PALOMAR MEDICAL TECHNOLOGIES INC

On March 21, 2013, a putative stockholder class action complaint, captioned Calin v. Palomar Medical Technologies, Inc., et al., No. 13-1051 BLS (Superior Court, Suffolk County), was filed against Palomar, Palomar's directors, Cynosure, Inc. ("Cynosure") and Commander Acquisition Corp. (the "Merger Subsidiary") in the Business Litigation Session of the Suffolk County Superior Court of the Commonwealth of Massachusetts. The lawsuit alleges that the members of the Palomar board of directors breached their fiduciary duties in connection with the approval of the merger (the "Merger") contemplated by the agreement and plan of merger, dated as of March 17, 2013, among Palomar, Cynosure and the Merger Subsidiary and that Cynosure and the Merger Subsidiary aided and abetted the alleged breach of fiduciary duties. The complaint alleges that the directors breached their fiduciary duties in connection with the proposed transaction by, among other things, failing to maximize stockholder value and to obtain the best financial and other terms. The plaintiff seeks injunctive and other equitable relief, including a request to enjoin Palomar from consummating the Merger, in addition to unspecified damages, fees and costs.  Plaintiff moved to expedite the proceeding on May 1, 2013 and moved to consolidate the Massachusetts actions on May 1, 2013.

On April 12, 2013, a third putative stockholder class action complaint, captioned Saffer v. Palomar Medical Technologies, Inc. et al., No. 13-1385 BLS1 (Superior Court, Suffolk County), was filed against Palomar, Palomar's directors, Cynosure, and the Merger Subsidiary in the Business Litigation Session of the Suffolk County Superior Court of the Commonwealth of Massachusetts.  The lawsuit alleges that the members of the Palomar board of directors breached their fiduciary duties in connection with the approval of the merger and that Palomar, Cynosure, and the Merger Subsidiary aided and abetted the alleged breach of fiduciary duties. The complaint alleges that the directors breached their fiduciary duties in connection with the proposed transaction by, among other things, placing their interests ahead of shareholders' and failing to maximize stockholder value and to obtain the best financial and other terms.  The plaintiff seeks injunctive and other equitable relief, including a request to enjoin Palomar from consummating the merger, in addition to fees and costs.  Plaintiff moved to expedite the proceeding on May 1, 2013 and moved to consolidate the Massachusetts actions on May 1, 2013.

In April 1999, we adopted a shareholder rights agreement or "poison pill."  This is intended to protect shareholders from unfair or coercive takeover practices. On October 28, 2008, we amended and restated the April 1999 shareholder rights agreement to (i) extend the expiration date to October 28, 2018, (ii) increase the purchase price to $200.00, (iii) amend the definition of "Acquiring Person" to exclude a "Person" qualified to file Schedule 13G as provided in the definition, (iv) amend the recitals to take account of the "Recapitalization" that occurred May 7, 1999, and (v) make any other additional changes deemed necessary.  On March 17, 2013, prior to the execution of the agreement and plan of merger, dated as of March 17, 2013 (the "Merger Agreement"), among Cynosure, Commander Acquisition Corp. (the "Merger Subsidiary") and us, we amended our amended and restated rights agreement to among other things, (1) render the preferred stock purchase rights (the "Rights") inapplicable to the merger of us with and into the Merger Subsidiary (the "Merger") and the other transactions contemplated by the Merger Agreement, (2) effectuate the conversion as of the effective time of the Merger of the Rights into merger consideration in accordance with the terms of the Merger Agreement, and (3) cause Section 11 and Section 12 of the amended and restated rights agreement to become null and void as of the effective time of the Merger. For more information, please see the Amended and Restated Rights Agreement dated October 28, 2008, which is filed as an exhibit to our Current Report on Form 8-K filed on October 31, 2008, and Amendment No. 1 thereto, dated as of March 17, 2013, filed as an exhibit to our Current Report on Form 8-K filed on March 18, 2013.

Pending stockholder litigation could prevent or delay the closing of the merger or otherwise negatively impact our business and operations.

Subsequent to the March 18, 2013 announcement of the merger, we have been named as a defendant in four putative stockholder class action lawsuits, three of which were filed in the Business Litigation Session of the Suffolk County Superior Court of the Commonwealth of Massachusetts and one of which was filed in the Court of Chancery of the State of Delaware. The lawsuits allege generally that we and the other defendants either breached or aided and abetted the breach of fiduciary duties to our stockholders by, among other things, failing to maximize stockholder value, failing to obtain the best financial and other terms, and causing a purportedly deficient proxy statement to be filed. The plaintiffs generally seek injunctive and other equitable relief, including an injunction against Palomar from consummating the merger, in addition to fees and costs.  See "Part II – Other Information – Item 1 – Legal Proceedings" for more detailed information concerning the lawsuits. No assurances can be given that these lawsuits will not result in such an injunction being issued, which could prevent or delay the closing of the merger.  It is possible that additional lawsuits may be filed against us asserting similar or different claims. There can be no assurance that we or any of the other defendants will be successful in the outcome of the pending or any potential future lawsuits.  Moreover, regardless of whether we are successful, the pending and any potential future lawsuits could result in the incurrence by us of significant costs and expenses in connection with the defense of these lawsuits, as well as the diversion of management's time and attention.

The merger involves the combination of two organizations that currently operate as independent public companies. Due to legal restrictions, Cynosure and we have conducted only limited planning regarding the integration of our respective companies, and we will continue to operate as independent public companies until the completion of the merger. The combined company will be required to devote significant management attention and resources to integrating our respective companies. Delays in this process could adversely affect the combined company's business, financial results, financial condition and stock price.