Section 4). D. "CONVERSION PERCENTAGE" shall have the following meaning and shall be subject to adjustment as provided herein: IF THE CONVERSION DATE IS: THEN THE CONVERSION PERCENTAGE IS: On or prior to the 179th day after the Closing Date 100% On or after the 180th and on or prior to the 269th day after the Closing Date 90% On or after the 270th day after the Closing Date 85%
28 E. "CONVERSION PRICE" means, (i) with respect to any Conversion Date occurring prior to the 210th day after the Closing Date, the Variable Conversion Price and (ii) with respect to any Conversion Date occurring on or after the 210th day after the Closing Date, the lower of the Conversion Price Ceiling and the Variable Conversion Price, each in effect as of such date and subject to adjustment as provided herein. F. "CONVERSION PRICE CEILING" means the average of the Closing Bid Prices for the Common Stock for the twenty (20) consecutive trading days ending on the trading day immediately preceding the 210th day after the Closing Date (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such twenty (20) trading day period), and shall be subject to adjustment as provided herein. G. "CONVERSION PRICE FLOOR" means (i) on or prior to that date which is two hundred ten (210) days after the Closing Date, $6.00, and (ii) after that date which is two hundred ten (210) days after the Closing Date, the lower of (a) $6.00 and (b) the product of (.65) and the Conversion Price Ceiling, and shall be subject to adjustment as provided herein. H. "N" means the sum of (a) the number of days from, but excluding, the date of issuance of such share of Series H Preferred Stock, through and including the earlier of (i) the Conversion Date for such share of Series H Preferred Stock and (ii) such date (if any) that the average of the Closing Bid Prices for the Common Stock for ten (10) consecutive trading days is greater than one hundred and seventy five percent (175%) of the initial Conversion Price Ceiling determined under Paragraph F of this Section 3 (subject to equitable adjustment for any of the events described in Section 11.A) plus (b) the number of days not included in clause (a) of this Paragraph H (if any) during the period beginning on, but excluding, the date such share of Series H Preferred Stock was required to be (but was not) redeemed by the Corporation pursuant to Section 8.B and the subsequent Conversion Date for such share of Series H Preferred Stock. I. "PREMIUM" means an amount equal to: (i) (.06)x(N/365)x(1,000) for the period beginning on the Closing Date and ending on that date which is 179 days after the Closing Date, (ii) (.07)x(N/365)x(1,000) for the period beginning on the 180th day after the Closing Date and ending on that date which is 269 days after the Closing Date, and (iii) (.08)x(N/365)x(1,000) for the period beginning on the 270th day after the Closing Date and thereafter. J. "VARIABLE CONVERSION PRICE" means, as of any date of determination, the amount obtained by multiplying the Conversion Percentage then in effect by the average of the Closing Bid Prices for the Common Stock for ten (10) consecutive trading days ending on the trading day immediately preceding such date of determination (subject to equitable adjustments for any stock splits, stock dividends, reclassifications or similar events during such ten (10) trading day period), and shall be subject to adjustment as provided herein. 29 SECTION 4. CONVERSION. A. CONVERSION AT THE OPTION OF THE HOLDER. Subject to the limitations on conversions contained in Paragraph C of this Section 4, each holder of shares of Series H Preferred Stock may, at any time and from time to time, convert (an "OPTIONAL CONVERSION") each of its shares of Series H Preferred Stock into a number of fully paid and nonassessable shares of Common Stock determined in accordance with the following formula: 1,000 + THE PREMIUM --------------------- Conversion Price B. MECHANICS OF CONVERSION. In order to convert Series H Preferred Stock into shares of Common Stock, a holder shall: (x) deliver (by facsimile or otherwise) a copy of the fully executed Notice of Conversion to the Corporation and (y) surrender or cause to be surrendered the original certificates representing the Series H Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation. At the request of a holder and upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a holder, the Corporation shall immediately send, via facsimile, a confirmation to such holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock issuable upon such conversion unless either the Preferred Stock Certificates are delivered to the Corporation as provided above, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed (subject to the requirements of Section 14.B). (i) DELIVERY OF COMMON STOCK UPON CONVERSION. The Corporation shall, within one business day after the later of (a) the second business day following the Conversion Date in the case of DWAC deliveries and the third business day following the Conversion date in all other cases and (b) the date of such surrender (or, in the case of lost, stolen or destroyed certificates, the date on which indemnity pursuant to Section 14.B is provided) (the "DELIVERY PERIOD"), and provided the holder has surrendered Preferred Stock Certificates, issue and deliver to or upon the order of the holder (x) that number of shares of Common Stock issuable upon conversion of such shares of Series H Preferred Stock being converted and (y) a certificate representing the number of shares of Series H Preferred Stock not being converted, if any. (ii) TAXES. The Corporation shall pay any and all taxes which may be imposed upon it with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Series H Preferred Stock. (iii) NO FRACTIONAL SHARES. If any conversion of Series H Preferred Stock would result in the issuance of either a fractional share of Common Stock, such fractional 30 share shall be disregarded and the number of shares of Common Stock issuable upon conversion of the Series H Preferred Stock shall be the closest whole number of shares. (iv) STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion by a holder of Series H Preferred Stock, the shares covered thereby shall be deemed converted into shares of Common Stock as of the Conversion Date and the holder's rights as a holder of such converted shares of Series H Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such holder because of a failure by the Corporation to comply with the terms of this Certificate of Designations (including its right to regain its status as a Series H Preferred Stockholder pursuant to Section 6.E). (v) CONVERSION DISPUTES. In the case of any dispute with respect to a conversion, the Corporation shall promptly issue such number of shares of Common Stock as are not disputed in accordance with subparagraph (i) above. If such dispute involves the calculation of the Conversion Price, the Corporation shall submit the disputed calculations to its outside accountant via facsimile within two (2) business days of receipt of the Notice of Conversion. The accountant shall audit the calculations and notify the Corporation and the holder of the results no later than two (2) business days from the date it receives the disputed calculations. The accountant's calculation shall be deemed conclusive, absent manifest error. The Corporation shall then issue the appropriate number of shares of Common Stock in accordance with subparagraph (i) above. C. LIMITATIONS ON CONVERSIONS. (i) Except in a Required Conversion at Maturity, in no event shall a holder of shares of Series H Preferred Stock be entitled to receive shares of Common Stock to the extent that the sum of (a) the number of shares of Common Stock beneficially owned by the holder and its affiliates (exclusive of shares issuable upon conversion of the unconverted portion of the shares of Series H Preferred Stock or the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (b) the number of shares of Common Stock issuable upon the conversion of the shares of Series H Preferred Stock with respect to which the determination of this subparagraph is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposes of this subparagraph, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided in clause (i) above. The Corporation shall be entitled to rely, and shall be fully protected in relying, on any statement or representation made by a holder of Series H Preferred Stock to the Corporation in connection with a particular conversion without any obligation on the part of the Corporation to make any inquiry or investigation or to examine its records or the records of any transfer agent for the Common Stock. The restriction contained in this Paragraph C shall not be altered, amended, deleted or changed in any manner whatsoever unless the holders of a majority of the Common Stock and each holder of Series H Preferred Stock shall approve such alteration, amendment, deletion or change. 