<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EPITAXX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3674 22-2497461
(Primary Standard Industrial (I.R.S. Employer
(State or other Classification Code Number) Identification No.)
jurisdiction of
incorporation or
organization)
7 GRAPHICS DRIVE
WEST TRENTON, NEW JERSEY 08628
(609) 538-1800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
NOBORU HIRAGURI
CHIEF EXECUTIVE OFFICER AND VICE CHAIRMAN
EPITAXX, INC.
7 GRAPHICS DRIVE
WEST TRENTON, NEW JERSEY 08628
(609) 538-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
COPIES TO:
THOMAS J. KELLY, ESQ. JULIE M. ALLEN, ESQ.
MINTZ, LEVIN, COHN, FERRIS, O'SULLIVAN GRAEV AND KARABELL, LLP
GLOVSKY AND POPEO, P.C. 30 ROCKEFELLER PLAZA
ONE FINANCIAL CENTER NEW YORK, NY 10112
BOSTON, MA 02111 (212) 408-2400
(617) 542-6000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Class A Common Stock,
$.01 par value........ 2,472,500 shares $10.00 $24,725,000 $7,294.00
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 322,500 shares of Class A Common Stock that may be sold pursuant
to the Underwriters' over-allotment option. See "Underwriting."
(2) Estimated solely for purposes of calculating the amount of the
registration fee paid pursuant to Rule 457(a) under the Securities Act of
1933, as amended.
---------------
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, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated , 1998
2,150,000 SHARES
[COMPANY LOGO]
EPITAXX, INC.
CLASS A COMMON STOCK
------------
All of the shares of Class A Common Stock, $.01 par value per share (the
"Class A Common Stock"), offered hereby are being sold by EPITAXX, Inc.
("EPITAXX" or the "Company"). NSG Holding USA, Inc., a wholly owned subsidiary
of Nippon Sheet Glass Co., Ltd. (collectively, "NSG"), is the holder of all of
the 5,088,000 outstanding shares of the Company's Class B Common Stock, $.01
par value per share (the "Class B Common Stock", together with the Class A
Common Stock, the "Common Stock"). See "Relationship Between the Company and
NSG." Upon the completion of the offering, the Class B Common Stock will
represent 70.05% of the total outstanding Common Stock on an as-converted basis
and 87.53% of the total voting power of the outstanding Common Stock. The
Company anticipates using $10,049,528 of the net proceeds from the offering to
repay amounts owed to the stockholders of record on December 11, 1997,
including NSG, pursuant to a dividend declared by the Company. See "Use of
Proceeds."
The rights, preferences and privileges of each class of Common Stock are
identical in all respects except for voting rights. Each share of Class A
Common Stock entitles its holder to one vote and each share of Class B Common
Stock entitles its holder to three votes for each share of Class A Common Stock
into which the Class B Common Stock is convertible. The Class B Common Stock is
convertible into Class A Common Stock on a share-for-share basis, subject to
adjustment for stock dividends, stock splits, subdivisions or combinations. See
"Description of Capital Stock."
Prior to this offering, there has been no public market for any class of the
Company's capital stock. The Company does not believe that there will ever be a
public market for the Class B Common Stock. It is currently anticipated that
the initial public offering price of the Class A Common Stock will be between
$ and $ per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price of the Class A
Common Stock. The Company has applied to have the Class A Common Stock approved
for quotation on the Nasdaq National Market under the symbol "EPXX."
------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6 OF THIS PROSPECTUS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
Total(3)................................ $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase an aggregate of up to 322,500
additional shares of Class A Common Stock at the Price to Public less
Underwriting Discounts and Commissions to cover over-allotments, if any. If
all such additional shares are purchased, the Price to Public, the
Underwriting Discounts and Commissions and the Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------
The Class A Common Stock is offered by the several Underwriters named herein
when, as and if received and accepted by them, and subject to their right to
reject orders in whole or in part and certain other conditions. It is expected
that delivery of certificates for the shares will be made at the offices of
Cowen & Company, New York, New York on or about , 1998.
------------
COWEN & COMPANY
CIBC OPPENHEIMER
DAIWA SECURITIES AMERICA INC.
, 1998
<PAGE>
[Inside front cover contains graphics of the EPITAXX logo and three
photographs of representative products under the following categories of
products offered by the Company: (a) long-haul transmission; (b) cable
television, and test and measurement; and (c) digital access and high speed
computer networking. In addition, the following text appears above the images:
Optical detectors and receivers for fiber optics communications.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, including the Consolidated
Financial Statements and Notes thereto, appearing elsewhere in this Prospectus.
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors discussed herein under the caption "Risk Factors" and
elsewhere in this Prospectus. Unless otherwise indicated, all information
presented in this Prospectus (i) gives effect to the amendment and restatement
of the Company's Restated Certificate of Incorporation filed on January 23,
1998, pursuant to which the shares of capital stock held by NSG were converted
into 5,088,000 shares of Class B Common Stock, all other currently outstanding
shares of capital stock were redesignated Class A Common Stock, and an
aggregate of 12,500,000 shares of Class A Common Stock was authorized (the
"Recapitalization") and (ii) assumes no exercise of the Underwriters' over-
allotment option.
THE COMPANY
The Company designs, manufactures and markets semiconductor optical detectors
and receivers for fiber optics communications. By virtue of its specialization
in optical detector and receiver products, the Company is able to serve many
different markets in the fiber optics communications industry. The Company's
products are integral to the development and implementation of fiber optics
systems for applications such as high capacity, long-haul terrestrial and
undersea transmission; digital local loop and access networks; multi-channel
cable television ("CATV") distribution; high-speed computer networking and test
and measurement equipment.
EPITAXX is a leading independent photonics devices company in its product
areas. The Company believes that its expertise in Indium Gallium Arsenide
("InGaAs") semiconductor material and optical detector device engineering,
precision opto-mechanical assembly processes and high performance digital and
analog receiver circuits enables the Company to provide a broad range of high
performance optical detector products that can be quickly and cost-effectively
adapted to a variety of customer needs and technologies. Further, because of
its focus on detectors, EPITAXX is able to respond quickly to evolving
technologies and increasingly complex applications.
The global communications industry has undergone significant transformation
and growth since the mid-1980s as a result of increased demand for
communications services and applications, as well as advances in technology and
changes in public policy. Communications service providers continue to increase
the capacity of their networks and build new networks to meet the demand for
high bandwidth applications, which in turn has significantly increased the use
of fiber optics equipment.
The Company counts among its customers many of the leading fiber optics
communications equipment manufacturers, including such companies as CIENA
Corporation, Finisar Corporation, Harmonic Lightwave, Inc., Hewlett-Packard
Company, Inc., JDS FITEL, Inc., Lucent Technologies, Inc., Philips Broadband
Networks, Inc., Philips N.V., Pirelli SpA, and Siemens AG.
The Company was founded in 1984 and purchased in 1990 by NSG. NSG, which is
listed on the Tokyo Stock Exchange, is one of Japan's largest manufacturers of
flat glass products for the construction and automotive industries. NSG is also
one of the world's leading suppliers of specialty graded-index lenses and
associated products for the fiber optics industry. The Company's executive
offices are located at 7 Graphics Drive, West Trenton, New Jersey 08628 and its
telephone number is (609) 538-1800.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Class A Common Stock offered by the Company....... 2,150,000 shares
Common Stock to be outstanding after the offering:
Class A Common Stock........................... 2,175,200 shares
Class B Common Stock........................... 5,088,000 shares
----------------
Total...................................... 7,263,200 shares(1)
Use of proceeds................................... For the repayment of $13.3
million principal amount of
indebtedness including
interest thereon to
stockholders and general
corporate purposes,
including working capital.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol............ EPXX
</TABLE>
- --------
(1) Based on 5,113,200 shares of capital stock outstanding on December 31,
1997. Excludes 574,800 shares of Class A Common Stock reserved for issuance
under the Company's Amended and Restated 1996 Employee, Director and
Consultant Stock Option Plan (the "Stock Option Plan"), of which options to
purchase an aggregate of 171,072 shares were outstanding on December 31,
1997 at a weighted average exercise price of $3.92 per share. See
"Management--Benefit Plans--Amended and Restated 1996 Employee, Director
and Consultant Stock Option Plan."
RELATIONSHIP WITH NSG
In December 1997, the Company declared a $10,049,528 cash dividend to the
stockholders of record on December 11, 1997, of which $10 million is payable to
NSG. The dividend will be evidenced by promissory notes, bearing interest at a
rate of 6.02% per annum, payable semi-annually (the "Dividend Notes"). The
principal amount of the Dividend Notes is payable on the earlier of (i) the
date the Company's total stockholders' equity first equals or exceeds $15
million, or (ii) February 9, 2001, provided that on such date the Company's
total stockholders' equity equals or exceeds $15 million. The sale of Class A
Common Stock offered hereby will cause the Company's total stockholders' equity
to exceed $15 million. As a result, the Company anticipates using $10,049,528
of the net proceeds from the offering to repay the Dividend Notes. See "Use of
Proceeds."
Prior to the offering, NSG owned 99.51% of the outstanding shares of the
Company's capital stock. Upon the completion of the offering, NSG will own no
shares of Class A Common Stock and all of the 5,088,000 outstanding shares of
Class B Common Stock. Holders of Class A Common Stock are entitled to one vote
per share and holders of Class B Common Stock are entitled to three votes for
each share of Class B Common Stock. The Class B Common Stock will represent
70.05% of the total outstanding Common Stock on an as-converted basis and
87.53% of the total voting power of the outstanding Common Stock upon
completion of the offering (85.94% if the Underwriters' over-allotment is
exercised in full). Accordingly, NSG will be able to control the vote on all
matters submitted to stockholders, including the election of directors and the
approval of extraordinary corporate transactions. The Company and NSG have
entered into a number of agreements for the purpose of defining their ongoing
relationship. While NSG will continue to provide the Company with certain
services pursuant to these agreements, the Company is only entitled to the
ongoing assistance of NSG for a limited time and it may not receive such
services beyond the terms of the agreements. See "Risk Factors--Control by and
Relationship with NSG."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------- -----------------------
1995 1996 1997 1996(1) 1997
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OP-
ERATIONS DATA:
Total revenue................. $15,622 $19,762 $21,209 $15,487 $18,348
Gross profit.................. 5,674 8,886 7,231 5,246 7,628
Income from operations ....... 1,456 3,249 1,503 1,002 2,676
Net income.................... $ 1,469 $ 1,855 $ 638 $ 392 $ 1,554
======= ======= ======= ======= =======
Pro forma net income per
share(2)
Basic....................... $ 0.10 $ 0.25
Diluted..................... $ 0.10 $ 0.25
Shares used in per share cal-
culation(2)
Basic....................... 6,118 6,118
Diluted..................... 6,250 6,237
OTHER FINANCIAL DATA:
Capital expenditures.......... 908 2,061 2,418 1,719 1,479
<CAPTION>
MARCH 31, DECEMBER 31, 1997
----------------------- -----------------------
1995 1996 1997 ACTUAL AS ADJUSTED(3)
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DA-
TA:
Cash.......................... $ 59 $ 91 $ 109 $ 940
Working capital............... 2,189 2,852 1,395 (7,694)
Total assets.................. 12,613 16,771 16,977 18,286
Short-term borrowings from
affiliate under line of
credit ...................... 2,050 2,700 3,400 3,150
Promissory notes to be issued
for dividend declared........ -- -- -- 10,050
Long-term obligations, net of
current portion.............. 5,000 5,000 5,133 5,052
Stockholders' equity (defi-
cit)......................... 3,613 4,967 4,730 (3,766)
</TABLE>
- --------
(1) The Company's third quarter for the 1997 fiscal year ended on December 28,
1996.
(2) See note 3 of the Consolidated Financial Statements for an explanation of
the determination of shares used to compute pro forma net income per share.
(3) Adjusted to give effect to the sale of 2,150,000 shares of Class A Common
Stock offered by the Company after deduction of underwriting discounts and
commissions and estimated offering expenses payable by the Company, the
application of the estimated net proceeds thereof, and the payment of the
Dividend Notes and the payment of short-term borrowings from NSG of $3,150.
5
<PAGE>
RISK FACTORS
In addition to other information contained in this Prospectus, prospective
investors should carefully consider the following factors in evaluating the
Company and its business before purchasing shares of Class A Common Stock
offered hereby.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's operating results have fluctuated significantly in the past
and may fluctuate in the future on a quarterly and annual basis as a result of
a number of factors, many of which are beyond the Company's control. Sales for
a given quarter may depend to a significant degree upon product shipments to a
limited number of customers. Sales to individual large customers are often
related to the customer's specific equipment deployment projects, the timing
of which is subject to change on limited notice. The Company has experienced
both acceleration and slowdown in orders related to such projects, causing
changes in the sales level of a given quarter relative to both the preceding
and subsequent quarters. Since most of the Company's sales are in the form of
large orders with short delivery times to a limited number of customers, the
Company's ability to predict revenues is difficult. In addition, announcements
by the Company or its competitors of new products and technologies could cause
customers to defer purchases of the Company's existing products. In the event
that anticipated orders from major customers fail to materialize, or delivery
schedules are deferred or canceled, the Company's business, financial
condition and operating results could be materially adversely affected. As a
result, the Company believes that period-to-period comparisons of its
operating results are not meaningful and should not be relied upon as
indicative of future performance.
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, cost of materials and manufacturing costs. For
example, a price reduction of a particular product in response to competitive
pressure which is not offset by a reduction in production costs or by sales of
other products with higher gross margins would decrease the Company's overall
gross margin and could have a material adverse effect on the Company's
business, financial condition and operating results. The Company's anticipated
increase in overall spending in future periods in order to pursue new market
opportunities may also affect operating margins. The Company establishes
product development costs and other operating expenses based on projected
sales levels and margins because expenses are relatively fixed in the short
term. Accordingly, if sales are below expectations in any given short-term
period, the Company may be unable to adjust spending during such period to
compensate for the revenue shortfall.
Operating results in any period could also be affected by changes in market
demand, competitive market conditions, market acceptance of new or existing
products, the cost and availability of components, the composition of the
Company's customer base and sales channels, the mix of products sold,
marketing activities, the Company's ability to attract and retain key
technical and managerial employees and general economic conditions. In the
event that the Company's financial performance fails to meet the expectations
of public market analysts and investors, the price of the Class A Common Stock
could be materially adversely affected. See""--Dependence on Availability of
Materials and Key Suppliers" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
VOLATILITY OF MARKETS SERVED
Certain markets served by the Company are affected by capital expenditure
cycles. These cycles can precipitate pricing pressures and decreased demand.
The Company's current optical detector and receiver products serve
applications in the following markets: high capacity, long-haul terrestrial
and undersea transmission; digital local loop and access networks; multi-
channel CATV distribution; high-speed computer networking and test and
measurement equipment. In many cases, the Company's products are used by
customers who have not yet completed development of their own products. In
addition, the Company and certain of its customers are currently in the
process of developing new products which are in various stages of development,
testing and qualification, and are sometimes in emerging applications or new
markets. No assurances can be
6
<PAGE>
given that the Company or its customers will continue their existing product
development efforts, or, if continued, that such efforts will be successful,
that markets will continue to develop for any of the Company's new products,
that the Company's technology or pricing will enable such markets to develop
or that the Company's products will not be superseded by other technology or
products. See "Business--Research and Product Development."
CONTROL BY AND RELATIONSHIP WITH NSG
The Company's capital stock consists of Class A Common Stock and Class B
Common Stock. Holders of Class A Common Stock are entitled to one vote per
share and holders of Class B Common Stock are entitled to three votes for each
share of Class A Common Stock into which Class B Common Stock is convertible.
The Class B Common Stock is convertible into Class A Common Stock on a share-
for-share basis, subject to adjustment. Upon the completion of the offering,
NSG will own no shares of Class A Common Stock and all of the 5,088,000
outstanding shares of Class B Common Stock. The Class B Common Stock will
represent 70.05% of the total outstanding Common Stock on an as-converted
basis and 87.53% (85.94% if the Underwriters' over-allotment option is
exercised in full) of the total voting power of the outstanding Common Stock
upon completion of the offering. Such control may have the effect of limiting
the manner in which the Company conducts its business, discouraging certain
types of transactions involving an actual or potential change of control of
the Company, including transactions in which the holders of Class A Common
Stock might otherwise receive a premium for their shares over the then-current
market price, or generally restricting the price that investors might be
willing to pay for shares of Class A Common Stock.
Historically, the Company has derived certain benefits from being a
subsidiary of NSG. The relationship between the Company and NSG is defined
pursuant to several agreements. Because of the nature of the various
agreements between the Company and NSG and NSG's ownership of Class B Common
Stock, there can be no assurance that such agreements, or the transactions
provided for therein, will be effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties. While
these agreements will continue to provide the Company with certain benefits,
the Company is only entitled to the ongoing assistance of NSG for the term of
the agreements and it may not enjoy benefits from its relationship with NSG
after the term of the agreements, including benefits derived from NSG's
reputation and credit support. There can be no assurance that the Company,
upon termination of such assistance from NSG, will be able to develop such
services internally or obtain arrangements from third parties to replace such
services on favorable terms, if at all.
The offering will provide substantial benefits to NSG. The Company will use
approximately $10 million of the net proceeds from the offering to repay
indebtedness to NSG. After the consummation of the offering, NSG will also
benefit from the creation of a public market for the Class A Common Stock into
which its Class B Common Stock is convertible. Upon the consummation of the
offering, the shares of Class A Common Stock into which the Class B Common
Stock then held by NSG would be convertible, will have an aggregate market
value of approximately $ million (assuming an initial public offering price
of $ per share).
Given that NSG is a Japanese corporation with the majority of its assets and
operations located outside of the United States, investors may not be able to
enforce United States judgments against NSG, including judgments predicated
upon the civil liability provisions of United States federal and state
securities laws. In addition, certain directors and officers of NSG and
certain of the directors of the Company are residents of Japan, and all or
substantially all of the assets of such persons are or may be located outside
the United States. As a result, investors may not be able to effect service of
process within the United States upon such persons, or to enforce against them
judgments obtained in United States courts, including judgments predicated
upon the civil liability provisions of United States federal and state
securities laws. See "Description of Capital Stock" and "Relationship Between
the Company and NSG."
DEPENDENCE ON AVAILABILITY OF MATERIALS AND KEY SUPPLIERS
On-time delivery of the Company's products depends upon the availability of
materials used in its products. The Company depends upon its suppliers to
produce materials in a timely and satisfactory manner. Certain
7
<PAGE>
materials necessary for the manufacture of the Company's products are obtained
from a sole supplier or a small group of suppliers. In particular, the Company
presently obtains a key material, the epitaxial wafers of InGaAs used to
manufacture the Company's products, from one primary vendor. Although the
Company has identified and qualified several alternative sources for the
epitaxial wafers, as well as other materials currently obtained from single
sources, should the Company need to turn to alternative sources of materials,
there is no assurance that such materials could be made available at
competitive prices, at acceptable reliability standards or in a timely fashion
to respond to customer needs. Further, an inability by present or alternative
suppliers to meet the Company's demand, a prolonged interruption in supply or
a significant price increase of one or more materials could have a material
adverse effect on the Company's business, financial condition and operating
results. The Company generally does not have any long-term contracts with
suppliers. While the quality, yield and timeliness of supply deliveries to
date have been acceptable, there can be no assurance that these suppliers will
continue to be able and willing to meet the Company's requirements or that
problems will not occur in the future. Any significant interruption in the
supply or degradation in the quality of any raw materials could have a
material adverse effect on the Company's business, financial condition and
operating results. Purchase orders from the Company's customers frequently
require delivery shortly after placement of the order. The Company maintains a
supply of finished goods inventories at its manufacturing facility, as well as
safety stocks of critical materials, in order to respond quickly to customer
needs. However, there can be no assurance that interrupted or delayed supplies
of key materials will not occur. Such interruption or delay could have a
material adverse effect on the Company's business, financial condition and
operating results. See "--Fluctuations in Quarterly Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Manufacturing and Facilities."
COMPETITION
The markets in which the Company sells optical detectors and receivers are
highly competitive, rapidly changing and significantly affected by new product
introductions and other market activities of industry participants. Some of
the Company's customers are both primary customers for certain of the
Company's products and competitors in the optical detector market. The
Company's business, financial condition and operating results could be
materially adversely affected if these customer relationships were to decline
or otherwise change in any manner adverse to the Company. In addition, the
Company's ability to continue to develop, market and sell new products or
enhancements of existing products may require significant additional research
and development expenditures. Many of the Company's current and potential
competitors have larger research and development departments, larger sales
organizations, and substantially greater financial resources than does the
Company. These competitors include Fujitsu Ltd., Mitsubishi Electric Corp.,
Lucent Technologies, Inc. and Siemens AG. Other companies, not always
addressing the same markets as EPITAXX, have competitive offerings in some
product areas. Companies in this category include Ortel Corporation, Mitel
Corporation and Hamamatsu Photonics KK. There can be no assurance that
competitors will not develop products that are superior to the Company's
products or that achieve greater market acceptance. The introduction by
competitors of new products, or the reduction in price of competitive
products, could have a material adverse effect on the Company's business,
financial condition and operating results. See "Business--Competition."
EVOLVING MARKETS AND RAPID TECHNOLOGICAL CHANGE; NEW PRODUCTS
The Company expects that new technologies will emerge as competition in the
fiber optics communications industry increases and the need for higher and
more cost efficient bandwidth expands. The Company's ability to anticipate
changes in technology, industry standards, customer requirements and product
offerings, as well as its proficiency at developing new and advanced products,
will be significant factors in maintaining its competitive advantage as a
leading independent supplier to the fiber optics communications industry. To
remain competitive, the Company must timely select, develop and market new
products and enhancements on a cost-effective basis. There can be no assurance
that the Company will be successful in selecting, developing and marketing
such new products and enhancements.
The fiber optics communications markets are characterized by continuing
technological advancement. This constant development of technology increases
the risk that current or new competitors could develop products
8
<PAGE>
that would reduce the competitiveness of the Company's products. To compete
successfully, the Company must design, develop, manufacture and sell new
products that provide increasingly higher levels of performance and
reliability. The Company's success in designing, developing, manufacturing and
selling such new products will depend on a variety of factors, including,
without limitation, the identification of market demand for new products,
product selection, the timely implementation of product design and
development, product performance, effective manufacturing processes, and sales
and marketing. There can be no assurance that the technologies and
applications under development by the Company will be successfully developed,
that the Company will successfully develop new products, or that new products
developed by the Company will achieve market acceptance. The Company is
currently devoting substantial resources toward the development of an
avalanche photodetector ("APD") which is designed to provide sensitivity at
higher data transmission speeds and greater bandwidth. The Company expects
that the APD will be commercially introduced in the fourth quarter of fiscal
1998, however, there can be no assurance that it will achieve commercial
acceptance. See "Business--Technology," "--Products" and "--Research and
Product Development."
DEVELOPMENT OF COMPETING TECHNOLOGIES
The markets for the Company's products continue to develop and change,
making it difficult to accurately predict each market's future growth rate,
size and technological direction. In view of the evolving nature of the
various markets utilizing fiber optics technology, there can be no assurance
that providers of telecommunications services will not decide to adopt
alternative architectures or technologies that are incompatible with the
Company's products. Such alternative architectures or technologies would have
a material adverse effect on the Company's business, financial condition and
operating results.
In the video market, direct broadcast satellite and wireless cable delivery
systems compete with CATV operators utilizing fiber optics systems. In
telephone networks, asymmetrical digital subscriber line technology enables
digitally compressed video signals to be transmitted through existing
telephone lines to the home, thereby increasing capacity without the need for
installation of new fiber optics transmission systems. In the event that any
competing architecture or technology were to limit or supplant fiber optics
technology, the Company's business, financial condition and operating results
would be materially adversely affected. See "Business--Technology."
DEPENDENCE ON KEY PERSONNEL
The Company's future success is highly dependent on the continued services
of its executive officers and key management, sales and technical personnel,
and its ability to attract and retain additional key employees. Competition
for such personnel in the fiber optics communications industry is intense, and
there can be no assurance that the Company will be successful in attracting
and retaining such personnel. While the Company does not believe it is
dependent on any one key individual, the loss of the services of one or more
of the Company's executive officers or key personnel, including Noboru
Hiraguri, Vice Chairman and Chief Executive Officer, Yves Dzialowski,
President and Chief Operating Officer, or James Coleman, Vice President and
Chief Financial Officer, could have a material adverse effect on the Company's
business, financial condition and operating results. The Company does not
maintain key-man life insurance for any of its employees. All executive
employees have executed noncompetition agreements. All employees are required
to sign nondisclosure agreements. Such agreements do not, however, ensure the
continued services of such employees. See "Business--Employees" and
"Management."
MANAGEMENT OF EXPANDING OPERATIONS
The growth in the Company's business has placed a significant strain on the
Company's personnel, management and other resources, and is expected to
continue to do so. In order to manage any future expansion effectively, the
Company must successfully attract, train, motivate and manage new employees,
integrate new management and employees into its overall operations and
continue to improve its operational, financial and management systems.
Availability of qualified sales and technical personnel is limited. Moreover,
the Company
9
<PAGE>
expects to increase significantly the size of its domestic and international
sales support staff and expand the scope of its sales and marketing
activities. The Company's failure to manage any expansion effectively could
have a material adverse effect on the Company's business, financial condition
and operating results. See "--Dependence on Key Personnel" and "Business--The
EPITAXX Strategy."
MANUFACTURING RISKS
The Company relies exclusively on its own production capability in wafer
processing, chip fabrication, device packaging, final assembly and testing of
products. Because the Company manufactures, packages and tests these
components at its own facility, and because the Company only has a single
facility, any interruption in manufacturing resulting from fire, natural
disaster, equipment failures or otherwise would have a material adverse effect
on the Company's business, financial condition and operating results. Although
the Company maintains business interruption insurance, such insurance would be
insufficient to guarantee the Company's continued profitability. See
"Business--Manufacturing and Facilities."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY; PROPRIETARY INFORMATION
The Company relies upon a combination of trade secrets, contractual
restrictions, copyrights, trademark laws and patents to establish and protect
proprietary rights in its products and technologies. Although the Company has
been issued one U.S. patent to date, much of the Company's proprietary
information and technology is not patented and may not be patentable. The
Company believes that the success of its business depends primarily on its
proprietary technology, information and processes and know-how, rather than
patents. There can be no assurance that the Company will be able to
independently protect its technology or that competitors will not be able to
develop similar technology. The Company has entered into confidentiality and
invention assignment agreements with all of its employees, and enters into
non-disclosure agreements with its suppliers, distributors and appropriate
customers so as to limit access to and disclosure of its proprietary
information. There can be no assurance that these statutory and contractual
arrangements will deter misappropriation of the Company's technologies or
discourage independent third-party development of similar technologies. In the
event such arrangements are insufficient, the Company's business, financial
condition and operating results could be materially adversely affected. See
"Business--Proprietary Rights."
RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT
The fiber optics communications industry is characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies that are important to the Company. In addition, since patent
applications in the U.S. are not publicly disclosed until the patent is
issued, applications may have been filed by competitors of the Company that
could relate to the Company's products. Although no claim has ever been
asserted against the Company with respect to infringement, the Company may
receive communications from third parties in the future asserting that the
Company's products infringe or may infringe on the proprietary rights of such
third parties. In its distribution agreements, the Company typically agrees to
indemnify its customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties. In the
event of litigation to determine the validity of any third-party claims, such
litigation, whether or not determined in favor of the Company, could result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel. In the event of an adverse ruling in such
litigation, the Company might be required to discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses from third parties. There can be no assurance
that licenses from third parties would be available on acceptable terms, if at
all. A successful claim against the Company and the failure of the Company to
develop or license a substitute technology could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Business--Proprietary Rights."
10
<PAGE>
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to air and water emissions from its manufacturing
facility and to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture the Company's products. Although the Company believes it is in
compliance with current environmental regulations, the failure to comply with
current or future regulations could result in substantial fines or liabilities
being imposed on the Company, suspension of production, alteration of its
manufacturing process or cessation of operations. Such regulations could
require the Company to acquire expensive remediation or abatement equipment or
to incur substantial expenses to comply with environmental regulations. Any
failure by the Company to control the use, disposal or storage of, or
adequately restrict the discharge of, hazardous or toxic substances could
subject the Company to significant liabilities or obligations.
RISKS ASSOCIATED WITH SALES TO INTERNATIONAL MARKETS
Although the Company has been selling internationally since its inception
and has had substantial experience and success with its products in the
international marketplace, the conduct of business outside the U.S. is subject
to certain risks, including unexpected changes in regulatory requirements and
tariffs, difficulties in staffing and managing foreign operations, longer
payment cycles, greater difficulty in accounts receivable collection, currency
fluctuations, expropriation, and potentially adverse tax consequences.
Although less than 5% of the Company's revenue is derived from direct sales to
Asia (excluding Japan), certain of the Company's customers may sell products
into Asian markets. Recent adverse economic developments in Asia could affect
sales by certain of the Company's customers into this region which may, in
turn, have a material adverse effect on the Company's business, financial
condition and operating results. In addition, in order to sell its products
internationally, the Company must meet standards established by
telecommunications authorities in various countries, as well as
recommendations of the International Telecommunications Union. A delay in
obtaining, or the failure to obtain, certification of its products in
countries outside the U.S. could deny or impede the Company's efforts to
increase its market share in such countries, which could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--The EPITAXX Strategy" and "--Marketing and Sales."
NO PRIOR MARKET; STOCK PRICE VOLATILITY
Prior to the offering, there has been no public market for the Company's
capital stock. The initial public offering price will be determined by
negotiations between the Company and the representatives of the Underwriters.
There can be no assurance that an active public market for the Class A Common
Stock will develop or be sustained after the offering or that the market price
of the Class A Common Stock will not decline below the initial public offering
price. The trading price of the Class A Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating
results, announcements of technological innovations or new products by the
Company or its competitors, developments with respect to patents or
proprietary rights, general conditions in the data and telecommunications
industry, changes in earnings estimates by analysts, or other events or
factors. In addition, the stock market has experienced extreme price and
volume fluctuations which have particularly affected the market prices of many
technology companies and have often been unrelated to the operating
performances of such companies. The Company's revenues or operating results in
future quarters may be below the expectations of public market securities
analysts and investors. In such event, the price of the Class A Common Stock
would likely decline, perhaps substantially. These Company-specific factors or
broad market fluctuations may materially adversely affect the market price of
the Class A Common Stock. See "--Fluctuations in Quarterly Operating Results"
and "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Board of Directors is divided into three classes, each of
which is elected and serve overlapping three-year terms. The Board of
Directors is authorized, without further action by the stockholders,
11
<PAGE>
to provide for the issuance of preferred stock in one or more series (the
"Preferred Stock") and to fix the designations, preferences, powers and
relative, participating, optional or other rights and restrictions thereof.
Accordingly, the Company may issue a series of Preferred Stock in the future
that will have preferences over the Common Stock with respect to the payment of
dividends and upon liquidation, dissolution or winding up of the Company, or
which could otherwise adversely affect holders of Class A Common Stock, or
which could discourage or make difficult any attempt to obtain control of the
Company. In addition, voting control by NSG may discourage certain types of
transactions involving an actual or potential change of control of the Company.
See "--Control By and Relationship with NSG", "Relationship Between the Company
and NSG" and "Description of Capital Stock--Preferred Stock" and "--Anti-
Takeover Effects of Restated Certificate of Incorporation and Amended and
Restated Bylaws."
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS
The Company has designated only limited specific uses for the net proceeds
from the offering. After repayment of indebtedness to NSG, an aggregate of $
million of net proceeds will be available for general corporate purposes,
including working capital and capital expenditures. Consequently, the Board of
Directors and management of the Company will have broad discretion in the use
of a significant portion of the net proceeds from the offering. See "Use of
Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock (including shares
issuable upon conversion of outstanding Class B Common Stock) in the public
market after the offering may materially adversely affect prevailing market
prices for the Class A Common Stock and could impair the Company's ability to
raise capital in the future through the sale of its equity securities. Upon the
consummation of the offering, the Company will have 2,175,200 shares of Class A
Common Stock and 5,088,000 shares of Class B Common Stock outstanding. Of these
shares of Common Stock, 2,150,000 shares of Class A Common Stock offered hereby
will be freely tradable without restriction under the Securities Act of 1933,
as amended (the "Securities Act"). The remaining 25,200 shares of Class A
Common Stock and all of the shares of Class B Common Stock will be "restricted
shares" within the meaning of the Securities Act (the "Restricted Shares") and
will be eligible for sale in the public market beginning 180 days after the
date of this Prospectus, pursuant to Rule 144 promulgated under the Securities
Act ("Rule 144") and the expiration of certain lock-up agreements entered into
between the Underwriters and the holders of such Restricted Shares. Of such
Restricted Shares, all of the shares of Class B Common Stock will be subject to
certain volume limitations and other resale restrictions pursuant to Rule 144.
In addition, the Company intends to file a Registration Statement on Form S-8
under the Securities Act ("Form S-8") after the effective date of the offering
to register 574,800 shares of Class A Common Stock, issuable upon the exercise
of stock options granted under the Stock Option Plan. Such shares of Class A
Common Stock issued pursuant to the Stock Option Plan, after the effective
dates of the relevant registration statements, will be available for sale in
the public market, subject to expiration of the lock-up agreements with the
Underwriters.
DILUTION TO PURCHASERS IN OFFERING
Purchasers of Class A Common Stock will experience immediate and substantial
dilution in net tangible book value per share of the Class A Common Stock from
the initial public offering price per share. After giving effect to the sale by
the Company of 2,150,000 shares of Class A Common Stock offered hereby,
assuming an initial public offering price of $ per share and after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value at
December 31, 1997 would have been $ million, or per share of Common Stock.
This represents an immediate dilution in net tangible book value of $ per share
to new investors purchasing shares in the offering. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Class A Common Stock offered hereby,
assuming an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, are approximately $ million (approximately $ if the
Underwriters' over-allotment option is exercised in full).
The Company will use $13.3 million of such proceeds (i) to repay
indebtedness and interest thereon owed on the Dividend Notes, which will bear
interest at 6.02% per annum, to be issued in February 1998 in connection with
a cash dividend the Company declared to the stockholders of record on December
11, 1997 and (ii) to pay down the full balance on the Company's line of credit
from NSG. The balance of the net proceeds will be used for general corporate
purposes, including working capital and capital expenditures. Pending such
uses, the Company intends to invest the proceeds in short-term, investment-
grade, interest-bearing securities. See "Risk Factors--Management's Discretion
as to Use of Unallocated Net Proceeds" and "Relationship Between the Company
and NSG."
DIVIDEND POLICY
The Company previously declared a $10,049,528 cash dividend to the
stockholders of record on December 11, 1997, of which $10 million is payable
to NSG. The Company also declared and paid dividends of $927,000 and $500,000
to NSG with respect to the fiscal years 1997 and 1996, respectively. In order
to retain earnings to finance future growth, the Company does not intend to
pay any further non-stock dividends in the foreseeable future. The declaration
and payment of dividends, if any, will be subject to the discretion of the
Company's Board of Directors and will depend on the Company's earnings,
capital requirements, financial condition, statutory restrictions and other
factors deemed to be relevant by the Board of Directors.
13
<PAGE>
CAPITALIZATION
The following table sets forth certain short-term obligations and
capitalization of the Company as of December 31, 1997 (i) on an actual basis
after giving effect to the Recapitalization and (ii) as adjusted to reflect
the issuance and sale by the Company of 2,150,000 shares of Class A Common
Stock offered hereby, assuming an initial public offering price of $ per
share and after deducting underwriting discounts and commissions and estimated
expenses payable by the Company, the application of the estimated net proceeds
thereof and the payment of the $10,049,528 dividend to the stockholders of
record on December 11, 1997 and the payment of short-term borrowings from NSG
of $3,150,000. The following table should be read in conjunction with the "Use
of Proceeds", "Selected Consolidated Financial Data" and Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings from affiliate under line of cred-
it....................................................... $ 3,150 $
Promissory notes to be issued for dividend declared....... 10,050
------- ----
$13,200
======= ====
Long-term obligations, net of current portion(2).......... 5,052
------- ----
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding........... $ -- $
Class A Common Stock, $0.01 par value; 12,500,000 shares
authorized;
25,200 shares issued and outstanding, actual; and
2,175,200 shares issued and outstanding, as
adjusted(1)............................................
