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OPTION AGREEMENT
THIS OPTION AGREEMENT, dated as of December 31, 1996 (this "Agreement"),
by and between PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and GFL ADVANTAGE FUND LIMITED, a British Virgin Islands corporation
("GFL").
W I T N E S S E T H:
WHEREAS, GFL, the Company and Palomar Electronics Corporation, a
Delaware corporation ("PEC"), are contemporaneously with the execution and
delivery of this Agreement executing and delivering, one to the other, a
Securities Purchase Agreement, dated as of the date hereof (the "Securities
Purchase Agreement"), which provides, among other things, for the purchase by
GFL from PEC of 200,000 shares of Common Stock, $.01 par value per share, of
Nexar Technologies, Inc. (the "Nexar Shares"), a Delaware corporation ("Nexar"),
which is a subsidiary of the Company, at a purchase price of $10.00 per share
for an aggregate purchase price of $2,000,000.00.
WHEREAS, contemporaneously with the execution and delivery of the
Securities Purchase Agreement, Nexar and GFL have executed and delivered, one to
the other, a Registration Rights Agreement, dated as of the date hereof (the
"Registration Rights Agreement"); and
WHEREAS, in consideration of the purchase by GFL of the Nexar Shares,
the Company wishes to grant to GFL the option to require the Company to exchange
the Nexar Shares for shares of Common Stock, $.01 par value per share (the
"Company Common Stock"), of the Company upon the terms and subject to the
conditions of this Agreement;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants GFL an irrevocable option
(the "Option") which shall entitle GFL, if an Option Exercise Event occurs, to
require the Company to issue upon each exercise of the Option a number of shares
of Company Common Stock in exchange for the number of Nexar Shares surrendered
for exchange by GFL in connection with such exercise of the Option equal to the
quotient obtained by dividing (1) the product obtained by multiplying (A) the
number of Nexar Shares to be exchanged upon such exercise of the Option times
(B) $10.00 by (2) the Exchange Value on the date of such exercise of the Option.
As used in this Agreement, the following terms shall have the following
meanings:
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"Closing Bid Price" of any security on any date shall mean the
closing bid price of such security on such date on the principal
securities exchange or market on which such security is traded as
reported by such exchange or market.
"Computation Date" means (1) the date which is 60 days after the
First Option Closing (as defined herein), unless the Registration
Statement theretofore has been declared effective by the SEC, (2) each
date which is 30 days after a Computation Date, if the Registration
Statement has not been declared effective by the SEC prior to such 30th
day, (3) if the Registration Statement has not been declared effective
by the SEC within 60 days after the First Option Closing, the date on
which the Registration Statement is declared effective by the SEC, (4)
the date which is 30 days after the date on which the Registration
Statement ceases to be available for use by GFL, if, at any time during
which the Registration Statement is required by the Registration Rights
Agreements to remain available for such, the Registration Statement
ceases to be so available for any reason (including, without limitation,
by reason of an SEC stop order, a material misstatement or omission
therein not caused by the information provided in writing by GFL
expressly for use therein or the information contained in the
Registration Statement having become outdated) and shall remain so
unavailable on such 30th day, (5) the date on which the Registration
Statement becomes available for use by GFL, if the Registration
Statement shall have become unavailable for such use as described in the
preceding clause (4) of this paragraph, (6) the date which is 30 days
after the date on which GFL shall have become unable to obtain Company
Common Stock upon exercise of the Option or the Company Call for any
reason (other than by reason of the 4.9% limitation set forth in Section
9), if GFL shall remain unable so to obtain shares of Company Common
Stock on such 30th day, and (7) the date on which GFL become able to so
obtain Company Common Stock, if GFL shall have become unable so to
obtain Company Common Stock as described in the preceding clause (6) of
this paragraph.