31 (ii) Except as otherwise provided in Section 13, during any thirty (30) day period beginning on the Closing Date and ending on the earlier of (a) that date which is two hundred and nine (209) days after the Closing Date and (b) that date (if any) that the Corporation delivers an Optional Redemption Notice (as defined below) to the holders of Series H Preferred Stock pursuant to Section 8.B, no holder of Series H Preferred Stock may convert in excess of thirty-three percent (33%) of the shares of Series H Preferred Stock initially purchased by such Holder; provided, however, if such holder has already converted sixty-six percent (66%) of the shares of Series H Preferred Stock so purchased, such holder may convert the remaining thirty-four percent (34%) of the shares so purchased in the next succeeding thirty day period or thereafter. D. REQUIRED CONVERSION AT MATURITY. Provided all shares of Common Stock issuable upon conversion of all outstanding shares of Series H Preferred Stock are then (i) authorized and reserved for issuance, (ii) registered under the Securities Act of 1933, as amended (the "SECURITIES ACT") for resale by the holders of such shares of Series H Preferred Stock and (iii) eligible to be traded on either the NASDAQ, the New York Stock Exchange or the American Stock Exchange, each share of Series H Preferred Stock issued and outstanding on March 27, 2002 (the "MATURITY DATE") (and any accrued and unpaid Conversion Default Payments), automatically shall be converted into shares of Common Stock on such date in accordance with the conversion formulas set forth in Paragraph A of this Section 4 (the "REQUIRED CONVERSION AT MATURITY"). If a Required Conversion at Maturity occurs, the Corporation and the holders of Series H Preferred Stock shall follow the applicable conversion procedures set forth in Paragraph B of this Section 4; PROVIDED, HOWEVER, that the holders of Series H Preferred Stock are not required to deliver a Notice of Conversion to the Corporation. SECTION 5 RESERVATION OF SHARES OF COMMON STOCK. A. RESERVED AMOUNT. Upon adoption of this Certificate of Designations by the Corporation's Board of Directors, the Corporation shall have reserved 4,500,000 authorized but unissued shares of Common Stock for issuance upon conversion of the Series H Preferred Stock and thereafter the number of authorized but unissued shares of Common Stock so reserved (the "RESERVED AMOUNT") shall at all times be sufficient to provide for the conversion of the Series H Preferred Stock outstanding at the then current Conversion Price. The Reserved Amount shall be allocated to the holders of Series H Preferred Stock as provided in Section 14.D. B. INCREASES TO RESERVED AMOUNT. If the Reserved Amount for any three (3) consecutive trading days (the last of such three (3) trading days being the "AUTHORIZATION TRIGGER DATE") shall (i) during the period beginning on the Closing Date and ending on that date which is one hundred fifty (150) days after the Closing Date be less than 100% of the number of shares of Common Stock issuable upon conversion of the Series H Preferred Stock on such trading days, or (ii) on or after that date which is one hundred fifty one (151) days after the Closing Date, be less than 135% of the number of shares of Common Stock issuable upon conversion of the Series H Preferred Stock on such trading days, the Corporation shall immediately notify the holders of Series H Preferred Stock of such occurrence and shall take immediate action (including seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to 32 increase the Reserved Amount to 150% of the number of shares of Common Stock into which the Series H Preferred Stock are then convertible. In the event the Corporation fails to so increase the Reserved Amount within ninety (90) days after an Authorization Trigger Date, each holder of Series H Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Section 8.D) to the Corporation, to require the Corporation to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Section 8.C), a portion of the holder's Series H Preferred Stock such that, after giving effect to such purchase, the holder's allocated portion of the Reserved Amount exceeds 135% of the total number of shares of Common Stock issuable to such holder upon conversion of its Series H Preferred Stock. If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of a Redemption Notice, then such holder shall be entitled to the remedies provided in Section 8.D. SECTION 6. FAILURE TO SATISFY CONVERSIONS. A. CONVERSION DEFAULT PAYMENTS. If, at any time, (x) a holder of shares of Series H Preferred Stock submits a Notice of Conversion and the Corporation fails for any reason (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount, for which failure the holders shall have the remedies set forth in Section 5) to deliver, on or prior to the fourth business day following the expiration of the Delivery Period for such conversion, the shares of Common Stock to which such holder is entitled upon such conversion, or (y) the Corporation provides notice to any holder of Series H Preferred Stock at any time of its intention not to issue shares of Common Stock upon exercise by any holder of its conversion rights in accordance with the terms of this Certificate of Designations other than because such issuance would exceed such holder's allocated portion of the Reserved Amount (each of (x) and (y) being a "CONVERSION DEFAULT"), then the Corporation shall pay to the affected holder, in the case of a Conversion Default described in clause (x) above, and to all holders, in the case of a Conversion Default described in clause (y) above, payments for the first ten (10) business days following the expiration of the Delivery Period, in the case of a Conversion Default described in clause (x), and for the first ten (10) business days of any other Conversion Default ' an amount equal to $1,000 per day. In the event any Conversion Default continues beyond such ten (10) business day period, the Corporation shall pay to the holder an additional amount equal to: (.24) x (D/365) x (the Default Amount) where: "D" means the number of days after the expiration of the ten (10) business day period described above through and including the Default Cure Date; "DEFAULT AMOUNT" means (i) the total Face Amount of all shares of Series H Preferred Stock held by such holder plus (ii) the total Premium as of the first day of the Conversion Default on all shares of Series H Preferred Stock included in clause (i) of this definition; and 33 "DEFAULT CURE DATE" means (i) with respect to a Conversion Default described in clause (x) of its definition, the date the Corporation effects the conversion of the full number of shares of Series H Preferred Stock and (ii) with respect to a Conversion Default described in clause (y) of its definition, the date the Corporation begins to honor all conversions of Series H Preferred Stock in accordance with Section 4.A. The payments to which a holder shall be entitled pursuant to this Paragraph A are referred to herein as "CONVERSION DEFAULT PAYMENTS." A holder may elect to receive accrued Conversion Default Payments in cash or to convert all or any portion of such accrued Conversion Default Payments, at any time, into Common Stock at the Conversion Price in effect at the time of such conversion. In the event a holder elects to receive any Conversion Default Payments in cash, it shall so notify the Corporation in writing. Such payment shall be made in accordance with and be subject to the provisions of Section 14.F. In the event a holder elects to convert all or any portion of the Conversion Default Payments, the holder shall indicate on a Notice of Conversion such portion of the Conversion Default Payments which such holder elects to so convert and such conversion shall otherwise be effected in accordance with the provisions of Section 4. B. ADJUSTMENT TO CONVERSION PRICE. If a holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of Series H Preferred Stock for any reason (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount, for which failure the holders shall have the remedies set forth in Section 5), then the Conversion Price in respect of any shares of Series H Preferred Stock held by such holder shall thereafter be the lesser of (i) the Conversion Price on the Conversion Date specified in the Notice of Conversion which resulted in the Conversion Default and (ii) the lowest Conversion Price in effect during the period beginning on, and including, such Conversion Date through and including the day such shares of Common Stock are delivered to the holder and (iii) the Conversion Price (calculated in accordance with Section 3.E) on the Conversion Date specified in the Notice of Conversion for such share of Series H Preferred Stock. If there shall occur a Conversion Default of the type described in clause (y) of Section 6.A, then the Conversion Price with respect to any conversion thereafter shall be the lower of (x) the lowest Conversion Price in effect at any time during the period beginning on, and following, the date of the occurrence of such Conversion Default through and including the Default Cure Date and (y) the Conversion Price (calculated in accordance with Section 3.E) on the Conversion Date specified in the Notice of Conversion for such share of Series H Preferred Stock., The Conversion Price shall thereafter be subject to further adjustment for any events described in Section 11. C. BUY-IN CURE. If (i) the Corporation fails for any reason to deliver during the Delivery Period shares of Common Stock to a holder upon a conversion of shares of Series H Preferred Stock having a Conversion Date on or prior to a date upon which the Corporation has notified the applicable holder in writing that the Corporation is unable to honor conversions and (ii) after the applicable Delivery Period with respect to such conversion, such holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such holder of the shares of Common Stock which such holder anticipated receiving 34 upon such conversion (a "BUY-IN"), the Corporation shall pay such holder (in addition to any other remedies available to the holder) the amount by which (x) such holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the total Face Amount (plus the accrued Premium thereon) of the portion of the Series H Preferred Stock resulting in the Buy-In. For example, if a holder purchases shares of Common