Class B Common Stock, $0.01 par value; 7,500,000 shares
authorized;
5,088,000 shares issued and outstanding, actual; and
5,088,000 shares issued and outstanding, as adjusted... 51
Additional paid-in capital.............................. 12,185
Accumulated deficit..................................... (16,002)
------- ----
Total stockholders' equity (deficit).................. (3,766)
------- ----
Total capitalization................................ $ 1,286 $
======= ====
</TABLE>
- --------
(1) Excludes 574,800 shares of Class A Common Stock reserved for issuance
under the Stock Option Plan, of which options to purchase an aggregate of
171,072 shares were outstanding at a weighted average exercise price of
$3.92. See "Management--Benefit Plans--Amended and Restated 1996 Employee,
Director and Consultant Stock Option Plan."
(2) See Notes 6 and 11 to the Consolidated Financial Statements.
14
<PAGE>
DILUTION
As of December 31, 1997, the net tangible book value (deficit) of the
Company was $ , and the pro forma net tangible book value per share of Common
Stock was $ . Net tangible book value per share represents the amount of
total tangible assets less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale
by the Company of 2,150,000 shares of Class A Common Stock in the offering,
assuming an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the pro forma net tangible book value of the Company as of
December 31, 1997 would have been $ or $ per share. This represents an
immediate dilution in net tangible book value of $ per share to new investors
purchasing shares in the offering. The following table illustrates such per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
----
Pro forma net tangible book value per share before the offer-
ing............................................................ $
----
Increase per share attributable to new investors................
----
Pro forma net tangible book value per share after the offering....
----
Dilution per share to new investors............................... $
====
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by existing
stockholders and by new investors purchasing shares of Class A Common Stock
offered by the Company hereby, assuming an initial public offering price of
$ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 5,113,200 70.4% $12,236,000 % $2.39
New investors........... 2,150,000 29.6
--------- ----- ----------- -----
Total................. 7,263,200 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options to
purchase Common Stock. As of December 31, 1997, there were outstanding options
to purchase 171,072 shares of Class A Common Stock at a weighted average
exercise price of $3.92 per share. To the extent such options are exercised,
there will be further dilution to the new investors. If all outstanding
options as of December 31, 1997 were included above, the pro forma net
tangible book value per share at December 31, 1997, after giving effect to the
offering, would have been $ and the dilution per share to new investors
would have been $ . See "Capitalization," "Management--Benefit Plans--
Amended and Restated 1996 Employee, Director and Consultant Stock Option Plan"
and "Description of Capital Stock."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The selected consolidated financial data set
forth below as of March 31, 1996 and 1997 and as of December 31, 1997 and for
each of the years ended March 31, 1995, 1996 and 1997 and for the nine months
ended December 31, 1997 are derived from the Company's Consolidated Financial
Statements including the Notes thereto which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The consolidated
financial data for the nine months ended December 28, 1996 are derived from
unaudited consolidated financial statements. The unaudited consolidated
financial statements have been prepared on a basis consistent with the
Company's audited consolidated financial statements and, in the opinion of
management, include all normal recurring adjustments necessary for a fair
presentation of the financial data for the period presented. The operating
results for the nine months ended December 31, 1997 are not necessarily
indicative of the results that may be expected for the full year ending March
31, 1998. The selected consolidated financial data as of March 31, 1993, 1994
and 1995 and for each of the years ended March 31, 1993 and 1994 are derived
from audited Consolidated Financial Statements not included in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996(1) 1997
------- ------- ------- ------- ------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenues.......... $ 7,666 $12,342 $15,622 $19,762 $21,209 $ 15,487 $ 18,348
Cost of revenue......... 4,916 7,175 9,948 10,876 13,978 10,241 10,720
------- ------- ------- ------- ------- -------- --------
Gross profit......... 2,750 5,167 5,674 8,886 7,231 5,246 7,628
------- ------- ------- ------- ------- -------- --------
Operating expenses:
Research and develop-
ment expense.......... 935 711 1,513 2,082 2,541 1,982 2,158
Selling, general and
administrative ex-
pense................. 2,001 2,949 2,705 3,555 3,187 2,262 2,794
------- ------- ------- ------- ------- -------- --------
Total operating ex-
penses.............. 2,936 3,660 4,218 5,637 5,728 4,244 4,952
------- ------- ------- ------- ------- -------- --------
Income (loss) from oper-
ations................. (186) 1,507 1,456 3,249 1,503 1,002 2,676
Other income (expense).. (210) (378) (447) (458) (456) (360) (357)
Amortization costs in
excess of net assets
acquired and other
intangible assets...... 2,524 -- -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Income (loss) before
income tax expense
(benefit).............. (2,920) 1,129 1,009 2,791 1,047 642 2,319
Income tax expense (ben-
efit).................. -- 58 (460) 936 409 250 765
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $(2,920) $ 1,071 $ 1,469 $ 1,855 $ 638 $ 392 $ 1,554
======= ======= ======= ======= ======= ======== ========
Pro forma net income per
share(2):
Basic ................. $ 0.10 $ 0.25
Diluted................ $ 0.10 $ 0.25
Shares used in per share
calculation:
Basic.................. 6,118 6,118
Diluted................ 6,250 6,237
OTHER FINANCIAL DATA:
Capital expenditures.... $ 2,780 $ 973 $ 908 $ 2,061 $ 2,418 $ 1,719 $ 1,479
Cash dividends de-
clared................. -- -- -- $ 500 $ 927 $ 927 $ 10,050
CONSOLIDATED BALANCE
SHEET DATA (AT PERIOD
END):
Cash................... $ 312 $ 14 $ 59 $ 91 $ 109 $ 823 $ 940
Working capital........ (312) 816 2,189 2,852 1,395 1,334 (7,694)
Total assets........... 10,230 11,482 12,613 16,771 16,977 16,491 18,286
Long-term obligations,
net of current por-
tion.................. 5,000 5,000 5,000 5,000 5,133 5,000 5,052
Stockholders' equity
(deficit)............. 1,073 2,143 3,613 4,967 4,730 4,483 (3,766)
</TABLE>
- --------
(1) The Company's third quarter for the 1997 fiscal year ended on December 28,
1996.
(2) See note 3 of the Consolidated Financial Statements for an explanation of
the determination of shares used to compute pro forma net income per
share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, manufactures and markets semiconductor optical
detectors and receivers for fiber optics communications. By virtue of its
specialization, the Company is able to serve many different markets in the
fiber optics communications industry. The Company's products are integral to
the development and implementation of fiber optics systems for applications
such as high capacity, long-haul terrestrial and undersea transmission;
digital local loop and access networks; multi-channel CATV distribution; high-
speed computer networking and test and measurement equipment. Each sector of
the fiber optics market requires a degree of specialization which differs from
that of the others. The growth or decline in one sector does not necessarily
affect the other sectors. Profitability varies from product to product and
trends in profitability from the different sectors are not necessarily linked.
The Company derives nearly all of its sales from the production and sale of
optical detectors and receivers used in the fiber optics industry. A small
percentage of sales is derived from contracts for research and development of
products for government agencies and private concerns. The Company has grown
in revenue over the past five years at a compound annual growth rate of 29%,
and has been profitable for the last four years. Income has increased as a
percentage of revenue over this time, with the exception of fiscal year 1997,
when the Company was exposed to decreasing margins in the high-speed computer
networking business and to inventory obsolescence. As the Company has grown,
however, the rate of new product introductions has increased, the mix of
product revenue has changed and the customer base has broadened. In the past,
certain significant customers' purchase patterns have materially affected the
Company's operating results. The Company believes that it has reduced this
uncertainty. While the Company does not have any customers whose sales
represent more than 10% of the Company's revenue in the nine months ended
December 31, 1997, the Company has historically, and will likely in the
future, have customers who will account for more than 10% of the Company's
revenue in a single fiscal year.
The Company recognizes revenue upon shipment, passage of title and when all
significant obligations of the Company have been satisfied. Some international
sales are secured by letters of credit. Reserves for estimated warranty and
bad debts are maintained. Revenue from research contracts has been recognized
according to the terms of the contracts.
The Company sells its products worldwide and generates a significant portion
of its sales outside North America, including Europe, Canada, Japan, China and
Israel. All sales are quoted and delivered in U.S. dollars, which prevents
currency risk; however, the Company competes with foreign suppliers with price
structures affected by currency fluctuations. The percentage of revenue by
geographic region in fiscal years 1995, 1996, 1997 and the nine months ended
December 31, 1997 was approximately as follows: to North America, 45%, 39%,
52% and 51%, respectively; to Europe, 39%, 44%, 21% and 37%, respectively; to
Asia and other countries, 16%, 16%, 27% and 12%, respectively.
The Company has entered into a Distribution Agreement with NSG pursuant to
which NSG acts as the exclusive distributor of all the Company's products in
Japan. In fiscal years 1995, 1996 and 1997 and the nine months ended December
31, 1997, revenue from NSG pursuant to the Distribution Agreement was $1.8
million, $1.9 million, $2.5 million and $1.1 million, respectively.
Over the past several years, EPITAXX has consistently increased its research
and development spending as it strives to introduce new products as quickly as
possible. The Company allocates a significant percentage of revenue toward
research and development. Research and development expenses consist primarily
of employee compensation and costs related to new product prototyping. New
products are seen as a key factor in maintaining continued growth in sales and
profitability. Spending for research and development in fiscal years 1995,
1996, 1997 and the nine months ended December 31, 1997 was $1.5 million, $2.1
million, $2.5 million and $2.1 million, respectively (9.7%, 10.5%, 12.0% and
11.8% of revenue).
17
<PAGE>
As of December 31, 1997, the Company had an order backlog of $9.3 million
compared to a backlog of $5.7 million a year earlier. Backlog consists only of
customer orders that the Company has accepted and are deliverable within one
year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
and expense items expressed as a percentage of the Company's total revenue.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
----------------------------------
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
------------------- -------------
1995 1996 1997 1996(1) 1997
----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Revenue................................. 88.5% 90.3% 88.2% 88.1% 93.9%
Revenue from affiliate.................. 11.5 9.7 11.8 11.9 6.1
----- ----- ----- ----- -----
Total revenue......................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue......................... 63.7 55.0 65.9 66.1 58.4
----- ----- ----- ----- -----
Gross profit.......................... 36.3 45.0 34.1 33.9 41.6
Operating expenses:
Research and development.............. 9.7 10.5 12.0 12.8 11.8
Selling, general and administrative... 17.3 18.0 15.0 14.6 15.2
----- ----- ----- ----- -----
Total operating expenses................ 27.0 28.5 27.0 27.4 27.0
----- ----- ----- ----- -----
Income from operations.................. 9.3 16.4 7.1 6.5 14.6
Other income (expense).................. (2.9) (2.3) (2.2) (2.3) (1.9)
Income tax expense (benefit)............ (2.9) 4.7 1.9 1.6 4.2
----- ----- ----- ----- -----
Net income.............................. 9.4% 9.4% 3.0% 2.5% 8.5%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The Company's third quarter for the 1997 fiscal year ended on December 28,
1996.
Nine Months Ended December 31, 1997 Compared to Nine Months Ended December
28, 1996
Revenue. Revenue for the nine months ended December 31, 1997 increased
18.1% to $18.3 million from $15.5 million for the nine months ended December
28, 1996. The Company increased its sales of products for long-haul
transmission, CATV and test and measurement equipment applications while
reducing its sales of products for computer networking due to price erosion in
that market. The Company introduced new products for the long-haul
transmission market while shifting away from some of its less specialized
products.
Gross Profit. Gross profit for the nine months ended December 31, 1997
increased by 46.2% to $7.6 million from $5.2 million for the nine months ended
December 28, 1996. Gross profit as a percentage of revenue increased to 41.6%
from 33.9%. This improvement in profitability was mainly due to the change in
product mix.
Research and Development Expenses. Research and development expenses for the
nine months ended December 31, 1997 increased by 10.0% to $2.2 million from
$2.0 million for the nine months ended December 28, 1996. Research and
development expenses as a percentage of revenue decreased to 11.8% from 12.8%.
Research and development expenses consist primarily of employee compensation
and costs related to new product prototyping.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended December 31, 1997 increased
21.7% to $2.8 million from $2.3 million for the nine months ended December 28,
1996. Selling, general and administrative expenses as a percentage of revenue
increased to 15.2% from 14.6%. These expenses consist primarily of salaries
and benefits, sales commissions and travel. Such increase was the result of
the hiring of additional staff for the marketing department and higher
commissions paid on additional sales.
18
<PAGE>
Other Income (Expense). Other income (expense) remained relatively constant
for the nine months ended December 31, 1997 at ($357,000) compared to
($360,000) for the nine months ended December 28, 1996. Other expense,
consisting primarily of interest expense, as a percentage of revenue decreased
to (1.9)% from (2.3)%.
Income Tax Expense (Benefit). Income tax expense for the nine months ended
December 31, 1997 was $765,000 compared to $250,000 for the nine months ended
December 28, 1996. Income tax expense was incurred at an effective rate of
33.0% for the nine months ended December 31, 1997, compared to 38.9% for the
nine months ended December 28, 1996, reflecting higher research and
development credits and preferred tax treatment from the Company's subsidiary,
a foreign sales corporation in St. Thomas, U.S. Virgin Islands, formed in the
third quarter of the 1997 fiscal year.
Year Ended March 31, 1997, Compared to Year Ended March 31, 1996
Revenue. Revenue for the year ended March 31, 1997 increased 7.0% to $21.2
million from $19.8 million for the year ended March 31, 1996. Sales in the
transmission, access and CATV markets increased by approximately 20.0%. This
increase was offset, however, by pricing pressure and subsequent decreased
sales in the computer networking market. In addition, the Company completed
the sales of custom products for a defense application and saw a reduction in
development contracts both of which totaled approximately $1.0 million.
Gross Profit. Gross profit for the year ended March 31, 1997 decreased by
19.1% to $7.2 million from $8.9 million for the year ended March 31, 1996.
Gross profit as a percentage of revenue decreased to 34.1% from 45.0%. Such a
decline was primarily due to price erosion in the computer networking product
market. The decline in gross profit was also due to the reduction in special
product sales for defense and space applications. Additionally, inventory was
reduced by 28.1% or $1.4 million, in part to account for product obsolescence
and to reduce work-in-process.
Research and Development Expenses. Research and development expenses for the
year ended March 31, 1997 increased by 19.0% to $2.5 million from $2.1 million
for the year ended March 31, 1996. Research and development expenses as a
percentage of revenue increased to 12.0% in 1997 from 10.5% in 1996. Increased
spending in the development of new CATV and transmission products including
the APD, was the primary cause of this increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended March 13, 1997 decreased 11.1% to
$3.2 million from $3.6 million for the year ended March 31, 1996. Selling,
general and administrative expenses as a percentage of revenue decreased to
15.0% in 1997 from 18.0% in 1996. Such decrease was due to a normalization of
expenses. In the year ended March 31, 1996, several multi-year management
incentive targets were met, triggering an additional provision for that year.
Other Income (Expense). Other income (expense), remained relatively constant
at ($456,000) for the year ended March 31, 1997 compared to ($458,000) for the
year ended March 31, 1996. Other expense, consisting primarily of interest
expense, as a percentage of revenue, decreased to (2.2)% from (2.3)%.
Income Tax Expense (Benefit). Income tax expense for the year ended March
31, 1997 was $409,000 in 1997 compared to $936,000 for the year ended March
31, 1996. The effective income tax rate for the fiscal year ended March 31,
1997 increased to 39.1% from 33.5% for the fiscal year ended March 31, 1996.
Included in the percentage increase is an adjustment of deferred income taxes
estimated in prior years associated with net operating loss carryforwards and
depreciation.
Year Ended March 31, 1996, Compared to March 31, 1995
Revenue. Revenue for the year ended March 31, 1996 increased 26.9% to $19.8
million from $15.6 million for the year ended March 31, 1995. This increase
resulted mostly from sales of products for digital local loop and access
networks as well as for CATV applications. Sales for CATV applications more
than doubled; at the same time, the Company's new products for digital
applications found commercial acceptance.
19
<PAGE>
Gross Profit. Gross profit for the year ended March 31, 1996 increased by
56.1% to $8.9 million from $5.7 million for the year ended March 31, 1995.
Gross profit as a percentage of revenue increased to 45.0% from 36.3%. This
increase resulted primarily from the sale of new products for CATV and digital
local loop applications. Additionally, inventory increased by 65% to $5.1
million in the year ended March 31, 1996, in anticipation of future demand in
the high-speed computer networking market. The absorption of overhead from
this higher level of production helped to reduce the Company's overall cost of
sales.
Research and Development Expenses. Research and development expenses for the
year ended March 31, 1996 increased by 40.0% to $2.1 million from $1.5 million
for the year ended March 31, 1995. Research and development expenses as a
percentage of revenue increased to 10.5% in 1996 from 9.7% in 1995. Increased
spending in the development of products for high speed data communications and
custom products for the defense industry, was the primary cause of the
increase in research and development expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended March 31, 1996 increased 33.3% to
$3.6 million from $2.7 million for the year ended March 31, 1995. Selling,
general and administrative expenses as a percentage of revenue increased to
18.0% in 1996 from 17.3% in 1995. Such an increase was due primarily to the
impact of a management incentive program that covered the two prior years.
Several multi-year targets for revenue growth were met in 1996, triggering the
additional provision that year. The charge in 1996 and 1995 for such provision
was $660,000 and $337,000, respectively.
Other Income (Expense). Other income (expense), remained relatively constant
at ($458,000) for the year ended March 31, 1996 compared to ($447,000) for the
year ended March 31, 1995. Other income and expenses, consisting primarily of
interest expense, as a percentage of revenue decreased to (2.3)% from (2.9)%.
Income Tax Expense (Benefit). Income tax expense for the year ended March
31, 1996 was $936,000 compared to a ($460,000) benefit for the year ended
March 31, 1995. The effective income tax rate for the year ended March 31,
1996 increased to 33.5% from (45.5)% for the year ended March 31, 1995. The
change in the effective tax rate is primarily due to the utilization of net
operating loss and tax credit carry forwards by NSG for which the Company
received a benefit under a tax sharing agreement entered into by the Company
and NSG. Such agreement became effective for the fiscal year ended March 31,
1994 and the Company realized the benefit in the year ended March 31, 1995
upon NSG filing, for the first time, a consolidated U.S. Federal corporation
income tax return for the year ended March 31, 1994 utilizing the Company's
net operating loss and tax credit carryforwards. The Company's results of
operations have been included in NSG's consolidated income tax return since
1994.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present the Company's unaudited quarterly consolidated
financial information, expressed in dollars and as a percentage of total
revenue, for the eight most recent fiscal quarters. The Company believes that
all necessary adjustments have been included in the amounts below to present
the selected quarterly information fairly when read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. These operating results are not necessarily indicative of
results that may be expected for any subsequent periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 28, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED RESULTS OF
OPERATIONS:
Total revenue.......... $6,019 $5,400 $5,165 $4,921 $5,723 $6,120 $5,887 $6,341
Cost of revenue........ 3,412 3,525 3,809 2,906 3,738 3,565 3,501 3,654
------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 2,607 1,875 1,356 2,015 1,985 2,555 2,386 2,687
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 605 713 675 594 559 697 671 790
Selling, general and
administrative........ 933 765 668 829 925 889 919 986
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses ............. 1,538 1,478 1,343 1,423 1,484 1,586 1,590 1,776
------ ------ ------ ------ ------ ------ ------ ------
Income from
operations............ 1,069 397 13 592 501 969 796 911
Other income
(expense)............. (109) (113) (125) (122) (96) (133) (190) (34)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income tax expense
(benefit)............. 960 284 (112) 470 405 836 606 877
Income tax expense
(benefit)............. 323 111 (44) 183 159 275 200 290
------ ------ ------ ------ ------ ------ ------ ------
Net income............. $ 637 $ 173 $ (68) $ 287 $ 246 $ 561 $ 406 $ 587
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 28, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUE:
Total revenue.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue........ 56.7 65.3 73.7 59.1 65.3 58.3 59.5 57.6
------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 43.3 34.7 26.3 40.9 34.7 41.7 40.5 42.4
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 10.1 13.2 13.1 12.1 9.8 11.4 11.4 12.5
Selling, general and
administrative........ 15.5 14.2 12.9 16.8 16.1 14.5 15.6 15.5
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 25.6 27.4 26.0 28.9 25.9 25.9 27.0 28.0
------ ------ ------ ------ ------ ------ ------ ------
Income from
operations............ 17.8 7.3 0.3 12.0 8.8 15.8 13.5 14.4
Other income
(expense)............. (1.8) (2.0) (2.4) (2.4) (1.7) (2.1) (3.2) (0.5)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income tax expense
(benefit)............. 16.0 5.3 (2.1) 9.6 7.1 13.7 10.3 13.9
Income tax expense
(benefit)............. 5.4 2.1 (0.9) 3.7 2.8 4.5 3.4 4.6
------ ------ ------ ------ ------ ------ ------ ------
Net income............. 10.6% 3.2% (1.2)% 5.9% 4.3% 9.2% 6.9% 9.3%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
21
<PAGE>
Revenue has fluctuated from quarter to quarter. There are no seasonal
fluctuations in any particular customer's buying habits; however, the Company
generally experiences a larger volume of shipments in its fourth quarter.
Variation in sales from quarter to quarter is primarily influenced by large
short-term increases in demand for specific products from large customers.
Gross profit on a quarterly basis has fluctuated primarily due to sales mix.
Other factors, such as obsolete inventory adjustments and factory efficiency,
can have an impact in any given quarter.
The Company's operating expense levels have fluctuated over time. Sales,
general and administrative expenses are typically budgeted in accordance with
anticipated future sales. Fluctuations due to variation in quarterly sales
commission and management bonus accrual can impact the expense accrued in any
quarter. During fiscal year 1996, selling, general and administrative expenses
were accrued at a higher than average rate due to multi-year management bonus
compensation for meeting performance targets. Several multi-year targets for
revenue growth were met in 1996, triggering the additional provision that
year. It is anticipated that such bonuses in the future will be replaced by
option grants under the Company's Stock Option Plan and smaller, short-term
bonuses which are earned and paid on an annual basis. Quarterly research and
development costs are determined on an annual basis and depend on the
development effort required for the products proposed by the marketing
department or customers. Some research and development projects are funded by
customers. During any given period, some effort and corresponding expenses can
be diverted to customer funded research projects. The Company has experienced,
and expects to continue to experience, fluctuations in sales and operating
results from quarter to quarter. As a result, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful, and that such comparisons cannot be relied upon as indicators of
future performance. See "Risk Factors--Fluctuations in Quarterly Operating
Results."
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations was approximately $2.7 million for the nine
months ended December 31, 1997 and $2.7 million and $1.9 million for the
fiscal years ended March 31, 1997 and 1996, respectively.
The Company has financed recent working capital needs and capital
requirements primarily with internally generated funds and a line of credit
from NSG during fiscal years 1997 and 1996, and from Sumitomo Bank during
fiscal year 1995. On May 31, 1997, the Company renewed a line of credit from
NSG in the amount of $6.0 million. The line of credit allows the Company to
borrow at LIBOR plus 0.25% with a maturity date of May 31, 1998 which has been
extended to March 31, 1999. See "Relationship Between the Company and NSG--
Agreement for Line of Credit." The outstanding balance on the line of credit
was $3.2 million as of December 31, 1997 and $3.4 million and $2.7 million at
the end of fiscal years 1997 and 1996, respectively. The Company intends to
pay down the full $3.2 million balance on the line of credit with the net
proceeds from the sale of the Class A Common Stock offered hereby.
Capital expenditures were $1.5 million for the nine months ended December
31, 1997 and $2.4 million and $2.1 million for the fiscal years ended March
31, 1997 and 1996, respectively. Machinery and equipment additions were $1.2
million for the nine months ended December 31, 1997 and $2.9 million and $1.3
million for the fiscal years ended March 31, 1997 and 1996, respectively.
Building and improvements accounted for nearly all of the remaining capital
expenditures.
Working capital was $(7.7) million as of December 31, 1997 and $1.4 million
and $2.9 million at the end of fiscal years 1997 and 1996, respectively.
The Company believes that the net proceeds of this offering, together with
internally generated funds and the line of credit facility, will provide it
with sufficient funds for at least the next 12 months.
22
<PAGE>
RECENT ACCOUNTING PRONOUCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in the
financial statements. Comprehensive income is the total of net income and all
other non-owner changes in equity. SFAS 131 requires that companies disclose
segment data based on how management makes decisions about allocating
resources to segments and measuring segment performance. SFAS 130 and 131 are
effective for the Company's 1999 fiscal year. Adoption of these standards is
expected to result in additional disclosures, but is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
23
<PAGE>
BUSINESS
OVERVIEW
The Company designs, manufactures and markets semiconductor optical
detectors and receivers for fiber optics communications. By virtue of its
specialization in optical detector and receiver products, the Company is able
to serve many different markets in the fiber optics communications industry.
The Company's products are integral to the development and implementation of
fiber optics systems for applications such as high capacity, long-haul
terrestrial and undersea transmission; digital local loop and access networks;
multi-channel CATV distribution; high-speed computer networking and test and
measurement equipment.
EPITAXX is a leading independent photonics devices company in its product
areas. The Company believes that its expertise in InGaAs semiconductor
material and optical detector device engineering, precision opto-mechanical
assembly processes and high performance digital and analog receiver circuits
enables the Company to provide a broad range of high performance optical
detector products that can be quickly and cost-effectively adapted to a
variety of customer needs and technologies. Further, because of its focus on
detectors, EPITAXX is able to respond quickly to evolving technologies and
increasingly complex applications.
The global communications industry has undergone significant transformation
and growth since the mid-1980s as a result of increased demand for
communications services and applications, as well as advances in technology
and changes in public policy. Communications service providers continue to
increase the capacity of their networks and build new networks to meet the
demand for high bandwidth applications, which in turn has significantly
increased the use of fiber optics equipment.
The Company counts among its customers many of the leading fiber optics
communications equipment manufacturers, including such companies as CIENA
Corporation, Finisar Corporation, Harmonic Lightwave, Inc., Hewlett-Packard
Company, Inc., JDS FITEL, Inc., Lucent Technologies, Inc., Philips Broadband
Networks, Inc., Philips N.V., Pirelli SpA, and Siemens AG.
INDUSTRY BACKGROUND
Demand for new data services and global communications connectivity is
growing at an unprecedented rate. Facsimile, electronic mail and, more
recently, the increasing demand for access to the World Wide Web have combined
to create a rapidly growing demand for digital data bandwidth. This increasing
volume of data, which by nature is long distance, of longer duration, and
higher density, has placed a heightened burden on networks originally designed
only for voice transmission. Industry sources estimate that the transmission
of digital signals will increase the growth in telecommunications network
bandwidth by 35% per year from 1996 through 2006.
Concurrently, the worldwide deregulation of the telecommunications industry
has created significant competition for the provision of voice, video and data
services. In telephony, new inter-exchange carriers ("IXCs") are implementing
their own networks in order to avoid dependence on their established
competitors in the long distance transmission market. To meet this competition
at the local level, competitive access providers are building new
infrastructure for both voice and data traffic. In addition, CATV system
operators have been modernizing their networks over the past few years in
response to emerging competition from telecommunications and direct broadcast
satellite operators. Even the traditionally protected market of undersea
transoceanic communications is now open to competition as many current systems
reach capacity.
For high bandwidth applications, fiber optics systems, as opposed to other
media or technologies, presently provide the greatest transmission capacity
with a high degree of efficiency. Fiber optics systems, limited only by the
speed of electronic switching, are capable of carrying more bandwidth than
competing media due to their ability to carry multiple channels, or
wavelengths, on the same fiber. Fiber optics systems have demonstrated their
value in the long-haul part of the network where high-volume traffic makes
them a lower cost choice. As traffic increases, this cost per bit advantage is
also realized at the network's access level. Moreover, optical fiber allows
longer transmission distances without the need for regenerators, provides
increased reliability and is immune to the electromagnetic interference which
affects conventional copper wire lines.
24
<PAGE>
A typical fiber optics communications link consists of: light sources,
either lasers or light-emitting diodes, which convert electronic signals into
light pulses or modulated beams; the fiber itself, which is the transmission
medium; different passive components to route, insert, or split signals,
depending on the topology of the network; and optical detectors and receivers
which relay or reconvert the optical signal into electronic format for
delivery to a common electronic device such as a telephone, TV or computer.
The optical receiver provides essential performance characteristics to the
optical link. For example, the sensitivity of an optical receiver (i.e., its
ability to detect signals that have been attenuated during transmission)
ultimately sets the maximum length of the optical link at a given data rate.
The transformation from electronic to optical transmission infrastructures
has been made possible in large part by technical breakthroughs in the optical
components that constitute the system fabric. New optical components are
enabling new communications architectures with increased bandwidth and
improved network performance, as well as reduced system implementation and
operation costs. For instance, dense wavelength division multiplexing ("DWDM")
is now creating a major shift in network infrastructure design, which, in
turn, intensifies the need for new components. Increasingly, network
architectures are becoming more complex and suppliers of components are
required to sharpen their specific skills in order to respond to technological
challenges and provide increasingly higher performance and customization to
the specific needs of equipment designers and manufacturers. Additionally, due
to rapid implementation of new transmission technologies, shorter product
development cycles are required.
Historically, the fiber optics equipment industry consisted of vertically
integrated companies that provided entire systems, complete with the internal
capabilities to produce components for use in their own systems. These
companies have been challenged by new system designers focusing on specific
markets within the industry. The increasingly competitive landscape has caused
the vertically integrated companies to seek specialized expertise from
independent, non-competing suppliers, allowing the vertically integrated
companies to focus their resources on their core business at the system level.
At the same time, the new system providers who compete with the vertically
integrated companies lack photonics components technology. As a result, these
new system providers also value independent suppliers of such critical
components.
THE EPITAXX SOLUTION
EPITAXX provides leading telecommunications equipment manufacturers with a
variety of efficient, high-performance optical detectors and receivers for
fiber optics systems. The Company distinguishes itself by focusing on optical
detector and receiver products and believes that this focus gives it both a
technical and a service advantage over companies that make both laser sources
and detectors. The Company's focus on optical detectors and receivers permits
more rapid and accurate responses to the needs of customers developing new
applications. EPITAXX's manufacturing, assembling and testing processes are
designed to satisfy its customers' needs for key engineering and manufacturing
flexibility since they often require customization, small batches and short
lead time. The Company seeks to establish itself as the preferred provider of
optical detector products to the new system providers. Additionally, the
Company's status as an independent supplier creates opportunities to replace
the internal production, or to become an alternate production source, of
certain components at vertically integrated companies wishing to focus on
their core competencies. As a result of the Company's concentration on
detector products and its technological strengths in optical packaging and
electronic interfaces, it is able to offer a very diverse product portfolio of
high performance products such as: digital optical detectors for short
distance, medium data rate communications in the local loop and access
markets; receivers for transmission at higher data rates from 50 megabits per
second ("Mbps") to 2.5 gigabits per second ("Gbps"); analog detectors and
receivers for CATV applications; high reliability detectors for undersea
communications systems; and detector assemblies for instrumentation and fiber
optics test equipment.
THE EPITAXX STRATEGY
The Company's goal is to become the dominant provider of high-performance
optical detectors. The key elements of the EPITAXX strategy are:
25
<PAGE>
Target New Applications in Rapidly Growing Markets. The Company leverages
its expertise in optical detector products and its technical strengths in
exotic semiconductors, electronic interfaces and optics to develop products
with the highest added value in the markets with high growth potential. For
example, long-haul transmission currently constitutes the fastest growing
segment of the fiber optics component market, including development of DWDM
equipment. EPITAXX has pursued this opportunity since its emergence and as a
result, for the nine months ended December 31, 1997 the long-haul transmission
market utilizing DWDM represented more than 20% of the Company's revenue
compared to 7% for the same period a year ago.
Extend Technology Leadership. EPITAXX seeks to build upon its strength in
technology innovation to ensure that its products remain in the forefront of
the fiber optics market. The Company's overall objective is to fulfill its
customers' expectations with more complete solutions through continued
investment in research and development. The rapid advancement of fiber optics
systems is creating the need for many new, more sophisticated optoelectronics
products. EPITAXX is developing advanced components for future customer
applications such as new detector products with increased functionality for
both multi-channel monitoring and signal conversion for DWDM, ultrafast
detectors and receivers for 10 Gbps systems and novel packaging platforms for
distributing fiber closer to the home.
Intensify Customer Collaborations. EPITAXX works closely with its key
customers in order to jointly engineer future generations of complex photonic
devices. As a result, the Company's products are tailored for, and often
designed into, its customers' products. The migration toward all-optical
networks requires collaboration with customers at very early stages of
development. By maintaining and further developing this collaborative approach
to the product development cycle, the Company seeks to continue to be designed
into products going into future optical architectures.
Broaden Customer Base. The Company intends to continue to broaden its
customer base by leveraging its expertise in detectors and receivers,
developing new fiber optics products and expanding its market reach. EPITAXX
seeks to build upon its current position as an industry specialist in order to
attract the emerging equipment suppliers in a rapidly growing industry. As a
result of its experience in the development of optical detectors and
receivers, the Company can provide new system suppliers with more rapid access
to the market. The Company also believes that an opportunity exists for it to
sell its products to additional vertically integrated equipment suppliers as
competitive pressures force these suppliers to focus increasingly on system,
rather than component, development.
Continue Commitment to Improve Response Times and Customer Service. EPITAXX
has differentiated itself from its competitors through the quality of its
products and its rapid response time. The Company intends to continue to
reduce its engineering and customization cycles through the development of
flexible product and process platforms. This development will allow the
Company to respond quickly to different market requirements with reliable
products while optimizing engineering and manufacturing resources. Moreover,
the Company will continue the streamlining of its operation in order to reduce
manufacturing cycle times and product costs. Continued attention to the
improvement of the operating process is necessary to advance the Company's
competitive position.
26
<PAGE>
TECHNOLOGY
Fiber optics links contain three basic elements: the transmitter that
converts electrical signal input to optical output; the optical fiber that
carries the signal; and the receiver, which includes an optical detector, that
converts the optical signal into electrical output. EPITAXX focuses on the
receiver element.
[SCHEMATIC OF A BASIC FIBER OPTICS LINK; COMPONENTS OF THE LINK ARE IDENTIFIED
WITH CAPTIONS]
Current telecommunications and CATV transmissions use fiber which carries
signals in the 1.3 micron to 1.5 micron wavelength region. Optical detectors
for signals at such wavelengths are generally made of Indium Gallium Arsenide
("InGaAs"). InGaAs is a compound semiconductor crystal fabricated by growing
successive thin layers of different materials on an Indium Phosphide substrate
through a deposition process known as epitaxy. The resulting material is a
semiconductor material sensitive to light in the 0.8 micron to 1.7 micron
wavelength range. From this material, manufactured in wafer form, the
fabricated semiconductor detector chip is at the core of all optical detector
and receiver products. This chip generates an outgoing electron upon receiving
an incoming photon.
EPITAXX applies its semiconductor materials expertise to design the proper
InGaAs structure which enables the chip to meet required performance
characteristics. Such designs involve precise specifications of materials
composition, doping levels and device geometry to meet a combination of
performance requirements such as signaling speed, noise level, linearity and
sensitivity. The Company is currently developing InGaAs avalanche
photodetectors ("APDs") which generate multiple electrons for each incoming
photon. Conventional InGaAs photodetectors convert light into electrical
current without signal gain. However, APDs create gain during the conversion
process and consequently amplify the incoming signal. This additional gain
provides flexibility to system designers by allowing transmission over longer
distances, or by saving optical and electrical amplification stages. InGaAs
APDs are designed to use the same compound semiconductor materials as their
conventional counterparts, albeit with a much higher level of complexity in
device structure and fabrication.