"Exchange Value" for any date means 85% of the arithmetic
average of the Closing Bid Prices of the Company Common Stock for the
five consecutive trading days ending one trading day prior to such date,
except that, if (x) the Registration Statement is not ordered effective
by the SEC within 60 days after the First Option Closing, (y) the
Registration Statement shall cease to be available for use by GFL for
any reason (including, without limitation, by reason of a stop order of
the SEC, a material misstatement or omission in the Nexar Registration
Statement not caused by the information provided in writing by GFL
expressly for use therein or the information contained in the
Registration Statement having become outdated) or (z) GFL having become
unable to obtain shares of Company Common Stock from the Company as and
when required by this Agreement upon exercise of the Option or the
Company Call in accordance with this Agreement (other than by reason of
the 4.9% Limitation set forth in Section 9), then in
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each such case the percentage stated above in this paragraph shall be
reduced by two percentage points on each Computation Date (not to exceed
2% on any Computation Date in case more than one event resulting in a
Computation Date occurs during the same period of time) (pro rated in
the case of any Computation Date which is less than 30 days after a
Computation Date).
"Registration Statement" shall mean the Registration Statement
required to be filed by the Company with the SEC pursuant to Section
2(a) of the Company Registration Rights Agreement (as defined herein).
"SEC" shall mean the United States Securities and Exchange
Commission.
2. Exercise of Option. (a) Subject to the provisions of Section 7, upon
the occurrence of an Option Exercise Event, the Option may be exercised by GFL,
in whole or in increments of at least 20,000 of the Nexar Shares, at any time
prior to June 30, 1997.
(b) If GFL wishes to exercise the Option, it shall send a
written notice to the Company specifying the number of Company Common
Stock to be issued in exchange for Nexar Shares upon such exercise and a
place and date (not later than ten (10) business days after the date
such notice is given) for the closing of such issuance and exchange.
Each exercise of the Option shall be deemed to have been made on the
date such notice is given with respect to such exercise.
3. Exchange and Delivery of Certificate(s), Etc. Each closing hereunder
pursuant to the exercise of the Option by GFL pursuant to Section 2 shall occur
at the time and place set forth in the notice referred to in Section 2(b)
hereof. At each such closing hereunder, (a) GFL will surrender to the Company
the certificates for the number of Nexar Shares to be exchanged for Company
Common Stock by reason of such exercise of the Option, and (b) the Company will
deliver to GFL a certificate or certificates representing the number of Company
Common Stock so purchased in the denominations designated by GFL in its notice
of exercise.
4. Call of the Option. The Company shall have the right to call (the
"Company Call") all but not less than all of the Option and force GFL to
exchange all Nexar Shares owned by GFL at the time of closing of the exercise by
the Company of the Company Call for shares of Company Common Stock on the same
basis provided in Section 1 for exercise of the Option by GFL at any time (i)
before April 1, 1997 provided that the Company reasonably concludes that Nexar
will not complete an initial public offering pursuant to the Nexar Registration
Statement or (ii) after June 30, 1997 so long as the Nexar Registration
Statement (as defined herein) shall be effective at the time the Company
exercises the Company Call and at the time the Company delivers the shares of
Company
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Common Stock to GFL in connection with the exercise by the Company of the
Company Call.
5. Exercise of Company Call. If the Company wishes to exercise the
Company Call, it shall send a written notice to GFL stating that the Company is
exercising the Company Call and specifying a place and date (not later than ten
(10) business days after the date such notice is given) for the closing of the
issuance of shares of Company Common Stock in exchange for Nexar Shares. The
Company's exercise of the Company Call pursuant to Section 4 shall be deemed to
have been made on the date such notice is given with respect to such Company
Call.
6. Exchange and Delivery of Certificate(s), Etc. Each closing hereunder
pursuant to the exercise of the Company Call by the Company pursuant to Section
5 shall occur at the time and place set forth in the notice referred to in
Section 5 hereof. At each such closing hereunder, (a) GFL will surrender to the
Company the certificates for the number of Nexar Shares to be exchanged for
Company Common Stock by reason of such exercise of the Company Call, and (b) the
Company will deliver to GFL a certificate or certificates representing the
number of shares of Company Common Stock so purchased in the denominations
designated by GFL prior to such closing.