Stock having a total purchase price of $1 1,000 to cover a Buy-In with respect to an attempted conversion of Series H Preferred Stock having a total Face Amount and accrued Premium of $10,000, the Corporation will be required to pay the holder $1,000. A holder shall provide the Corporation written notification indicating any amounts payable to such holder pursuant to this Paragraph C. The Corporation shall make any payments required pursuant to this Paragraph C in accordance with and subject to the provisions of Section 14.F. D. REDEMPTION RIGHT. If the Corporation fails, and such failure continues uncured for five (5) business days after the Corporation has been notified thereof in writing by the holder, for any reason (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount, for which failure the holders shall have the remedies set forth in Section 5) to issue shares of Common Stock within ten (10) business days after the expiration of the Delivery Period with respect to any conversion of Series H Preferred Stock, then the holder may elect at any time and from time to time prior to the Default Cure Date for such Conversion Default, by delivery of a Redemption Notice (as defined in Section 8.D) to the Corporation, to have all or any portion of such holder's outstanding shares of Series H Preferred Stock purchased by the Corporation for cash, at an amount per share equal to the Redemption Amount (as defined in Section 8.C). If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of a Redemption Notice, then such holder shall be entitled to the remedies provided in Section 8.D. E. RETENTION OF RIGHTS AS SERIES H PREFERRED STOCKHOLDER. If a holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of Series H Preferred Stock for any reason, then the Corporation shall, as soon as practicable, return such unconverted shares of Series H Preferred Stock to the holder and (unless the holder otherwise elects to retain its status as a holder of Common Stock) the holder shall regain the rights of a holder of Series H Preferred Stock with respect to such shares. In all cases, the holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Paragraph A above to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Paragraph B above) for the Corporation's failure to convert Series H Preferred Stock. SECTION 7. INTENTIONALLY OMITTED. SECTION 8. REDEMPTION DUE TO CERTAIN EVENTS. 35 A. REDEMPTION BY HOLDER. In the event (each of the events described in clauses (i)-(v) below after expiration of the applicable cure period (if any) being a "REDEMPTION EVENT"): (i) the Common Stock (including all of the shares of Common Stock issuable upon conversion of the Series H Preferred Stock) is suspended from trading on any of, or is not listed or designated for quotation (and authorized) for trading on at least one of, the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market or the NASDAQ Small Cap Market ("NASDAQ") for an aggregate of ten (10) trading days in any nine (9) month period, (ii) the Registration Statement required to be filed by the Corporation pursuant to Section 2(a) of the Registration Rights Agreement, dated as of March 27, 1997, by and among the Corporation and the other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), has not been declared effective by the 180th day following the Closing Date or such Registration Statement, after being declared effective, cannot be utilized by the holders of Series H Preferred Stock for the resale of all of their Registrable Securities (as defined in the Registration Rights Agreement) for an aggregate of more than thirty (30) days in any consecutive twelve month period, (iii) the Corporation fails, and any such failure continues uncured for five (5) business days after the Corporation has been notified thereof in writing by the holder, to remove any restrictive legend on any certificate or any shares of Common Stock issued to the holders of Series H Preferred Stock upon conversion of the Series H Preferred Stock as and when required by this Certificate of Designations, the Securities Purchase Agreement or the Registration Rights Agreement, (iv) the Corporation provides notice to any holder of Series H Preferred Stock, including by way of public announcement, at any time, of its intention not to issue shares of Common Stock to any holder of Series H Preferred Stock upon conversion in accordance with the terms of this Certificate of Designations (other than due to the circumstances contemplated by Section 5, for which the holders shall have the remedies set forth in such Section), or (v) the Corporation shall: (a) sell, convey or dispose of all or substantially all of its assets; (b) merge, consolidate or engage in any other business combination with any other entity (other than a merger, consolidation or business combination in which the holders of the Corporation's voting securities immediately preceding such merger, consolidation or business combination own, on a pro rata basis, at least 50% of the surviving entity's voting securities); or 36 (c) have fifty percent (50%) or more of the voting power of its capital stock owned beneficially by one person, entity or "group" (as such term is used under Section 13(d) of the Securities Exchange Act of 1934, as amended), then, upon the occurrence of any such Redemption Event, each holder of shares of Series H Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Paragraph D below) to the Corporation while such Redemption Event continues, to require the Corporation to purchase for cash any or all of the then outstanding shares of Series H Preferred Stock held by such holder for an amount per share equal to the Redemption Amount (as defined in Paragraph C below) in effect at the time of the redemption hereunder. For the avoidance of doubt, the occurrence of any event described in clauses (i), (ii), (iv) or (v) above shall immediately constitute a Redemption Event and there shall be no cure period. B. REDEMPTION BV CORPORATION. (i) If at any time after that date which is two (2) years after the Closing Date, the average of the Closing Bid Prices for the Common Stock for ten (10) consecutive trading days is greater than the Conversion Price Ceiling multiplied by 1.5 (subject to equitable adjustments for stock splits, stock dividends, reclassifications or similar events during such ten (10) trading day period), then the Corporation shall have the right to redeem up to fifty percent (50%) of the Series H Preferred Stock for a price per share equal to the Optional Redemption Amount (as defined below). If at any time after the Closing Date the average of the Closing Bid Prices for the Common Stock for ten (10) consecutive trading days is greater than the Conversion Price Ceiling multiplied by 2.0 (subject to equitable adjustments for stock splits, stock dividends, reclassifications or similar events during such ten (10) trading day period) then the Corporation shall have the right to redeem (such right, collectively with the Corporation's redemption rights pursuant to the immediately preceding sentence, shall be referred to as "REDEMPTION AT CORPORATION'S ELECTION") any or all of the Series H Preferred Stock for an amount equal to the Optional redemption Amount. A Redemption at Corporation's Election shall be exercisable by the Corporation in its sole discretion by delivery of an Optional Redemption Notice (as defined below). Holders of Series H Preferred Stock may convert all or any part of their shares of Series H Preferred Stock into Common Stock by delivering a Notice of Conversion to the Corporation at any time prior to that date which is ten (IO) days after receipt of an Optional Redemption Notice. The "OPTIONAL REDEMPTION Amount" with respect to each share of Preferred Stock means (a) for redemptions pursuant to the first sentence of this subparagraph (i), an amount equal to: (1,000 + P) X 1.5 ------------------ CCP and (b) for redemptions pursuant to the second sentence of this subparagraph (1), an amount equal to: (1,000 + P) X 2.0 ------------------ CCP 37 where: "P" means the accrued Premium on such share of Series H Preferred Stock through the date of redemption; and "CCP" means the Conversion Price Ceiling on the date of the redemption. (ii) The Corporation shall effect each redemption under this Section 8.B by giving at least ten (10) trading days but not more than twenty (20) trading days (subject to extension as set forth below) prior written notice (the "OPTIONAL REDEMPTION NOTICE") of the date which such redemption is to become effective (the "EFFECTIVE DATE OF REDEMPTION") and the Optional Redemption Amount to (a) the holders of Series H Preferred Stock selected for redemption at the address and facsimile number of such holder appearing in the Corporation's register for the Series H Preferred Stock and (b) the transfer agent for the Common Stock, which Optional Redemption Notice shall be deemed to have been delivered on the business day after the Corporation's fax (with a copy sent by overnight courier) of such notice to the holders of Series H Preferred Stock. (iii) The Optional Redemption Amount shall be paid to the holder of the Series H Preferred Stock being redeemed within three (3) business days of the Effective Date of Redemption; PROVIDED, HOWEVER, that the Corporation shall not be obligated to deliver any portion of the Optional Redemption Amount until either the certificates evidencing the Series H Preferred Stock being redeemed are delivered to the office of the Corporation, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed and delivers the documentation in accordance with Section 14.B hereof. Notwithstanding anything herein to the contrary, in the event that the certificates evidencing the