[SCHEMATIC OF DETECTOR CHIP, DETECTOR MODULE AND OPTICAL RECEIVER; COMPONENTS
ARE IDENTIFIED WITH CAPTIONS]
In most cases, the InGaAs detector chip is attached to a package and
encapsulated. The resulting structure provides an optical interface, such as a
lens or a window, which allows incoming light to be guided to the detector. A
detector module incorporates this assembly with a fiber pigtail or connector
housing and is used by system designers at the board level. Since these high-
speed InGaAs chips range from 10 to 100 microns in diameter for most high
speed products and these detectors have to collect light coming from a very
narrow fiber aperture, the packaging process requires extreme precision. The
Company conducts rigid assembly of the detectors, optical coupling lenses and
optical fiber, all within tolerances measured in microns.
Receivers incorporate a low-noise optical detector chip with high
performance front-end amplifier circuitry, for either digital or analog
operation. Receivers provide pre-amplified voltage, rather than electrical
current, to the output interface and drive electronic circuitry within video
or networking equipment. The stringent performance requirements include
operation at very high frequencies up to several gigahertz ("GHz") and low
current (picoampere), both of which are contingent on integrating the detector
and the electronic circuitry in a small package. Receivers for high-speed
digital operation are optimized for low noise and bandwidth. By comparison,
receivers for analog CATV are optimized for low distortion.
27
<PAGE>
In addition to the basic signal reception function, optical detectors and
receivers are used in many other portions of the network. Detectors at various
levels of integration (chip, module) are used throughout the optical network.
For example, laser transmitters incorporate a detector to monitor and stabilize
the laser power. Optical amplifiers include several detector modules to monitor
the input and output signals of the amplifier and to regulate the pump power of
the amplifier. Receivers are ubiquitous in the network. For instance, receivers
are found not only at the end of the transmission line, but also where signals
are dropped or added as well as in switching offices. Increasingly complex
network architectures such as DWDM involve management of multiple wavelengths.
Each wavelength requires a distinct receiver at the end of the transmission
path, therefore the use of DWDM multiplies the number of receivers used in
portions of the network. Furthermore, detectors and receivers serve new roles
in support of the higher precision required to effect multiple wavelength
signaling. Examples of such use include monitors to adjust wavelength power and
signal converters, both used to ensure the signal integrity for each of the
multiple wavelength transmissions.
[SCHEMATIC DRAWING OF CATV NETWORK; SCHEMATIC DRAWING OF OPTICAL AMPLIFIER AND
DWDM SYSTEM; COMPONENTS ARE IDENTIFIED WITH CAPTIONS]
The increasing use of InGaAs detectors and receivers at all levels of the
network has led to increasing levels of customization; the operational and
packaging requirements diverge depending on the function performed by that
specific component. A significant number of the Company's customers purchase
products specially adapted to certain levels of performance or to specific
operating environments. This customization requires technological expertise in
material or device engineering at the chip level or in submicron or opto-
mechanical assemblies at the packaging level, as well as in preamplifier
circuit design.
28
<PAGE>
PRODUCTS
The Company offers optical detectors and receivers designed to conform to
worldwide digital transmission standards. The synchronous optical network
("SONET"), asynchronous transfer mode ("ATM"), fiber distributed data
interface ("FDDI") and other telecommunications and data communications
standards specify operations at data rates from 52 Mbps to 10 Gbps. The
Company's optical detectors are available for manufacturer-specific laser
modules, optical receivers and datalinks for computer networking. EPITAXX's
line of photodetector modules are directed to applications such as low bit-
rate telecommunications for access networks. Optical receivers at 155 and 622
Mbps, which incorporate an optical detector along with a matched preamplifier
set to the proper data transmission rate, are used mostly in access networks.
Higher capacity transmission and DWDM networks operate at 2.5 Gbps and
increasingly at 10 Gbps. The Company offers a line of 2.5 Gbps digital
receivers for short-haul transmission and DWDM. The Company is introducing an
APD-based receiver operating at 2.5 Gbps for long-haul applications. The
Company also offers high performance pigtailed detectors for monitoring of
optical amplifiers in long-distance terrestrial and undersea communications.
In CATV applications, the method of transmission is analog as opposed to
digital. Optical links are used for the transmission of high bandwidth video
signals from head-ends to hubs or nodes. At the node, current systems use
coaxial cable for the final connection to the home. Fiber optics systems for
CATV carry multiple television channels at bandwidth from 200 megahertz
("MHz") to 900 MHz depending on downstream or upstream operation. New services
like Internet access through cable modems are now branching the CATV industry
out of its traditional video delivery market. The Company offers detector
modules as well as complete receivers for analog applications. These products
incorporate detector chips specially designed to provide increased linearity
and electronic circuitry adapted to CATV specifications.
EPITAXX also offers a line of InGaAs detectors utilized for instrumentation
purposes. Products in this line include a series of detectors with varying
diameters for use in optical power meters or fault detectors. Also included
are arrays of detectors and special assemblies for spectroscopy and wavelength
measurement, environmental detection and military uses.
The following table lists certain of the Company's standard products for
each major application.
<TABLE>
<CAPTION>
PRODUCT APPLICATIONS
- ------------------------------------------------------------------------------
<S> <C>
Detector chip in window or lens
capsule Receiver for FDDI, ATM and other data links
- ------------------------------------------------------------------------------
Detector module in pigtailed or Receiver for short-haul, low bit rate data
connector receptacle transmission
Optical power monitor for optical amplifier
Wavelength monitor for DWDM
- ------------------------------------------------------------------------------
Linear detector modules Receiver for analog CATV transmission
- ------------------------------------------------------------------------------
52 MBps receiver Receiver for SONET OC1
- ------------------------------------------------------------------------------
155 MBps receiver Receiver for SONET OC3 and ATM
- ------------------------------------------------------------------------------
622 MBps receiver Receiver for SONET OC12 and ATM
- ------------------------------------------------------------------------------
2.5 GBps receiver Receiver for SONET OC48 and DWDM wavelength
converters
- ------------------------------------------------------------------------------
900 MHz linear receiver Receiver for analog CATV transmission
- ------------------------------------------------------------------------------
Large size detectors (1 to 5mm) Detectors for optical power test and
measurement
- ------------------------------------------------------------------------------
Detector arrays and multi-ele- Detectors for environmental sensing,
ment detectors defense and industrial test and measurement
</TABLE>
29
<PAGE>
RESEARCH AND PRODUCT DEVELOPMENT
EPITAXX's ability to design, develop and introduce new product offerings on
a timely basis to take advantage of market opportunities has been a major
driver in the Company's growth. The Company provides a broad line of products,
supplying varying levels of functionality as well as a variety of packaging
options, based on the Company's core optical detector technology. Many of
these products are jointly developed with customers early in the design phase.
The Company continues to work on delivering products that operate at higher
transmission frequencies and that address customer-specific operational
requirements. Current research programs include: 2.5 Gbps and 10 Gbps APD
receivers, 10 Gbps optical detectors and receivers and new optical platforms
using surface mount technology for future products.
The Company maintains collaborative research efforts with outside
organizations in the areas of materials growth, device engineering and optical
transmission. One such collaborative effort is with NSG Research Laboratory in
Tsukuba Science City, Japan, where NSG maintains active efforts in InGaAs
material growth and processing and in advanced optical products based on its
extensive knowledge of glass. This relationship is managed under a formal
agreement between EPITAXX and NSG. See "Relationship Between the Company and
NSG." The Company is also a member of POEM at Princeton University, a multi-
disciplinary laboratory focusing on photonics and optoelectronic materials.
As of December 31, 1997, the Company had 21 full-time employees engaged in
research and development. There can be no assurance that the Company will
continue to be successful in attracting and retaining key personnel with the
skills and expertise necessary to develop new products in the future.
Expenditures for research and development for fiscal years 1995, 1996, 1997
and the nine months ended December 31, 1997 were $1.5 million, $2.1 million,
$2.5 million and $2.2 million, respectively. The Company currently expects to
increase research and development spending as its revenues increase in order
to sustain continuing future product introductions.
The markets for the Company's products are characterized by rapid
technological change, evolving industry needs and product obsolescence. The
Company's success is highly dependent upon the timely completion and
introduction of new products at competitive prices and performance levels. See
"Risk Factors--Evolving Markets and Rapid Technological Change; New Products"
and "--Development of Competing Technologies."
MARKETING AND SALES
Due to the complex nature of the Company's products and the variety of
applications in which such products are deployed, EPITAXX works closely with
customers to meet their current demands and to build future sales
opportunities by understanding technical and market demands influencing their
customers. Sales efforts are supported by the commitment of management and the
technical staff to maintain and strengthen customer relationships by offering
responsive, reliable service. As of December 31, 1997, the Company had 15
full-time employees engaged in sales and marketing.
The Company markets its products through a direct sales force based in the
United States, and indirectly through a worldwide network of independent
manufacturer representatives in many countries worldwide. For the nine months
ended December 31, 1997, 49% of revenue was generated outside North America.
EPITAXX's marketing efforts are focused on positioning and promoting the
Company's products for application in targeted end-markets. The Company's
primary marketing activities include trade show participation and promotion of
the Company's products in trade publications.
CUSTOMERS
The Company's products are used by customers in industries such as
telecommunications, computer networking and CATV. While the Company does not
have any customers whose sales represent more than 10% of the Company's
revenue in the nine months ended December 31, 1997, the Company has
historically, and will
30
<PAGE>
likely in the future, have customers who will account for more than 10% of the
Company's revenue in a single fiscal year. For the nine months ended December
31, 1997, the Company's largest customers include:
CIENA Corporation Lucent Technologies, Inc.
Finisar Corporation Philips Broadband Networks, Inc.
Harmonic Lightwave, Inc. Philips, N.V.
Hewlett-Packard Company, Inc. Pirelli SpA
JDS FITEL, Inc. Siemens AG
COMPETITION
The Company operates in a highly competitive market. Although the Company
believes that it is the only company specializing solely in optical detectors
and receivers that address multiple markets, it has numerous competitors
worldwide that produce optical detector products in addition to other
products. The Company's ability to continue to develop and introduce new
products or enhancements of existing products may require significant
additional research and development expenditures. Many of the Company's
current and potential competitors have larger research and development
departments, larger sales organizations, and substantially greater financial
resources than does the Company. These competitors include Fujitsu Ltd.,
Mitsubishi Electric Corp., Lucent Technologies, Inc., and Siemens AG. Other
companies compete with only a portion of EPITAXX's product line. Companies in
this category include Ortel Corporation, Mitel Corporation and Hamamatsu
Photonics KK. There can be no assurance that competitors will not develop
products that are superior to the Company's products or that achieve greater
market acceptance. In addition, the introduction by competitors of new
products or the reduction in price of competitive products could have a
material adverse effect on the Company's business, financial condition and
operating results. The Company believes that the principal competitive factors
in its markets are product performance, industry expertise, technical
expertise, flexibility, responsiveness to customer needs, quality of service
and perceived value. See "Risk Factors--Competition."
MANUFACTURING AND FACILITIES
The Company owns a 45,000 square foot manufacturing facility on six acres in
West Trenton, New Jersey. Wafer processing, device packaging, hybrid
microelectronics packaging and final assembly and testing are performed in
this facility. Given EPITAXX's strategy to concentrate its resources on
serving markets that value its engineering expertise and ability to quickly
respond to customer demands, the Company's manufacturing operations are
designed for flexibility and short-run batches. The Company believes that the
property owned by the Company is sufficient to meet demand for the foreseeable
future, although some expansion of the manufacturing facility is planned. See
"Risk Factors--Manufacturing Risks" and "--Dependence on Availability of
Materials and Key Suppliers."
A number of the processes and techniques used in manufacturing the Company's
products are internally designed or customized. The Company relies exclusively
on its own production capabilities for critical optical detector assemblies
used in its products. These semiconductor devices are manufactured under
cleanroom conditions ranging from class 100 to class 10,000 using two-inch
wafer fabrication technology. The Company's facility has approximately 9,000
square feet of cleanroom space. EPITAXX assembles all of its products using
techniques including die-attachment, wirebonding, packaging and coupling of
optical fibers. The Company inspects and tests products throughout the
manufacturing cycle using commercially available test systems as well as
EPITAXX-designed, proprietary test systems and procedures.
The Company's design and manufacturing processes were certified as ISO 9001
compliant in December 1996 and EPITAXX has maintained compliance with this
standard since that time.
PROPRIETARY RIGHTS
The fiber optics communications industry is characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert
31
<PAGE>
exclusive patent, copyright, trademark and other intellectual property rights
to technologies that are important to the Company. The Company relies on a
combination of trade secrets, contractual restrictions, copyrights and
trademark laws to establish and protect proprietary rights in its products and
technologies. However, since patent applications in the U.S. are not publicly
disclosed until the patent is issued, applications may have been filed by
competitors of the Company which could relate to the Company's products.
Although the Company has been issued one U.S. patent to date, much of the
Company's proprietary information and technology is not patented and may not
be patentable. The Company believes that the success of its business depends
primarily on its proprietary technology, information and processes and know-
how, rather than patents. There can be no assurance that the Company will be
able to protect its technology or that competitors will not be able to develop
similar technology independently. The Company has entered into confidentiality
and invention assignment agreements with all of its employees, and enters into
non-disclosure agreements with its suppliers, distributors and appropriate
customers so as to limit access to and disclosure of its proprietary
information. There can be no assurance that these statutory and contractual
arrangements will deter misappropriation of the Company's technologies or
discourage independent third-party development of similar technologies.
While the Company's ability to maintain its leadership position in the
optical detector market may be affected by its ability to protect its
proprietary information and technology, the Company believes that, because of
the rapid pace of technological change in the fiber optics communications
markets, its technical expertise and ability to introduce new products on a
timely basis will be more important in maintaining its competitive position
than protection of its intellectual property. Although the Company continues
to implement protective measures and intends to vigorously defend its
intellectual property rights, there can be no assurance that these measures
will be successful.
The Company may receive communications from third parties in the future
asserting that the Company's products infringe on the proprietary rights of
such third parties. In the event of litigation to determine the validity of
any third-party claims, such litigation, whether or not determined in favor of
the Company, could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel. In the event of
an adverse ruling in such litigation, the Company might be required to
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses from third
parties. There can be no assurance that licenses from third parties would be
available on acceptable terms, if at all. A successful claim against the
Company and the failure of the Company to develop or license a substitute
technology could have a material adverse effect on the Company's business,
financial condition and operating results. In addition, the laws of certain
countries in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the U.S. and thus make
the possibility of misappropriation of the Company's technology and products
more likely.
EMPLOYEES
As of December 31, 1997, the Company employed 208 persons, including 141 in
manufacturing, 21 in research and development, 15 in sales and marketing, 12
in quality control and 19 in a general and administrative capacity. None of
the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees
to be good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
32
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ------------------------------------------------------
<S> <C> <C>
Noboru Hiraguri......... 58 Chief Executive Officer and Vice Chairman of the Board
Yves Dzialowski......... 45 President, Chief Operating Officer and Director
James D. Coleman........ 47 Vice President and Chief Financial Officer
George K. Roshon........ 55 Vice President of Manufacturing
Chen-Show Wang.......... 61 Vice President of Advanced Research
Kenji Fujiwara (2)...... 59 Chairman of the Board
Arnold S. Hoff-
man(1)(2).............. 62 Director
Richard J.
Pinola(1)(2)........... 51 Director
Masahiko Tarumizu....... 63 Director
Naotaka Todoroki........ 49 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Noboru Hiraguri has served as the Company's Chief Executive Officer since
October 1994, and Vice Chairman of the Board since December 1996. From October
1994 to December 1996, Mr. Hiraguri, in addition to serving as the Company's
Chief Executive Officer, also served as President and a Director of the
Company. From May 1991 to October 1994, Mr. Hiraguri was Chairman of the
Board. From 1973 to October 1994, Mr. Hiraguri held a variety of management
positions with Nippon Sheet Glass Co., Ltd. ("Nippon Sheet Glass"), most
recently as General Manager of its Fiber Optics Division. Mr. Hiraguri
received a B.S. in Industrial Chemistry from Kyoto University.
Yves Dzialowski has served as the Company's President and Chief Operating
Officer since December 1996, and as a Director since August 1990. From 1985 to
December 1996, Dr. Dzialowski served as the Company's Vice President of Sales
and Marketing and Executive Vice President supervising the Sales and Marketing
and Research and Development Groups. Dr. Dzialowski received a Master's degree
in Physics and a Doctorate in Optics from the University of Paris.
James D. Coleman has served as the Company's Vice President and Chief
Financial Officer since December 1996 and has also served as the Company's
Treasurer and Secretary since April 1987. From 1986 to December 1996, Mr.
Coleman held a variety of management positions with the Company, most recently
as Vice President of Operations. Mr. Coleman received a B.S. in Management and
an M.B.A. from LaSalle University.
George K. Roshon has served as the Company's Vice President of Manufacturing
since April 1995. From November 1992 to April 1995, Mr. Roshon served as the
Company's Director of Manufacturing. Mr. Roshon received a B.S. in Electrical
Engineering from Pennsylvania State University and an M.S.E.E. from Drexel
University.
Chen-Show Wang has served as the Company's Vice President of Advanced
Research since December 1996. From June 1991 to December 1996, Dr. Wang held
several executive and managerial positions with the Company in the technology
area. Dr. Wang received an M.S. in Physics from the University of Iowa and a
Ph.D. in Physics from the University of California at San Diego.
Kenji Fujiwara has served as a Director of the Company since May 1991 and as
Chairman of the Board since October 1994. From May 1991 to October 1994, Mr.
Fujiwara served as the Company's President and Chief Executive Officer. Since
October 1994, Mr. Fujiwara has served as a General Manager of Nippon Sheet
Glass. Mr. Fujiwara received a B.S. in Industrial Chemistry and an M.S. in
Engineering from Kyoto University.
33
<PAGE>
Arnold S. Hoffman has served as a Director of the Company since December
1997. Mr. Hoffman is currently a Senior Managing Director of Legg Mason Wood
Walker, Incorporated, a financial services and brokerage firm, where he has
been employed since January 1992. From August 1989 to January 1992, Mr.
Hoffman was Chairman of the Middle Market Group, an investment bank affiliated
with Shearson Lehman Brothers Inc. Mr. Hoffman is also currently a Director of
Sunsources, L.P., Intelligent Electronics Incorporated and several privately-
held companies. Mr. Hoffman received a B.A. in Journalism from Pennsylvania
State University.
Richard J. Pinola has served as a Director of the Company since December
1997. Mr. Pinola is currently the Chairman and Chief Executive Officer of
Right Management Consultants, Inc. ("Right Management"), a publicly-held
company specializing in career management and human resource consulting. Mr.
Pinola became Chief Executive Officer of Right Management in July 1992 and
Chairman in January 1994. Mr. Pinola is also currently a Director of K-Tron
International, Inc. and several privately-held companies. Mr. Pinola received
a B.A. in Accounting from King's College.
Masahiko Tarumizu has served as a Director of the Company since June 1994.
Mr. Tarumizu is currently a Senior Managing Director of Nippon Sheet Glass.
Since 1988, Mr. Tarumizu has held a variety of management positions with
Nippon Sheet Glass. Mr. Tarumizu received a B.S. in Chemistry from Tokyo
University.
Naotaka Todoroki has served as a Director of the Company since June 1996.
Mr. Todoroki is currently a Deputy General Manager of Corporate Planning of
Nippon Sheet Glass. Since 1987, Mr. Todoroki has held a variety of management
positions with Nippon Sheet Glass. Mr. Todoroki is also currently a Director
of several privately-held companies. Mr. Todoroki received a B.S. in Economics
from Hitotsubashi University.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company, NSG or an affiliate of
NSG ("Non-Employee Director") will receive fees of $4,000 per year plus $1,200
for each meeting of the Board of Directors attended. In addition, each Non-
Employee Director who is a member of any committee of the Board of Directors
will receive $600 for each committee meeting attended plus another $600 per
meeting of any committee on which such Non-Employee Director serves as the
Chairperson. Further, each Non-Employee Director, upon his or her election to
the Board of Directors, will receive an option to purchase an aggregate of
7,500 shares of Class A Common Stock. Each Non-Employee Director will also
receive an option to purchase an aggregate of 1,500 shares of Class A Common
Stock on the date of each annual stockholders' meeting. All of the options
described above will be granted under the Stock Option Plan at the fair market
value of the Class A Common Stock on the date of grant and will vest in three
equal annual installments commencing on the date of such grant, with the
exception of Messrs. Hoffman and Pinola, whose vesting schedules begin upon
the consummation of the offering. See "--Benefit Plans--Amended and Restated
1996 Employee, Director and Consultant Stock Option Plan."
COMMITTEES OF THE BOARD
The Board of Directors has established a Compensation Committee and an Audit
Committee. The Compensation Committee reviews, approves and makes
recommendations to the Board of Directors concerning the Company's
compensation policies, practices and procedures, as well as reviews and
determines the salaries and bonuses of the Company's executive officers. The
Compensation Committee also administers the Stock Option Plan. The members of
the Compensation Committee are Messrs. Pinola (Chairman) and Hoffman. The
Audit Committee oversees the engagement of the Company's independent
accountants, reviews the annual financial statements and the scope of annual
audits and considers matters relating to accounting policy and internal
controls. The members of the Audit Committee are Messrs. Hoffman (Chairman),
Fujiwara and Pinola.
34
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned by the
following individuals for services rendered to the Company in all capacities
during the fiscal year ended March 31, 1997: (i) the Chief Executive Officer
of the Company and (ii) the four additional executive officers of the Company
whose salary and bonus for such fiscal year exceeded $100,000 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION
---------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND POSITIONS SALARY($) BONUS($) STOCK AWARD ($)(1) OPTIONS (#) COMPENSATION($)(2)
- ------------------------ ---------- --------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
Noboru Hiraguri......... 161,133 66,915 17,500 27,600 --
Chief Executive Officer
and Vice Chairman
Yves Dzialowski......... 150,058 59,620 17,500 22,800 3,000
President and Chief
Operating Officer
James D. Coleman........ 126,200 44,762 17,500 18,000 3,000
Vice President and
Chief Financial Officer
George K. Roshon........ 109,850 39,900 -- 18,000 2,878
Vice President of
Manufacturing
Chen-Show Wang.......... 116,641 39,108 -- 13,200 3,000
Vice President of
Advanced Research
</TABLE>
- --------
(1) As of March 31, 1997, Messrs. Hiraguri, Dzialowski and Coleman
(collectively, the "Restricted Stockholders") held 8,400 shares of Class A
Common Stock, having a market value of $2.08 per share, based upon the
fair market value of the Class A Common Stock on the date of grant as
determined by the Board of Directors. Pursuant to the terms of Restricted
Stock Agreements, dated January 21, 1997, between the Company and each of
the Restricted Stockholders (the "Restricted Stock Agreements"), all of
the shares are subject to repurchase by the Company at $2.08 per share in
the event such Restricted Stockholder ceases to be an employee of the
Company prior to the date which is six months after the completion of this
offering.
(2) The amounts in this column represent matching contributions made by the
Company to the Named Executive Officer under the Company's 401(k) Profit-
Sharing Plan.
35
<PAGE>
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during the fiscal year
ended March 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
--------------------------------------------------------- --------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR(2) PRICE ($/SH)(3) DATE 5%($) 10%($)
- ------------------------ ------------- ---------------- --------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Noboru Hiraguri......... 27,600 15.75% 3.33 01/21/07 57,684 146,556
Yves Dzialowski......... 22,800 13.01% 3.33 01/21/07 47,652 121,068
James D. Coleman........ 18,000 10.27% 3.33 01/21/07 37,620 95,580
George K. Roshon........ 18,000 10.27% 3.33 01/21/07 37,620 95,580
Chen-Show Wang.......... 13,200 7.53% 3.33 01/21/07 27,588 70,092
</TABLE>
- --------
(1) The options were granted under the Stock Option Plan and do not become
exercisable until April 1, 2000.
(2) Based on options to purchase an aggregate of 175,200 shares of the
Company's capital stock granted during the fiscal year ended March 31,
1997 to employees of the Company, including the Named Executive Officers.
(3) The exercise price per share of each option was determined by the Board of
Directors on the date of grant.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the Company's future
capital stock prices. The actual value realized may be greater or less
than the potential realizable values set forth in the table.
FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
the fiscal year-end value of unexercised options as of March 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL YEAR-
AT FISCAL YEAR-END (#): END($):
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
- ------------------------- ---------------------------- -------------------------
<S> <C> <C>
Noboru Hiraguri.......... --/27,600 --/--
Yves Dzialowski.......... --/22,800 --/--
James D. Coleman......... --/18,000 --/--
George K. Roshon......... --/18,000 --/--
Chen-Show Wang........... --/13,200 --/--
</TABLE>
- --------
(1) The options were granted at 142% of the fair market value of the Class A
Common Stock of the Company on the date of grant.
EMPLOYMENT CONTRACTS
The Company has entered into Executive Employment Agreements (the
"Employment Agreements") with each of the Named Executive Officers. The
Employment Agreements are for terms ending March 31, 2000 for each of the
Named Executive Officers, with the exception of Mr. Roshon whose Employment
Agreement expires on April 1, 1998. Each of the Employment Agreements will
automatically renew for three-year periods unless the Company provides the
Named Executive Officer with a written notice of nonrenewal at least 180 days
prior to the expiration of the then-current term of the relevant Employment
Agreement. Such agreements provide for annual
36
<PAGE>
base salaries of not less than $180,000, $165,000, $135,000, $105,000 and
$110,000 for Messrs. Hiraguri, Dzialowski, Coleman, Roshon and Wang,
respectively. Such salaries are reviewed annually by the Board of Directors.
The Employment Agreements also provide each of the Named Executive Officers
with an opportunity for an annual bonus dependent upon certain performance
criteria specified in an annual management incentive compensation program. In
addition, Messrs. Hiraguri, Dzialowski and Coleman each have a total of 8,400
shares of restricted stock under the Restricted Stock Agreements with the
Company. In the event that any such restricted stockholder ceases to be an
employee of the Company prior to the date which is six months after the
completion of this offering, the Company has the right to repurchase such
restricted stock at $2.08 per share. Further, Messrs. Hiraguri, Dzialowski,
Coleman, Roshon and Wang have options to purchase a total of 27,600, 22,800
and 18,000, 18,000 and 13,200 shares of Class A Common Stock, respectively,
under the Stock Option Plan. Such options will become fully vested on April 1,
2000.
Under the Employment Agreements, in the event a Named Executive Officer is
terminated as a result of the Company undergoing a "Change of Control," or a
Named Executive Officer terminates his employment because of a lessening of
job responsibilities or because the Company's headquarters are moved more than
35 miles, such Named Executive Officer will be able to immediately exercise
all of his shares of restricted stock and stock options, as applicable, shall
receive a lump-sum payment equal to two times the sum of his highest annual
salary and his highest annual bonus received within the last three years,
shall continue for two years to receive benefits identical to those then
currently received and shall have the opportunity to receive out-placement and
career counseling services at a cost not to exceed 15% of his then-current
annual salary. A "Change of Control" is defined as the acquisition of the
beneficial ownership of a majority of the Company's voting securities or all
or substantially all of the assets of the Company by an unaffiliated person or
group of persons, or the merger, consolidation or combination of the Company
with an unaffiliated corporation in which a change in the majority of the
members of the Board of Directors occurs. If a Named Executive Officer is
terminated without cause during the term of his Employment Agreement, he will
be paid his full salary from the date of notice of termination until 12 months
thereafter and he shall receive benefits identical to those then currently
received for such 12-month period, provided that his continued participation
under the relevant benefit plans is permissible. If a Named Executive Officer
is terminated because of retirement, death, disability, or for cause, then he
will be paid only such salary as is then due him. Should termination occur
because of retirement, death or disability, the Company may elect to pay such
Named Executive Officer or his estate a prorated award under the Company's
annual incentive pay plan, and may elect to accelerate the vesting of his
shares of restricted stock and stock options, as applicable. If a Named
Executive Officer terminates his employment without good reason, as such term
is defined in the Employment Agreements, the Company may elect to continue to
make salary payments for a period of up to 12 months thereafter. During the
term of the Employment Agreement and for one year following its termination, a
Named Executive Officer shall not, either directly or indirectly, compete with
the Company. In addition, a Named Executive Officer is prohibited from
disclosing any material confidential information of the Company during the
term of his employment or at any time thereafter. Upon the successful
completion of this offering, each of Messrs. Hiraguri, Dzialowski and Coleman
will receive a car allowance of $500 per month for three years.
BENEFIT PLANS
Amended and Restated 1996 Employee, Director and Consultant Stock Option Plan
The Stock Option Plan was initially approved by the Board of Directors and
the stockholder in December 1996. The Board of Directors amended the Stock
Option Plan in December 1997. A total of 574,800 shares of Class A Common
Stock have been reserved for issuance under the Plan upon the exercise of
options.
Options granted under the Stock Option Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified
stock options. Incentive stock options may be granted under the Stock Option
Plan only to employees of the Company and its affiliates. Nonqualified stock
options may be granted to consultants, directors, employees or officers of the
Company and its affiliates. The Stock Option Plan provides that each Non-
Employee
37
<PAGE>
Director will receive, upon his or her election to the Board of Directors, an
option to purchase an aggregate of 7,500 shares of Class A Common Stock, and,
on the date of each annual stockholders' meeting, an additional option to
purchase an aggregate of 1,500 shares of Class A Common Stock. Each of the
above-mentioned options will vest in three equal annual installments and will
have an exercise price equal to the fair market value of the Class A Common
Stock on the date of grant. Messrs. Hoffman and Pinola have each received an
option to purchase 7,500 shares of Class A Common Stock, each of which will
vest in three equal annual installments and will have an exercise price equal
to the initial public offering price of the Class A Common Stock.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the Stock Option Plan, the
Compensation Committee has the authority to interpret the provisions of the
Stock Option Plan, and to determine the persons to whom options will be
granted, the number of shares to be covered by each option and the terms and
conditions upon which an option may be granted. The aggregate fair market
value (determined at the time of grant) of shares issuable pursuant to
incentive stock options which become exercisable in any calendar year by any
employee or officer may not exceed $100,000. Incentive stock options granted
under the Stock Option Plan may not be granted at an exercise price less than
fair market value of the Class A Common Stock on the date of grant (or 110% of
the fair market value in the case of employees or officers holding 10% or more
of the voting stock of the Company). Nonqualified stock options granted under
the Stock Option Plan may not be granted at an exercise price less than the
par value of a share of Class A Common Stock. Incentive stock options granted
under the Stock Option Plan expire not more than 10 years from the date of
grant, or not more than five years from the date of grant in the case of
incentive stock options granted to an employee or officer holding 10% or more
of the voting stock of the Company.
An option granted under the Stock Option Plan is exercisable, during the
optionholder's lifetime, only by the optionholder and is not transferable by
him or her except by will or by the laws of descent and distribution. An
incentive stock option granted under the Stock Option Plan may, at the Board
of Directors' discretion, be exercised after the termination of the
optionholder's employment with the Company (other than by reason of death,
disability or termination for cause as defined in the Stock Option Plan) to
the extent exercisable on the date of such termination, for up to 90 days
following such termination, provided that such incentive stock option has not
expired on the date of such exercise. In granting any nonqualified stock
option, the Board of Directors may specify that such nonqualified stock option
shall be subject to such termination or cancellation provisions as the Board
of Directors may specify. In the event of the optionholder's death, both
incentive stock options and nonqualified stock options may be exercised, to
the extent exercisable on the date of death, by the optionholder's survivors
at any time prior to the earlier of the option's specified expiration date or
one year from the date of the optionholder's death.
As of December 31, 1997, options to purchase an aggregate of 171,072 shares
of Class A Common Stock were outstanding under the Stock Option Plan at a
weighted average exercise price of $3.92 per share.
401(k) Plan
Employees of the Company who have completed at least six months of service
and who are at least 18 years of age are eligible to participate in the
Company's 401(k) Profit-Sharing Plan, as amended (the "401(k) Plan"). The
401(k) Plan is intended to qualify under Section 401(k) of the Code. Employees
may elect to defer their eligible current compensation up to the statutorily
and 401(k) Plan prescribed limits and have the amount of such deferral
contributed to the 401(k) Plan. A Company match of employee contributions up
to the 401(k) Plan prescribed limit may also be contributed to the 401(k) Plan
and becomes an asset of the employee upon vesting. Contributions to the 401(k)
Plan may be used to purchase units in various investment funds.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Pinola (Chairman) and
Hoffman. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as members of the Company's Board of Directors or
Compensation Committee.
38
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to beneficial
ownership of the Company's Common Stock as of December 31, 1997, and adjusted
to reflect the consummation of the offering by (i) each of the Named Executive
Officers, (ii) each of the Company's directors, (iii) all executive officers
and directors of the Company as a group and (iv) NSG, the only person known to
beneficially own 5% or more of the outstanding shares of either Class A Common
Stock or Class B Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING
--------------------------------- ---------------------------------------
NUMBER % OF VOTING NUMBER % OF VOTING
NAME OF SHARES OUTSTANDING(2) POWER(2) OF SHARES OUTSTANDING(2) POWER(2)(3)
- ------------------------ --------- -------------- -------- --------- -------------- -----------
CLASS A COMMON STOCK(4)(5)
--------------------------
<S> <C> <C> <C> <C> <C> <C>
NAMED EXECUTIVE OFFI-
CERS:
Noboru Hiraguri......... 8,400 * * 8,400 * *
Yves Dzialowski......... 8,400 * * 8,400 * *
James D. Coleman........ 8,400 * * 8,400 * *
George K. Roshon........ -- * * -- * *
Chen-Show Wang.......... -- * * -- * *
DIRECTORS:
Kenji Fujiwara(5)....... -- * * -- * *
Arnold S. Hoffman(6).... 2,500 * * 2,500 * *
Richard J. Pinola(6).... 2,500 * * 2,500 * *
Masahiko Tarumizu(5).... -- * * -- * *
Naotaka Todoroki(5)..... -- * * -- * *
All directors and
executive officers as a
group (10
persons)(7):........... 30,200 * * 30,200(7) * *
<CAPTION>
CLASS B COMMON STOCK(4)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDER:
Nippon Sheet Glass Co., 5,088,000 99.51% 99.51% 5,088,000 70.05% 87.53%
Ltd.(8)(9).............
NSG Tokyo Bldg., 1-7 2-
chome, Kaigan, Minato-
Ku Tokyo 105, Japan
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Except as indicated in footnotes to this table, the Company believes that
the stockholders named in this table have sole voting and investment power
with respect to all shares of Common Stock shown to be beneficially owned
by them based on information provided to the Company by such stockholders.
(2) Represents percentage of all outstanding Common Stock.
(3) Holders of both classes of Common Stock vote as a single class on all
matters submitted to a vote of stockholders, with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
entitled to three votes for each share of Class A Common Stock into which
Class B Common Stock is convertible.
(4) The Class B Common Stock is convertible into Class A Common Stock on a
share-for-share basis, subject to adjustment for stock dividends, stock
splits, subdivisions or combinations. See "Description of Capital Stock--
Common Stock--Voting Rights."
(5) Excludes the shares of Class B Common Stock held by NSG, as to which
Messrs. Fujiwara, Tarumizu and Todoroki disclaim beneficial ownership.
Messrs. Fujiwara, Tarumizu and Todoroki are General Manager, Senior
Managing Director and Deputy General Manager of Corporate Planning of NSG,
respectively.
(6) Consists of shares of Class A Common Stock underlying options which become
exercisable upon the consummation of the offering.
(7) Includes 5,000 shares of Class A Common Stock underlying options which
become exercisable upon the consummation of the offering.
(8) NSG will not own any shares of Class A Common Stock upon the consummation
of the offering.
(9) The shares of Class B Common Stock are owned by a wholly owned subsidiary
of Nippon Sheet Glass Co., Ltd.
39
<PAGE>
RELATIONSHIP BETWEEN THE COMPANY AND NSG
Prior to the offering, the Company had been a subsidiary of NSG Holding USA,
Inc., which is a wholly owned subsidiary of Nippon Sheet Glass Co., Ltd.,
located at NSG Tokyo Bldg., 1-7, 2-chome, Kaigan, Minato-Ku, Tokyo 105, Japan
(collectively, "NSG"). Upon the consummation of the offering, NSG will own
5,088,000 shares of Class B Common Stock, which will represent 87.53% of the
voting power of the outstanding Common Stock (85.94% if the Underwriters'
over-allotment option is exercised in full). See "Risk Factors--Control by and
Relationship with NSG" and "Description of Capital Stock."