7. Option Exercise Events. As used in this Agreement, the term Option
Exercise Event shall mean:
(a) the Registration Statement of Nexar on Form S-1 filed with
the Securities and Exchange Commission (the "SEC") on December 20, 1996
(as amended to the date the same is declared effective, the "Nexar
Registration Statement") shall not be declared effective by the SEC on
or before April 1, 1997;
(b) the Nexar Registration Statement shall fail to name GFL as
selling stockholder of the Nexar Shares;
(c) the initial public offering price of the Nexar Common Stock
in the offering covered by the Nexar Registration Statement shall be
$11.75 or less;
(d) Nexar shall fail to comply in any material respect with the
Registration Rights Agreement; or
(e) the Underwriter or Underwriters' Representatives (as defined
in the Securities Purchase Agreement) shall request GFL to enter into
any agreement contemplated by Section 8 of the Securities Purchase
Agreement which restricts the sale by GFL of the Nexar Shares.
Notwithstanding the foregoing, if GFL shall not have exercised the
Option prior to the closing of Nexar's initial public offering, GFL shall have
no right to exercise the Option
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after the closing of such initial public offering and this Option Agreement
shall thereupon terminate.
8. Registration Rights. At the first closing under Section 3 or Section
6 (the "First Option Closing"), the Company and GFL agree to execute and
deliver, one to the other, a Registration Rights Agreement (the "Company
Registration Rights Agreement") relating to the shares of Company Common Stock
issuable upon exercise of the Option or the Company Call, as the case may be,
which Company Registration Rights Agreement shall be in substantially the same
form as the Registration Rights Agreement, dated as of September 26, 1996, by
and between the Company and Genesee Fund Limited ("Genesee"), rights under which
have been transferred to GFL pursuant to the Stock Purchase and Sale Agreement,
dated as of October 31, 1996, by and between Genesee GFL and GFL Performance
Fund Limited, except that the Company Registration Rights Agreement will provide
as follows:
1. The Company shall be obligated to file a Registration
Statement on Form S-3 relating to 415,000 shares of Company Common Stock
as Registrable Securities (as defined in the Company Registration Rights
Agreement) within 30 days after the First Option Closing;
2. Section 2(c) thereof shall be deleted; and
3. The transfer of registration rights pursuant to Section 9
thereof shall not be restricted based on the number of shares of Company
Common Stock transferred.
9. Option and Call Limitation. Notwithstanding any other provision of
this Agreement, in no event shall GFL be entitled to exercise the Option or
shall the Company be entitled to exercise the Company Call in respect of in
excess of that number of Nexar Shares in excess of the number of Nexar Shares
upon exchange of which the sum of (1) the number of shares of Company Common
Stock beneficially owned by GFL and any person whose beneficial ownership of
shares of Company Common Stock would be aggregated with GFL's beneficial
ownership of shares of Company 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 Convertible Preferred Stock, unexercised
Common Stock Purchase Warrants which contain provisions similar to this Section
9) and (2) the number of shares of Company Common Stock issuable upon exercise
of the Option or the Company Call, as the case may be, with respect to which the
determination in this Section 9 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 this Section 9, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act
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and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of
the first sentence of this Section.
10. Representations, Warranties Etc. of the Company. The Company hereby
represents and warrants to, and covenants and agrees with, GFL as follows:
(a) Due Authorization. This Agreement and the Company
Registration Rights Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement has been,
and on or before the First Option Closing the Company Registration
Rights Agreement will be, duly executed by a duly authorized officer of
the Company.
(b) Company Common Stock. The Company has taken all necessary
corporate action to authorize and reserve for issuance upon exercise of
the Option or the Company Call 415,000 authorized but unissued shares of
Company Common Stock and any shares of Company Common Stock issued and
delivered upon exercise of the Option or the Company Call, when issued
and in accordance with this Agreement, will be fully paid and
nonassessable.