Series H Preferred Stock redeemed are not delivered to the Corporation prior to the 3rd business day following the Effective Date of Redemption, the redemption of the Series H Preferred Stock pursuant to this Section 8.B shall still be deemed effective as of the Effective Date of Redemption and the Optional Redemption Price shall be paid to the holder of Series H Preferred Stock redeemed within five (5) business days of the date the certificates evidencing the Series H Preferred Stock redeemed are actually delivered to the Corporation. (iv) Notwithstanding the provisions of Section 4 hereof, if the Conversion Price on the date a holder delivers a Conversion Notice is less than or equal to the Conversion Price Floor then in effect, the Corporation may, at its option, elect to redeem the shares of Series H Preferred Stock which are the subject of such Conversion Notice at a price per share equal to the Floor Redemption Amount (as defined below) in lieu of converting such shares to Common Stock. Each holder of Series H Preferred Stock shall have the right, by sending a written request to the Corporation, to require the Corporation to provide advance written notice to such holder stating whether the Corporation will elect to exercise its redemption rights pursuant to this paragraph (iv). The Corporation shall have five (5) business days from receipt of such request to reply in writing to such holder. In the event Corporation either fails to so reply or replies that it will not elect to exercise such redemption rights, the Corporation shall forfeit its 38 rights to redeem shares of Series H Preferred Stock pursuant to this paragraph (iv) during the thirty (30) day period immediately following the expiration of the Corporation's reply period or receipt of such election not to redeem, as the case may be. In the event the Corporation notifies a holder of its intention to redeem shares of Series H Preferred Stock pursuant to this paragraph (v) and such holder delivers a Conversion Notice at any time during which the Corporation has redemption rights pursuant to this paragraph (iv) and the Corporation, prior to the date of such Conversion Notice, has not provided such holder with written notice that it no longer intends to exercise its redemption rights pursuant to this paragraph (iv), the Corporation shall, no later than thirty (30) days from the date of such Conversion Notice, pay to such holder the Floor Redemption Amount for each share of series H Preferred which is covered by such Conversion Notice. The Floor Redemption Amount per share means an amount equal to: (1000+P) x (RAP) where: "P" means the accrued Premium on such share of Series H Preferred Stock through the date of redemption. "RAP" means: If the Redemption occurs: RAP On or prior to the 209th day after the Closing Date 110% On or after the 210th and on or prior to the 299th day after the Closing Date 112% On or after the 300th and on or prior to the 394th day after the Closing Date 115% On or after the 395th day after the Closing Date 120% (v) If the Corporation fails to pay, when due and owing, any Optional Redemption Amount or Floor Redemption Amount, then the holder of Series H Preferred Stock entitled to receive such Optional Redemption Amount or Floor Redemption Amount, as the case may be, shall have the right, at any time and from time to time, to require the Corporation, upon written notice, to immediately convert (in accordance with the terms of paragraph A of Section 4) any or all of the shares of Series H Preferred Stock which are the subject of such redemption, into shares of Common Stock at the lowest Conversion Price in effect during the period beginning on the date the Corporation elected to redeem such shares of Series H Preferred Stock and ending on the earlier of the date the Corporation effects such redemption and the twentieth trading day following either the Conversion Date which gave rise to the right 39 of redemption (in the case of a redemption pursuant to subparagraph (iv) of this Paragraph B) or the Effective Date of Redemption (in the case of a Redemption at Corporation's Election), as the case may be. In addition, if the Corporation fails to pay a Floor Redemption Amount, when due and owing, the Corporation shall thereafter forfeit its rights this Paragraph B to effect any redemption with respect to any or all issued and outstanding shares of Series H Preferred Stock, and in the case of a failure to pay all or any portion of an Optional Redemption Amount, shall pay the holder entitled to such Optional Redemption Amount an amount equal to: ORA ----- x (ORF-LCBP) OCP where: "ORA" means the amount of the Optional Redemption Amount which the Corporation failed to so pay; "OCP" means the Conversion Price in effect on the Effective Date of Redemption; "ORF" means (i) with respect to any redemption pursuant to the first sentence of Section 8.B (I), the product obtained by multiplying 1.5 by the Conversion Price Ceiling and (ii) with respect to any redemption pursuant to the second sentence of Section 8.B(ii), the product obtained by multiplying 2.0 by the Conversion Price Ceiling; and "LCBP" means the lowest Closing Big Price of the Corporation's Common Stock during the Twenty (20) trading day period beginning on the Effective Date of redemption. C. DEFINITION OF REDEMPTION AMOUNT. The "REDEMPTION AMOUNT" with respect to a share of Series H Preferred Stock means an amount equal to: 1,000 + P ----------- x M CP where: "P" means the accrued Premium on such share of Series H Preferred Stock through the date of redemption; "CP" means the Conversion Price in effect on the date of the Redemption Notice; and 40 "M" means the highest Closing Bid Price of the Corporation's Common Stock during the period beginning on the date of the Redemption Notice and ending on the date of the redemption. D. REDEMPTION DEFAULTS. If the Corporation fails to pay any holder the Redemption Amount with respect to any share of Series H Preferred Stock within five (5) business days of its receipt of a notice requiring such redemption (a "REDEMPTION NOTICE"), then the holder of Series H Preferred Stock delivering such Redemption Notice (i) shall be entitled to interest on the Redemption Amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest rate permitted by applicable law from the date of the Redemption Notice until the date of redemption hereunder, and (ii) shall have the right, at any time and from time to time, to require the Corporation, upon written notice, to immediately convert (in accordance with the terms of Paragraph A of Section 4) all or any portion of the Redemption Amount, plus interest as aforesaid, into shares of Common Stock at the lowest Conversion Price in effect during the period beginning on the date of the Redemption Notice and ending on the Conversion Date with respect to the conversion of such Redemption Amount. In the event the Corporation is not able to redeem all of the shares of Series H Preferred Stock subject to Redemption Notices, the Corporation shall redeem shares of Series H Preferred Stock from each holder pro rata, based on the total number of shares of Series H Preferred Stock included by such holder in the Redemption Notice relative to the total number of shares of Series H Preferred Stock in all of the Redemption Notices. SECTION 9. RANK. All shares of the Series H Preferred Stock shall rank (i) prior to the Corporation's common stock, par value $.01 per share (the "COMMON STOCK"); (ii) PARI PASSU with any class or series of capital stock of the Corporation now outstanding or hereafter created other than the Common Stock or classes or series of capital stock of the Corporation specifically ranking, by their terms, junior to the Series H Preferred Stock (the "PARI PASSU SECURITIES"); and (iii) junior to any class or series of capital stock of the Corporation hereafter created (with the consent of the holders of Series H Preferred Stock obtained in accordance with Section 13 hereof) specifically ranking, by its terms, senior to the Series H Preferred Stock (the "SENIOR SECURITIES"), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. SECTION 10. LIQUIDATION PREFERENCE. A. If the Corporation shall commence a voluntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation 41 or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of sixty (60) consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (a "LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities) upon liquidation, dissolution or winding up unless prior thereto the holders of shares of Series H Preferred Stock shall have received the Liquidation Preference with respect to each share. If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series H Preferred Stock and holders of PARI PASSU Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series H Preferred Stock and the PARI PASSU Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. After payment in full of the Liquidation Preference of the shares of the Series H Preferred Stock and the PARI PASSU Securities, the holders of such shares shall not be entitled to any further participation in any distribution of assets by the Corporation. B. The purchase or redemption by the Corporation of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Corporation. Neither the consolidation or merger of the Corporation with or into any other entity nor the sale or transfer by the Corporation of less than substantially all of its assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Corporation. C. The "LIQUIDATION PREFERENCE" with respect to a share of Series H Preferred Stock means an amount equal to the Face Amount thereof plus the Premium thereon through the date of final distribution. The Liquidation Preference with respect to any PARI PASSU Securities shall be as set forth in the Certificate of Designations filed in respect thereof. SECTION 11. ADJUSTMENTS TO THE CONVERSION PRICE. The Conversion Price shall be subject to adjustment from time to time as follows: A. STOCK SPLITS, STOCK DIVIDENDS, Etc. If at any time on or after a determination of the Conversion Price Ceiling or Conversion Price Floor, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, combination, reclassification or other similar event, the Conversion Price Ceiling and Conversion Price Floor shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or other similar event at anytime on or after the determination of the Conversion Price Ceiling or Conversion Price Floor, the Conversion Price Ceiling and Conversion Price Floor shall be proportionately increased. In such event, the Corporation shall notify the transfer agent for the Common Stock of such change on or before the effective date thereof. 