In December 1997, the Company declared a $10,049,528 cash dividend to the
stockholders of record on December 11, 1997, of which $10 million is payable
to NSG. The dividend will be evidenced by the Dividend Notes, bearing interest
at a rate of 6.02% per annum, payable semi-annually. The principal amount of
the Dividend Notes is payable on the earlier of (i) the date the Company's
total stockholders' equity first equals or exceeds $15 million, or (ii)
February 9, 2001, provided that on such date the Company's total stockholders'
equity equals or exceeds $15 million. The sale of Class A Common Stock offered
hereby will cause the Company's total stockholders' equity to exceed $15
million. As a result, the Company anticipates using $10,049,528 of the net
proceeds from the offering to repay the Dividend Notes. See "Use of Proceeds."
The Company and NSG have entered into a number of agreements for the purpose
of defining the ongoing relationship between them. These agreements were
negotiated in the context of a parent-subsidiary relationship and therefore
are not the result of negotiations between independent parties. The Company
and NSG intended for such agreements and the transactions provided for therein
to be mutually beneficial and on overall terms which the Company and NSG
believed to be at least as favorable to the Company as could have been
obtained from unrelated third parties. However, because of the complexity of
the various relationships between the Company and NSG, there can be no
assurance that the terms of any individual element of such arrangements are as
favorable to the Company as could have been obtained from unaffiliated third
parties. The agreements summarized in this section have been filed as exhibits
to the Registration Statement of which this Prospectus is a part. The
following summaries address all material provisions of such agreements. While
these agreements will provide the Company with certain benefits, the Company
is only entitled to the ongoing assistance of NSG for a limited time and may
not enjoy benefits from its relationship with NSG beyond the terms of the
agreements. There can be no assurance that the Company, upon termination of
such assistance from NSG, will be able to adequately provide such services
internally or will be able to obtain favorable arrangements from third parties
to replace such services. See "Risk Factors--Control by and Relationship with
NSG."
Additional or modified arrangements and transactions may be entered into by
the Company and NSG upon the consummation of the offering. Any such future
arrangements and transactions will be determined through negotiation between
the Company and NSG. All future agreements between the Company and NSG will be
on terms that the Company believes are no less favorable to the Company than
the terms the Company believes would be available from unaffiliated parties.
In that regard, the Company intends to follow the procedures provided by the
Delaware General Corporation Law (the "DGCL") which include a vote to affirm
any such future agreements by a majority of the Company's directors who are
not employees of NSG (even though such directors may be less than a quorum).
There can be no assurance that any such arrangements or transactions will be
the same as that which would be negotiated between independent parties.
The following is a summary of certain arrangements between the Company and
NSG. Each description is qualified in its entirety by reference to the
applicable agreement, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
MASTER COOPERATION AGREEMENT
The Company and NSG entered into a Master Cooperation Agreement, dated as of
April 1, 1997 (the "Cooperation Agreement") pursuant to which NSG agreed to
continue to cooperate with the Company to pursue effective business
development and synergy of the Company's business and NSG's fiber optics
related business.
40
<PAGE>
The Cooperation Agreement initially terminates on March 31, 2000. After such
initial term, the Cooperation Agreement will be automatically renewed for
successive three-year periods unless either party gives written termination
notice to the other party at least 30 days prior to the expiration of the then-
current term.
MANAGEMENT SERVICES AGREEMENT
The Company and NSG entered into a Management Services Agreement, dated as of
April 1, 1997 (the "Services Agreement") pursuant to which NSG agreed to
continue to provide certain management services, including personnel, banking
and credit services, productivity improvement advice, and assistance in the
development of relationships in Asia and Europe with potential customers for
the Company's products. NSG, if requested by the Company, will also be required
to bear a portion of the compensation expense associated with the personnel
provided by NSG.
The Services Agreement initially terminates on March 31, 2000. After such
initial term, the Services Agreement will be automatically renewed for
successive three-year periods unless either party gives written termination
notice to the other party at least 30 days prior to the expiration of the then-
current term.
The Company is obligated to pay fees established in the Services Agreement of
not less than 0.5% and not more than 1.0% of Net Sales (as defined in the
Services Agreement). The fees are payable semi-annually on October 1 and April
1 of each year with respect to services provided and Net Sales generated in the
previous six-month period.
RESEARCH AND DEVELOPMENT AGREEMENT
The Company and NSG entered into a Research and Development Agreement, dated
as of April 1, 1997 (the "R&D Agreement") pursuant to which NSG agreed to
provide the Company with certain research and development services on a basis
the parties believe will permit the Company to enhance the development of its
technology.
The Company agreed to pay such fees to NSG as are mutually agreed upon as
consideration for services provided pursuant to the R&D Agreement.
The R&D Agreement initially terminates on March 31, 2000. After such initial
term, the R&D Agreement will be automatically renewed for successive three-year
periods unless either party gives written termination notice to the other party
at least 30 days prior to the expiration of the then-current term.
DISTRIBUTION AGREEMENT
The Company and NSG entered into a Distribution Agreement, dated as of April
1, 1997 (the "Distribution Agreement") pursuant to which NSG agreed to act as
the exclusive distributor of all of the Company's products in Japan. The
Distribution Agreement provides that the Company will sell its products to NSG
at prices to be agreed upon from time to time, on a case-by-case basis, for
resale in Japan.
The Distribution Agreement will continue until terminated by agreement of the
parties, or by written notice from one party to the other, at least 90 days
before the proposed termination date, or by either party during the period
beginning on the date NSG ceases to own, directly or indirectly, at least 30%
of the capital stock of the Company.
TAX SHARING AGREEMENT
Pursuant to a Tax Sharing Agreement between the Company and NSG, dated as of
April 1, 1993 (the "Tax Sharing Agreement"), NSG agreed to prepare and file all
tax returns that are required of the Company with NSG on a consolidated basis,
to the extent permitted by applicable tax laws, beginning with the taxable year
ended March 31, 1994 and continuing for all subsequent tax periods. Upon
completion of the offering, NSG and the
41
<PAGE>
Company will no longer file on a consolidated basis. Under the Tax Sharing
Agreement, the Company pays NSG an amount equal to the income tax liability
that the Company would have incurred had it filed an income tax return on a
separate basis for the relevant tax period. If, on the other hand, the Company
would have had a net tax loss or tax credits in excess of tax liabilities had
it filed an income tax return on a separate basis, then NSG pays the Company an
amount equal to any refund.
AGREEMENT FOR LINE OF CREDIT
On May 31, 1997, the Company and NSG entered into a one-year, $6.0 million
dollar Agreement for Line of Credit (the "Line of Credit"). On January 15,
1998, this one-year agreement was extended to March 31, 1999, such extension to
be effective on May 31, 1998. The Company borrows under the Line of Credit to
meet working capital requirements and to fund certain capital expenditures.
Borrowings under the Line of Credit bear interest at LIBOR plus 0.25%.
Principal and accrued interest must be paid no later than the May 31, 1998
maturity date, as extended to March 31, 1999. If such amount is not paid on the
maturity date, however, then interest from such date will accrue at LIBOR plus
2.00%. As of December 31, 1997, the Company had drawn down $3.2 million under
the Line of Credit.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 12,500,000 shares of
Class A Common Stock, 7,500,000 shares of Class B Common Stock and 5,000,000
shares of Preferred Stock, each with a par value of $0.01 per share. After the
consummation of the offering, 2,175,200 shares of Class A Common Stock and
5,088,000 shares of Class B Common Stock will be issued and outstanding. No
shares of Preferred Stock will be issued and outstanding upon the consummation
of the offering.
The following description of the capital stock of the Company and certain
provisions of the Company's Restated Certificate of Incorporation and Amended
and Restated Bylaws is a summary and is qualified in its entirety by the
provisions of the Restated Certificate of Incorporation and Amended and
Restated Bylaws, which have been filed as exhibits to the Company's
Registration Statement, of which this Prospectus is a part.
COMMON STOCK
Dividends. Holders of record of shares of Common Stock are entitled to
receive such dividends when, if and as may be declared by the Board of
Directors out of funds legally available for such purposes. No dividends may
be declared or paid on any share of Class A Common Stock unless such dividend
is simultaneously declared or paid on each share of Class B Common Stock equal
to the amount which would have been payable with respect to such shares of
Class B Common Stock had such shares been converted into Class A Common Stock
immediately prior to the record date of such dividend. No dividends may be
declared or paid on any shares of Class B Common Stock unless a similar
dividend is simultaneously declared or paid on each share of Class A Common
Stock.
Voting Rights. Upon the consummation of the offering, holders of Class A
Common Stock are entitled to one vote per share and holders of Class B Common
Stock are entitled to three votes for each share of Class A Common Stock into
which Class B Common Stock is convertible, subject to adjustment to preserve
such initial voting ratio. Holders of shares of Class A Common Stock and Class
B Common Stock will vote as a single class on all matters submitted to a vote
of stockholders, except as otherwise required by law. Upon the consummation of
the offering, NSG will own 5,088,000 shares of Class B Common Stock, which
will represent 87.53% of the voting power of the outstanding Common Stock
(85.94% if the Underwriters' over-allotment option is exercised in full). As a
result, NSG will have sufficient voting power to control the direction and
policies of the Company, including stockholder votes with respect to mergers,
consolidations, the sale of all or substantially all of the assets of the
Company, the election of the Board of Directors and whether a change in
control of the Company occurs.
Convertibility. Each share of Class B Common Stock is convertible, at the
option of the holder, into one share of Class A Common Stock at any time,
subject to adjustment for stock dividends, stock splits, subdivisions or
combinations with respect to the shares of Class A Common Stock. If, however,
NSG sells or otherwise transfers beneficial ownership of any shares of Class B
Common Stock to a third person or entity (other than a wholly owned subsidiary
of NSG), such shares will be automatically converted into shares of Class A
Common Stock. The shares of Class A Common Stock are not convertible into
shares of Class B Common Stock.
Liquidation Rights. Upon liquidation, dissolution or winding up of the
Company, the holders of Class A Common Stock are entitled to share ratably
with the holders of Class B Common Stock in all assets available for
distributions after payment in full to creditors, subject to adjustment for
stock dividends, stock splits, subdivisions or combinations with respect to
Class A Common Stock, as well as any rights of holders of any shares of
Preferred Stock that may be issued in the future.
Other Provisions. The holders of Common Stock are not entitled to preemptive
or subscription rights. In any merger, consolidation or business combination,
the consideration to be received per share by holders of Class A Common Stock
must be identical to that received by holders of Class B Common Stock.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
43
<PAGE>
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by stockholders. The
Company believes that this authority will provide flexibility in connection
with possible corporate transactions. However, the issuance of Preferred Stock
could also adversely affect the voting power of holders of Common Stock and
the likelihood that such holders will receive dividend payments and payments
upon liquidation of the Company Further, Preferred Stock could also have the
effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred
Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation contains provisions (i)
eliminating the personal liability of its directors, officers, employees and
other agents for monetary damages resulting from breaches of their fiduciary
duty to the fullest extent permitted by law and (ii) indemnifying its
directors and officers to the fullest extent permitted by the DGCL. These
provisions in the Restated Certificate of Incorporation do not eliminate the
duty of care and, in appropriate circumstances, equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
the DGCL. Each director will continue to be subject to liability for breach of
a director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transactions from which the director derived an
improper personal benefit and for improper distributions to stockholders.
These provisions also do not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
The Company's Restated Certificate of Incorporation and Amended and Restated
Bylaws also permit the Company to secure insurance on behalf of any person it
is required or permitted to indemnify for any liability arising out of his or
her actions in such capacity, regardless of whether the DGCL would permit
indemnification. The Company maintains liability insurance for its directors
and officers.
At present there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted and the Company is not aware of any other threatened
litigation or proceeding that might result in a claim for such
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, employees and other agents of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that, in the opinion of the Securities and Exchange Commission
(the "Commission"), such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
ANTI-TAKEOVER EFFECTS OF RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BYLAWS
The Company's Restated Certificate of Incorporation or Amended and Restated
Bylaws, as applicable, among other things, (i) require stockholders to follow
an advance notification procedure for stockholder nominations of candidates to
the Board of Directors and for new business to be conducted at stockholder
meetings, (ii) provide that the Board of Directors, without action by the
stockholders, may issue and fix the rights and preferences of shares of
Preferred Stock, and (iii) divide the members of the Board of Directors into
three classes, as nearly equal in number as possible, such that the current
directors will serve initial terms expiring at the 1998, 1999 and 2000 annual
stockholders' meeting, respectively, with the directors in each class
thereafter being elected for three-year terms. These provisions may have the
effect of delaying, deferring or preventing a change of control of the Company
without further action by the stockholders, may discourage bids for the Class
A Common Stock at a premium over the market price of the Class A Common Stock,
may adversely affect the market price of, and the voting and other rights of
the holders of, the Class A Common Stock and could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management or members of the Board of Directors even if some or a majority of
the Company's stockholders deemed such an attempt to be in their best
interests. Furthermore, after the offering, NSG will have 87.53% of the voting
control
44
<PAGE>
of the Company (85.94% if the Underwriters' over-allotment option is exercised
in full). Voting control by NSG may discourage certain types of transactions
involving an actual or potential change of control of the Company, including
transactions in which the holders of the Class A Common Stock might receive a
premium for their shares over the prevailing market price of the Class A
Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is American
Stock Transfer and Trust Company, New York, New York.
LISTING
The Company has applied to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "EPXX."
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the offering, the Company will have outstanding an
aggregate of 2,175,200 shares of Class A Common Stock (2,497,700 if the
Underwriters' over-allotment option is exercised in full) and 5,088,000 shares
of Class B Common Stock. Of the total outstanding shares of Common Stock,
2,150,000 shares of Class A Common Stock sold in the offering will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act ("Rule 144"). Sales by such affiliates will
be subject to certain volume limitations and other restrictions described
below.
The remaining 25,200 shares of Class A Common Stock and the 5,088,000 shares
of Class B Common Stock held by NSG will be "restricted securities" as that
term is defined in Rule 144 (the "Restricted Shares"). In general, under Rule
144, a person (or persons whose shares are aggregated with those of others),
including any affiliate of the Company, is entitled to sell in brokers'
transactions or directly to market makers, within any three-month period, a
number of Restricted Shares that does not exceed the greater of (i) 1.0% of
the class of such shares then outstanding or (ii) the average weekly trading
volume of the class of such shares in the over-the-counter market during the
four calendar weeks preceding the date on which notice of such sale is filed
with the Commission, provided that certain current public information
concerning the Company is then available, that the seller complies with
certain manner-of-sale provisions and notice requirements, and that at least
one year has elapsed since the Restricted Shares were fully paid for and
acquired from the Company or an affiliate of the Company. A person (or persons
whose shares are aggregated with those of others) who is not an affiliate of
the Company at any time during the three months preceding any sale by such
person, is entitled to sell such shares under Rule 144(k) without regard to
the limitations described above, provided that at least two years have lapsed
since the Restricted Shares were fully paid for and acquired from the Company
or an affiliate of the Company. (However, Rule 144(k) is not expected to be
available to NSG for the foreseeable future.) The above is a summary of Rule
144 and is not intended to be a complete description thereof or the rights of
the parties to sell shares of Common Stock thereunder.
Approximately 5,113,200 Restricted Shares will be eligible for sale in the
public market beginning 180 days after the effective date of the offering,
pursuant to Rule 144 and the expiration of certain lock-up agreements entered
into between the Underwriters and the holders of such Restricted Shares. All
of the 5,113,200 Restricted Shares will be subject to certain volume
limitations and other restrictions pursuant to Rule 144. In addition, the
Company intends to file a Registration Statement on Form S-8 after the
effective date of the offering to register 574,800 shares of Class A Common
Stock issuable upon the exercise of stock options to be granted under the
Stock Option Plan. Such shares of Class A Common Stock issued pursuant to the
Stock Option Plan will be available for sale in the public market after the
effective date of the Registration Statement on Form S-8, subject to the
expiration of the lock-up agreements with the Underwriters. See "Management--
Benefit Plans--Amended and Restated 1996 Employee, Director and Consultant
Stock Option Plan."
Except as indicated above, the Company is unable to estimate the amount,
timing or nature of future sales of outstanding Common Stock. There was no
market for the Company's capital stock prior to the offering, and no
predictions can be made as to the effect, if any, that market sales of shares
or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
the Common Stock in the public market may have an adverse effect on the market
price thereof, and could impair the Company's ability to raise capital through
the future sale of its equity securities.
LOCK-UP AGREEMENTS
Pursuant to certain agreements, all of the Company's directors, executive
officers and shareholders, owning as of the date hereof all of the outstanding
Common Stock and all outstanding vested and unvested stock options, have
agreed that they will not, without the prior written consent of Cowen &
Company, offer, sell or otherwise dispose of any shares of Class A Common
Stock or options to acquire shares of Class A Common Stock or securities
exchangeable for or convertible into shares of Class A Common Stock owned by
them, for a period of 180 days after the date of this Prospectus. See
"Underwriting."
46
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters,
for whom Cowen & Company, CIBC Oppenheimer Corp. and Daiwa Securities America
Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Class A
Common Stock set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CLASS A
UNDERWRITERS COMMON STOCK
- ------------ ----------------
<S> <C>
Cowen & Company................................................
CIBC Oppenheimer Corp. ........................................
Daiwa Securities America Inc. .................................
---------
Total...................................................... 2,150,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all shares of Class A Common Stock offered hereby (other
than those covered by the over-allotment option described below), if any of
such shares are purchased.
The Underwriters propose to offer the shares of Class A Common Stock, in
part, directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and to certain dealers at a price less a
concession not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Class A Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Company has granted the Underwriters an option, exercisable for up to 30
days after the date of this Prospectus, to purchase up to an aggregate of
322,500 additional shares of Class A Common Stock to cover over-allotments, if
any. If the Underwriters exercise such over-allotment option, the Underwriters
have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Class A
Common Stock to be purchased by each of them shown in the foregoing table
bears to the total number of shares of Class A Common Stock offered hereby.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of shares of Class A Common Stock made hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments that the Underwriters may be required
to make in respect thereof.
The Company, the Company's officers and directors, and NSG have agreed not
to offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or any right to acquire shares of Common Stock owned by them for
a period of 180 days after the date of this Prospectus without the prior
written consent (which consent may be given without notice to the Company,
stockholders or other public announcement) of Cowen & Company.
The Representatives have advised the Company that they currently intend to
make a market in the Company's Class A Common Stock following this offering
although they have no obligation to do and may cease
47
<PAGE>
such market making at any time. There can be no assurance that a market in the
Company's Class A Common Stock will develop after the offering.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares of Class A Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Company's
capital stock. Consequently, the initial public offering price for the Class A
Common Stock will be determined by negotiations among the Company and the
Representatives. Among the factors to be considered in such negotiations, in
addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of
the above factors in relation to market valuation of companies in related
businesses. The estimated initial public offering price range set forth on the
cover page of this Preliminary Prospectus is subject to change as a result of
market conditions or other factors.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Class A Common
Stock offered hereby will be passed upon for the Company by Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. Certain legal
matters will be passed upon for the Underwriters by O'Sullivan Graev and
Karabell, LLP New York, New York.
EXPERTS
The Consolidated Financial Statements and schedule of the Company as of
March 31, 1997 and 1996 and December 31, 1997 and for each of the years in the
three-year period ended March 31, 1997 and for the nine-month period ended
December 31, 1997, have been included herein and in this Prospectus in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act, with respect to the Class A Common Stock offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus, which is part of the Registration Statement, omits certain
information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Class A Common Stock, reference is made to such Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents or provisions of any documents referred to herein are not
necessarily complete, and in each instance where a copy of the document has
been filed as an exhibit to the Registration Statement, reference is made to
the exhibit so filed.
The Registration Statement, and the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of the Registration Statement may
be obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at such address, and at the Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. In addition, registration statements and certain other filings made
with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's
site on the Internet's World Wide Web, located at http://www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
has been filed with the Commission through EDGAR.
48
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997 and December 31,
1997..................................................................... F-3
Consolidated Statements of Income for the years ended March 31, 1995, 1996
and 1997 and for the nine-month period ended December 28, 1996
(unaudited) and December 31, 1997........................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended March
31, 1995, 1996 and 1997 and for the nine-month period ended December 31,
1997..................................................................... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1995,
1996 and 1997 and for the nine-month period ended December 28, 1996
(unaudited) and December 31, 1997........................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EPITAXX, Inc.:
We have audited the accompanying consolidated balance sheets of EPITAXX,
Inc. (an indirect subsidiary of Nippon Sheet Glass Co., Ltd.) and subsidiary
as of March 31, 1996 and 1997, and December 31, 1997, and the related
consolidated statements of income, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended March 31, 1997 and
the nine-month period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EPITAXX,
Inc. and subsidiary as of March 31, 1996 and 1997, and December 31, 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 1997 and the nine-month period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Short Hills, New Jersey
January 19, 1998
F-2
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEC. 31, 1997
-------------------------
PRO FORMA
MAR. 31 STOCK-HOLDERS
--------------- EQUITY (DEFICIT)
1996 1997 ACTUAL (NOTE 3)
------- ------ ------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............................. $ 91 109 940
Trade accounts receivable, less
allowance for doubtful accounts
of $36, $47 and $75 at March 31,
1996, March 31, 1997 and December
31, 1997, respectively (note
10).............................. 3,018 2,379 2,437
Inventories (note 4).............. 5,111 3,676 3,995
Due from affiliates (notes 9 and
11).............................. 200 886 65
Deferred income tax assets (note
9)............................... 690 466 732
Prepaid expenses and other current
assets........................... 44 140 97
------- ------ -------
Total current assets............ 9,154 7,656 8,266
Property, plant and equipment, net
(notes 5 and 13)................... 7,337 8,932 9,495
Other assets, net................... 280 389 525
------- ------ -------
$16,771 16,977 18,286
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Short-term borrowings from
affiliate under line of credit
(note 11)........................ 2,700 3,400 3,150
Current portion of obligation
under capital lease (note 13).... -- 145 185
Trade accounts payable............ 1,232 1,326 695
Accrued compensation and
benefits......................... 1,167 1,065 809
Accrued expenses.................. 174 325 606
Due to affiliates (notes 9 and
11).............................. 1,029 -- 465
Promissory Notes to be issued for
dividend declared (Note 7):
NSG Holding USA, Inc............. -- -- 10,000
Other stockholders............... -- -- 50
------- ------ -------
Total current liabilities....... 6,302 6,261 15,960
Long-term debt (note 6)............. 5,000 5,000 5,000
Obligation under capital lease, net
of current portion (note 13)....... -- 133 52
Deferred income tax liabilities
(note 9)........................... 502 853 1,040
------- ------ -------
Total liabilities............... 11,804 12,247 22,052
------- ------ -------
Stockholders' equity (deficit)
(notes 3 and 7):
Preferred stock $.01 par value.
Authorized 5,000,000 shares at
December 31, 1997; no shares
issued or outstanding--pro
forma............................ -- -- -- --
Common stock, no par value at
March 31, 1996, $.01 par value at
March 31, 1997 and December 31,
1997. Authorized 42,400,000
shares in 1996, 20,000,000 shares
at March 31, 1997 and December
31, 1997; issued and outstanding
5,088,000 shares at March 31,
1996 and 1997, and 5,113,200
shares at December 31, 1997...... 12,184 51 51 --
Class A common stock, $.01 par
value. Authorized 12,500,000
shares; 25,200 shares issued and
outstanding--pro forma........... -- -- -- --
Class B common stock, $.01 par
value. Authorized 7,500,000
shares; 5,088,000 shares issued
and outstanding--pro forma....... -- -- -- 51
Additional paid-in capital........ -- 12,185 12,185 12,185
Accumulated deficit............... (7,217) (7,506) (16,002) (16,002)
------- ------ ------- -------
Total stockholders' equity
(deficit)...................... 4,967 4,730 (3,766) (3,766)
Commitments (note 13)
------- ------ ------- -------
$16,771 16,977 18,286 18,286
======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED
YEAR ENDED MAR. 31 --------------------
------------------------- DEC. 28, DEC. 31,
1995 1996 1997 1996 1997
------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................... $13,832 17,845 18,700 13,646 17,228
Revenue--Affiliate (Note
11)......................... 1,790 1,917 2,509 1,841 1,120
------- ------- ------- ------- -------
Total revenue (Note 10).... 15,622 19,762 21,209 15,487 18,348
Cost of revenue.............. 9,948 10,876 13,978 10,241 10,720
------- ------- ------- ------- -------
Gross profit............. 5,674 8,886 7,231 5,246 7,628
------- ------- ------- ------- -------
Operating expenses:
Research and development
expense..................... 1,513 2,082 2,541 1,982 2,158
Selling, general and
administrative expense...... 2,705 3,555 3,187 2,262 2,794
------- ------- ------- ------- -------
4,218 5,637 5,728 4,244 4,952
------- ------- ------- ------- -------
Income from operations... 1,456 3,249 1,503 1,002 2,676
------- ------- ------- ------- -------
Other income (expense):
Interest income.............. 1 12 31 24 20
Interest expense (Note 6).... (429) (276) (279) (220) (197)
Interest expense--Affiliate
(Note 11)................... (19) (178) (207) (164) (180)
Other........................ -- (16) (1) -- --
------- ------- ------- ------- -------
(447) (458) (456) (360) (357)
------- ------- ------- ------- -------
Income before income tax
expense (benefit)....... 1,009 2,791 1,047 642 2,319
Income tax expense (benefit)
(note 9)...................... (460) 936 409 250 765
------- ------- ------- ------- -------
Net income............... $ 1,469 1,855 638 392 1,554
======= ======= ======= ======= =======
Pro forma net income per share
(note 3):
Basic........................ $ 0.10 $ 0.25
Diluted...................... 0.10 0.25
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
ADDI- STOCK-
COMMON STOCK TIONAL ACCUMU- HOLDERS'
------------------ PAID-IN LATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994....... 5,088,000 $ 12,184 -- (10,041) 2,143
Net income...................... -- -- -- 1,469 1,469
--------- -------- ------ ------- -------
Balance at March 31, 1995....... 5,088,000 12,184 -- (8,572) 3,612
Dividends paid.................. -- -- -- (500) (500)
Net income...................... -- -- -- 1,855 1,855
--------- -------- ------ ------- -------
Balance at March 31, 1996....... 5,088,000 12,184 -- (7,217) 4,967
Change in par value per share
from no par value to $.01 per
share (note 7)................. -- (12,133) 12,133 -- --
Shares issuable under restricted
stock agreement (note 7)....... -- -- 52 -- 52
Dividends paid.................. -- -- -- (927) (927)
Net income...................... -- -- -- 638 638
--------- -------- ------ ------- -------
Balance at March 31, 1997....... 5,088,000 51 12,185 (7,506) 4,730
Issuance of restricted shares... 25,200 -- -- -- --
Net income...................... -- -- -- 1,554 1,554
Dividends declared (note 7)..... -- -- -- (10,050) (10,050)
--------- -------- ------ ------- -------
Balance at December 31, 1997.... 5,113,200 $ 51 12,185 (16,002) (3,766)
========= ======== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED MAR. 31, PERIOD ENDED
---------------------- --------------------
DEC. 28, DEC. 31,
1995 1996 1997 1996 1997
------ ------ ------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $1,469 1,855 638 392 1,554
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation.................. 801 904 1,101 738 986
Provision for bad debt
expense...................... -- 4 11 11 28
Loss on disposal of property,
plant and equipment.......... -- -- -- -- 14
Deferred income tax expense
(benefit).................... -- (188) 575 -- (79)
Compensation expense related
to restricted stock
agreement.................... -- -- 52 52 --
Changes in operating assets
and liabilities:
Trade accounts receivable... (163) (963) 628 824 (86)
Inventories................. (141) (2,005) 1,435 1,346 (319)
Prepaid expenses and other
current assets............. (31) (12) (96) (9) 43
Due from affiliates......... (652) 738 (686) (115) 821
Other assets................ 10 (37) (109) (52) (136)
Trade accounts payable...... 368 169 94 (875) (631)
Accrued compensation and
benefits................... (498) 406 (102) 607 (256)
Accrued expenses............ 1 103 151 118 281
Due to affiliates........... (11) 969 (1,029) (811) 465
------ ------ ------ ------ ------
Net cash provided by
operating activities ...... 1,153 1,943 2,663 2,226 2,685
------ ------ ------ ------ ------
Cash flows from investing
activities--capital
expenditures..................... (908) (2,061) (2,418) (1,719) (1,479)
------ ------ ------ ------ ------
Cash flows from financing
activities:
Borrowings under line of
credit......................... -- 1,350 -- -- --
Repayments under line of
credit......................... (200) (3,950) -- -- --
Proceeds from borrowings from
affiliate...................... 750 3,950 2,552 2,253 750
Payments on borrowings from
affiliate...................... (750) (700) (1,852) (1,101) (1,000)
Repayment of obligation under
capital leases................. -- -- -- -- (125)
Dividends paid to parent........ -- (500) (927) (927) --
------ ------ ------ ------ ------
Net cash (used in) provided
by financing activities.... (200) 150 (227) 225 (375)
------ ------ ------ ------ ------
Net increase in cash........ 45 32 18 732 831
Cash at beginning of period....... 14 59 91 91 109
------ ------ ------ ------ ------
Cash at end of period............. $ 59 91 109 823 940
====== ====== ====== ====== ======
Supplemental disclosure of cash
flow information--cash paid
during the year for:
Interest....................... $ 448 454 514 302 267
Income taxes................... -- 20 1,454 120 395
------ ------ ------ ------ ------
Noncash information disclosure--
net present value of capital
lease obligation incurred in
connection with lease of computer
hardware and software............ $ -- -- 277 -- 84
====== ====== ====== ====== ======
</TABLE>
In December 1997, the Company declared a cash dividend of $10,050 to
stockholders of record on December 11, 1997. The dividend payable will be
evidenced by promissory notes payable (Note 7).
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1997, AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF COMPANY BUSINESS
EPITAXX, Inc. and Subsidiary (the "Company") designs, manufactures and
markets semiconductor optical detectors and receivers for fiber optics
communications. The Company's products are integral to the development and
implementation of fiber optic systems for applications such as high capacity
long-haul terrestrial and undersea transmission; digital local loop and access
networks; multi-channel cable television ("CATV") distribution; high speed
computer networking and test and measurement equipment.
NSG Holding USA, Inc. ("NSG Holding" or the "Parent"), a wholly-owned
subsidiary of Nippon Sheet Glass Co., Ltd. ("NSG"), owns 99.51% of the
outstanding shares of the Company's capital stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of EPITAXX, Inc.
and its wholly-owned subsidiary. All material intercompany transactions and
balances have been eliminated in consolidation.
Revenue
Revenue is recognized upon product shipment, passage of title and when all
significant obligations of the Company have been fully satisfied.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Examples include provisions for returns, bad debts, and obsolete inventories.
Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments.
Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of the respective assets, which range
from 3 to 30 years. Equipment under capital leases is amortized straight line
over the shorter of the lease term or estimated useful life of the asset.
Research and Development
Research and development costs are expensed as incurred.
F-7
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
During 1995, NSG Holding and the Company entered into a tax sharing
agreement pursuant to which the Company's results of operations are included
in the consolidated federal income tax return of NSG Holding. Under the terms
of the agreement, the Company provides for federal income taxes as if it were
a stand-alone taxpayer; any income tax benefits derived from net operating
losses and tax credits generated by the Company but utilized by NSG Holding in
its consolidated return are allocated to the Company.
Risks and Uncertainties
The Company relies exclusively on its own production capability in wafer
processing, chip fabrication device packaging, final assembly and testing of
products. Because the Company manufactures, packages and tests these
components at its own facility and because the Company only has a single
facility, any interruption in manufacturing resulting from fire, natural
disaster, equipment failures or otherwise would have a material adverse effect
on the Company's business and financial condition. Other factors may also
cause the Company's results to differ from historic levels. Some of the more
significant factors include the prolonged interruption in supply of one or
more key materials, the emergence of new technologies in the fiber optics
communications industry and the introduction by competitors of new products.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to market
data and other valuation techniques as appropriate. The Company believes the
fair value of its financial instruments, principally cash, trade accounts
receivable, other current assets, accounts payable and accrued expenses and
debt obligations approximates their recorded values.
Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stocks Issued to Employees" ("APB 25"), and related
interpretations. For disclosure purposes, pro forma net income and pro forma
net income per share data included in note 8 are provided in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), as if the fair-value-based method had been
applied.
Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
F-8
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impact of Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), and Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131").
SFAS 130 establishes standards for the reporting and display of
comprehensive income in the financial statements. Comprehensive income is the
total of net income and all other non-owner changes in equity. SFAS 131
requires that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. SFAS 130 and 131 are effective for fiscal 1999. Adoption of these
standards is expected to result in additional disclosures, but will not have
an effect on the Company's financial position or results of operations.
Interim Results (Unaudited)
The accompanying consolidated statements of income and cash flows for the
nine-month period ended December 28, 1996 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary for the fair
presentation of the results for such nine-month period.
(3) PRO FORMA INFORMATION
General
In December 1997, the Company's Board of Directors authorized the filing of
a Registration Statement on Form S-1 in connection with a planned initial
public offering (the "Offering") of the Company's common stock. In connection
with the Offering, the Board of Directors and shareholders approved a
recapitalization providing for a restatement upon filing of the Company's
Restated Certificate of Incorporation to increase the total number of shares
of all classes of share capital, which the Company shall be authorized to
issue to 25,000,000 shares, consisting of 12,500,000 shares of Class A common
stock, par value $.01 per share, 7,500,000 shares of Class B common stock, par
value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01
per share.
Pursuant to the Restated Certificate of Incorporation, each share of the
Company's currently issued and outstanding common stock at the effective date,
except for shares of common stock held by NSG Holding, will be converted into
Class A common stock on a one-for-one basis. Each share of common stock held
by NSG Holding will be converted into Class B common stock on a one-for-one
basis. The rights, preferences and privileges of Class A and Class B common
stock are identical in all respects except for voting rights. Each share of
Class A common stock entitles its holder to one vote and each share of Class B
common stock entitles its holder to three votes for each share of Class A
common stock into which the Class B common stock is convertible. The Class B
common stock is convertible into Class A common stock on a share-for-share
basis, subject to adjustment for stock dividends, stock splits, subdivisions
or combinations.
Upon completion of the Offering of Class A common stock, NSG Holding will
own no shares of Class A common stock and all of the 5,088,000 outstanding
shares of Class B common stock.
As further discussed in note 7, the Company plans to use $10,050 of the net
proceeds from the Offering to pay the $10,050 dividend declared to
stockholders of record on December 11, 1997.
F-9
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying consolidated financial statements include unaudited pro
forma stockholders' equity information which gives effect to these events as
further explained below:
(a) The authorization to issue 25,000,000 shares, consisting of
12,500,000 shares of Class A common stock, par value $.01 per share,
7,500,000 shares of Class B common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, par value $.01 per share.
(b) The conversion of 5,113,200 shares of currently issued and
outstanding common stock, par value $.01 per share to 25,200 and 5,088,000
shares of Class A common stock, par value $.01 and Class B common stock,
par value $.01, respectively.
Pro Forma Net Income Per Share
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes
standards for computing and presenting earnings per share and is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Accordingly, the accompanying pro forma net income per share
information has been calculated and presented in accordance with the
provisions of SFAS 128 and as further prescribed by the relevant Staff
Accounting Bulletins of the Securities and Exchange Commission.
Pro forma Basic net income per share was calculated by dividing net income
by the weighted average number of common shares outstanding during the period
assuming the shares of restricted stock were outstanding from April 1, 1996.
The weighted average number of common shares was further adjusted to include
the number of shares that would be required to be sold to fund the $10,050
dividend to NSG Holding and other shareholders (using an estimated initial
public offering price of $10.00 per share).
Pro forma Diluted net income per share was calculated in a manner consistent
with pro forma Basic net income per share except that the weighted average
number of common shares outstanding also includes the dilutive effect of stock
options outstanding (using the treasury stock method and an estimated initial
public offering price of $10.00 per share).