(c) Conflicting Instruments. Neither the execution and delivery
of this Agreement or the Company Registration Rights Agreement, nor the
consummation of the transactions contemplated hereby or thereby will
violate or result in any violation of or be in conflict with or
constitute a default under any term of the Certificate of Incorporation
or By-laws of the Company or of any agreement or other instrument
applicable to the Company or any of its subsidiaries.
(d) Due Organization. The Company is a corporation duly
organized, validly existing in good standing under the laws of the State
of Delaware and has the requisite corporate power to enter into and
perform this Agreement and the Company Registration Rights Agreement.
(e) Purchase for Investment. The Company is purchasing any Nexar
Shares acquired pursuant to this Agreement for its own account for
investment only and not with a view towards the public sale or
distribution thereof, unless registered under the Security Act of 1933,
as amended, (the "1933 Act"), or except from such registration.
(f) Accredited Investor. The Company is an "accredited investor"
as that term is defined in Rule 501 of the General Rules and Regulations
under the 1933 Act by reason of Rule 501(a)(3).
(g) Resales. All subsequent offers and sales of the Securities
by the Company shall be made pursuant to registration of the shares
being offered and sold under the 1933 Act acquired
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pursuant to this Agreement or pursuant to an exemption from
registration.
11. Representations, Warranties Etc. of GFL. GFL represents and warrants
to, and covenants and agrees with, the Company as follows:
(a) Purchase for Investment. GFL is purchasing any shares of
Company Common Stock acquired pursuant to this Agreement for its own
account for investment only and not with a view towards the public sale
or distribution thereof, unless registered under the Security Act of
1933, as amended, (the "1933 Act"), or except from such registration.
(b) Accredited Investor. GFL is an "accredited investor" as that
term is defined in Rule 501 of the General Rules and Regulations under
the 1933 Act by reason of Rule 501(a)(3).
(c) Resales. All subsequent offers and sales of the Securities
by GFL shall be made pursuant to registration of the shares being
offered and sold under the 1933 Act acquired pursuant to this Agreement
or pursuant to an exemption from registration.
12. Miscellaneous.
(a) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated.
(b) Assignment. The Option shall not be assigned by GFL, without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. The Company Call shall not be assigned by the
Company.
(c) Amendments. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a
written instrument executed by the party to be charged with enforcement.
(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given if so given) if delivered in
person or by courier, telephone line facsimile transmission or by mail
(certified mail, postage prepaid, return receipt requested) to the
respective parties as follows:
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If to the Company:
Palomar Medical Technologies, Inc.
00 Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: General Counsel
Facsimile No.: 000-000-0000
If to GFL:
GFL Advantage Fund Limited
x/x XXXXX
Xxxx Xxxxxxxxx
0 Xxxxxxx
Xxxxxxxxx: Xx. X.X. xxXxxxx
Facsimile No.: 000-0-000000
with a copy to:
Genesee Investments
00000 X.X. 0xx Xxxxxx
Xxxxx 0000
Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xx. Xxxxxxxxxxx X. Xxxxxxx
Facsimile No.: 000-000-0000
and shall be effective on receipt in the case of delivery in person, by courier
or by telephone line facsimile transmission or five day after mailing in the
case of delivery by mail, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive law of the State of New
York without giving effect to the principles of conflict of laws
thereof.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(g) Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction thereof.
(h) Expenses. All reasonable expenses incurred by GFL in
connection with this Agreement and the Company Registration Rights
Agreement, including but not limited to legal fees, shall be paid by the
Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
date first set forth above.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
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Name: Xxxxxx X. Xxxxxx
Title: Chief Financial Officer
GFL ADVANTAGE FUND LIMITED
By: /s/
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Name: X.X. xx Xxxxx
Title: President