42 B. ADJUSTMENT DUE TO MAJOR ANNOUNCEMENT. In the event the Corporation (i) makes a public announcement that it intends to consolidate or merge with any other entity (other than a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged) or to sell or transfer all or substantially all of the assets of the Corporation or (ii) any person, group or entity (including the Corporation) publicly announces a tender offer to purchase 50% or more of the Corporation's Common Stock (the date of the announcement referred to in clause (i) or (ii) of this Paragraph B is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Abandonment Date (as defined below), be equal to the Conversion Price which would have been applicable for an Optional Conversion occurring on the Announcement Date. From and after the Abandonment Date, the Conversion Price shall be determined as set forth in Section 3.F "ABANDONMENT DATE" means with respect to any proposed transaction or tender offer for which a public announcement as contemplated by this Paragraph B has been made, the date upon which the Corporation (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) publicly announces the termination or abandonment of the proposed transaction or tender offer which caused this Paragraph B to become operative. C. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when any Series H Preferred Stock is issued and outstanding, there shall be (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the Corporation with any other entity (other than a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or substantially all of the assets of the Corporation or (iv) any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property, then the holders of Series H Preferred Stock shall thereafter have the right to receive upon conversion, in lieu of the shares of Common Stock immediately theretofore issuable (without giving effect to any limitations upon conversion imposed by Section 4.C), such shares of stock, securities and/or other property as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore issuable upon conversion (without giving effect to any limitations upon conversion imposed by Section 4.C) had such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event not taken place, and in any such case, appropriate provisions shall be made with respect to the rights and interests of the holders of the Series H Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon conversion of the Series H Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the conversion thereof. The Corporation shall not effect any transaction described in this Paragraph C unless (i) each holder of Series H Preferred Stock has received written notice of such transaction at least thirty (30) days prior thereto, but in no event later than ten (10) days prior to the record date for the determination of shareholders entitled to vote with respect thereto, and (ii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligations of this Paragraph C. The above provisions shall apply regardless of whether or not there would have been a sufficient number of shares of Common Stock authorized 43 and available for issuance upon conversion of the shares of Series H Preferred Stock outstanding as of the date of such transaction, and shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. D. ADJUSTMENT DUE TO DISTRIBUTION. If the Corporation shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Corporation's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a "DISTRIBUTION"), then the holders of Series H Preferred Stock shall be entitled, upon any conversion of shares of Series H Preferred Stock after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the holder with respect to the shares of Common Stock issuable upon such conversion (without giving effect to any limitations upon conversion imposed by Section 4.C) had such holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. E. INTENTIONALLY OMITTED. F. PURCHASE RIGHTS. If at any time when any Series H Preferred Stock is issued and outstanding, the Corporation issues any Convertible Securities or rights to purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to the record holders of any class of Common Stock, then the holders of Series H Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series H Preferred Stock (without giving effect to any limitations upon conversion imposed by Section 4.C) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. G. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 11, the Corporation, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to each holder of Series H Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series H Preferred Stock, furnish to such holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Series H Preferred Stock. SECTION 12. VOTING RIGHTS. The holders of the Series H Preferred Stock have no voting power whatsoever, except as otherwise provided by the Delaware General Corporation Law (the "GENERAL CORPORATE Law"), in this Section 12 and in Section 13 below. 44 Notwithstanding the above, the Corporation shall provide each holder of Series H Preferred Stock, at its request, with copies of proxy materials and other information sent to shareholders. If the Corporation takes a record of its shareholders for the purpose of determining shareholders entitled to (a) receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or (b) to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Corporation, or any proposed merger, consolidation, liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier, but in no event earlier than public announcement of such proposed transaction), of the date on which any such record is to be taken for the purpose of such vote, dividend, distribution, right or other event, and a brief statement regarding the amount and character of such vote, dividend, distribution, right or other event to the extent known at such time. To the extent that under the General Corporate Law the vote of the holders of the Series H Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the shares of the Series H Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of a majority of the shares of Series H Preferred Stock (except as otherwise may be required under the General Corporate Law) shall constitute the approval of such action by the class. To the extent that under the General Corporate Law holders of the Series H Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series H Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible (without giving effect to any limitations upon conversion imposed by Section 4.C) using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. Holders of the Series H Preferred Stock shall be entitled to notice of (and copies of proxy materials and other information sent to shareholders) all shareholder meetings or written consents with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's by-laws and the General Corporate Law. SECTION 13. PROTECTION PROVISIONS. So long as any shares of Series H Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the General Corporate Law) of the holders of at least a majority of the then outstanding shares of Series H Preferred Stock: (a) alter or change the rights, preferences or privileges of the Series H Preferred Stock; (b) alter or change the rights, preferences or privileges of any capital stock of the Corporation so as to affect adversely the Series H Preferred Stock; 45 (c) create any new class or series of capital stock having a preference over the Series H Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined in Section 9 hereof, "SENIOR SECURITIES"); (d) increase the authorized number of shares of Series H Preferred Stock; (e) issue any shares of Series H Preferred Stock other than pursuant to the Securities Purchase Agreement; or (f) redeem, or declare or pay any cash dividend or distribution on, any capital stock of the Corporation ranking junior to the Series H Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (including the Common Stock). If holders of at least a majority of the then outstanding shares of Series H Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series H Preferred Stock pursuant to subsection (a) above, then the Corporation shall deliver notice of such approved change to the holders of the Series H Preferred Stock that did not agree to such alteration or change (the "DISSENTING Holders") and the Dissenting Holders shall have the right, for a period of thirty (30) days, to convert all of their shares of Series H Preferred Stock pursuant to the terms of this Certificate of Designations as they existed prior to such alteration or change or to continue to hold their shares of Series H Preferred Stock. SECTION 14. MISCELLANEOUS. A. CANCELLATION OF SERIES H PREFERRED STOCK. If any shares of Series H Preferred Stock are converted pursuant to Section 4, the shares so converted shall be canceled, shall return to the status of authorized, but unissued preferred stock of no designated series, and shall not be issuable by the Corporation as Series H Preferred Stock. B. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Corporation, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Corporation shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the holder contemporaneously requests the Corporation to convert such Series H Preferred Stock. C. INTENTIONALLY OMITTED. D. ALLOCATIONS OF RESERVED AMOUNT. The Reserved Amount and each increase to the Reserved Amount shall be allocated pro rata among the holders of Series H Preferred Stock based on the number of shares of Series H Preferred Stock held by each holder at 46 the time of the establishment of or increase in the Reserved Amount, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's shares of Series H Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor's Reserved Amount. Any portion of the Reserved Amount which remains allocated to any person or entity which does not hold any Series H Preferred Stock shall be allocated to the remaining holders of shares of Series H Preferred Stock, pro rata based on the number of shares of Series H Preferred Stock then held by such holders. E. STATEMENTS OF AVAILABLE SHARES. So long as any shares of Series H Preferred Stock are outstanding, the Corporation shall deliver to each holder a written report notifying the holders of any occurrence which prohibits the Corporation from issuing Common Stock upon any conversion. In addition, the Corporation shall provide, within ten (10) days after delivery to the Corporation of a written request by any holder, any of the following information as of the date of such request: (i) the total number of shares of Series H Preferred Stock outstanding, (ii) the total number of shares of Common Stock issued upon all prior conversions of Series H Preferred Stock, (iii) the total number of shares of Common Stock which are reserved for issuance upon conversion of the Series H Preferred Stock, (iv) the total number of shares of Common Stock which may thereafter be issued by the Corporation upon conversion of the Series H Prefer-red Stock before the Corporation would exceed the Reserved Amount. F. PAYMENT OF CASH DEFAULTS. Whenever the Corporation is required to make any cash payment to a holder under this Certificate of Designations (as a Conversion Default Payment, upon redemption or otherwise), such cash payment shall be made to the holder within five (5) business days after delivery by such holder of a notice specifying that the holder elects to receive such payment in cash and the method (e.g., by check, wire transfer) in which such payment should be made. If such payment is not delivered within such five (5) business day period, such holder shall thereafter be entitled to interest on the unpaid amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest rate permitted by applicable law until such amount is paid in full to the holder. G. REMEDIES CUMULATIVE. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designations. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of Series H Preferred Stock and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees, in the event of any such breach or threatened breach, the holders of Series H Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. FIFTH: [Intentionally omitted.] SIXTH: The Corporation is to have perpetual existence. 47 SEVENTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: To make, alter or repeal the bylaws of the Corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole Board, to designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The bylaws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such agent or disqualified member. ' Any such committee, to the extent provided in the resolution of the Board of Directors, or in the bylaws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation; and, unless the resolution or bylaws expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. When and as authorized by the stockholders in accordance with statute, to sell, lease or exchange all or substantially all of the property and assets of the corporation, including its goodwill and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property, including shares of stock in, and/or other securities of, any other Corporation or Corporations, as its Board of Directors shall deem expedient and for the best interests of the Corporation. EIGHTH: To the maximum extent permitted by Section 102(b)(7) of the General Corporation Law of the State of Delaware, a Director of this Corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any breach of the Directors' duty of loyalty to the 48 corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived an improper personal benefit. NINTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation. TENTH: Meetings of the stockholders may be held within or without the State of Delaware, as the bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the bylaws of the corporation. Elections of directors need not be written ballot unless the bylaws of the corporation shall so provide. ELEVENTH:The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Amended and Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned, being the duly elected Assistant Secretary of Palomar Medical Technologies, Inc., does hereby declare that this Second Restated Certificate of Incorporation has been duly adopted by the Board of Directors of this Corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. The undersigned does hereby affirm, under the penalties of perjury, that this instrument is the act and deed of the Corporation and the facts herein set forth are true and correct. I have accordingly hereunto set my hand this 7th day of January, 1999. PALOMAR MEDICAL TECHNOLOGIES, INC. /s/ Sarah Burgess Reed ---------------------------------- Sarah Burgess Reed Assistant Secretary General Counsel EX-4 3 EXHIBIT 4.4 FORM OF SECURITIES PURCHASE AGREEMENT FORM OF SECURITIES PURCHASE AGREEMENT THIS AGREEMENT is by and between Palomar Medical Technologies, Inc. (the "Company"), a Delaware corporation with an office at 45 Hartwell Avenue, Lexington, Massachusetts 02173 U.S.A., and the purchasers (each a "Purchaser" and, collectively, the "Purchasers") named on the purchaser signature pages hereto (the "Purchaser Signature Pages"). IN CONSIDERATION of the mutual covenants contained in this Agreement and good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. AUTHORIZATION OF SHARES. The Company has authorized (a) the sale of up to 3,000,000 shares (the "Shares") of the Company's Common Stock, par value $.01 per share (the "Common Stock"), and (b) the sale of warrants (the "Warrants" and, together with the Shares, the "Securities") to purchase up to an aggregate of _____ shares (the "Warrant Shares") of Common Stock. SECTION 2. AGREEMENT TO SELL AND PURCHASE THE SECURITIES. At each Closing (as defined below), the Company will sell to each Purchaser participating in such Closing, and each such Purchaser will buy from the Company, upon the terms and conditions hereinafter set forth, the Securities being purchased by such Purchaser. The number of shares of Common Stock to be purchased by each Purchaser, and the number of Warrant Shares to be purchasable under each Purchaser's Warrant, shall be determined on the basis of the total amount payable by such Purchaser (the "Purchase Price") as set forth on such Purchaser's Purchaser Signature Page, based on an aggregate purchase price of $1.00 for each share of Common Stock and Warrant to purchase one share of Common Stock. SECTION 3. PAYMENT OF PURCHASE PRICE. On or prior to each Closing Date, as defined below, each Purchaser that is purchasing Securities on such Closing Date will deliver to the Company the full amount of the Purchase Price payable by such Purchaser by check or wire transfer. Wire transfers should be directed as follows: Fleet Bank One Federal Street Boston, MA ABA No.: For further credit to: account no.: account name: Palomar Medical Technologies, Inc. SECTION 4. THE CLOSING. The consummation of the transactions contemplated by this Agreement (the "Closings") shall occur as to each Purchaser on the date that all conditions to Closing with respect to the Company and such Purchaser have been satisfied or at such other time as shall be agreed by the Company and the Purchasers (the "Closing Date"). Within thirty (30) days after each Closing Date, the Company shall deliver to each Purchaser that purchased Securities on such Closing Date one or more certificates for the Securities registered in the name of such Purchaser or its nominee. SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company hereby represents and warrants to, and covenants with, the Purchasers as follows: SECTION 5.1. ORGANIZATION. The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has full power and authority to own and operate its properties and to conduct its business as currently conducted and is registered or qualified to do business and is in good standing in each jurisdiction in which it owns or leases property or transacts 1 business and where the failure to be so qualified would have a material adverse effect upon the business, financial condition, properties or operations of the Company. SECTION 5.2. DUE AUTHORIZATION. The Company has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the Warrants, and this Agreement and the Warrants have been duly authorized and validly