Net Income per share information for periods prior to fiscal 1997 have not
been presented as the Company was a subsidiary of NSG Holdings.
The following presents a reconciliation of the numerator and denominator
used in computing pro forma Basic and Diluted net income per share:
<TABLE>
<CAPTION>
YEAR ENDED MAR. 31,1997
--------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Pro forma Basic net income per share:
Net income and weighted average common
shares outstanding...................... $638 5,113,200
Additional shares assumed issued to fund
dividend................................ -- 1,005,000
---- --------- -----
638 6,118,200 $0.10
Effect of dilutive securities--stock
options................................... -- 132,000 --
---- --------- -----
Pro forma Diluted net income per share--net
income, weighted average common shares
outstanding and assumed share issuance and
conversions............................... $638 6,250,200 $0.10
==== ========= =====
</TABLE>
F-10
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
ENDED DEC. 31,1997
--------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Pro forma Basic net income per share:
Net income and weighted average common
shares outstanding...................... $1,554 5,113,200
Additional shares assumed issued to fund
dividend................................ -- 1,005,000
------ --------- -----
1,554 6,118,200 $0.25
Effect of dilutive securities--stock
options................................... -- 119,000 --
------ --------- -----
Pro forma Diluted net income per share--net
income, weighted average common shares
outstanding and assumed share issuance and
conversions............................... $1,554 6,237,200 $0.25
====== ========= =====
</TABLE>
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MAR. 31
------------ DEC. 31,
1996 1997 1997
------ ----- --------
<S> <C> <C> <C>
Raw materials.......................................... $1,424 1,380 1,556
Work-in-process........................................ 3,244 1,869 2,219
Finished goods......................................... 443 427 220
------ ----- -----
$5,111 3,676 3,995
====== ===== =====
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including equipment under capital leases,
consists of the following:
<TABLE>
<CAPTION>
MAR. 31
-------------- DEC. 31,
1996 1997 1997
------- ------ --------
<S> <C> <C> <C>
Land................................................. $ 422 422 422
Building and building improvements................... 3,329 3,961 4,026
Machinery and equipment.............................. 7,048 9,943 11,146
Furniture and fixtures............................... 146 149 163
Construction in progress............................. 834 -- 254
------- ------ ------
11,779 14,475 16,011
Less accumulated depreciation........................ 4,442 5,543 6,516
------- ------ ------
$ 7,337 8,932 9,495
======= ====== ======
</TABLE>
(6) LONG-TERM DEBT
The Company has a loan agreement with the New Jersey Economic Development
Authority (the Authority) for $5,000, financed by the issuance of Economic
Development Revenue Bonds (the Revenue Bonds) by the Authority. Proceeds from
this borrowing were used to acquire and refurbish the current manufacturing and
administrative facility for the Company. The Revenue Bonds, which are secured
by a letter of credit in the
F-11
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amount of $5,250 issued by the Company and guaranteed by NSG, mature on August
1, 2016. The loan agreement provides for quarterly interest payments at the
"TENR" rate, as defined, plus 1/4% (actual interest rate was 3.87% at December
31, 1997) and allows for the redemption of the bonds prior to the scheduled
maturity date under certain circumstances, as defined in the bond indenture.
The bond indenture also provides for the conversion of the interest rate on
the bonds into a fixed interest rate, as defined, under certain circumstances.
(7) COMMON STOCK
In connection with the Offering of the Company's common stock, the Company
effected a stock split of its common stock in the form of a stock dividend in
the amount of 1.2 shares for every one share outstanding in December 1997. The
Company also effected a 42,400-for-1 stock split of its common stock and
increased the number of authorized shares of common stock from 1,000 shares,
with no par value, to 20,000,000 shares, par value $.01 in December 1996. All
share and per share data in the accompanying consolidated financial statements
have been retroactively adjusted to reflect the effects of the stock splits.
In December 1997, the Company declared a cash dividend of $10,050 to the
stockholders of record on December 11, 1997, of which $10,000 is payable to
NSG Holding. The dividend is evidenced by promissory notes to be issued in
February 1998, which will bear interest at a rate of 6.02% per annum, payable
semiannually. The principal amount of such promissory notes is payable on the
earlier of : (i) the date the Company's total consolidated stockholders'
equity first equals or exceeds $15,000, or (ii) February 9, 2001, provided
that on such date the Company's total consolidated stockholders' equity equals
or exceeds $15,000.
In December 1996, the Company's Board of Directors authorized the issuance
and sale of 25,200 shares of the Company's common stock to three officers of
the Company at a purchase price of $.01 per share under restricted stock
agreements with each officer. Vesting under the agreements is immediate. The
shares were issued on April 1, 1997 and are subject to a repurchase option in
favor of the Company at a price per share of $2.08 for a specified period
during which they are also restricted as to sale and transfer. The Company
recognized approximately $52 of compensation expense in the year ended March
31, 1997 in connection with these restricted stock agreements.
(8) STOCK OPTIONS
Pursuant to the Company's Amended and Restated 1996 Employee, Director, and
Consultant Stock Option Plan (the "Plan"), the Company's Board of Directors
may grant incentive and nonqualified stock options to key employees,
directors, and certain consultants, of the Company. The Plan authorizes grants
of options to purchase up to 574,800 shares of authorized but unissued common
stock.
Options granted under the Plan are set forth in an option agreement with
each participant. The terms of each option agreement may vary at the
discretion of the Board of Directors and shares issued upon exercise of the
options may be restricted as to transferability. Options granted during the
year ended March 31, 1997 had an exercise price equal to the fair market value
(as determined by an independent appraisal) of the underlying common stock at
the date of grant, are generally exercisable 39 months from their date of
grant and have a term not exceeding 10 years. During the nine-month period
ended December 31, 1997, 15,000 options were granted to certain directors at
exercise prices to be equal to the initial public offering price (estimated at
$10.00 per share) of the Company's Class A common stock. Such options are
exercisable in three annual installments and have a term of 10 years.
F-12
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
MAR. 31, 1997 DEC. 31, 1997
----------------- ------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period: -- $ -- 175,200 $ 3.33
Granted............................. 175,200 3.33 15,000 10.00
Exercised........................... -- -- -- --
Canceled............................ -- -- (19,128) 3.33
------- ----- ------- ------
Outstanding at end of period.......... 175,200 $3.33 171,072 $ 3.92
======= ===== ======= ======
</TABLE>
At December 31, 1997, there were 403,728 additional shares available for
grant under the Plan. All outstanding options were nonqualified options.
The per share weighted-average fair value of stock options granted during the
year ended March 31, 1997 and the nine-month period ended December 31, 1997 was
$1.23 and $4.55, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for the year ended March
31, 1997 and the nine-month period ended December 31, 1997: risk free rate of
6.07%; expected option life of 10 years; and no dividend yield.
The Company applies APB 25 in accounting for its Plan and, accordingly, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS 123, the
Company's net income and net income per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
NINE-
MONTH
YEAR PERIOD
ENDED ENDED
MAR. 31, DEC.31,
1997 1997
-------- -------
<S> <C> <C>
Net income:
As reported............................................... $ 638 1,554
Pro forma................................................. 627 1,499
===== =====
Net income per share:
Basic:
Pro forma net income per share, as reported............. $0.10 0.25
Supplemental pro forma net income per share............. 0.10 0.25
Diluted:
Pro forma net income per share, as reported............. 0.10 0.25
Supplemental pro forma net income per share............. 0.10 0.24
===== =====
</TABLE>
At March 31, 1997 and December 31, 1997, the weighted average remaining
contractual life of outstanding options was 9 and 9.1 years, respectively. At
December 31, 1997, no options were exercisable.
F-13
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) INCOME TAXES
Income tax expense (benefit) attributable to income from operations consists
of the following:
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
YEAR ENDED MAR. 31 ENDED
---------------------- DEC.31
1995 1996 1997 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Current:
Federal...................................... $ (460) 1,025 (166) 788
State........................................ -- 99 -- 56
------ ------ ----- ---
(460) 1,124 (166) 844
------ ------ ----- ---
Deferred:
Federal...................................... -- (104) 585 (62)
State........................................ -- (84) (10) (17)
------ ------ ----- ---
-- (188) 575 (79)
------ ------ ----- ---
Total income tax expense (benefit)......... $ (460) 936 409 765
====== ====== ===== ===
</TABLE>
The actual income tax expense (benefit) differs from the expected income tax
expense (computed by applying the U.S. corporate income tax rate of 34% to
income before income tax expense) as follows:
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
YEAR ENDED MAR. 31 ENDED
----------------------- DEC.31
1995 1996 1997 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Computed "expected" federal income tax ex-
pense........................................ $ 343 949 356 788
State income taxes (benefit), net of federal
benefit...................................... -- 10 (7) 26
Change in beginning-of-the-year balance of the
federal valuation allowance for deferred tax
assets allocated to income tax expense....... (774) -- -- --
Research and experimentation credit........... (65) (33) (78) (89)
Other, net (including adjustment related to
prior year amounts in fiscal 1997).............. 36 10 138 40
------- ----- ----- ---
$ (460) 936 409 765
======= ===== ===== ===
</TABLE>
F-14
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
MAR. 31
--------- DEC. 31,
1996 1997 1997
---- ---- --------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts.................................... $ 14 18 28
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 and reserves for obsolescence..... 455 393 541
Compensated absences, principally due to accrual for
financial reporting purposes......................... 39 55 55
Management incentives, principally due to accrual for
financial reporting purposes......................... 137 -- 108
Tax credit carryforwards.............................. 48 126 136
Other................................................. 27 7 23
---- ---- -----
Total gross deferred tax assets..................... 720 599 891
Deferred tax liabilities--plant and equipment,
principally due to differences in depreciation......... 532 986 1,199
---- ---- -----
Net deferred tax asset (liability).................. $188 (387) (308)
==== ==== =====
</TABLE>
There is no valuation allowance for deferred tax assets at March 31, 1996
and 1997, and December 31, 1997; the net change in the total valuation
allowance for the year ended March 31, 1996 was a decrease of $81. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
The Company's results of operations are included in the consolidated federal
income tax return filed by the Parent under a tax sharing agreement with the
Parent. At March 31, 1996 and 1997, and December 31, 1997, amounts due (to)
from the Parent under this agreement amounted to $(1,026), $429 and $(405),
respectively.
At December 31, 1997, the Company has a research and experimentation tax
credit carryforward for state income tax purposes of approximately $136 which
is available to reduce future state income taxes, if any, through 2005.
(10) GEOGRAPHIC INFORMATION, BUSINESS AND CREDIT CONCENTRATIONS
The Company operates in a single industry segment: the design, manufacture,
and marketing of semiconductor optical detectors (see note 1). The Company has
one manufacturing facility located in the United States. Certain materials
necessary for the manufacture of the Company's products are obtained from a
sole supplier or a small group of suppliers. In particular, the Company
currently obtains a key material, the epitaxial
F-15
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
wafers of InGaAs used to manufacture the Company's products from one primary
vendor. Although the Company has identified and qualified several alternative
sources for the epitaxial wafers and other materials currently obtained from
single sources, there can be no assurance that such materials could be made
available at competitive prices, at acceptable reliability standards or in a
timely fashion to respond to customer needs. Interrupted or delayed supplies
of key materials could have a material adverse effect on the Company's
business, financial condition and operating results.
Revenues from one customer were 12.0% and 12.8% of total net revenues during
the years ended March 31, 1995 and 1996, respectively, and revenues from
another customer were 11.0% of total net revenues during the year ended March
31, 1995.
Additionally, 10% of the Company's accounts receivable was due from such
customer at March 31, 1996.
Revenue by geographic area is summarized as follows:
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
YEAR ENDED MAR. 31 ENDED
--------------------- DEC. 31,
1995 1996 1997 1997
------- ------ ------ --------
<S> <C> <C> <C> <C>
North America............................... $ 7,120 7,788 10,921 9,256
Europe...................................... 6,174 8,786 4,420 6,678
Asia and other (including revenue from an
affiliate)................................. 2,328 3,188 5,868 2,414
------- ------ ------ ------
$15,622 19,762 21,209 18,348
======= ====== ====== ======
</TABLE>
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which is unsecured. The
Company estimates an allowance for doubtful accounts based upon the
creditworthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimates of bad debts.
(11) RELATED PARTY TRANSACTIONS
Effective April 1997, the Company and NSG entered into a number of
agreements for the purpose of defining their ongoing relationship. Pursuant to
a Master Cooperation Agreement (the Master Agreement), NSG agreed to continue
to cooperate with the Company to pursue effective business development and
synergy of the Company's business and NSG's fiber optics related business.
Pursuant to the Master Agreement, the Company also entered into a Management
Services Agreement (Services Agreement), a Research and Development Agreement
(R & D Agreement) and a Distribution Agreement with NSG. Prior to the
formalization of the Master Agreement and related agreements, such services
were provided between the Company and NSG on an informal basis.
The Services Agreement requires NSG to continue to provide management
services, including personnel, banking and credit services, productivity
improvement advice, and assistance in the development of relationships in Asia
and Europe. Fees payable under the Services Agreement range from 1/2% to 1% of
net sales (as defined). Pursuant to the R & D Agreement, NSG has agreed to
provide the Company with certain research and development services to enhance
the development of its technology.
Fees charged by NSG under the Service Agreement and the R & D Agreement
during the nine-month period ended December 31, 1997 were $91 and $75,
respectively.
F-16
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Master Agreement, Services Agreement and R & D Agreement terminate on
March 31, 2000, at which time they will be renewed automatically for
successive three-year periods unless terminated by either party at least 30
days prior to the end of their then-current term.
In addition, the Company entered into a Distribution Agreement with NSG
pursuant to which NSG acts as the exclusive distributor of all of the
Company's products in Japan. The Distribution Agreement may be terminated by
agreement between the parties or by either party if NSG ceases to own at least
30% of the capital stock of the Company.
The Company also has a tax sharing agreement pursuant to which the Company's
results of operations are included in the consolidated federal income tax
return of NSG Holding (see note 9).
Purchases and other charges from affiliates were $345, $353 and $191 in the
years ended March 31, 1995, 1996 and 1997, respectively, and $70 in the nine-
month period ended December 31, 1997.
The Company has a $6,000 line of credit with NSG Holding to meet working
capital requirements and to fund certain capital expenditures. The amount and
length of borrowings are negotiable and bear interest at LIBOR plus .25%
(6.19% at December 31, 1997). On January 15, 1998, the maturity date of the
facility was extended through March 31, 1999. Borrowings outstanding under
this facility aggregated $2,700 as of March 31, 1996, $3,400 as of March 31,
1997 and $3,150 as of December 31, 1997. The weighted average interest rate on
short-term borrowings was 6.1%, 5.8% and 6.09% as of March 31, 1996 and 1997
and December 31, 1997, respectively.
(12) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) and profit sharing plan covering substantially all
of its employees. Under the plan, employees may elect to contribute a portion
of their compensation to the 401(k) plan, subject to certain limitations.
Company-matching contributions are made on a discretionary basis subject to a
guaranteed minimum. Pension costs incurred under the 401(k) plan were $73,
$93, $84 and $185 in the years ended March 31, 1995, 1996 and 1997 and the
nine-month period ended December 31, 1997, respectively.
(13) COMMITMENTS
The Company is obligated under capital lease arrangements that expire in
1999 for certain computer hardware and software equipment. At December 31,
1997, the gross amount of computer hardware and software equipment and related
accumulated amortization recorded under capital leases is as follows:
<TABLE>
<S> <C>
Computer equipment................................................. $367,290
Less accumulated amortization.................................... 25,487
--------
$341,803
========
</TABLE>
The Company also leases certain equipment and machinery under various
capital and operating leases. Rent expense charged to operations under such
lease agreements aggregated approximately $148, $209, $217 and $60 in the
years ended March 31, 1995, 1996 and 1997 and the nine-month period ended
December 31, 1997, respectively.
F-17
<PAGE>
EPITAXX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Approximate future minimum rental payments required for all noncancellable
operating leases and future minimum capital lease payments as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending March 31:
1998................................................... $ 47 17
1999................................................... 177 37
2000................................................... 18 16
---- ---
Total minimum lease payments......................... 242 $70
===
Less amount representing interest (at 3% per annum).... 5
----
Present value of net minimum capital lease payments.. 237
Less current installments of obligation under capital
leases................................................ 185
----
Obligation under capital leases excluding current
installments........................................ $ 52
====
</TABLE>
The Company has entered into employment contracts with several officers of
the Company. Such contracts extend through March 2000 with terms for automatic
renewal for consecutive three-year periods. Compensation accrues to the
officers over the term of the contract as the respective services are
provided. Amounts charged to operations under the aforementioned contracts
aggregated approximately $360, $588 and $579 in the years ended March 31,
1995, 1996 and 1997, respectively, and $539 in the nine-month period ended
December 31, 1997.
The Company also has management incentive compensation arrangements
available to certain key employees. Under such arrangements, eligible
employees earn additional compensation based upon the Company attaining
certain annual and multiyear performance objectives, as defined. Amounts
charged to operations under such management incentive compensation
arrangements aggregated approximately $337, $660 and $250 in the years ended
March 31, 1995, 1996 and 1997, respectively, and $326 in the nine-month period
ended December 31, 1997.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF CLASS A COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR
BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 24
Management............................................................... 33
Principal Stockholders................................................... 39
Relationship Between the Company and NSG................................. 40
Description of Capital Stock............................................. 43
Shares Eligible for Future Sale.......................................... 46
Underwriting............................................................. 47
Legal Matters............................................................ 48
Experts.................................................................. 48
Additional Information................................................... 48
Index To Consolidated Financial Statements............................... F-1
</TABLE>
-------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK REGISTERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,150,000 SHARES
[LOGO]
EPITAXX, INC.
CLASS A COMMON STOCK
-------------------
PROSPECTUS
-------------------
COWEN & COMPANY
CIBC OPPENHEIMER
DAIWA SECURITIES
AMERICA INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Class A Common Stock being registered. Except for the Commission
Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing
Fee, the amounts listed below are estimates.
<TABLE>
<S> <C>
Commission Registration Fee.......................................... $
NASD Filing Fee......................................................
Nasdaq National Market Listing Fee...................................
Printing and Engraving Expenses......................................
Legal Fees and Expenses..............................................
Accounting Fees and Expenses.........................................
Blue Sky Fees and Expenses...........................................
Transfer Agent and Registrar Fees and Expenses.......................
Miscellaneous Expenses...............................................
-----
TOTAL.............................................................. $[ ]
=====
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware and the Registrant's
Restated Certificate of Incorporation and Amended and Restated Bylaws provide
for indemnification of the Registrant's directors and officers for liabilities
and expenses that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Registrant, and, with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
Reference is made to the Registrant's Restated Certificate of Incorporation
and Amended and Restated Bylaws filed as Exhibits 3.3 and 3.5 hereto,
respectively.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement
and persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Registrant has sold the following securities that were not registered under
the Securities Act:
1. On January 21, 1997, pursuant to Restricted Stock Agreements, the
Registrant sold 8,400 shares of its Common Stock, par value $.01 per share,
to each of Noboru Hiraguri, Yves Dzialowski and James D. Coleman for an
aggregate purchase price of $210. In the foregoing instance, the Registrant
relied on Section 4(2) of the Securities Act for the exemption from the
registration requirements of the Securities Act, since no public offering
was involved.
2. The Registrant's Amended and Restated 1996 Employee, Director and
Consultant Stock Option Plan (the "Stock Option Plan"), was adopted by the
Registrant in December 1996. As of December 31, 1997, options to purchase
171,072 shares of Common Stock were outstanding under the Stock Option
Plan. In the foregoing instance, the Registrant relied on Rule 701
promulgated under the Securities Act for the exemption from the
registration requirements of the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(1.1)* Form of Underwriting Agreement
(3.1) Restated Certificate of Incorporation of the Registrant
(3.2) Amended and Restated Bylaws of the Registrant
(4.1) Article Fourth of the Restated Certificate of Incorporation of
Registrant (see Exhibit 3.1)
(4.2)* Form of Class A Common Stock Certificate
(5.1)* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of the securities being registered
(10.1) Distribution Agreement, dated as of April 1, 1997, between the
Registrant and Nippon Sheet Glass Co., Ltd.
(10.2) Management Services Agreement, dated as of April 1, 1997, between the
Registrant and Nippon Street Glass Co., Ltd.
(10.3) Master Cooperation Agreement, dated as of April 1, 1997, between the
Registrant and Nippon Sheet Glass Co., Ltd.
(10.4) Research and Development Agreement, dated as of April 1, 1997, between
the Registrant and Nippon Sheet Glass Co., Ltd.
(10.5) Amended and Restated 1996 Employee, Director and Consultant Stock
Option Plan
(10.6) Tax Sharing Agreement, dated as of April 1, 1993, between the
Registrant and Nippon Sheet Glass Co., Ltd.
(10.7) Agreement for Line of Credit, dated as of January 15, 1998 to become
effective on May 31, 1998, between the Registrant and Nippon Sheet
Glass Co., Ltd.
(10.8) Loan Agreement, dated as of August 15, 1991, between the Registrant
and the New Jersey Economic Development Authority
(10.9) Form of Promissory Note dated as of February 9, 1998, from the
Registrant to certain stockholders of the Registrant
(23.1) Independent Auditors' Report and Consent of KPMG Peat Marwick LLP
(23.2)* Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5.1)
(24.1) Power of Attorney (see signature page, II-5)
(27.1) Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule II-Valuation and Qualifying Accounts
II-2
<PAGE>
SCHEDULE II
EPITAXX, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
NINE MONTHS ENDED DECEMBER 31, 1997 AND
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT CHARGED OTHER
BEGINNING OF TO COSTS AND ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
----------- ------------ ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Period ending:
December 31, 1997..... $ 47 $ 28 -- -- $ 75
March 31, 1997........ 36 11 -- -- 47
March 31, 1996........ 32 4 -- -- 36
March 31, 1995........ 32 -- -- -- 32
Inventory--reserves for
obsolescence:
Period ending:
December 31, 1997..... $476 $455 -- -- $931
March 31, 1997........ 702 -- -- (226) 476
March 31, 1996........ 200 502 -- -- 702
March 31, 1995........ 200 -- -- -- 200
Warranty reserve:
Period ending:
December 31, 1997..... $185 -- -- $ (52) $133
March 31, 1997........ 141 44 -- -- 185
March 31, 1996........ 117 24 -- -- 141
March 31, 1995........ 95 22 -- -- 117
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus 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.
Insofar as indemnification for liabilities arising under the Securities Act
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
II-3
<PAGE>
is against public policy as expressed in the Securities 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 of the Registrant 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 Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WEST
TRENTON, NEW JERSEY ON THIS 23RD DAY OF JANUARY, 1998.
EPITAXX, INC.
(Registrant)
/s/ Noboru Hiraguri
By: _________________________________
NOBORU HIRAGURI
CHIEF EXECUTIVE OFFICER AND VICE
CHAIRMAN
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS NOBORU
HIRAGURI, YVES DZIALOWSKI AND JAMES D. COLEMAN AND EACH OF THEM (WITH FULL
POWER TO EACH OF THEM TO ACT ALONE), HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND
AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION IN EACH OF THEM FOR
HIM AND IN HIS NAME, PLACE AND STEAD, AND IN ANY AND ALL CAPACITIES, TO SIGN
ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS
REGISTRATION STATEMENT (OR ANY OTHER REGISTRATION STATEMENT FOR THE SAME
OFFERING THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B) UNDER THE
SECURITIES ACT OF 1933, AS AMENDED), AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH
OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND
THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULL TO
ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR
THEIR OR HIS SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY
VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Noboru Hiraguri Chief Executive January 23, 1998
- ------------------------------------- Officer and Vice
NOBORU HIRAGURI Chairman (principal
executive officer
and Director)
/s/ Yves Dzialowski President and Chief January 23, 1998
- ------------------------------------- Operating Officer
YVES DZIALOWSKI and Director
/s/ James D. Coleman Vice President and January 23, 1998
- ------------------------------------- Chief Financial
JAMES D. COLEMAN Officer (principal
financial and
accounting officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Kenji Fujiwara Chairman of the January 23, 1998
- ------------------------------------- Board
KENJI FUJIWARA
/s/ Arnold S. Hoffman Director January 23, 1998
- -------------------------------------
ARNOLD S. HOFFMAN
/s/ Richard J. Pinola Director January 23, 1998
- -------------------------------------
RICHARD J. PINOLA
/s/ Masahiko Tarumizu Director January 23, 1998
- -------------------------------------
MASAHIKO TARUMIZU
/s/ Naotaka Todoroki Director January 23, 1998
- -------------------------------------
NAOTAKA TODOROKI
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
(1.1)* Form of Underwriting Agreement
(3.1) Restated Certificate of Incorporation of the Registrant
(3.2) Amended and Restated Bylaws of the Registrant
(4.1) Article Fourth of the Restated Certificate of Incorporation of the
Registrant (see Exhibit 3.1)
(4.2)* Form of Class A Common Stock Certificate
(5.1)* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
with respect to the legality of the securities being registered
(10.1) Distribution Agreement, dated as of April 1, 1997, between the
Registrant and Nippon Sheet Glass Co., Ltd.
(10.2) Management Services Agreement, dated as of April 1, 1997, between
the Registrant and Nippon Sheet Glass Co., Ltd.
(10.3) Master Cooperation Agreement, dated as of April 1, 1997, between
the Registrant and Nippon Sheet Glass Co., Ltd.
(10.4) Research and Development Agreement, dated as of April 1, 1997,
between the Registrant and Nippon Sheet Glass Co., Ltd.
(10.5) Amended and Restated 1996 Employee, Director and Consultant Stock
Option Plan
(10.6) Tax Sharing Agreement, dated as of April 1, 1993, between the
Registrant and Nippon Sheet Glass Co., Ltd.
(10.7) Agreement for Line of Credit, dated as of January 15, 1998 to be
effective on May 31, 1998, between the Registrant and Nippon Sheet
Glass Co., Ltd.
(10.8) Loan Agreement, dated as of August 15, 1991, between the
Registrant and the New Jersey Economic Development Authority
(10.9) Form of Promissory Note dated February 9, 1998, from the
Registrant to certain stockholders of the Registrant
(23.1) Consent of KPMG Peat Marwick LLP
(23.2)* Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5.1)
(24.1) Power of Attorney (see signature page, II-5)
(27.1) Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
EPITAXX, INC.
Adopted in accordance with the
provisions of Sections 242 and 245
of the General Corporation Law of the State of Delaware
-------------------------------------------------------
EPITAXX, Inc., a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is EPITAXX, Inc. The date of filing of its
original Certificate of Incorporation with the Secretary of State of Delaware
was January 3, 1984.
2. This Restated Certificate of Incorporation amends and restates the
provisions of the Certificate of Incorporation of said corporation and was duly
adopted pursuant to resolutions adopted by the Board of Directors and
Stockholders of the corporation in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law").
3. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
FIRST: The name of the corporation is EPITAXX, Inc. (the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle;
and the name of the registered agent of the Corporation in the State of Delaware
is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity or carry on any business for which corporations may be organized under
the Delaware General Corporation Law or any successor statue.
FOURTH:
A. Designation and Number of Shares.
--------------------------------
The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is 25,000,000 shares, consisting of 12,500,000
shares of Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), 7,500,000 shares of Class B Common Stock, par value $.01 per share (the
"Class B Common Stock"), and 5,000,000 shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"). The Class A Common Stock and the Class B
Common Stock are sometimes collectively referred to herein as the "Common
Stock".
Each share of common stock, par value $.01 per share, of the Corporation
("Old Common Stock"), issued and outstanding at the time and date that this
Restated Certificate of Incorporation becomes effective (the "Effective Time"),
except for shares of Old Common Stock held by NSG Holding USA, Inc., a Delaware
corporation, ("NSG Holding"), is hereby reclassified and changed, without any
action on the part of the holders of any such Old Common Stock or on the part of
the Corporation, into one share of Class A Common Stock which is fully paid and
nonassessable, and
<PAGE>
each person, other than NSG Holding, holding of record any shares of such Old
Common Stock issued and outstanding at the Effective Time shall be entitled to
receive, upon the surrender of certificates evidencing such shares of Old Common
Stock to the Corporation, one or more certificates to evidence the number of
shares of Class A Common Stock into which such shares of Old Common Stock have
been reclassified.
Each share of Old Common Stock held by NSG Holding, as of the Effective
Time, is hereby reclassified and changed, without any action on the part of NSG
Holding or the Corporation, into one share of Class B Common Stock which is
fully paid and nonassessable, and NSG Holding shall be entitled to receive, upon
the surrender of certificates evidencing such shares of Old Common Stock to the
Corporation, one or more certificates to evidence the number of shares of Class
B Common Stock into which such shares of Old Common Stock have been
reclassified.
A statement of the designations of the different classes of stock of the
Corporation and of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, and of the authority conferred upon the
Board of Directors of the Corporation (the "Board of Directors") to fix by
resolution or resolutions any of the foregoing in connection with the creation
of one or more series of Preferred Stock and the limitation of variations
between or among such series, is set forth below in this Article FOURTH.
B. Preferred Stock.
---------------
1. Shares of Preferred Stock may be issued in one or more series at
such time or times and for such consideration as the Board of Directors may
determine. All shares of any one series shall be of equal rank and identical in
all respects.
2. Authority is hereby expressly granted to the Board of Directors
to fix from time to time, by resolution or resolutions providing for the
establishment and/or issuance of any series of Preferred Stock, the designation
of such series and the powers, preferences and rights of the shares of such
series, and the qualifications, limitations or restrictions thereof, including,
without limitation, the following:
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by action of the
Board of Directors;
(b) The rate of dividends, if any, on the shares of that series,
whether dividends shall be (i) non-cumulative, (ii) cumulative to the
extent earned or (iii) cumulative (and, if cumulative, from which date or
dates), whether dividends shall be payable in cash, property or rights, or
in shares of the Corporation's capital stock, and the relative rights of
priority, if any, of payment of dividends on shares of that series over
shares of any other series or class;
(c) Whether the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption (which amount may vary under different
conditions and at different redemption dates) or the property or rights,
including securities of any other corporation, payable in case of
redemption;
2
<PAGE>
(d) Whether the series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and amounts
payable into such sinking fund;
(e) The rights to which the holders of the shares of that series
shall be entitled in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series in any such event;
(f) Whether the shares of that series shall be convertible into or
exchangeable for shares of stock of any other class or any other series
and, if so, the terms and conditions of such conversion or exchange,
including the rate or rates of conversion or exchange, the date or dates
upon or after which they shall be convertible or exchangeable, the period
or periods during which they shall be convertible or exchangeable, the
event or events upon or after which they shall be convertible or
exchangeable or at whose option they shall be convertible or exchangeable,
and the method (if any) of adjusting the rates of conversion or exchange in
the event of a stock split, stock dividend, combination of shares or
similar event;
(g) Whether the issuance of any additional shares of such series, or
of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers, preferences or rights of any such additional
shares of such series or shares of such other series;
(h) Whether or not the shares of that series shall have voting
rights, the extent of such voting rights on specified matters or on all
matters, the number of votes to which the holder of a share of such series
shall be entitled in respect of such share, whether such series shall vote
generally with the Common Stock on all matters or (either generally or upon
the occurrence of specified circumstances) shall vote separately as a class
or with other series of Preferred Stock; and
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of this
Restated Certificate of Incorporation and to the full extent now or
hereafter permitted by the Delaware General Corporation Law.
C. Common Stock.
------------
The Class A Common Stock and Class B Common Stock shall be identical in all
respects and shall have equal rights and privileges, except as otherwise
expressly provided herein. The relative powers, preferences, rights,
qualifications, limitations and restrictions of the shares of each of the
classes of Common Stock are as follows:
1. Dividends. The holders of record of Class A Common Stock and
---------
Class B Common Stock shall be entitled to receive, when, if and as declared by
the Board of Directors, such dividends of cash, property or stock of the
Corporation as the Board of Directors shall from time to time declare, subject
to the following rights and restrictions and the rights and restrictions set
forth in paragraph (C)(2) of this Article FOURTH:
3
<PAGE>
(a) No cash dividends shall be declared and paid on the Class A
Common Stock unless at the same time an equal cash dividend is declared and
paid, per share, on the Class B Common Stock. No cash dividends shall be
declared and paid on the Class B Common Stock unless at the same time an
equal cash dividend is declared and paid, per share, on the Class A Common
Stock.
(b) No dividend of property (including capital stock of the
Corporation) shall be declared and paid on the Class A Common Stock unless
a dividend of an equal amount of the same property has also been declared
and paid, per share, on the Class B Common Stock. No dividend of property
(including capital stock of the Corporation) shall be declared and paid on
the Class B Common Stock unless a dividend of an equal amount of the same
property has also been declared and paid, per share, on the Class A Common
Stock.
2. Stock Subdivisions and Combinations. The Corporation shall not
-----------------------------------
subdivide or combine shares of any class of Common Stock by stock split, stock
dividend, reclassification, reorganization or otherwise without at the same time
making a proportionate subdivision or combination of the other class of Common
Stock.
3. Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the Corporation
and the amounts to which the holders of any Preferred Stock shall be entitled,
the holders of Class A Common Stock and Class B Common Stock shall be entitled
(together as one class) to share ratably in the remaining assets of the
Corporation.
4. Voting. Holders of Class A Common Stock and Class B Common Stock
------
shall in all matters not otherwise specified in this Article FOURTH vote
together as a single class; provided that, with respect to all such matters, the
--------
holders of Class A Common Stock shall have one vote per share of Class A Common
Stock and the holders of Class B Common Stock shall have the number of votes per
share of Class B Common Stock equal to the result obtained by multiplying (x)
three times (y) the number of shares of Class A Common Stock into which a share
of Class B Common Stock is convertible immediately prior to the then record date
for determining stockholders entitled to vote or consent. Notwithstanding
anything in this paragraph (C)(4) of this Article FOURTH to the contrary, and
subject to any rights of the holders of shares of Preferred Stock, the holders
of Class A Common Stock shall have exclusive voting power on all matters at any
time when no Class B Common Stock is issued and outstanding, and the holders of
Class B Common Stock shall have exclusive voting power on all matters at any
time when no Class A Common Stock is issued and outstanding. Whenever holders of
Class A Common Stock and holders of Class B Common Stock are entitled, pursuant
to the Delaware General Corporation Law, to vote as separate classes, holders of
Class A Common Stock voting as a separate class shall be entitled to one vote
per share of Class A Common Stock held and holders of Class B Common Stock
voting as a separate class shall be entitled to one vote per share of Class B
Common Stock held. The holders of shares of Class A Common Stock shall not be
entitled to vote as a separate class upon any proposed amendment of this
Restated Certificate of Incorporation which would increase or decrease the
aggregate number of authorized shares of Class A Common Stock; such amendment
may be adopted only by the affirmative vote of the holders of stock of the
Corporation representing a majority of the total number of votes eligible to be
cast regarding such proposed amendment, irrespective of paragraph (b)(2) of
Section 242 of the Delaware General Corporation Law or of any other provision of
law; provided that no such amendment may decrease the authorized shares of Class
--------
A Common Stock below the number of shares thereof then outstanding.
4
<PAGE>
5. Conversion.
----------
(a) Optional Conversion of Class B Common Stock. Subject to
-------------------------------------------
adjustment as hereinafter provided in this paragraph 5(a) of this Article
FOURTH, each holder of record of Class B Common Stock may at any time or
from time to time, in such holder's sole discretion and at such holder's
option, convert any whole number or all of such holder's shares of Class B
Common Stock into Class A Common Stock at the rate of one share of Class A
Common Stock for each share of Class B Common Stock surrendered for
conversion. Any such conversion may be effected by any holder of Class B
Common Stock by the surrender of such holder's certificate or certificates
for Class B Common Stock to be converted, duly endorsed, at the office of
the Corporation or any transfer agent for the Class B Common Stock,
together with a written notice to the Corporation at such office that such
holder elects to convert all or a specified number of shares of Class B
Common Stock and stating the name or names in which such holder desires the
certificate or certificates for such Class A Common Stock to be issued.
Promptly thereafter, the Corporation shall issue and deliver to such
holder, or such holder's designee or designees, a certificate or
certificates for the number of shares of Class A Common Stock to which such
holder shall be entitled. Such conversion shall be deemed to have been made
at the close of business on the date of such surrender and the person or
persons entitled to receive the Class A Common Stock issuable on such
conversion shall be treated for all purposes as the record holder or
holders of such Class A Common Stock at such time. If the Corporation (i)
pays a dividend or makes a distribution on its Class A Common Stock in
shares of its Class A Common Stock; (ii) subdivides its outstanding shares
of Class A Common Stock into a greater number of shares; or (iii) combines
its outstanding shares of Class A Common Stock into a smaller number of
shares, then the number of shares of Class A Common Stock into which each
share of Class B Common Stock may be converted shall be adjusted to equal
that number of shares of Class A Common Stock which a holder of each share
of Class B Common Stock would have owned immediately following such action
had such holder exercised its conversion privilege immediately prior to
such action. The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after
the effective date in the case of a subdivision or combination.
(b) Reserved Shares. The Corporation shall reserve and keep
---------------
available out of its authorized but unissued Class A Common Stock such
number of shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B
Common Stock.
6. Transfers of Class B Common Stock.
----------------------------------
(a) Except as provided in paragraph 6(b), upon the transfer of
beneficial ownership of any shares of Class B Common Stock, such shares
shall automatically, with no further action being required by any party to
such transfer or otherwise, be converted into shares of Class A Common
Stock at the rate of one share of Class A Common Stock for each share of
Class B Common Stock.
(b) The provisions of paragraph 6(a) shall not apply, and Class B
Common Stock shall be issued to a transferee of Class B Common Stock upon
the transfer of beneficial ownership of any shares thereof, if such
transfer is made to (i) a wholly-owned subsidiary
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of Nippon Sheet Glass Co., Ltd., a corporation organized under the laws of
Japan ("NSG"), (ii) a corporation ("NSG Parent") of which NSG is a wholly-
owned subsidiary or (iii) a wholly-owned subsidiary of NSG Parent (in any
such case, a "qualifying transfer"); provided that if such transfer is made
--------
to a wholly-owned subsidiary of NSG or of NSG Parent, as the case may be,
and such wholly-owned subsidiary ceases to be a wholly-owned subsidiary of
NSG or of NSG Parent, as the case may be, then such shares shall
automatically, with no further action being required by any party, be
converted into shares of Class A Common Stock at the rate of one share of
Class A Common Stock for each share of Class B Common Stock. Upon any
qualifying transfer, the transferor shall provide written certification to
the transfer agent for the Common Stock of such facts which constitute such
transfer as a "qualifying transfer" and, absent prima facie evidence that
such certification is false, the Corporation or any transfer agent shall
accept such certification as being correct and shall not be required to
conduct any investigation with respect thereto.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Restated
Certificate of Incorporation or the By-Laws of the Corporation as in effect from
time to time, the directors are hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-Laws so provide.
C. Any action required or permitted to be taken by the stockholders of the
Corporation may be effected only at a duly called annual or special meeting of
stockholders of the Corporation and not by written consent. Notwithstanding the
foregoing, if the holders of Class B Common Stock are entitled to vote as a
separate class on any action, then the holders of Class B Common Stock may act
by written consent.
SIXTH: A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Board of Directors, but shall not be less than five directors.
B. Advance notice of stockholder nominations by any holder of Class A
Common Stock for the election of directors and of business to be brought by
stockholders before any meeting of the stockholders of the Corporation shall be
given in the manner provided in the By-Laws of the Corporation.
C. On or prior to the Effective Time, the Board of Directors shall,
effective upon the occurrence of the Effective Time, divide the directors into
three classes, as nearly equal in number as reasonably possible, with the term
of office of the first class to expire at the 1998 annual meeting of
stockholders or any special meeting in lieu thereof, the term of office of the
second class to expire at the 1999 annual meeting of stockholders or any special
meeting in lieu thereof, and the term of office of the third class to expire at
the 2000 annual meeting of stockholders or any special meeting in lieu thereof.
At each annual meeting of stockholders or
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special meeting in lieu thereof, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders or special meeting in lieu thereof
after their election and until their successors are duly elected and qualified.
In the event of any increase or decrease in the total number of authorized
directors, whether or not there exist any vacancies, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he is a member until the expiration of his current term or his prior death,
retirement, removal or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall, if reasonably
possible, be apportioned by the directors among the three classes of directors
so as to ensure that no class has more than one director more than any other
class. To the extent reasonably possible, consistent with the preceding
sentence, any newly created directorships that are to be filled shall be added
to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation. The Board of
Directors is authorized to make, alter, amend or repeal the By-Laws of the
Corporation by resolution adopted by the affirmative vote of a majority of the
whole Board of Directors. Stockholders may not make, adopt, alter, amend,
change or repeal the By-Laws except, subject to the terms of any outstanding
class or series of Preferred Stock, upon the affirmative vote of the holders of
the shares of Common Stock possessing a majority of the total number of votes
represented by the outstanding shares of Class A Common Stock and Class B Common
Stock voting as a single class entitled to vote at such meeting.
EIGHTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors, officers
and trustees and any person who is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise, if
such person was or is made a party to or is threatened to be made a party to or
is otherwise involved (including, without limitation, as a witness) in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer or trustee of the Corporation or is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan; provided that except
--------
with respect to proceedings to enforce rights to indemnification or as is
otherwise required by law, the By-Laws of the Corporation may provide that the
Corporation shall not be required to indemnify, and advance expenses to, any
director, officer, trustee, or other person in connection with a proceeding (or
part thereof) initiated by such director, officer, trustee, or other person,
unless such proceeding (or part thereof) was authorized by the Board of
Directors. The Corporation, by action of its Board of Directors, may provide
indemnification or advance expenses to employees, other agents of the
Corporation or other persons only on such terms and conditions and to the extent
determined by the Board of Directors in its sole and absolute discretion.
B. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall not be deemed exclusive of any other
rights to which a person seeking
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indemnification or advancement of expenses may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
C. The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, trustee, employee 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, or of a
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 this
Article EIGHTH.
D. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall, unless otherwise specified when
authorized or ratified, continue as to a person who has ceased to be a director,
officer or trustee and shall inure to the benefit of the heirs, executors and
administrators of such director, officer or trustee. The indemnification and
rights to advancement of expenses that may have been provided to an employee or
agent of the Corporation by action of the Board of Directors, pursuant to the
last sentence of paragraph A of this Article EIGHTH, shall, unless otherwise
specified when authorized or ratified, continue as to a person who has ceased to
be an employee or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such person, after the time such person
has ceased to be an employee or agent of the Corporation, only on such terms and
conditions and to the extent determined by the Board of Directors in its sole
discretion. No repeal or amendment of this Article EIGHTH shall adversely
affect any rights of any person pursuant to this Article EIGHTH which existed at
the time of such repeal or amendment with respect to acts or omissions occurring
prior to such repeal or amendment.
NINTH: No director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability; provided
--------
that this provision shall not eliminate or limit the liability of a director, to
the extent that such liability is imposed by applicable law, (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 or successor provisions
of the Delaware General Corporation Law; or (iv) for any transaction from which
the director derived an improper personal benefit. This provision shall not
eliminate or limit the liability of a director for any act or omission if such
elimination or limitation is prohibited by the Delaware General Corporation Law.
No amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
If the Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
TENTH: The Corporation expressly elects not to be governed by Section 203
of the Delaware General Corporation Law.
ELEVENTH: Except as otherwise required by the laws of the State of
Delaware, the stockholders and directors shall have the power to hold their
meetings and to keep the books, documents and records of the Corporation outside
of the State of Delaware, and the Corporation
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shall have the power to have one or more offices within or without the State of
Delaware, at such places as may from time to time be designated by the By-Laws
or by resolution of the stockholders or directors.
TWELFTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
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 the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the Delaware General Corporation Law or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of the Delaware General
Corporation Law, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the 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 (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, said compromise or arrangement and said reorganization shall, if
sanctioned by the court to which said application has been made, be binding on
all of the creditors or class of creditors, and/or on all of the stockholders or
class of stockholders of the Corporation, as the case may be, and also on the
Corporation.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its Chief Executive Officer and Vice Chairman of the Board of
Directors this 22nd day of January, 1998.
EPITAXX, INC.
By: /s/ Noboru Hiraguri
-------------------------------------
Noboru Hiraguri
Chief Executive Officer and Vice
Chairman of the Board of Directors
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS OF
EPITAXX, INC.
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of Epitaxx, Inc.
-----------------
(hereafter called the "Corporation") in the State of Delaware shall be at 1013
Centre Road, Wilmington, Delaware 19805, and the name of the registered agent at
that address shall be The Prentice-Hall Corporation System, Inc.
Section 1.02. Principal Office. The principal office for the transaction
----------------
of the business of the Corporation shall be at 7 Graphics Drive, West Trenton,
New Jersey 08628. The Board of Directors of the Corporation (hereafter called
the "Board'), is hereby granted full power and authority to change the address
of said principal office from time to time.
Section 1.03. Other Offices. The Corporation may also have an office or
-------------
offices at such other place or places, either within on without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings. Annual meetings of the stockholders of the
---------------
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings shall be held each
year on a date and at a time designated by the Board, which date shall be within
thirteen (13) months after the last annual meeting of the stockholders.
Section 2.02. Special Meetings. Subject to the rights of the holders of
----------------
any class or series of preferred stock, special meetings of the stockholders may
be called for any purpose or purposes by (i) the Chairman of the Board, (ii) the
Vice Chairman of the Board, or (iii) the Board, pursuant to a resolution adopted
by a majority of the total number of directors authorized. Unless otherwise
prescribed by statute, the Corporation's Certificate of Incorporation (the
"Certificate of Incorporation") or these Bylaws, special meetings may not be
called by any other person or persons. No business may be transacted at any
special meeting of stockholders other than such business as may be designated in
the notice calling such meeting.
Section 2.03. Place of Meetings. All meetings of the stockholders shall
-----------------
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers notice thereof.
<PAGE>
Section 2.04. Notice of Meetings. Except as otherwise required by law,
------------------
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his post office address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary his address for such purpose, then at his post office address last
known to the Secretary, or by transmitting a notice thereof to him at such
address by telegraph, cable, or electronic mail. Except as otherwise expressly
required by law, no publication of any notice of a meeting of the stockholders
shall be required. Every notice of a meeting of the stockholders shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
shall also state the purpose or purposes for which the meeting is called.
Notice of any meeting of the stockholders shall not be required to be given to
any stockholder who shall have waived such notice and such notice shall be
deemed waived by any stockholder who shall attend such meeting in person or by
proxy, except a stockholder who shall attend such meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Except as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given if the time, date and place thereof are announced
at the meeting at which the adjournment is taken. At any such adjourned meeting
at which a quorum is present any business may be transacted which might have
been transacted at the meeting as originally called.
Section 2.05. Quorum. Except as may otherwise be provided by law, the
------
holders of record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. Where a separate
vote by a class or classes is required, a majority of the outstanding shares of
such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and the affirmative vote of the majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class. In the absence of a quorum at any meeting or any adjournment
thereof, any officer entitled to preside at, or to act as secretary of, such
meeting may adjourn such meeting from time to time. No business may be
transacted at a meeting in the absence of a quorum other than the adjournment of
such meeting, except that if a quorum is present at the commencement of a
meeting, business may be transacted until the meeting is adjourned even though
the withdrawal of stockholders results in less than a quorum.
Section 2.06. Organization. The Chairman of the Board or, in his or her
------------
absence, the Vice Chairman of the Board or, in his or her absence, such person
as the Board may have designated or, in his or her absence, the Chief Executive
Officer of the Corporation or, in his or her absence, such person as may be
chosen by the holders of a majority of the shares entitled to vote who are
present, in person or by proxy, shall call to order any meeting of the
stockholders and act as chairman of the meeting. The chairman of any meeting of
the stockholders shall determine the order of business and the procedures at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as he or she deems to be appropriate. In the
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absence of the Secretary of the Corporation, the secretary of the meeting shall
be such person as the chairman of the meeting appoints.
Section 2.07. Voting.
------
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share of the stock of the
Corporation having voting rights on the matter in question and which shall have
been held by him and registered in his name on the books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as
the record date for the determination of stockholders entitled to
notice of and to vote at such meeting, or
(ii) if no such record data shall have been so fixed, then (a) at
the close of business on the day next preceding the day on which
notice of the meeting shall be given or (b) if notice of the meeting
shall be waived, at the close of business on the day next preceding
the day on which the meeting shall be held.
(b) Shares of the Corporation's stock belonging to the Corporation
shall not have voting rights and shall not be counted for quorum purposes.
Nothing in this Section 2.07(b) shall be construed as limiting the right of the
Corporation to vote shares of its stock, held by the Corporation in a fiduciary
capacity. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation such person shall have expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent such stock
and vote thereon. Stock having voting power standing of record in the names of
two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or with
respect to which two or more persons have the same fiduciary relationship, shall
be voted in accordance with the provisions of the Delaware General Corporation
Law (the "DGCL").
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
-------- -------
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders
all matters, except as otherwise provided in the Certificate of Incorporation,
in these Bylaws or by law, shall be decided by the vote of a majority of the
shares present in person or by proxy and entitled to vote thereat and thereon,
so long as a quorum is present. The vote at any meeting of the stockholders on
any questions need not be by ballot, unless so directed by the chairman of the
meeting or by law; provided, however, that upon the demand therefor by a
-------- -------
stockholder entitled to vote or by his or her proxy, a vote by ballot shall
3
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be taken. On a vote by ballot each ballot shall be signed by the voting
stockholder, or by his or her proxy, if there be such proxy, and shall state the
number of shares voted.
Section 2.08. List of stockholders. The Secretary of the Corporation
--------------------
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order for each class of stock, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the duration thereof, and may be
inspected by any stockholder who is present.
Section 2.09. Judges. If at any meetings of the stockholders a vote by
------
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and
shall report the number of shares represented at the meeting and entitled to
vote on such questions, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The
judges need not be stockholders of the Corporation, and any officer of the
Corporation may be a judge on any question other than a vote for or against a
proposal in which he shall have a material interest.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. The property, business and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board. The Board
may, except as otherwise required by law, exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation.
Section 3.02. Number and Term of Office. The authorized number of
-------------------------
directors shall be such number between 5 and 11 as shall be determined from time
to time by affirmative vote of the holders of not less than fifty percent (50%)
of the total voting power of all outstanding shares of voting stock of the
Corporation. Each of the directors of the Corporation shall hold office until
his successor shall have been duly elected and qualified or until he shall
resign or shall have been removed in the manner hereafter provided.
Section 3.03. Elections. The directors shall be elected by the
---------
stockholders of the Corporation at each annual meeting of stockholders and at
each election the persons receiving the greatest number of votes, up to the
number of directors then to be elected, shall be the persons
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then elected. The election of directors is subject to any provisions contained
in the Certificate of Incorporation relating thereto, including any provisions
for cumulative voting.
Section 3.04. Resignations; Removals. Any director of the Corporation may
----------------------
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the effective time is not so specified, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any director or the
entire Board may be removed with cause by the holders of a majority of the total
voting power of all outstanding shares of voting stock of the Corporation,
unless otherwise specified by law or the Certificate of Incorporation. No
director may be removed by the stockholders of the Corporation without cause.
Section 3.05. Vacancies. Except as otherwise provided in the Certificate
---------
of Incorporation, any vacancy in the Board, whether because of death,
resignation, disqualification, an increase in the number of directors, or any
other cause, may be filled by vote of the majority of the remaining directors,
although less than a quorum. The affirmative vote of the holders of not less
than a majority of the total voting power of all outstanding shares of voting
stock of the Corporation may elect a director at any time to fill any vacancy
not filled by the directors. Each director so chosen or elected to fill a
vacancy shall hold office until his or her successor is elected and qualified or
until he or she resigns or is removed in the manner herein provided.
Section 3.06. Place of Meetings, Etc. The Board may hold any of its
----------------------
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special
meeting of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
Section 3.07. First Meeting. The Board shall meet as soon as practicable
-------------
after each annual election of directors and notice of such first meeting shall
not be required.
Section 3.08. Regular Meetings. Regular meetings of the Board may be held
----------------
at such times as the Board shall from time to time by resolution determine. If
any day fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting shall be held at the same hour and
place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
Section 3.09. Special Meetings. Special meetings of the Board may be
----------------
called by the Chairman of the Board or the President and shall be called by the
President or Secretary on the written request of two or more directors then in
office. Notice of all special meetings of the Board shall be given to each
director at his address as it appears on the records of the Corporation, as
follows:
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(a) by first-class mail, postage prepaid, deposited in the United
States mail in the city where the principal office of the Corporation is located
at least five (5) days before the date of such meeting; or
(b) by telegram, charges prepaid, such notice to be delivered to the
telegraph company in the city of the principal office of the Corporation at
least forty-eight (48) hours before the time of holding such meeting; or
(c) by personal delivery at least twenty-four (24) hours prior to
the time of holding such meeting.
Such notice may be waived by any director and any meeting shall be a legal
meeting without notice having been given if all the directors shall be present
thereat or if those not present shall, either before or after the meeting, sign
a written waiver of notice of, or a consent to, such meeting or shall after the
meeting sign the approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or be made a part of the
minutes of the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
Section 3.10. Quorum and Manner of Acting. Except as otherwise provided
---------------------------
in the Certificate of Incorporation or these Bylaws or by law, the presence of a
majority of the total number of directors authorized by the stockholders
pursuant to Section 3.02 shall be required to constitute a quorum for the
transaction of business at any meeting of the Board; provided, that, in no case
-------- ----
shall a quorum consist of fewer than 2 directors. Except as otherwise provided
in the Certificate of Incorporation or these Bylaws or by law, all matters shall
be decided at any such meeting, a quorum being present, by the affirmative votes
of a majority of the directors present. In the absence of a quorum, a majority
of directors present at any meeting may adjourn the same from time to time until
a quorum shall be present. Notice of any adjourned meeting need not be given.
The directors shall act only as a Board, and the individual directors shall have
no power as such.
Section 3.11. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or such committee.
Section 3.12. Compensation. The directors shall receive only such
------------
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him or her on account of such
director's attendance at any meetings of the Board or committees of the Board.
Neither the payment of such compensation nor the reimbursement of such expenses
shall be construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
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Section 3.13. Executive Committee. There may be an Executive Committee of
-------------------
two or more directors appointed by the Board who, at stated times, may advise
and aid the officers of the Corporation in all matters concerning the
Corporation's interest and the management of its business, and generally perform
such duties and exercise such powers as may be directed or delegated by the
Board from time to time. The Board may also designate other directors as
alternate members who may replace any absent or disqualified member of the
Executive Committee at any meeting thereof. To the fullest extent permitted by
law, the Board may delegate to such Executive Committee authority to exercise
all of the powers of the Board while the Board is not in session. Vacancies in
the membership of the Executive Committee shall be filled by the Board at any
regular or special meeting held for that purpose. In the absence or
disqualification of any member of the Executive Committee and any alternate
member in his or her place, the member or members of the Executive Committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may, by unanimous vote, appoint another member
of the Board to act at the meeting in the place of the absent or disqualified
member. The Executive Committee shall keep written minutes of its meeting and
report the same to the Board when required. The provisions of Sections 3.08,
3.09, 3.10 and 3.11 of these Bylaws shall apply, mutatis mutandis, to any
Executive Committee of the Board.
Section 3.14. Other Committees. The Board may, by resolution passed by a
----------------
majority of the whole Board, designate one or more other committees each such
committee to consist of two or more of the directors of the Corporation. The
Board may also designate, if it desires, other directors as alternate members
who may replace any absent or disqualified member of any such committee at any
meeting thereof. To the fullest extent permitted by law, any such committee
shall have, and may exercise, such powers and authority as the Board may
designate in such resolution 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
these Bylaws. Any committee so designated may exercise the power and authority
of the Board to declare a dividend, to authorize the issuance of stock or to
adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL
if the resolution which designates the committee or a supplemental resolution of
the Board shall so provide. Vacancies in the membership of a committee shall be
filled by the Board at any regular or special meeting held for that purpose.
Any such committee shall keep written minutes of its meeting and report the same
to the Board when required. In the absence or disqualification of any member of
any such committee and any alternate member or members of any such committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may, by unanimous vote, appoint another member
of the Board to act at the meeting in the place of the absent or disqualified
member. The provisions of Sections 3.08, 3.09, 3.10 and 3.11 of these Bylaws
shall apply, mutatis mutandis, to any such committee of the Board.
7
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ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be a Chairman
------
of the Board, a Chief Executive Officer, a President, a Chief Operating Officer,
one or more Vice Presidents, a Treasurer, Secretary and such other officers as
the Board or the Chairman of the Board may determine, including, but not limited
to, a Vice Chairman of the Board, a Chief Financial Officer, Assistant
Treasurers and Assistant Secretaries. A person may hold more than one office
providing the duties thereof can be consistently performed by the same person.
Section 4.02. Other Officers. The Board may appoint such other officers
--------------
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
Section 4.03. Election. Each of the officers of the Corporation, except
--------
such officers as may be appointed in accordance with the provisions of Section
4.02 or Section 4.05 of these Bylaws, shall be chosen annually by the Board at
its first meeting following the annual meeting of the stockholders and shall
hold his or her office until such officer shall resign or shall be removed or
otherwise disqualified to serve, or his or her successor shall be elected and
qualified.
Section 4.04. Salaries. The salaries of all executive officers of the
--------
Corporation shall be fixed by the Board or by such committee of the Board as may
be designated from time to time by a resolution adopted by a majority of the
Board.
Section 4.05. Removal; Vacancies. Subject to the express provisions of a
------------------
contract authorized by the Board, any officer may be removed, either with or
without cause, at any time by the Board or by any officer upon whom such power
of removal may be conferred by the Board. Any vacancy occurring in any office
of the Corporation shall be filled by the Board.
Section 4.06. The Chairman of the Board. The Chairman of the Board shall
-------------------------
preside at all meetings of the stockholders and meetings of the Board and shall
have such other powers and duties as may be prescribed by the Board or by
applicable law. The Chairman of the Board shall be an ex-officio member of
standing committees, if so provided in the resolutions of the Board appointing
the members of such committees.
Section 4.07. The Chief Executive Officer. The Chief Executive Officer
---------------------------
shall serve as the chief executive officer of Corporation and, subject to the
control of the Board, shall be generally responsible for the supervision,
control and management of the affairs and business of the Corporation; shall be
generally responsible for the supervision and direction of the other officers,
agents and employees of the Corporation; shall see that all orders and
resolutions of the Board are carried into effect; shall, in the absence of the
Chairman of the Board or Vice Chairman of the Board, if any, preside at all
meetings of the stockholders and meetings of the Board; shall, in general,
exercise all powers and perform all duties incident to the Chief Executive
Officer of the Corporation; and shall exercise such other powers and duties as
may,
8
<PAGE>
from time to time, be assigned to him or her by the Chairman of the Board, the
Vice Chairman of the Board, if any, or the Board, or as may be prescribed in
these Bylaws. The Chief Executive Officer shall be an ex-officio member of
standing committees, if so provided in the resolutions of the Board appointing
the members of such committees.
Section 4.08. The President. The President shall serve as the principal
-------------
executive and managing officer of the Corporation, next in authority to the
Chief Executive Officer and shall be responsible for the management, direction
and supervision of the day-to-day business affairs of the Corporation, reporting
on the same to the Chief Executive Officer as required; shall assist the Chief
Executive Officer in managing the overall direction and decision-making process
of the Corporation; shall assist the Chief Executive Officer with respect to
significant financial matters; shall coordinate with the Chief Executive Officer
in the supervision and evaluation of the other officers, agents and employees of
the Corporation; shall perform the duties and exercise the powers of the Chief
Executive Officer in the event of the Chief Executive Officer's absence or as
delegated by the Chairman of the Board, the Vice Chairman of the Board, if any,
or the Chief Executive Officer; shall, in general, exercise all powers and
perform all duties incident to President of the Corporation; and shall exercise
such other powers and duties as may, from time to time, be assigned to him or
her by the Chairman of the Board, the Vice Chairman of the Board, if any, the
Chief Executive Officer or the Board, or as may be prescribed by these Bylaws.
The President may execute bonds, mortgages and other contracts requiring the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board to some other officer or agent of the
Corporation.
Section 4.09. The Chief Operating Officer. The Chief Operating Officer
---------------------------
shall serve as the principal operations officer of the Corporation and shall
assist the Chief Executive Officer and the President in the management,
direction and supervision of the day-to-day business affairs of the Corporation;
shall coordinate with the Chief Executive Officer and the President in the
supervision and evaluation of the other officers, agents and employees of the
Corporation; shall perform the duties and exercise the powers of the President
in the event of the President's absence or as delegated by the Chairman of the
Board, the Vice Chairman of the Board, if any, the Chief Executive Officer, the
President or the Board; shall, in general, exercise all powers and perform all
duties incident to the Chief Operating Officer of the Corporation; and shall
exercise such other powers and duties as may, from time to time, be assigned to
him or her by the Chairman of the Board, the Vice Chairman of the Board, if any,
the Chief Executive Officer, the President or the Board, or as may be prescribed
in these Bylaws.
Section 4.10. The Vice Presidents. The Vice President shall perform the
-------------------
duties and exercise the powers of the Chief Operating Officer in the event of
the Chief Operating Officer's absence or as delegated by the Chairman of the
Board, the Vice Chairman of the Board, if any, the Chief Executive Officer, the
President, the Chief Operating Officer or the Board (or in the event there be
more than one Vice President, the Vice Presidents in the order designated, or in
the absence of any designation, then in the order of their election); shall
perform the duties of the Chief Operating Officer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Operating Officer. The Vice President shall, in general, exercise all
9
<PAGE>
powers and perform all duties incident to a Vice President of the Corporation
and shall exercise such other powers and duties as may, from time to time, be
assigned to him or her by the Chairman of the Board, the Vice Chairman of the
Board, if any, the Chief Executive Officer, the President, the Chief Operating
Officer or the Board, or as may be prescribed in these Bylaws.
Section 4.11. The Treasurer. The Treasurer shall have the custody of the
-------------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board.
The Treasurer shall disburse the funds of the Corporation as may be ordered
by the Board, making proper vouchers for such disbursements, and shall render to
the President and the Board, at its regular meetings, or when the Board so
requires, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation.
Section 4.12. The Assistant Treasurer. The Assistant Treasurer, or if
-----------------------
there be more than one, the Assistant Treasurers in the order determined by the
Board (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
Section 4.13. The Secretary. The Secretary shall attend all meetings of
-------------
the Board and all meetings of the stockholders and shall record all the
proceedings of the meetings of the Corporation and of the Board in a book to be
kept for that purpose and shall perform like duties for the standing and special
committees of the Board when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board, and shall perform such other duties as may be prescribed by the Board or
the President, under whose supervision he or she shall act. The Secretary shall
have custody of the corporate seal of the Corporation and shall have authority
to affix the same to any instrument requiring it and, when so affixed, such
instrument may be attested by his or her signature. The Board may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by such officer's signature.
Section 4.14. The Assistant Secretary. The Assistant Secretary, or if
-----------------------
there be more than one, the Assistant Secretaries in the order determined by the
Board (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
Section 4.15. Bond. If required by the Board, any officer shall give the
----
Corporation a bond in such sum and with such surety or sureties and upon such
terms and conditions as shall be satisfactory to the Board, including without
limitation, a bond for the faithful performance of the duties of his or her
office and for the restoration to the Corporation of all books, papers,
10
<PAGE>
vouchers, money and other property of whatever kind in his or her possession or
under his or her control and belonging to the Corporation.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 5.01. Checks, Drafts, Etc. All checks, drafts or other orders for
-------------------
payment of money, notes or other evidence of indebtedness payable by the
Corporation and all contracts or agreements to be entered into by the
Corporation, shall be signed by such person or persons and in such manner as,
from time to time, determined by resolution of the Board. Each such person or
persons shall give such bond, if any, as the Board may require.
Section 5.02. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time in an account of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
Section 5.03. General and Special Bank Accounts. The Board may from time
---------------------------------
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may select
or as may be selected by any officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01. Certificates for Stock. Every owner of stock of the
----------------------
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by such owner. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
Chairman, Vice Chairman or President or a Vice President, and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any of the
signatures on the certificates may be a facsimile. In case any officer, transfer
agent or registrar who has signed, or whose facsimile signature has been placed
upon, any such certificate shall have ceased to be such officer, transfer agent
or
11
<PAGE>
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, the respective dates thereof,
and, in case of cancellation, the respective dates of cancellation. Every
certificate surrendered to the Corporation for exchange or transfer shall be
cancelled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled, except in cases provided for in Section 6.04.
Section 6.02. Transfers of Stock. Transfers of shares of stock of the
------------------
Corporation shall be made only on the books of the Corporation at the request of
the registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, or with a transfer
clerk or a transfer agent appointed as provided in Section 6.03, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
Section 6.03. Regulations. The Board may make such rules and regulations
-----------
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. The Board may appoint, or authorize any officer or officers to
appoint, one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all certificates for stock to bear the
signature or signatures of any of them.
Section 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. In any
-------------------------------------------------
case of loss, theft, destruction or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
-------- -------
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
Section 6.05. Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders, or to receive payment of any dividend
or other distribution or allotment of any rights or to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action except for consenting to corporate action in writing without
a meeting, the Board may fix a record date, which shall not precede the date the
resolution fixing the record date is adopted and which record date shall not be
more than sixty (60) nor less than ten (10) days before the date of any meeting
of stockholders, nor more than
12
<PAGE>
sixty (60) days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board, the
-------- -------
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day preceding
the day on which notice is given or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or to exercise any rights in respect of
any change, conversion or exchange of stock or any other lawful action except
for consenting to corporate action in writing without a meeting, the record date
shall be the close of business on the day on which the Board adopts a resolution
relating thereto.
A determination of stockholders of record entitled to notice of, or to vote
at, a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
- -------- -------
meeting.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Indemnification of Officers, Directors, Employees and
-----------------------------------------------------
Agents; Insurance.
-----------------
(a) Right to Indemnification. Each person who was or is made a party
------------------------
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "Proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "Indemnitee"), whether
the basis of such Proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the DGCL, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense
(including attorneys' fees), liability, loss, judgments, fines, excise taxes or
penalties in connection with the Employee Retirement Income Security Act and
amounts paid in settlement actually and reasonably incurred or suffered by such
Indemnitee in connection therewith if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his or her conduct 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 the person did not act in good
faith and in a manner which he or she 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 reasonable cause to believe that his or her
conduct was unlawful. Such indemnification shall continue as to an Indemnitee
who has ceased to be a director, officer,
13
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employee or agent and shall inure to the benefit of the Indemnitee's heirs,
executors and administrators; provided, however, that except as provided in
-------- -------
paragraph (c) of this Section with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a Proceeding (or part thereof) initiated by such Indemnitee only
if such Proceeding (or part thereof) was authorized or is subsequently ratified
by the Board.
(b) Right to Advancement of Expenses. The right to indemnification
--------------------------------
conferred in paragraph (a) of this Section shall include the right to be paid by
the Corporation the expenses incurred in defending any proceeding for which such
right to indemnification is applicable in advance of its final disposition
(hereinafter an "Advancement of Expenses"); provided, however, that, if the DGCL
--------- -------
requires, an advancement of expenses incurred by an Indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such Indemnitee, including, without limitation,
service with respect to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "Undertaking") by
or on behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "Final Adjudication") that such
Indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise.
(c) Right of Indemnitee to Bring Suit. The rights to indemnification
---------------------------------
and to the advancement of expenses conferred in paragraphs (a) and (b) of this
Section shall be a contract between the Corporation and each director or officer
of the Corporation who serves or served in such capacity at any time while this
Article VII is in effect. Any repeal or modification of this Article VII or any
repeal or modification of relevant provisions of the DGCL or any other
applicable laws shall not in any way diminish any rights to indemnification of
such director or officer or the obligations of the Corporation hereunder. If a
claim under paragraph (a) or (b) of this Section is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty (20) days, the Indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an Undertaking, the Indemnitee shall also be entitled
to be paid the expense of prosecuting or defending such suit. In (i) any suit
brought by the Indemnitee to enforce a right to Indemnification hereunder (but
not in a suit brought by the Indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an Undertaking the
Corporation shall be entitled to recover such expenses upon a Final Adjudication
that, the Indemnitee has not met any applicable standard for indemnification set
forth in the DGCL. Neither the failure of the Corporation (including the Board,
the Corporation's independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by the Corporation (including the Board, the Corporation's
independent legal counsel, or its stockholders) that the Indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable
14
<PAGE>
standard of conduct or, in the case of such a suit brought by the Indemnitee, be
a defense to such suit. In any suit brought by the Indemnitee to enforce a right
to indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
Undertaking, the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Section or otherwise
shall be on the Corporation.
(d) Non-Exclusivity of Rights. The rights to indemnification and to
-------------------------
the advancement of expenses conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any statute
or law, the Certificate of Incorporation, agreement, vote of stockholders or
disinterested directors, or otherwise.
(e) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Indemnitee or director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL, provided that such insurance is available on
acceptable terms, which determination shall be made by the Board or by a
committee thereof.
(f) Indemnification of Employees and Agents of the Corporation. The
----------------------------------------------------------
Corporation may, to the extent and in accordance with the terms authorized from
time to time by the Board, grant rights to indemnification, and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section with respect to the
indemnification and advancement of expenses.
(g) For purposes of this Section, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (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, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Section with respect to the
resulting or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
(h) For purposes of this Section, 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 an
employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an 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 the DGCL.
15
<PAGE>
(i) Notwithstanding anything else in this Article VII, in the event
that the express provisions of the DGCL relating to indemnification of, or
advancement of expenses by the Corporation to, persons eligible for
indemnification or advancement of expenses under this Article VII are amended to
permit broader indemnification or advancement of expenses, then the Corporation
will provide such indemnification and advancement of expenses to the maximum
extent permitted by the DGCL.
(j) If this Article VII or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Indemnitee as to costs, charges and 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 an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article VII that shall not have been invalidated and to the fullest extent
permitted by applicable law.
ARTICLE VIII
CERTAIN TRANSACTIONS
Section 8.01 Transactions with Interested Parties. No contract or
------------------------------------
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction or solely because the votes of such
director or officer are counted for such purpose, if:
(a) the material facts as to his or her relationship or interest and as to
the contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(b) the material facts as to his or her relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board, a committee thereof,
or the stockholders.
Section 8.02. Quorum. Common or interested directors may be counted in
------
determining the presence of a quorum at a meeting of the Board or of a committee
which authorizes a contract or transaction with an interested party.
16
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.01. Waiver of Notices. Whenever notice is required to be given
-----------------
by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
Section 9.02. Fiscal Year The fiscal year of the Corporation shall be
-----------
fixed by resolution of the Board.
Section 9.03. Amendments. Subject to the provisions of the Certificate of
----------
Incorporation, these Bylaws and applicable law, these Bylaws or any of them may
be amended or repealed and new Bylaws may be adopted (a) by the Board, by vote
of a majority of the number of directors then in office or (b) by the vote of
the holders of in excess of fifty percent (50%) of the total voting power of all
outstanding shares of voting stock of the Corporation at a meeting of
stockholders; provided that such action may be taken at a special meeting of the
Board or stockholders only if notice of such proposed amendment, repeal or
adoption is given in the notice of special meeting. Subject to the provisions
of the Certificate of Incorporation, any Bylaws adopted or amended by the
stockholders may be amended or repealed by the Board or the stockholders.
Section 9.04. Voting Stock. Any person so authorized by the Board, and in
------------
the absence of such authorization, the Chairman of the Board, the President or
any Vice President, shall have full power and authority on behalf of the
Corporation to attend and to act and vote at any meeting of the stockholders of
any corporation in which the Corporation may hold stock and at any such meeting
shall possess and may exercise any and all rights and powers which are incident
to the ownership of such stock and which as the owner thereof the Corporation
might have possessed and exercised if present. The Board by resolution from
time to time may confer like powers upon any other person or persons.