executed and delivered by the Company and constitute valid and binding agreements of the Company enforceable against the Company in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 5.3. NON-CONTRAVENTION. The execution and delivery of this Agreement and the Warrants, the issuance and sale of the Securities to be sold by the Company hereunder, and the consummation of the transactions contemplated hereby will not conflict with or constitute a violation of, or default (with the passage of time or otherwise) under, any material agreement or instrument to which the Company is a party or by which it is bound or the Certificate of Incorporation (the "Charter") or the By-Laws of the Company nor result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, nor conflict with, or result in a violation of, any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States, other than with respect to "blue sky" laws and is required by the rules and regulations of the NASDAQ SmallCap Market, is required for the valid issuance and sale of the Securities to be sold pursuant to this Agreement (other than such as have been made or obtained). SECTION 5.4. THE SHARES; THE WARRANT SHARES. The Shares have been duly authorized, and when issued and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. The Warrant Shares have been duly authorized, and when issued and paid for in accordance with the terms of the Warrants will be validly issued, fully paid and nonassessable. On and after the later to occur of (i) six months after each Purchaser's Closing Date and (ii) the first date following such Closing Date on which the Closing Price (as defined in the Warrants) of a share of Common Stock has equaled or exceeded $2.50 for a period of ten (10) consecutive trading days, the Company shall reserve and keep available, solely for issuance or delivery upon exercise of such Purchaser's Warrants, the number of shares of Common Stock as from time to time shall be receivable upon the exercise of such Warrants. SECTION 5.5. LEGAL PROCEEDINGS. Except as disclosed in the SEC Filings (as defined below), there is no material legal or governmental proceeding pending or, to the knowledge of the Company, threatened or contemplated to which the Company is or may be a party or of which the business or property of the Company is or may be subject. SECTION 5.6. NO VIOLATIONS. Except as disclosed in the SEC Filings, the Company is not in violation of its Charter or By-Laws, in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company, which violation, individually or in the aggregate, would have a material adverse effect on the business or financial condition of the Company, or in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which the Company is bound or by which the properties of the Company are 2 bound or affected, and there exists no condition which, with the passage of time or the giving of notice or both, would constitute a material default under any such document or instrument or result in the imposition of any material penalty or the acceleration of any indebtedness. SECTION 5.7. GOVERNMENTAL PERMITS, ETC. Except as disclosed in the SEC Filings, the Company has all necessary franchises, licenses, certificates and other authorizations from any foreign, federal, state or local government or governmental agency, department, or body that are currently necessary for the operation of the business of the Company as currently conducted, the absence of which would have a material adverse effect on the business or operations of the Company. SECTION 5.8. FINANCIAL STATEMENTS. Except as disclosed in the SEC Filings, the financial statements of the Company and the related notes contained in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997 and its Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998, present fairly the financial position of the Company as of the dates indicated therein and its results of operations and cash flows for the periods therein specified. Such financial statements (including the related notes) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified and are true, correct and complete in all respects. SECTION 5.9. NO MATERIAL ADVERSE CHANGE. Except as disclosed in the SEC Filings, since March 31, 1998, the Company has not incurred any material liabilities or obligations, direct or contingent, other than in the ordinary course of business, and there has not been any material adverse change in its business, financial condition or results of operations. SECTION 5.10. ADDITIONAL INFORMATION. The Company has filed in a timely manner all documents that the Company was required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the 12 months preceding the date of this Agreement. The following documents (collectively, the "SEC Filings") complied in all material respects with the requirements of the Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"), as the case may be, as of their respective filing or effective dates, and the information contained therein was true and correct in all material respects as of the date or effective date of such documents, and each of the following documents as of the date thereof did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading: (a) The Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997 and its Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998; (b) All other documents, if any, filed by the Company with the Securities and Exchange Commission (the "SEC") since March 31, 1998 pursuant to the reporting requirements of the Exchange Act; and (c) The Company's Registration statement on Form S-3 (No. 333-57261), filed with the SEC on June 19, 1998. SECTION 5.11. INTELLECTUAL PROPERTY. The Company has the right to use all intellectual property (the "Intellectual Property") now used by it in its business. The Company owns all right, title and interest in and to, all of the intellectual property it owns, free and clear of any liens or encumbrances. In any case in which the Company does not own the Intellectual Property, it has good and valid licenses for the same, which are in full force and effect. No claims have been asserted with respect to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any such license or agreement. 3 SECTION 5.12. LISTING. The Company shall use its best efforts to comply with all requirements of the National Association of Securities Dealers, Inc. (the "NASD") with respect to the issuance of the Shares and the listing of the Shares and the Warrant Shares on the NASDAQ SmallCap Market. SECTION 5.13. USE OF PROCEEDS. The Company will use the proceeds of the sale of the Securities for the purpose of redeeming, repurchasing and/or repaying certain convertible preferred stock and/or convertible debentures previously issued by it or for general working capital purposes. SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. (a) Each Purchaser, severally and not jointly, represents and warrants to, and covenants with, the Company, as of the date hereof and as of the Closing Date on which such Purchaser acquires the Securities, that: (i) such Purchaser is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act; (ii) such Purchaser is acquiring the Securities for its own account for investment and with no present intention of distributing any of such Shares other than to any affiliate of such Purchaser; (iii) such Purchaser will not, directly or indirectly, voluntarily offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities, except in compliance with the Securities Act and the rules and regulations promulgated thereunder; (iv) such Purchaser has received and reviewed copies of the SEC Filings, (v) such Purchaser has had an opportunity to ask questions and receive answers from the management of the Company regarding the Company, its business and the offering of the Securities; and (vi) such Purchaser has, in connection with its decision to purchase Shares, relied solely upon the documents described in Section 5.10 and the representations and warranties of the Company contained herein. (b) Each Purchaser agrees not to make any sale of the Securities except pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements thereof. (c) Each Purchaser, severally and not jointly, further represents and warrants to, and covenants with, the Company that (i) such Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of such Purchaser enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) Each Purchaser, severally and not jointly, represents that it understands and agrees that, until registered under the Securities Act or transferred pursuant to the provisions of Rule 144 promulgated thereunder, all certificates evidencing the Securities and the Warrant Shares, whether upon initial issuance or upon any transfer thereof, shall bear a legend, prominently stamped or printed therein, reading substantially as follows: "The securities represented by this certificate have not been registered under the Securities Act of 1933 or the securities laws of any state. These securities have been acquired for investment and not with a view toward distribution or resale. Such securities may not be offered for sale, sold, delivered after sale, transferred, pledged or hypothecated in the absence of an effective registration statement covering such securities under the Act and any applicable state securities laws, unless the holder shall have obtained an opinion of counsel satisfactory to the corporation that such registration is not required." 