Section 9.05. Reliance upon Books, Reports and Records. Each director, each
----------------------------------------
member of any committee designated by the Board, and each officer of the
Corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees, or committees of the
Board so designated, or by any other person as to matters which such director or
committee member reasonably believes are within such other person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
17
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EXHIBIT 10.1
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT is made as of April 1, 1997 between Epitaxx, Inc., a
Delaware corporation, of 7 Graphics Drive, West Trenton, New Jersey, U.S.A. (the
"Company") and Nippon Sheet Glass Co., Ltd., a corporation organized under the
laws of Japan, of NSG Tokyo Bldg., 1-7, 2-chome, Kaigan, Minato-ku, Tokyo 105
Japan (the "Distributor").
WHEREAS,
(A) As a seller of the Company Products (as hereinafter defined) in the
Territory (as hereinafter defined) the Distributor is experienced in their
sale and distribution in the Territory.
(B) The Company requires the assistance of the Distributor to distribute
the Company Products in the Territory.
NOW IT IS HEREBY AGREED:
1. In this Agreement:
(a) "Company Products" means all products manufactured by the Company;
(b) "Territory" means Japan.
2. (a) This Agreement shall come into force on the date hereof and shall
continue until terminated by the agreement of the parties or by written notice
from either party to the other pursuant to Clause 2(b).
(b) Either party may terminate this Agreement, by written notice to
the other given at least 90 days before the proposed termination date, during
the period beginning on the date the Distributor ceases to own, directly or
indirectly, at least 30% of the capital stock of the Company.
3. The Company hereby grants to the Distributor the right while this
Agreement is in force, to purchase Company Products from the Company for resale
in the Territory. This right shall be exclusive, even as to the Company.
4. (a) Orders for the Company Products shall be made by the Distributor
through the Company at its main place of business or at such address as may
subsequently be notified by the Company and, subject to availability, the
Company shall sell the Company Products to the Distributor in accordance with
those orders at such prices as may be agreed upon by the parties from time to
time, on a case by case basis.
<PAGE>
(b) The Company will endeavor to fulfill the orders of the Distributor
for the Company Products with all reasonable dispatch, but shall not be liable
in any way for any loss or delay howsoever arising.
(c) All specifications of Company Products shall be furnished by the
Company to the Distributor for purposes including, but not limited to, marketing
and labeling.
(d) The Company shall provide the Distributor with shipping dates,
which will be the best estimates of time of arrival available or known to the
Company.
5. Except as otherwise provided herein, the terms and conditions of the
transactions contemplated hereunder shall be as agreed between the parties from
time to time.
6. The Distributor is free to determine its own selling prices for the
Company Products subject to the reporting requirements of Section 7(f).
7. The Distributor hereby undertakes and agrees with the Company that it
will, at all times during the continuance in force of this Agreement, observe
and perform the terms and conditions set out in this Agreement, and in
particular:
(a) will use at all times its best endeavors to promote and extend
sales of the Company Products throughout the Territory to potential purchasers
thereof and work diligently to obtain orders therefor;
(b) will, in all correspondence and other dealings relating, directly
or indirectly, to the sale or other disposition of the Company Products by the
Distributor, clearly indicate that it is acting as principal;
(c) will not incur any liability on behalf of the Company or in any
way pledge or purport to pledge the Company's credit or make any contract
binding upon the Company without the Company's prior written approval of the
terms thereof;
(d) will immediately bring any improper or wrongful use in the
Territory of the Company's patents, trademarks, emblems, designs, models or
other similar intellectual or commercial property rights that comes to its
notice to the attention of the Company and will, in and about the execution of
its duties, use every effort to safeguard the property rights and interests of
the Company, and will assist the Company, at the request and expense of the
Company, in taking all steps to defend the rights of the Company;
(e) will promptly bring to the notice of the Company any information
received by it that is likely to be of interest, use or benefit to the Company
relating to the marketing of the Company Products in the Territory; and
2
<PAGE>
(f) will report to the Company, as required by the Company with
respect to its activities, including but not limited to sales calls, leads
follow up, pricing structures and end user price by transaction; and
(g) will not assign, transfer, charge, or in any manner make over, or
purport to assign, transfer, charge or make over, this Agreement, or its rights
hereunder, or any part hereof without the written consent of the Company.
8. (a) The Company shall provide the Distributor with promotional
materials at cost.
(b) The Company shall provide the Distributor with any information and
advice generally provided to other distributors in connection with marketing and
advertising the Company Products that the Distributor reasonably requests.
(c) On the expiration or termination of this Agreement, the
Distributor shall be entitled to continue to sell all unsold Company Products
then in its possession.
(d) The Company will extend its normal warranty of the product to the
Distributor for a date of one year from the time the product is delivered to the
customer. This extended warranty will be effective as long as the time between
when the product is shipped from the Company and the time when the Distributor
delivers the product to the customer is less than one year.
(e) In order for the extended warranty set forth in Section 8(d) to
apply, the Distributor must have proper handling and packing procedures. These
procedures are subject to approval by the Company and updated periodically. All
personnel who handle parts must be trained using these procedures. The
Distributor will implement a Quality System that will include a section on the
handling and packing of material. The Company recommends that the Distributor
applies for certification under the ISO 9000 system.
9. Nothing in this Agreement shall constitute or be deemed to constitute a
partnership between the parties hereto, or constitute or be deemed to constitute
the Distributor as agent of the Company for any purpose whatever, and the
Distributor shall have no authority or power to bind the Company or to contract
in the name of and create a liability against the Company in any way or for any
purpose.
10. All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by registered or certified mail, return receipt requested, postage prepaid.
3
<PAGE>
If to the Company:
Epitaxx, Inc.
7 Graphics Drive
West Trenton, New Jersey 08628
Attention: Noboru Hiraguri, Chief Executive Officer
If to the Distributor:
Nippon Sheet Glass Co., Ltd.
NSG Tokyo Bldg.
1-7, 2-chome, Kaigan
Minato-ku, Tokyo, 105 JAPAN
Attention: Kenji Fujiwara, General Manager, Fiber Optics Division
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
11. This Agreement embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement of
any kind not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
12. The terms and provisions of this Agreement may be modified or amended
only by written agreement executed by all parties hereto.
13. No waiver of the terms and provisions of this Agreement or consent for
the departure therefrom shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
14. The rights and obligations under this Agreement may not be assigned by
either party hereto without the prior written consent of the other party.
15. All statements, representations, warranties, covenants and agreements
in this Agreement shall be binding on the parties hereto and shall inure to the
benefit of the respective successors and permitted assigns of each party hereto.
Nothing in this Agreement shall be
4
<PAGE>
construed to create any rights or obligations except among the parties hereto,
and no person or entity shall be regarded as a third-party beneficiary of this
Agreement.
16. This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
New Jersey, without giving effect to the conflict of law principles thereof.
17. Any controversy, dispute or claim arising out of or in connection with
this Agreement, or the breach, termination or validity hereof, shall be settled
by final and binding arbitration to be conducted by an arbitration tribunal in
the State of New Jersey, pursuant to the rules of the American Arbitration
Association. The arbitration tribunal shall consist of three arbitrators. The
party initiating arbitration shall nominate one arbitrator in the request for
arbitration and the other party shall nominate a second in the answer thereto
within thirty (30) days of receipt of the request. The two arbitrators so named
will then jointly appoint the third arbitrator. If the answering party fails to
nominate its arbitrator within the thirty (30) day period, or if the arbitrators
named by the parties fail to agree on the third arbitrator within sixty (60)
days, the office of the American Arbitration Association Trenton, New Jersey
shall make the necessary appointments of such arbitrator(s). The decision or
award of the arbitration tribunal (by a majority determination, or if there is
no majority, then by the determination of the third arbitrator, if any) shall be
final, and judgment upon such decision or award may be entered in any competent
court or application may be made to any competent court for judicial acceptance
of such decision or award and an order of enforcement. In the event of any
procedural matter not covered by the aforesaid rules, the procedural law of the
State of New Jersey shall govern.
18. Any legal action or proceeding with respect to this Agreement shall be
brought in the courts of the State of New Jersey or of the United States of
America for the District of New Jersey. By execution and delivery of this
Agreement, each of the parties hereto accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each of the parties hereto irrevocably consents to the service of
process of any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by certified mail, postage prepaid, to the party
at its address set forth in Section 5(a) hereof.
19. In the event that any court of competent jurisdiction shall determine
that any provision, or any portion thereof, contained in this Agreement shall be
unenforceable in any respect, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
20. No failure or delay by a party hereto in exercising any right, power or
remedy under this Agreement, and no course of dealing between the parties
hereto, shall operate as a waiver of any such right, power or remedy of the
party. No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of steps to
enforce any such right, power or remedy, shall preclude such party from any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The election of any remedy by a party hereto shall not
constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under this
Agreement
5
<PAGE>
shall entitle the party receiving such notice or demand to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the party giving such notice or demand to any other or further action
in any circumstances without such notice or demand.
21. This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
6
<PAGE>
IN WITNESS WHEREOF, Epitaxx and the Distributor have caused this Agreement
to be executed by their duly authorized officers, under seal, as of the date
first specified above.
EPITAXX, INC.
By: /s/ Noboru Hiraguri
Name: Noboru Hiraguri
Title: Chief Executive Officer
NIPPON SHEET GLASS CO., LTD.
By: /s/ Kenji Fujiwara
Name: Kenji Fujiwara,
Title: General Manager, Fiber Optics Division
7
<PAGE>
EXHIBIT 10.2
MANAGEMENT SERVICES AGREEMENT
-----------------------------
This MANAGEMENT SERVICES AGREEMENT (the "Agreement") is dated as of the 1st
day of April, 1997, by and between Epitaxx, Inc. ("Epitaxx"), a Delaware
corporation with its principal offices at 7 Graphics Drive, West Trenton, New
Jersey and Nippon Sheet Glass Co., Ltd. ("NSG"), a corporation organized under
the laws of Japan with its principal offices at NSG Tokyo Bldg., 1-7, 2-chome,
Kaigan, Minato-ku, Tokyo, 105 Japan.
WHEREAS, Epitaxx, in order to pursue the effective business development and
synergy of Epitaxx's business and NSG's Fiber Optics related business, is
desirous of obtaining from NSG the full benefit and support derived from their
affiliation, including the provision of certain management services to Epitaxx
by NSG on a basis the parties believe will permit Epitaxx to minimize costs
associated with the operation and administration of its business; and
WHEREAS, Epitaxx and NSG, with full regard for and subject to the
obligations of each of them and each of their officers and directors pursuant to
applicable law, are desirous of cooperating in the formulation and
implementation of principles and policies and the provision to Epitaxx by NSG of
management services specified herein, including personnel, banking and credit
services; productivity improvement advice; and assistance in the development of
relationships in Asia and Europe with potential customers for Epitaxx products;
and
WHEREAS, Epitaxx and NSG have entered into a Master Cooperation Agreement
contemporaneously herewith, pursuant to which NSG and Epitaxx have agreed to
enter into this Agreement and NSG has agreed to provide to Epitaxx certain
services all as set forth herein and in such Master Cooperation Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth herein and in the Master Cooperation Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Provision of Management Services to Epitaxx by NSG
--------------------------------------------------
(a) The management services to be provided to Epitaxx by NSG are set forth
on Schedule A hereto (the "Management Services"). NSG will use such
----------
resources as it deems necessary to effect and provide those services
to be provided by it.
(b) In connection with the provision of Management Services to Epitaxx by
NSG, NSG shall use its best efforts to obtain any consents of third
parties which may be necessary to allow NSG to perform such Management
Services.
(c) The Management Services to be provided by NSG and/or the compensation
to be paid by Epitaxx to NSG for the provision of the Management
Services may be amended from time to time by written consent of
Epitaxx and NSG, which consent shall amend Schedule A hereto.
----------
1
<PAGE>
2. Epitaxx Responsibilities
------------------------
Epitaxx shall provide such information to NSG as NSG shall request from
time to time to enable NSG to perform the Management Services hereunder.
3. Compensation
------------
(a) As consideration for the Management Services rendered by NSG in
accordance with this Agreement, Epitaxx shall pay to NSG a mutually
agreed upon fee of not less than 0.5% and not more than 1.00% of Net
Sales, as such term is defined in Paragraph 3(b) below, which will be
payable semi-annually on October 1 and April 1 of each year with
respect to Management Services provided and Net Sales generated in the
previous six (6) month period. In the event that any tax withholding
is required at the time of payment of such fee Epitaxx shall provide
NSG with a certificate documenting such withholding requirement.
Unless otherwise agreed all payments shall be made in U.S. Dollars to
such account of NSG or any affiliated company as NSG shall direct.
(b) "Net Sales" shall mean the aggregate invoiced sales prices of Epitaxx
products sold to all customers less, to the extent such amounts are
included in the invoiced sales price, taxes, shipping costs (including
freight and insurance), and other governmental charges paid for and
separately identified on the invoice. Additional allowances will be
permitted for (i) cash, trade and/or quantity discounts (other than
for prompt payment) actually allowed and (ii) amounts repaid or
credited by reason of rejection or return of goods, rebates,
wholesaler chargebacks or retroactive price reductions.
4. Contact Persons
---------------
Each of Epitaxx and NSG shall appoint one or more individuals who shall
serve as contact persons for purposes of carrying out this Agreement. Such
contact persons shall be authorized to act on behalf of their respective party
as to the matters pertaining to this Agreement.
5. Term of Agreement
-----------------
The initial term of this Agreement will commence on April 1, 1997 and
terminate on March 31, 2000. After the initial term, this Agreement will be
automatically renewed for successive three (3) year periods unless one of the
parties gives written notice to the other party that it desires to terminate
this Agreement and such written notice is received by the other party no later
than thirty (30) days prior to the end of the initial term or any subsequent
term of this Agreement.
2
<PAGE>
6. Independent Relationship
------------------------
This Agreement shall not create and shall not be construed to create any
relationship of agency, partnership or employment between Epitaxx and NSG.
Epitaxx and NSG are and shall remain independent parties.
7. Miscellaneous
-------------
(a) Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing, shall be addressed to the receiving
party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered
by hand, (ii) made by telex, telecopy or facsimile transmission, (iii)
sent by overnight courier, or (iv) sent by registered or certified
mail, return receipt requested, postage prepaid.
If to Epitaxx:
Epitaxx, Inc.
7 Graphics Drive
West Trenton, New Jersey 08628
Attention: Noboru Hiraguri, Chief Executive Officer
If to NSG:
Nippon Sheet Glass Co., Ltd.
NSG Tokyo Bldg.
1-7, 2-chome, Kaigan
Minato-ku, Tokyo, 105 JAPAN
Attention: Kenji Fujiwara, General Manager,
Fiber Optics Division
All notices, requests, consents and other communications hereunder
shall be deemed to have been given either (i) if by hand, at the time
of the delivery thereof to the receiving party at the address of such
party set forth above, (ii) if made by telex, telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged
by electronic confirmation or otherwise, (iii) if sent by overnight
courier, on the next business day following the day such notice is
delivered to the courier service, or (iv) if sent by registered or
certified mail, on the 5th business day following the day such mailing
is made.
(b) Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior oral or written agreements and
understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not
expressly set forth in this Agreement shall affect, or be
3
<PAGE>
used to interpret, change or restrict, the express terms and
provisions of this Agreement.
(c) Modifications and Amendments. The terms and provisions of this
----------------------------
Agreement may be modified or amended only by written agreement
executed by all parties hereto.
(d) Waivers and Consents. No waiver of the terms and provisions of this
--------------------
Agreement or consent for the departure therefrom shall be deemed to be
or shall constitute a waiver or consent with respect to any other
terms or provisions of this Agreement, whether or not similar. Each
such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
(e) Assignment. The rights and obligations under this Agreement may not
----------
be assigned by either party hereto without the prior written consent
of the other party, except that NSG may assign it rights hereunder to
any other company of which it is the direct or indirect owner of a
controlling interest.
(f) Benefit. All statements, representations, warranties, covenants and
-------
agreements in this Agreement shall be binding on the parties hereto
and shall inure to the benefit of the respective successors and
permitted assigns of each party hereto. Nothing in this Agreement
shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be construed in accordance with and governed
by the law of the State of New Jersey, without giving effect to the
conflict of law principles thereof.
(h) Arbitration. Any controversy, dispute or claim arising out of or in
-----------
connection with this Agreement, or the breach, termination or validity
hereof, shall be settled by final and binding arbitration to be
conducted by an arbitration tribunal in the State of New Jersey,
pursuant to the rules of the American Arbitration Association. The
arbitration tribunal shall consist of three arbitrators. The party
initiating arbitration shall nominate one arbitrator in the request
for arbitration and the other party shall nominate a second in the
answer thereto within thirty (30) days of receipt of the request. The
two arbitrators so named will then jointly appoint the third
arbitrator. If the answering party fails to nominate its arbitrator
within the thirty (30) day period, or if the arbitrators named by the
parties fail to agree on the third arbitrator within sixty (60) days,
the office of the American Arbitration Association Trenton, New Jersey
shall make the necessary appointments of such arbitrator(s). The
decision or award of the arbitration tribunal (by a majority
determination, or if there is no majority, then by the determination
of the third arbitrator, if any) shall be final, and judgment upon
4
<PAGE>
such decision or award may be entered in any competent court or
application may be made to any competent court for judicial acceptance
of such decision or award and an order of enforcement. In the event
of any procedural matter not covered by the aforesaid rules, the
procedural law of the State of New Jersey shall govern.
(i) Jurisdiction and Service of Process. Any legal action or proceeding
-----------------------------------
with respect to this Agreement shall be brought in the courts of the
State of New Jersey or of the United States of America for the
District of New Jersey. By execution and delivery of this Agreement,
each of the parties hereto accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each of the parties hereto irrevocably consents to
the service of process of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by certified
mail, postage prepaid, to the party at its address set forth in
Section 7(a) hereof.
(j) Severability. In the event that any court of competent jurisdiction
------------
shall determine that any provision, or any portion thereof, contained
in this Agreement shall be unenforceable in any respect, the remaining
provisions of this Agreement shall nevertheless remain in full force
and effect.
(k) Headings and Captions. The headings and captions of the various
---------------------
subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect the meaning or construction of
any of the terms or provisions hereof.
(l) No Waiver of Rights, Powers and Remedies. No failure or delay by a
----------------------------------------
party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, shall
operate as a waiver of any such right, power or remedy of the party.
No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of
steps to enforce any such right, power or remedy, shall preclude such
party from any other or further exercise thereof or the exercise of
any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of
such party to pursue other available remedies. No notice to or demand
on a party not expressly required under this Agreement shall entitle
the party receiving such notice or demand to any other or further
notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any
other or further action in any circumstances without such notice or
demand.
(m) Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by different parties hereto on separate
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, Epitaxx and NSG have caused this Agreement to be
executed by their duly authorized officers, under seal, as of the date first
specified above.
EPITAXX, INC.
By: /s/ Noburu Hiraguri
Name: Noboru Hiraguri
Title: Chief Executive Officer
NIPPON SHEET GLASS CO., LTD.
By: /s/ Kenji Fujiwara
Name: Kenji Fujiwara,
Title: General Manager, Fiber Optics Division
6
<PAGE>
Schedule A
----------
1. NSG to provide credit support to Epitaxx in such form as shall be
determined from time to time, including but not limited to letters of
credit, guarantees, bonds and other credit instruments at a cost not
to exceed LIBOR plus two percent (2%).
2. NSG shall provide to Epitaxx the services of specialized personnel and
bear a portion of their compensation as may from time to time be
requested by Epitaxx.
3. NSG to provide Epitaxx with advice, information and technology related
to productivity improvement, including, without limitation, quality
control and quality assurance, as may from time to time be requested
by Epitaxx.
4. NSG to provide Epitaxx with assistance in the development of
relationships with potential customers for Epitaxx products in Asia
and Europe, as may from time to time be requested by Epitaxx.
7
<PAGE>
EXHIBIT 10.3
MASTER COOPERATION AGREEMENT
----------------------------
This MASTER COOPERATION AGREEMENT (the "Agreement") is dated as of the 1st
day of April, 1997, by and between Epitaxx, Inc. ("Epitaxx"), a Delaware
corporation with its principal offices at 7 Graphics Drive, West Trenton, New
Jersey and Nippon Sheet Glass Co., Ltd. ("NSG"), a corporation organized under
the laws of Japan with its principal offices at NSG Tokyo Bldg., 1-7, 2-chome,
Kaigan, Minato-ku, Tokyo, 105 Japan.
WHEREAS, Epitaxx is desirous of obtaining from NSG the full benefit and
support derived from their affiliation, including the financial, managerial,
research and development, sales and marketing, and technological strengths of
such affiliation;
WHEREAS, Epitaxx and NSG, with full regard for and subject to the
obligations of each of them and each of their officers and directors pursuant to
applicable law, are desirous of cooperating in the formulation and
implementation of principles and policies and the provision to Epitaxx by NSG of
managerial resources, personnel, banking and credit services, research and
development, sales and marketing, and information exchange on Epitaxx' worldwide
product strategy; and,
WHEREAS, Epitaxx and NSG have entered into a Research and Development
Agreement, Distribution Agreement and a Management Services Agreement
contemporaneously herewith, pursuant to which NSG has agreed to provide to
Epitaxx certain services all as set forth herein and in such agreements;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Areas of Cooperation
--------------------
(a) NSG and Epitaxx agree to cooperate, in order to pursue the effective
business development and synergy of the Epitaxx's business and NSG's
Fiber Optics related business, to make efforts to mutually utilize
valuable resources and information for the above mentioned purpose and
to implement such cooperation have entered into the agreements
described in 1(b)-(d) below.
(b) NSG shall provide Epitaxx with management and financial support and
advisory services pursuant to a Management Services Agreement to be
entered into by Epitaxx and NSG contemporaneously herewith (the
"Management Services Agreement"), including, without limitation,
provision of services of specialized personnel and productivity
improvement advice, assistance in the development of customer
relationships in Asia and Europe, and the provision of credit support
and loan guarantees to Epitaxx;
<PAGE>
(c) NSG shall continue the provision of research and development services
to Epitaxx pursuant to Research and Development Agreement between
Epitaxx and NSG entered into contemporaneously herewith (the "Research
and Development Agreement"); and
(d) NSG shall continue the provision of exclusive customer support and
sales, marketing and distribution services for Epitaxx products in
Japan under a Distribution Agreement (the "Distribution Agreement").
The Management Services Agreement, Research and Development Agreement and
Distribution Agreement are collectively referred to herein as the "Services
Agreements".
NSG shall provide such other strategic and financial planning advice and
services as may be reasonably requested by Epitaxx. Epitaxx shall provide such
information to NSG as NSG shall request from time to time to enable NSG to
perform its responsibilities hereunder and shall pay compensation to NSG as set
forth in the respective Services Agreements.
2. Term of Agreement
-----------------
The initial term of this Agreement will commence on April 1, 1997 and
terminate on March 31, 2000. After the initial term, this Agreement will be
automatically renewed for successive three (3) year periods unless one of the
parties gives written notice to the other party that it desires to terminate
this Agreement and such written notice is received by the other party no later
than thirty (30) days prior to the end of the initial term or any subsequent
term of this Agreement.
3. Independent Relationship
------------------------
This Agreement shall not create and shall not be construed to create any
relationship of agency, partnership or employment between Epitaxx and NSG.
Epitaxx and NSG are and shall remain independent parties.
4. Miscellaneous
-------------
(a) Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing, shall be addressed to the receiving
party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered
by hand, (ii) made by telex, telecopy or facsimile transmission, (iii)
sent by overnight courier, or (iv) sent by registered or certified
mail, return receipt requested, postage prepaid.
2
<PAGE>
If to Epitaxx:
Epitaxx, Inc.
7 Graphics Drive
West Trenton, New Jersey 08628
Attention: Noboru Hiraguri, Chief Executive Officer
If to NSG:
Nippon Sheet Glass Co., Ltd.
NSG Tokyo Bldg.
1-7, 2-chome, Kaigan
Minato-ku, Tokyo, 105 JAPAN
Attention: Kenji Fujiwara, General Manager, Fiber Optics
Division
All notices, requests, consents and other communications hereunder
shall be deemed to have been given either (i) if by hand, at the time
of the delivery thereof to the receiving party at the address of such
party set forth above, (ii) if made by telex, telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged
by electronic confirmation or otherwise, (iii) if sent by overnight
courier, on the next business day following the day such notice is
delivered to the courier service, or (iv) if sent by registered or
certified mail, on the 5th business day following the day such mailing
is made.
(b) Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior oral or written agreements and
understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not
expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of
this Agreement.
(c) Modifications and Amendments. The terms and provisions of this
----------------------------
Agreement may be modified or amended only by written agreement
executed by all parties hereto.
(d) Waivers and Consents. No waiver of the terms and provisions of this
--------------------
Agreement or consent for the departure therefrom shall be deemed to be
or shall constitute a waiver or consent with respect to any other
terms or provisions of this Agreement, whether or not similar. Each
such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
3
<PAGE>
(e) Assignment. The rights and obligations under this Agreement may not
----------
be assigned by either party hereto without the prior written consent
of the other party.
(f) Benefit. All statements, representations, warranties, covenants and
-------
agreements in this Agreement shall be binding on the parties hereto
and shall inure to the benefit of the respective successors and
permitted assigns of each party hereto. Nothing in this Agreement
shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be construed in accordance with and governed
by the law of the State of New Jersey, without giving effect to the
conflict of law principles thereof.
(h) Arbitration. Any controversy, dispute or claim arising out of or in
-----------
connection with this Agreement, or the breach, termination or validity
hereof, shall be settled by final and binding arbitration to be
conducted by an arbitration tribunal in the State of New Jersey,
pursuant to the rules of the American Arbitration Association. The
arbitration tribunal shall consist of three arbitrators. The party
initiating arbitration shall nominate one arbitrator in the request
for arbitration and the other party shall nominate a second in the
answer thereto within thirty (30) days of receipt of the request. The
two arbitrators so named will then jointly appoint the third
arbitrator. If the answering party fails to nominate its arbitrator
within the thirty (30) day period, or if the arbitrators named by the
parties fail to agree on the third arbitrator within sixty (60) days,
the office of the American Arbitration Association Trenton, New Jersey
shall make the necessary appointments of such arbitrator(s). The
decision or award of the arbitration tribunal (by a majority
determination, or if there is no majority, then by the determination
of the third arbitrator, if any) shall be final, and judgment upon
such decision or award may be entered in any competent court or
application may be made to any competent court for judicial acceptance
of such decision or award and an order of enforcement. In the event
of any procedural matter not covered by the aforesaid rules, the
procedural law of the State of New Jersey shall govern.
(i) Jurisdiction and Service of Process. Any legal action or proceeding
-----------------------------------
with respect to this Agreement shall be brought in the courts of the
State of New Jersey or of the United States of America for the
District of New Jersey. By execution and delivery of this Agreement,
each of the parties hereto accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each of the parties hereto irrevocably consents to
the service of process of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by certified
mail, postage prepaid, to the party at its address set forth in
Section 5(a) hereof.
4
<PAGE>
(j) Severability. In the event that any court of competent jurisdiction
------------
shall determine that any provision, or any portion thereof, contained
in this Agreement shall be unenforceable in any respect, the remaining
provisions of this Agreement shall nevertheless remain in full force
and effect.
(k) Headings and Captions. The headings and captions of the various
---------------------
subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect the meaning or construction of
any of the terms or provisions hereof.
(l) No Waiver of Rights, Powers and Remedies. No failure or delay by a
----------------------------------------
party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, shall
operate as a waiver of any such right, power or remedy of the party.
No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of
steps to enforce any such right, power or remedy, shall preclude such
party from any other or further exercise thereof or the exercise of
any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of
such party to pursue other available remedies. No notice to or demand
on a party not expressly required under this Agreement shall entitle
the party receiving such notice or demand to any other or further
notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any
other or further action in any circumstances without such notice or
demand.
(m) Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by different parties hereto on separate
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Epitaxx and NSG have caused this Agreement to be
executed by their duly authorized officers, under seal, as of the date first
specified above.
EPITAXX, INC.
By: /s/ Noburu Hiraguri
Name: Noboru Hiraguri
Title: Chief Executive Officer
NIPPON SHEET GLASS CO., LTD.
By: /s/ Kenji Fujiwara
5
<PAGE>
Name: Kenji Fujiwara
Title: General Manager, Fiber Optics Division
6
<PAGE>
EXHIBIT 10.4
RESEARCH AND DEVELOPMENT AGREEMENT
----------------------------------
This RESEARCH AND DEVELOPMENT AGREEMENT (the "Agreement") is dated as of
the 1st day of April, 1997, by and between Epitaxx, Inc. ("Epitaxx"), a Delaware
corporation with its principal offices at 7 Graphics Drive, West Trenton, New
Jersey and Nippon Sheet Glass Co., Ltd. ("NSG"), a corporation organized under
the laws of Japan with its principal offices at NSG Tokyo Bldg., 1-7, 2-chome,
Kaigan, Minato-ku, Tokyo, 105 Japan.
WHEREAS, Epitaxx, in order to pursue the effective business development and
synergy of Epitaxx's business and NSG's fiber Optics related business, is
desirous of obtaining from NSG the full benefit and support derived from their
affiliation, including the provision of certain research and development
services to Epitaxx by NSG on a basis the parties believe will permit Epitaxx to
enhance the development of its technology; and
WHEREAS, Epitaxx and NSG, with full regard for and subject to the
obligations of each of them and each of their officers and directors pursuant to
applicable law, are desirous of cooperating in the formulation and
implementation of principles and policies and the provision to Epitaxx by NSG of
research and development services as described herein; and
WHEREAS, Epitaxx and NSG have entered into a Master Cooperation Agreement
contemporaneously herewith, pursuant to which NSG and Epitaxx have agreed to
enter into this Agreement and NSG has agreed to provide to Epitaxx certain
services all as set forth herein and in such Master Cooperation Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth herein and in the Master Cooperation Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Provision of Research and Development Services to Epitaxx by NSG
----------------------------------------------------------------
(a) The research and development services to be provided to Epitaxx by NSG
are set forth on Schedule A hereto (the "Research and Development
----------
Services"). NSG will use such resources as it deems necessary to
effect and provide those services to be provided by it.
(b) Epitaxx and NSG agree that any ancillary or support services necessary
to or, in the usual and customary manner and the normal course of
business, associated with the Research and Development Services shall
be deemed to be included in, and governed by, this Agreement unless
specifically excluded.
(c) The Research and Development Services to be provided by NSG and/or the
compensation to be paid by Epitaxx to NSG for the provision of the
Research and Development Services may be amended from time to time by
written consent of Epitaxx and NSG, which consent shall amend Schedule
--------
A hereto.
-
<PAGE>
2. Epitaxx Responsibilities
------------------------
Epitaxx shall provide such information to NSG as NSG shall request from
time to time to enable NSG to perform the Research and Development Services
hereunder.
3. Compensation
------------
As consideration for the Research and Development Services rendered by NSG
in accordance with this Agreement, Epitaxx shall pay to NSG fees as mutually
agreed upon.
4. Ownership of Technology
-----------------------
Ownership of rights to technology by either party shall not be transferred
or otherwise affected by the performance of Research and Development Services
under this Agreement. NSG grants to Epitaxx a non-exclusive royalty free license
to utilize any technology developed by NSG under this Agreement. NSG does not by
granting such license assume any obligation or liability to Epitaxx with respect
to any third party claims relating to the licensed technology or any activities
of third parties which might constitute infringement.
5. Contact Persons
---------------
Each of Epitaxx and NSG shall appoint one or more individuals who shall
serve as contact persons for purposes of carrying out this Agreement. Such
contact persons shall be authorized to act on behalf of their respective party
as to the matters pertaining to this Agreement.
6. Term of Agreement
-----------------
The initial term of this Agreement will commence on April 1, 1997 and
terminate on March 31, 2000. After the initial term, this Agreement will be
automatically renewed for successive three (3) year periods unless one of the
parties gives written notice to the other party that it desires to terminate
this Agreement and such written notice is received by the other party no later
than thirty (30) days prior to the end of the initial term or any subsequent
term of this Agreement.
7. Independent Relationship
------------------------
This Agreement shall not create and shall not be construed to create any
relationship of agency, partnership or employment between Epitaxx and NSG.
Epitaxx and NSG are and shall remain independent parties.
8. Miscellaneous
-------------
2
<PAGE>
(a) Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing, shall be addressed to the receiving
party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered
by hand, (ii) made by telex, telecopy or facsimile transmission, (iii)
sent by overnight courier, or (iv) sent by registered or certified
mail, return receipt requested, postage prepaid.
If to Epitaxx:
Epitaxx, Inc.
7 Graphics Drive
West Trenton, New Jersey 08628
Attention: Noboru Hiraguri, Chief Executive Officer
If to NSG:
Nippon Sheet Glass Co., Ltd.
NSG Tokyo Bldg.
1-7, 2-chome, Kaigan
Minato-ku, Tokyo, 105 JAPAN
Attention: Kenji Fujiwara, General Manager,
Fiber Optics Division
All notices, requests, consents and other communications hereunder
shall be deemed to have been given either (i) if by hand, at the time
of the delivery thereof to the receiving party at the address of such
party set forth above, (ii) if made by telex, telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged
by electronic confirmation or otherwise, (iii) if sent by overnight
courier, on the next business day following the day such notice is
delivered to the courier service, or (iv) if sent by registered or
certified mail, on the 5th business day following the day such mailing
is made.
(b) Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior oral or written agreements and
understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not
expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of
this Agreement.
(c) Modifications and Amendments. The terms and provisions of this
----------------------------
Agreement may be modified or amended only by written agreement
executed by all parties hereto.
(d) Waivers and Consents. No waiver of the terms and provisions of this
--------------------
Agreement or consent for the departure therefrom shall be deemed to be
or shall constitute a
3
<PAGE>
waiver or consent with respect to any other terms or provisions of
this Agreement, whether or not similar. Each such waiver or consent
shall be effective only in the specific instance and for the purpose
for which it was given, and shall not constitute a continuing waiver
or consent.
(e) Assignment. The rights and obligations under this Agreement may not
----------
be assigned by either party hereto without the prior written consent
of the other party, provided that NSG may assign it rights hereunder
to any company of which it is the direct or indirect owner of a
controlling interest.
(f) Benefit. All statements, representations, warranties, covenants and
-------
agreements in this Agreement shall be binding on the parties hereto
and shall inure to the benefit of the respective successors and
permitted assigns of each party hereto. Nothing in this Agreement
shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be construed in accordance with and governed
by the law of the State of New Jersey, without giving effect to the
conflict of law principles thereof.
(h) Arbitration. Any controversy, dispute or claim arising out of or in
-----------
connection with this Agreement, or the breach, termination or validity
hereof, shall be settled by final and binding arbitration to be
conducted by an arbitration tribunal in the State of New Jersey,
pursuant to the rules of the American Arbitration Association. The
arbitration tribunal shall consist of three arbitrators. The party
initiating arbitration shall nominate one arbitrator in the request
for arbitration and the other party shall nominate a second in the
answer thereto within thirty (30) days of receipt of the request. The
two arbitrators so named will then jointly appoint the third
arbitrator. If the answering party fails to nominate its arbitrator
within the thirty (30) day period, or if the arbitrators named by the
parties fail to agree on the third arbitrator within sixty (60) days,
the office of the American Arbitration Association Trenton, New Jersey
shall make the necessary appointments of such arbitrator(s). The
decision or award of the arbitration tribunal (by a majority
determination, or if there is no majority, then by the determination
of the third arbitrator, if any) shall be final, and judgment upon
such decision or award may be entered in any competent court or
application may be made to any competent court for judicial acceptance
of such decision or award and an order of enforcement. In the event
of any procedural matter not covered by the aforesaid rules, the
procedural law of the State of New Jersey shall govern.
(i) Jurisdiction and Service of Process. Any legal action or proceeding
-----------------------------------
with respect to this Agreement shall be brought in the courts of the
State of New Jersey or of the United States of America for the
District of New Jersey. By execution and delivery of this Agreement,
each of the parties hereto accepts for itself and in
4
<PAGE>
respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each of the parties hereto
irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing
of copies thereof by certified mail, postage prepaid, to the party at
its address set forth in Section 7(a) hereof.
(j) Severability. In the event that any court of competent jurisdiction
------------
shall determine that any provision, or any portion thereof, contained
in this Agreement shall be unenforceable in any respect, the remaining
provisions of this Agreement shall nevertheless remain in full force
and effect.