4 SECTION 7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwithstanding any investigation made by any party to this Agreement all covenants, agreements, representations and warranties made by the Company and the Purchasers herein shall survive the execution of this Agreement, the delivery to the Purchasers of the Securities being purchased and payment therefor. SECTION 8. REGISTRATION STATEMENT. Within 120 days after the date hereof and, in any event, subject to the receipt of necessary information from the Purchasers, the Company shall file with the SEC a registration statement on Form S-3 (the "Registration Statement"), which may include other selling stockholders, providing for the resale of the Warrant Shares and the Shares (collectively, the "REGISTRABLE SHARES") by the Purchasers from time to time in accordance with Rule 415 promulgated under the Securities Act. The Company shall use its best efforts to cause the Registration Statement to become effective within 180 days after the date hereof and the Company shall use its best efforts to keep the Registration Statement effective until the earlier of (a) the time all the Registrable Shares have been sold pursuant to the Registration Statement or (b) the expiration of the Warrants. The Company shall furnish to each Purchaser such number of copies of the prospectus contained in the Registration Statement as such Purchaser shall reasonably require to facilitate the public sale of the Registrable Shares. SECTION 9. LOCKUP AGREEMENTS WITH UNDERWRITERS. In the event of an underwritten public offering of the Company's securities, each Purchaser agrees to enter into an agreement with the Underwriter or Underwriters' Representative for such offering restricting the sale, transfer or other disposition of the Securities and the Warrant Shares to the extent that such agreement is required to be executed by members of senior management of the Company. SECTION 10. PAYMENTS IN RESPECT OF UNSOLD SHARES. Within thirty (30) days following November 30, 1998 and the end of each three month period following such date, the Company shall pay to each Purchaser an amount equal to $0.0125 multiplied by the number of Shares that continue to be held by such Purchaser or its nominee named on the signature page to this Agreement as of such date. Such number of Shares shall be determined by the Company solely by reference to the monthly list of stockholders furnished to the Company by its transfer agent, American Stock Transfer & Trust Company. Each Purchaser understands and agrees that, in order to be eligible for the payments contemplated by this Section, it must either continue to hold the certificate or certificates issued to it by the Company in connection with such Purchaser's Closing or provide evidence satisfactory to the Company that any other certificate held by it represents the Shares or a portion thereof. The Company shall send all payments by the Company pursuant to this Section 10 to each Purchaser at such Purchaser's address determined in accordance with Section 13(b) of this Agreement. SECTION 11. CONDITIONS TO CLOSING. (a) The obligations of each Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction by the Company of each of the following conditions on or before the Closing Date on which such Purchaser is to acquire Securities, any one or more of which may be waived by such Purchaser: (i) The representations and warranties of the Company set forth in this Agreement delivered to the Purchasers by or on behalf of the Company shall be true and correct as if made on such Closing Date. (ii) Each of the covenants, agreements and conditions to be performed and satisfied by the Company pursuant to this Agreement at or prior to such Purchaser's Closing shall have been duly performed and satisfied. (iii) The Company shall have delivered an executed counterpart of this Agreement to such Purchaser. 5 (b) The obligations of the Company to consummate the transactions contemplated hereby on each Closing Date shall be subject to the satisfaction by each Purchaser acquiring Securities on such Closing Date of each of the following conditions on or before such Closing Date, any one or more of which may be waived by the Company: (i) The representations and warranties of such Purchaser set forth in this Agreement shall be true and correct as if made on such Closing Date. (ii) Each of the covenants, agreements and conditions to be performed and satisfied by such Purchaser pursuant to this Agreement at or prior to such Purchaser's Closing shall have been duly performed and satisfied. (iii) Such Purchaser shall have paid the Purchase Price to be paid by it in accordance with Section 3. (iv) Such Purchaser shall have delivered a completed and executed Purchaser Signature Page to the Company. (c) The Company and each Purchaser shall use their best efforts to cause their respective conditions to closing set forth in this Section 11 to be satisfied. SECTION 12. NO BROKERS. The parties hereto hereby represent that there are no brokers or finders entitled to compensation in connection with the transactions contemplated hereby. SECTION 13. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified mail, postage prepaid, or sent by facsimile and shall be deemed given when actually received: (a) if to the Company to: Palomar Medical Technologies, Inc. 45 Hartwell Avenue Lexington, MA 02173 Facsimile: (781) 676-7330 Attention: Paul S. Weiner, Director of Finance (b) if to any Purchaser, to its address as set forth on such Purchaser's Purchaser Signature Page, or to such other address or addresses as may have been furnished to the Company in writing. SECTION 14. CHANGES. Any term of the Agreements may be amended or compliance therewith waived with the written consent of the Company and the holders of a majority of the Shares purchased pursuant to this Agreement. SECTION 15. HEADINGS. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 16. SEVERABILITY. If any provision contained in this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts and United States federal law. 6 SECTION 18. COUNTERPARTS. This Agreement may be executed in two counterparts, each of which shall constitute an original, but both of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be executed by their duly authorized representatives as of the following date. Dated: _____________, 1998 PALOMAR MEDICAL TECHNOLOGIES, INC. By: ------------------------------------ Title: ----------------------------- [Purchaser Signature Page Continues on the Following Page] 7 PURCHASER SIGNATURE PAGE The undersigned Purchaser hereby executes the Securities Purchase Agreement with Palomar Medical Technologies, Inc. (the "COMPANY") and hereby authorizes this signature page to be attached to a counterpart of such document executed by a duly authorized officer of the Company. Purchaser Name: ----------------------------- By: --------------------------------- Title: ------------------------------ Amount of Investment: $ ------------ Name in which Securities are to be registered: ---------------------------------- Address, telephone number and facsimile number of registered holder: - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- Attn: ----------------------------------------- Telephone number: ----------------------------- Facsimile number: ----------------------------- Social Security or Tax ID Number: ------------- Contact name, address, telephone number and facsimile number regarding settlement and registration if different from above: - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- Attn: ----------------------------------------- Telephone number: ----------------------------- Facsimile number: ----------------------------- EX-5 4 OPINION AND CONSENT OF GENERAL COUNSEL January 11, 1999 Palomar Medical Technologies, Inc. 45 Hartwell Avenue Lexington, MA 02421-3102 Gentlemen: I am familiar with the Registration statement on Form S-3 (the "Registration Statement") to which this opinion is an exhibit, to be filed by Palomar Medical Technologies, Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The Registration statement relates to a total of 6,000,000 shares (the "Shares") of the Company's common stock, $.01 par value per share ("Common Stock"), issued and issuable in connection with a Securities Purchase Agreement dated July 24, 1998. In arriving at the opinion expressed below, I have examined and relied on the following documents: (1) the Certificate of Incorporation and By-Laws of the Company, each as amended as of the date hereof; and (2) the records of meetings and consents of the Board of Directors and stockholders of the Company provided to me by the Company. In addition, I have examined and relied on the originals or copies certified or otherwise identified to my satisfaction of all such corporate records of the Company and such other instruments and other certificates of public officials, officers and representatives of the Company and such other persons, and have made such investigations of law, as I have deemed appropriate as a basis for the opinion expressed below. Based upon the foregoing, it is my opinion that the Company has corporate power adequate for the issuance of the Shares. The Company has taken all necessary corporate action required to authorize the issuance and sale of the Shares, and when certificates for the Shares have been duly executed and countersigned and delivered, such shares will be legally issued, fully paid and non-assessable. I hereby consent to the filing of this opinion as an exhibit to the S-3 Registration statement. Sincerely, /s/ Sarah Burgess Reed - ----------------------- Sarah Burgess Reed General Counsel Palomar Medical Technologies, Inc. EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report and to all references to our Firm included in or made part of the registration statement. /s/ Arthur Andersen LLP Boston, Massachusetts January 8, 1999 -----END PRIVACY-ENHANCED MESSAGE-----