(k) Headings and Captions. The headings and captions of the various
---------------------
subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect the meaning or construction of
any of the terms or provisions hereof.
(l) No Waiver of Rights, Powers and Remedies. No failure or delay by a
----------------------------------------
party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, shall
operate as a waiver of any such right, power or remedy of the party.
No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of
steps to enforce any such right, power or remedy, shall preclude such
party from any other or further exercise thereof or the exercise of
any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of
such party to pursue other available remedies. No notice to or demand
on a party not expressly required under this Agreement shall entitle
the party receiving such notice or demand to any other or further
notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any
other or further action in any circumstances without such notice or
demand.
(m) Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by different parties hereto on separate
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Epitaxx and NSG have caused this Agreement to be
executed by their duly authorized officers, under seal, as of the date first
specified above .
EPITAXX, INC.
By: /s/ Noboru Hiraguri
Name: Noboru Hiraguri
Title: Chief Executive Officer
5
<PAGE>
NIPPON SHEET GLASS CO., LTD.
By: /s/ Kenji Fujiwara
Name: Kenji Fujiwara,
Title: General Manager,
Fiber Optics Division
6
<PAGE>
Schedule A
----------
1. NSG shall provide services relating to the development of Indium
Phosphide based optoelectronic materials and devices at the Tsukuba
Research Center at a total cost of $100,000 a year.
2. In the fiscal year 1998, these services will be for the epitaxial
growth and characterization of approximately four (4) wafers a month,
intended for the development of high performance InGaAs Avalanche
Photodiode, ultra linear analog PIN Photodiode, and wafers for other
optoelectronic devices as required and mutually agreed.
3. Epitaxx should pay for such services, two half-year installment of
$50,000 for the services, on Sep. 30th and Mar. 31st respectively.
7
<PAGE>
Exhibit 10.5
EPITAXX, INC.
AMENDED AND RESTATED 1996 EMPLOYEE, DIRECTOR
AND CONSULTANT STOCK OPTION PLAN
(As Amended on December 11, 1997)
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this EPITAXX, Inc. 1996 Employee, Director and
Consultant Stock Option Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated power
-------------
to act on its behalf to a Committee. (See Paragraph 4.)
Affiliate means a corporation which, for purposes of Section 424 of the
---------
Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as amended.
----
Committee means the committee to which the Board of Directors has delegated
---------
power to act under or pursuant to the provisions of this Plan.
Common Stock means shares of the Company's Class A Common Stock, $.01 par
------------
value, per share.
Company means EPITAXX, Inc., a Delaware corporation.
-------
Disability or Disabled means permanent and total disability as defined in
---------- --------
Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, either (a) the average of the closing or
last prices of the Common Stock on the Composite Tape or other comparable
reporting system for the ten (10) consecutive trading days immediately
preceding the applicable date or (b) the closing or last price of the
Common Stock on the Composite Tape or other comparable reporting system for
the trading day immediately preceding the applicable date, as the
Administrator shall determine.
<PAGE>
(2) If the Common Stock is not traded on a national securities exchange
but is traded on the over-the-counter market, if sales prices are not
regularly reported for the Common Stock for the trading days or day
referred to in clause (1), and if bid and asked prices for the Common Stock
are regularly reported, either (a) the average of the mean between the bid
and the asked price for the Common Stock at the close of trading in the
over-the-counter market for the ten (10) trading days on which Common Stock
was traded immediately preceding the applicable date or (b) the mean
between the bid and the asked price for the Common Stock at the close of
trading in the over-the-counter market for the trading day on which Common
Stock was traded immediately preceding the applicable date, as the
Administrator shall determine; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option under
---
Code Section 422.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Options
under this Plan.
Non-Employee Director means a director of the Company who is not an
---------------------
employee of the Company or any Affiliate, and who is designated by the
Administrator to be eligible for a grant of one or more Options under
this Plan.
Non-Qualified Option means an option which is not intended to qualify as an
--------------------
ISO.
Option means an ISO or Non-Qualified Option granted under this Plan.
------
Option Agreement means an agreement between the Company and a Participant
----------------
delivered pursuant to this Plan.
Participant means a Key Employee, director (including a Non-Employee
-----------
Director) or consultant to whom one or more Options are granted under
this Plan. As used herein, "Participant" shall also include, in each
case where the context requires, (i) the "Participant's Survivors" and
(ii) any permitted transferee of one or more Options transferred by
such Participant.
-2-
<PAGE>
Participant's Survivors means a deceased Participant's legal
-----------------------
representatives and/or any person or persons who acquired the
Participant's rights to an Option by will or by the laws of descent
and distribution.
Plan means this EPITAXX, Inc. Amended and Restated 1996 Employee, Director
----
and Consultant Stock Option Plan.
Plan Year means the period beginning on the day of an annual meeting of the
---------
Company's stockholders, and ending on the day immediately prior to the
succeeding annual meeting of the Company's stockholders.
Shares means shares of the Common Stock as to which Options have been or
------
may be granted under this Plan or any shares of capital stock into
which the Shares are changed or for which they are exchanged within
the provisions of Paragraph 3 of this Plan. The Shares issued upon
exercise of Options granted under this Plan may be authorized and
unissued shares or shares held by the Company in its treasury, or
both.
2. PURPOSES OF THIS PLAN.
---------------------
This Plan is intended to encourage ownership of Shares by Key Employees,
directors and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. This Plan provides for the granting of ISOs and
Non-Qualified Options.
3. SHARES SUBJECT TO THIS PLAN.
---------------------------
The number of Shares subject to this Plan as to which Options may be
granted from time to time shall be Five Hundred Seventy-Four Thousand Eight
Hundred (574,800) Shares, or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Paragraph 16 of this Plan.
If an Option ceases to be "outstanding", in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options under this Plan. Any Option shall be treated as "outstanding" until such
Option is exercised in full, or terminates or expires under the provisions of
this Plan, or by agreement of the parties to the pertinent Option Agreement.
-3-
<PAGE>
4. ADMINISTRATION OF THIS PLAN.
---------------------------
The Administrator of this Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to a Committee of the
Board of Directors. Following the date on which the Common Stock is registered
under the Securities and Exchange Act of 1934, as amended (the "1934 Act"), this
Plan is intended to comply in all respects with Rule 16b-3 or its successors,
promulgated pursuant to Section 16 of the 1934 Act with respect to Participants
who are subject to Section 16 of the 1934 Act, and any provision in this Plan
with respect to such persons contrary to Rule 16b-3 shall be deemed null and
void to the extent permissible by law and deemed appropriate by the
Administrator. Subject to the provisions of this Plan, the Administrator is
authorized to:
a. interpret the provisions of this Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of this Plan;
b. determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Options;
c. determine the number of Shares for which an Option or Options shall be
granted; provided, however, that in no event shall Options to purchase
more than 75,000 Shares be granted to any Participant in any fiscal
year; and
d. specify the terms and conditions upon which an Option or Options may
be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Code Section 422 of those Options which are designated as ISOs.
Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of this Plan or of any Option granted under it
shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is other than the Board of Directors.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in
this Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time an Option
is granted. Non-Employee Directors may only receive Non-Qualified Options, and
such Non-Qualified Options may only be granted pursuant to Subparagraph 6A(e).
Notwithstanding any of the foregoing provisions, the Administrator may authorize
the grant of an Option to a person not then an employee, director or consultant
of the Company or of an Affiliate. The actual grant of such Option, however,
shall be conditioned upon such person
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<PAGE>
becoming a Participant at or prior to the time of the execution of the Option
Agreement evidencing such Option. ISOs may be granted only to Key Employees.
Non-Qualified Options may be granted to any Key Employee, director or consultant
of the Company or an Affiliate. The granting of any Option to any individual
shall neither entitle that individual to, nor disqualify him or her from,
participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest of
the Company, subject to the following minimum standards for any such
Non-Qualified Option:
a. Each Option Agreement shall state the purchase price per share of
the Shares covered by each Option, which purchase price shall be
determined by the Administrator but shall not be less than the
par value per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which
it pertains.
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events.
d. Exercise of any Option may be conditioned upon the Participant's
execution of a share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders, including requirements that:
i. the Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
-5-
<PAGE>
ii. the Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
e. Any Non-Employee Director serving in office on the date on which
the initial underwritten public offering of the Company's Common
Stock is consummated, who has been a member of the Board of
Directors prior to such date, shall be granted a Non-Qualified
Option to purchase Seven Thousand Five Hundred (7,500) Shares,
effective as of the date such Non-Employee Director was first
elected or appointed to the Board of Directors. Such Shares
shall have a purchase price per share equal to the initial public
offering price at which shares of Common Stock are sold to the
public in the initial public offering of the Common Stock. Each
Non-Employee Director who is first elected or appointed to the
Board of Directors after the date on which the initial
underwritten public offering of the Company's Common Stock is
consummated, upon such election or appointment, shall be granted
a Non-Qualified Option to purchase Seven Thousand Five Hundred
(7,500) Shares. In addition, each Non-Employee Director shall be
granted a Non-Qualified Option to purchase One Thousand Five
Hundred (1,500) Shares on the first business day of each Plan
Year, beginning with the Plan Year commencing after the date of
such Non-Employee Director's election; provided, however, that on
such dates such Non-Employee Director has been in the continued
and uninterrupted service of the Company as a director since his
or her election or appointment and is a Non-Employee Director at
such times. If any Non-Employee Director should cease to be a
director of the Company and thereafter shall be elected or
appointed to the Board of Directors as a Non-Employee Director,
upon such election or appointment, such Non-Employee Director
shall be granted a Non-Qualified Option to purchase One Thousand
Five Hundred (1,500) Shares on the first business day of each
Plan Year, beginning with the Plan Year commencing after the date
of such Non-Employee Director's election; provided, however, that
on such dates such Non-Employee Director has been in the
continued and uninterrupted service of the Company as a director
since his or her election or appointment and is a Non-Director at
such times. Each Non-Qualified Option granted pursuant to this
Subparagraph 6A(e) shall (i) have an exercise price equal to the
Fair Market Value (per share) of the Shares on the date of grant
of the Non-Qualified Option (except that the purchase price per
share of any Non-Qualified Option granted (A) effective on the
date of the initial underwritten public offering of the Company's
Common Stock or (B) to a Non-Employee Director serving in office
on the date on which the initial underwritten public offering of
the Company's Common Stock is
-6-
<PAGE>
consummated, shall equal the initial public offering price at
which shares of Common Stock are sold to the public in the
initial public offering of the Common Stock), (ii) have a term of
ten (10) years, and (iii) become cumulatively exercisable in
three (3) equal annual installments of thirty-three and 33/100
percent (33.33%) each, commencing on the date of grant, and
continuing on each of the next two (2) full years of service
thereafter. Any Non-Employee Director entitled to receive a Non-
Qualified Option pursuant to this Subparagraph 6A(e) may elect to
decline such Non-Qualified Option.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with Code
Section 422 and relevant regulations and rulings of the Internal
Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Subparagraph
6A above, except clauses (a) and (e) thereunder.
b. Purchase Price: Immediately before the ISO is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Code Section 424(d):
i. ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, the purchase price per share of the Shares
covered by each ISO shall not be less than one hundred
percent (100%) of the Fair Market Value per share of the
Shares on the date of the grant of the ISO, or
ii. more than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, the purchase price per share of the Shares
covered by each ISO shall not be less than one hundred ten
percent (110%) of said Fair Market Value on the date of
grant of the ISO.
c. Term of ISO: For Participants who own
i. ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, each ISO shall terminate not more than ten (10)
years from the date of the
-7-
<PAGE>
grant or at such earlier time as the Option Agreement may
provide, or
ii. more than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, each ISO shall terminate not more than five (5)
years from the date of the grant or at such earlier time as
the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of ISOs which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this Subparagraph 6B(d) shall have no
force or effect if its inclusion in this Plan is not necessary
for Options issued as ISOs to qualify as ISOs pursuant to Section
422(d) of the Code.
7. EXERCISE OF OPTION AND ISSUE OF SHARES.
--------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address, together with
provision for payment of the full purchase price in accordance with this
Paragraph 7 for the Shares as to which such Option is being exercised, and upon
compliance with any other condition(s) set forth in the Option Agreement. Such
written notice shall be signed by the person exercising the Option, shall state
the number of Shares with respect to which the Option is being exercised and
shall contain any representation required by this Plan or the Option Agreement.
Payment of the purchase price for the Shares as to which such Option is being
exercised shall be made (a) in United States dollars in cash or by check, or (b)
at the discretion of the Administrator, through delivery of shares of Common
Stock having a Fair Market Value equal as of the date of the exercise to the
cash purchase price of the Option, determined in good faith by the
Administrator, or (c) at the discretion of the Administrator, by delivery of the
grantee's personal recourse note bearing interest payable not less than annually
at no less than 100% of the applicable federal rate, as defined in Section
1274(d) of the Code, or (d) at the discretion of the Administrator, in
accordance with a cashless exercise program established with a securities
brokerage firm, and approved by the Administrator or (e) at the discretion of
the Administrator, by any combination of (a), (b), (c) and (d) above.
Notwithstanding the foregoing, the Administrator shall accept only such payment
on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In
-8-
<PAGE>
determining what constitutes "reasonably promptly," it is expressly understood
that the delivery of the Shares may be delayed by the Company in order to comply
with any law or regulation which requires the Company to take any action with
respect to the Shares prior to their issuance. The Shares shall, upon delivery,
be evidenced by an appropriate certificate or certificates for fully paid, non-
assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any ISO (which has not
previously been converted into a Non-Qualified Option pursuant to Paragraph 19)
if such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in Subparagraph 6B(d).
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by this Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Option was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, (iii) any such amendment of any ISO shall be made only after the
Administrator, after consulting with counsel for the Company, determines whether
such amendment would constitute a "modification" of any Option which is an ISO
(as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISO, and (iv) with respect to
any Option held by any Participant who is subject to the provisions of Section
16(a) of the 1934 Act, any such amendment shall be made only after the
Administrator, after consulting with counsel for the Company, determines whether
such amendment would constitute the grant of a new Option.
8. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom an Option has been granted shall have rights as a
shareholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
--------------------------------------------
By its terms, an Option granted to a Participant shall not be transferable
by the Participant other than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act or the rules thereunder;
provided, however, that the designation of a beneficiary of an Option by a
Participant shall not be deemed a transfer prohibited by this Paragraph 9.
Except as provided in the preceding sentence, an Option shall be exercisable,
during the Participant's lifetime, only by such
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<PAGE>
Participant (or by his or her legal representative) and shall not be assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
any Option or of any rights granted thereunder contrary to the provisions of
this Plan, or the levy of any attachment or similar process upon an Option,
shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE," DISABILITY OR
----------------------------------------------------------------------
DEATH.
-----
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Options, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
"for cause," Disability, or death, for which events there are special
rules in Paragraphs 11, 12, and 13, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option Agreement.
b. In no event may an Option Agreement provide, if the Option is intended
to be an ISO, that the time for exercise be later than three (3)
months after the Participant's termination of employment or service.
c. The provisions of this Paragraph 10, and not the provisions of
Paragraph 12 or 13, shall apply to a Participant who subsequently
becomes Disabled or dies after the termination of employment, director
status or consultancy; provided, however, if a Participant becomes
Disabled or dies within three (3) months after the termination of
employment, director status or consultancy, the Participant's
Survivors may exercise the Option within one (1) year after the date
of the Participant's Disability or death, but in no event after the
date of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if, subsequent to a
Participant's termination of employment, director status or
consultancy, but prior to the exercise of an Option, the Board of
Directors determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which
would constitute "cause," then such Participant shall forthwith cease
to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under this Plan whose
service to the Company or to an Affiliate has been suspended because
of temporary disability
-10-
<PAGE>
(any disability other than a Disability), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly determine in its sole
discretion.
f. Options granted under this Plan shall not be affected by any change of
employment or other service within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate, provided,
however, if a Participant's employment by either the Company or an
Affiliate should cease (other than to become an employee of an
Affiliate or the Company), such termination shall affect the
Participant's rights under any Option granted to such Participant in
accordance with the terms of this Plan and the pertinent Option
Agreement.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the date the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include the neglect (after
receipt of notice of such neglect on at least one prior occasion) by
the Participant of the Participant's duties, obligations, and
responsibilities, the Participant's continued and willful disobedience
of proper orders and directives of the Chief Executive Officer or the
Board of Directors of the Company, the Participant being convicted of
fraud or felony related to the business of the Company, the
Participant's being frequently under the influence of alcoholic
beverages or drugs to such extent that the Participant is unable to
perform the Participant's duties for the Company (other than temporary
inability to do so as a result of the taking of drugs or medicine
prescribed by a physician) and the Participant's unauthorized
disclosure of confidential information concerning the Company. The
determination of the Administrator as to the existence of "cause" will
be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a
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<PAGE>
Participant's termination of service but prior to the exercise of an
Option, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause," then the right to exercise any Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. to the extent exercisable but not exercised on the date of Disability;
and
b. in the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Option
as to some or all of the Shares on a later date if he or she had not become
Disabled and had continued to be an employee, director or consultant or, if
earlier, within the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant to whom an Option has been granted while the
Participant is an employee, director
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<PAGE>
or consultant of the Company or of an Affiliate, such Option may be exercised by
the Participant's Survivors:
a. to the extent exercisable but not exercised on the date of death; and
b. in the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
14. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
a. The person(s) who exercise such Option shall warrant to the Company,
prior to the receipt of such Shares, that such person(s) are acquiring
such Shares for their own respective accounts, for investment, and not
with a view to, or for sale in connection with, the distribution of
any such Shares, in which event the person(s) acquiring such Shares
shall be bound by the provisions of the following legend which shall
be endorsed upon the certificate(s) evidencing their Shares issued
pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws.
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<PAGE>
b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance with
the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until the completion of any
action or the receipt of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the Option is exercisable as of the date immediately prior to
such dissolution or liquidation.
16. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which have not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the pertinent Option Agreement:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall
--------------------------------
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of such Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend. The number
of shares subject to Non-Qualified Options to be granted to Non-Employee
Directors pursuant to Subparagraph 6A(e) and the number of shares subject to the
limitation in Subparagraph 4(c) shall also be proportionately adjusted upon the
occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with
-------------------------
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the Shares then subject to such Options either the
consideration payable with
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<PAGE>
respect to the outstanding shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Options must be exercised
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
subsection), within a specified number of days of the date of such notice, at
the end of which period the Options shall terminate; or (iii) terminate all
Options in exchange for a cash payment equal to the excess of the Fair Market
Value of the Shares subject to such Options (either to the extent then
exercisable or, at the discretion of the Administrator, all Options being made
fully exercisable for purposes of this subsection) over the exercise price
thereof.
C. Recapitalization or Reorganization. In the event of a recapitaliz-
----------------------------------
ation or reorganization of the Company (other than a transaction described in
Subparagraph 16B above) pursuant to which securities of the Company or of
another corporation are issued with respect to the outstanding shares of Common
Stock, a Participant, upon exercising an Option, shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to Subparagraphs 16A, 16B or 16C with respect to ISOs shall be
made only after the Administrator, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424(h) of the Code) or would
cause any adverse tax consequences for the holders of such ISOs. If the
Administrator determines that such adjustments made with respect to ISOs would
constitute a "modification" of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
17. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
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<PAGE>
18. FRACTIONAL SHARES.
-----------------
No fractional Share shall be issued under this Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional Share equal to the Fair Market Value thereof.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in this Plan shall be deemed
to give any Participant the right to have such Participant's ISO's converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Administrator takes appropriate action. The Administrator, with the consent
of the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such termination.
20. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Option holder's salary, wages or other remuneration in connection with
the exercise of an Option or a Disqualifying Disposition (as defined in
Paragraph 21), the Option holder shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Option holder, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's Common Stock, is authorized by the Administrator
(and permitted by law); provided, however, that with respect to persons subject
to Section 16 of the 1934 Act, any such withholding arrangement shall be in
compliance with any applicable provisions of Rule 16b-3 promulgated under
Section 16 of the 1934 Act. For purposes hereof, the fair market value of the
shares withheld for purposes of payroll withholding shall be determined in the
manner provided in Paragraph 1 above, as of the most recent practicable date
prior to the date of exercise. If the fair market value of
-16-
<PAGE>
the shares withheld is less than the amount of payroll withholdings required,
the Option holder may be required to advance the difference in cash to the
Company or the Affiliate employer. The Administrator in its discretion may
condition the exercise of an Option for less than the then Fair Market Value on
the Participant's payment of such additional withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any Shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such Shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such Shares are sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
22. TERMINATION OF THIS PLAN.
------------------------
The Plan will terminate on December 1, 2006. The Plan may be terminated at
an earlier date by vote of the shareholders of the Company. Termination of this
Plan will not affect any Options granted or Option Agreements executed prior to
the effective date of such termination.
23. AMENDMENT OF THIS PLAN AND AGREEMENTS.
-------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Options granted under this
Plan or Options to be granted under this Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
ISOs, to the extent necessary to ensure the qualification of this Plan under
Rule 16b-3, at such time, if any, as the Company has a class of stock registered
pursuant to Section 12 of the 1934 Act, and to the extent necessary to qualify
the Shares for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which is of a scope that requires shareholder
approval in order to ensure favorable federal income tax treatment for any ISOs
or requires shareholder approval in order to ensure the compliance of this Plan
with Rule 16b-3 at such time, if any, as the Company has a class of stock
registered pursuant to Section 12 of the 1934 Act, shall be subject to obtaining
such shareholder approval. Any modification or amendment of this Plan shall not,
without the consent of a Participant, adversely affect his or her rights under
an Option previously granted to him or her. With the consent of the Participant
affected, the Administrator may amend outstanding Option Agreements in a manner
which may be adverse to the Participant but which is not
-17-
<PAGE>
inconsistent with this Plan. In the discretion of the Administrator, outstanding
Option Agreements may be amended by the Administrator in a manner which is not
adverse to the Participant.
24. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, director status or
consultancy of a Participant, nor to prevent a Participant from terminating his
or her own employment, director status or consultancy or to give any Participant
a right to be retained in employment or other service by the Company or any
Affiliate for any period of time.
25. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the laws of
the State of Delaware.
-18-
<PAGE>
EXHIBIT 10.6
TAX-SHARING AGREEMENT
---------------------
THIS AGREEMENT (the "Agreement") dated as of April 1, 1993 between NSG Holding
USA, Inc. (NSG) and Epitaxx, Inc. (Epitaxx) both of which are members of an
affiliated group of domestic corporations (hereinafter such affiliated group
shall be referred to as the NSG Group).
WITNESSETH:
WHEREAS, NSG is the common parent of the NSG Group; and
WHEREAS, Epitaxx is a member of the NSG Group; and
WHEREAS, the NSG GROUP, has elected to file consolidated federal and state
income tax returns ("Consolidated Return") and wishes to make provisions
therefore and to agree with respect to certain other matters related to such
filings.
NOW, THEREFORE, in consideration of the promises and of the agreements herein
Set forth, NSG and Epitaxx hereby agree as follows:
(1) Epitaxx will join in the Consolidated Return to be filed by NSG on behalf
of the NSG Group for the taxable year ended March 31, 1994 and for all
subsequent tax periods to the extent the Epitaxx is eligible to join in
such return under the provisions of the applicable tax laws. NSG and
Epitaxx will not elect to file separate return for such periods.
(2) Epitaxx agrees to furnish NSG with any and all information requested by NSG
in order to carry out the provisions of this Agreement. NSG agrees to
furnish to Epitaxx any and all information requested by Epitaxx in order to
carry out the provisions of this Agreement.
(3) Epitaxx will cooperate with NSG in filing any return or consent
contemplated by this Agreement and agree to take such action as NSG may
reasonably request.
(4) A) In the event that NSG files a Consolidated Return for any period
ending subsequent to March 31, 1994 which includes Epitaxx, then
Epitaxx agrees to pay to NSG an amount equal to the income tax
liability which Epitaxx would have incurred had it filed an income tax
return on a separate basis for such period. Said payment shall be due
on the 15th day of the fourth, sixth, ninth and twelfth month of
taxable year if quarterly estimated taxes are required, otherwise a
settlement will be required when the tax return in filed.
B) If, for any period that Epitaxx is included in a Consolidated Return,
Epitaxx, on a separate return basis, has a net tax loss or has tax
credits in excess of its tax liability, NSG shall pay Epitaxx an
amount equal to any refund which would have been received by Epitaxx
had it filed on a separate return basis for such period. Said refund
shall be due when the return is filed.
<PAGE>
C) For purposes of this section the amount of Epitaxx's separate income
tax liability shall be computed to include carryovers and carrybacks
of losses, credits, or deductions computed as though no Consolidated
Return had been filed in any year, notwithstanding that there is no
carryover or carryback, or there is a larger or smaller carryover or
carryback as a result of filing a Consolidated Return.
(5) The computation of the amount of income tax liability of Epitaxx for any
period in which they joined in a Consolidated Return of the NSG Group shall
be adjusted consistent with any adjustments made by the relevant tax
authorities to the taxable income, loss, or tax credits of such company,
and any additional amounts which are payable to or by NSG on account of
such adjustments shall be paid promptly, including interest, if any, in the
amount that would have been required by the taxing authority.
(6) Any income tax deficiencies or refund claims which arise with respect to
consolidated tax liability of the NSG Group and which are attributable to
Epitaxx, Epitaxx shall have the right at their own expense, to require NSG
to contest any such adjustment of such Consolidated Return in such
administrative and judicial forums as Epitaxx deems appropriate.
(7) NSG shall have the right to make any and all elections permitted by law
with respect to the treatment of items of income, deduction, or credit for
it and Epitaxx. Epitaxx shall have the right to make any and all elections
permitted by law with respect to the treatment of items of income,
deduction, or credit in computing their separate tax liabilities. However,
if any such election which Epitaxx wishes to avail themselves in
determining their separate income tax liability for any period would
require any notice to or any filing with any governmental agency or body,
then in order to make such election Epitaxx must give such notice to or
make such filing with NSG within the time and in the manner prescribed by
law.
(8) For the purposes of this Agreement, all computations or recomputations of
any amount or any payment (including, but not limited to, computations of
the amount of the tax liability, any loss, credit, or deduction, statutory
tax rates for a year, interest payments, and adjustment) shall be based on
the conclusions of independent public accountants for the NSG Group with
Epitaxx's approval of said conclusions.
(9) Successors
----------
This Agreement shall be binding on and inure to the benefit of any
successor, by merger, acquisition of assets or otherwise, to any of the
parties hereto (including, but not limited to, any successor of NSG or any
Group member succeeding to the tax attributes or either under Section 381
of the Internal Revenue Code), to the same extent as if such successor had
been an original party to this Agreement.
2
<PAGE>
(10) This Agreement shall be governed and construed in accordance with the laws
of New Jersey and shall be binding on the successor and assigns of the
parties hereto.
(11) This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior written
agreements, memoranda, negotiations, and oral understandings, if any, and
may not be amended, supplemented, or discharged except by performance or by
an instrument in writing signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
NSG Holding USA, Inc.
By: /s/ Yoshihiro Matsuda
Epitaxx, Inc.
By: /s/ James D. Coleman
3
<PAGE>
EXHIBIT 10.7
AGREEMENT FOR LINE OF CREDIT
THIS AGREEMENT, dated as of January 15, 1998 to become effective on May 31,
-----------------------------------------------
1998 is made between Epitaxx Inc., a Delaware corporation ("Borrower"), and NSG
- ---- -------------------------------------
HOLDING USA, Inc. a Delaware corporation ("Lender").
ARTICLE I. DEFINITIONS
SECTION 1.1 Words and Phrases.
-----------------
All terms defined in this Agreement have the meaning so given wheresoever used
in this Agreement and the Note. The following terms have the following meanings:
"Agreement" means this Agreement for Line of Credit as originally executed
and as amended or supplemented from time to time.
"Business Day" means any day other than a Saturday, Sunday or a day on
which commercial banks in New York City are required or authorized by law to
close.
"Default" means any default specified in Section 3.1 hereof.
"LIBOR" means the London Inter Bank Offered Rate at the date on which the
Lender confirms each loan requested by the Borrower.
"Loans" means any loan made to the Borrower under this Agreement.
"Maturity Date" means the date of the expiration of the Lender's commitment
to make Loans pursuant to Section 3.1 hereof.
"Note" means the Borrower's promissory note issued to the Lender
substantially in the form of the attached Exhibit A.
SECTION 1.2 Headings.
--------
The various headings used in this Agreement are inserted for convenience only
and will not affect the meaning or interpretation of this Agreement or any
provision hereof.
ARTICLE II. AMOUNT AND TERMS OF LOAN
SECTION 2.1 Loan Commitment
---------------
Subject to the terms and conditions of this Agreement the Lender agrees, upon
the request of the Borrower, for a period beginning on May 31, 1998 ending on
-----------------------------------
March 31, 1999 to made to the Borrower at its request a Loan or Loans in an
- --------------
aggregate principal amount not to exceed Six Million Dollars ($6,000,000.00).
------------------------------------
SECTION 2.2 The Note.
---------
The obligation of the Borrower to repay the Loan or Loans will be evidenced by
the Note, dated the date of this Agreement, and bearing interest per annum as a
variable rate of LIBOR +0.25% at the date on which the Lender confirms each loan
------
requested by the Borrower.
SECTION 2.3 Payments.
---------
All payments of principal of and interest on, a Loan or Loans will be made in
lawful money of the United States, in immediately available funds, to the Lender
by no later than the close of business on the day when due. Interest on the
Loan or Loans will be calculated on the actual number of
1
<PAGE>
days elapsed on a year of 360 days. Payments received by the Lender will be
applied: First, to accrued and unpaid interest, and Second to principal.
----- ------
SECTION 2.4 Interest on Overdue Amounts.
---------------------------
Any principal of, or interest on, a Loan or Loans not paid when due, will
bear interest from (and including) the date such payment was due, at the rate of
LIBOR plus 2.0%. Accrued interest as provided in this Section will be payable on
the Lender's demand.
ARTICLE III. DEFAULTS
SECTION 3.1 Definition of Default.
---------------------
Each of the following will constitute a Default:
(a) The Borrower fails to pay, within five days after it is due, any
principal of, or interest on, any Loan.
(b) The Borrower applies for or consents to the appointment of any
receiver, trustee, or similar officer for it, or for all or any
substantial part of its property or admits in writing its inability to
pay its debts as they mature; or such a receiver, trustee or similar
officers is appointed without the application or consent of the
Borrower and such appointment continues undischarged for a period of 60
days; or the Borrower institutes (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any
such proceeding is instituted (by petition, application or otherwise)
against the Borrower and remains undismissed for a period of 60 days;
or the Borrower makes a general assignment for the benefit of
creditors.
SECTION 3.2 Remedies.
--------
Upon the occurrence of a Default, the Lender may (without presentment,
protest or notice of protest, all of which are expressly waived by the
Borrower), by written notice to the Borrower, to be effective upon dispatch,
terminate the commitment of the Lender to make any further Loans and declare the
principal of, and interest on, any outstanding Loans and all other sums
outstanding under any Loan Document forthwith due and payable whereupon the
commitment of the Lender to make any Loans will be terminated and the principal
of, and interest on, any outstanding Loans will become forthwith due and
payable.
SECTION 3.3 Regression of Declaration.
-------------------------
If the Lender makes a declaration pursuant to Section 3.2 above, the Lender
may rescind such declaration and the consequences thereof at any time by written
instrument.
ARTICLE IV. MISCELLANEOUS
SECTION 4.1 Further Assurances.
------------------
At any time and from time to time upon the request of the Lender, the
Borrower will promptly give, execute, deliver, file and record any notice,
statement, instrument, document, agreement or other paper and do such other acts
and things as the Lender may request in order to effect fully the purposes of
this Agreement.
SECTION 4.2 Notices.
-------
All notices, requests, demands, and other communications herein will be in
writing, and, except as otherwise specifically provided in this Agreement, will
be deemed to have been duly given if
2
<PAGE>
delivered or if placed in the mail, first class postage prepaid, to the parties
at the following addresses (or at such other address for a party as will be
specified by like notice);
(a) If to the Lender, at 811 Madison Avenue, Toledo, Ohio 43624
Attn: Mr. Y. Matauda
(b) If to the Borrower, at 7 Graphic Drive, West Trenton, New Jersey 08628
Attn: Mr. James D. Coleman
SECTION 4.3 Failure or Indulgence Not Waiver.
--------------------------------
No failure on the part of the Lender to exercise, and no delay in exercising,
any right, power or remedy hereunder will operate as a waiver thereof; nor will
any single or partial exercise of any right, power or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The rights, powers and remedies herein provided are cumulative and
not exclusive of any rights, powers and remedies otherwise available or provided
by law.
SECTION 4.4 Law Governing.
-------------
Each of the Loan Documents will be construed in accordance with, and governed
by, the law of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
Epitaxx Inc.
By: /s/ James D. Coleman
-----------------------------
Title: VP
--------------------------
NSG HOLDING USA, INC.
BY: /s/ Yoshihiro Matauda
-----------------------------
Yoshihiro Matauda
Treasurer
3
<PAGE>
EXHIBIT 10.8
================================================================================
LOAN AGREEMENT
BETWEEN
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY,
(Issuer)
AND
EPITAXX, INC.
(Borrower)
Dated as of August 15, 1991
================================================================================
The interests of the New Jersey Economic Development Authority ("lssuer") under
this Loan Agreement have been assigned (except for amounts payable under
Sections 6.1(b), 6.1(d), 7.4(e), 7.4(f), 7.8(g), 7.15, 7.16, 8.2 and 9.4 hereof)
pursuant to a certain Bond Indenture dated as of the date hereof between the
Issuer and Sumitomo Bank of New York Trust Company, as trustee ("Trustee"), and
is subject to the security interest of the Trustee.
<PAGE>
<TABLE>
<CAPTION>
LOAN AGREEMENT
TABLE OF CONTENTS
Page
----
<S> <C>
PARTIES.........................................................................1
PREAMBLES.......................................................................1
ARTICLE I DEFINITIONS...........................................................3
ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES............................4
Section 2.1. Representations, Covenants and Warranties of Borrower............4
-----------------------------------------------------
Section 2.2. Representations, Covenants and Warranties of the Issuer..........7
-------------------------------------------------------
ARTICLE III TERM, NATURE AND BENEFITS OF LOAN AGREEMENT.........................9
Section 3.1. Term.............................................................9
----
Section 3.2. Nature and Benefits of Obligations...............................9
----------------------------------
ARTICLE IV CONDITIONS PRECEDENT................................................10
Section 4.1. Conditions......................................................10
----------
ARTICLE V ISSUANCE OF THE BONDS; APPLICATION OF BOND PROCEEDS..................11
Section 5.1. Agreement to Issue Bonds; Application of Bond Proceeds..........11
------------------------------------------------------
Section 5.2. Projects Undertaking............................................12
--------------------
Section 5.3. Projects Completion.............................................12
-------------------
Section 5.4. Borrower Required to Pay if Project Fund Insufficient...........13
-----------------------------------------------------
Section 5.5. Investment of Moneys............................................13
--------------------
Section 5.6. Special Arbitrage Covenant......................................14
--------------------------
ARTICLE VI PAYMENT PROVISIONS; OPTIONS TO PREPAY; OBLIGATIONS TO
TERMINATE AGREEMENT; NOTICES TO ISSUER.........................................15
Section 6.1. Amounts Payable.................................................15
---------------
Section 6.2. Obligation to Make Payments Unconditional.......................17
-----------------------------------------
Section 6.3. Substitute Letter of Credit and Substitute Support Facility.....18
-----------------------------------------------------------
Section 6.4. Prepayment......................................................18
----------
Section 6.5. Obligation to Prepay............................................19
--------------------
Section 6.6. Place of Payment................................................19
----------------
Section 6.7. Change in Interest Rate Mode Notice.............................19
-----------------------------------
Section 6.8. Optional Conversion Notice......................................19
--------------------------
ARTICLE VII GENERAL COVENANTS..................................................20
Section 7.1. No Warranty of Condition of Suitability by Issuer...............20
-------------------------------------------------
Section 7.2. Further Assurances and Corrective Instruments...................20
---------------------------------------------
Section 7.3. Issuer and Borrower Representatives.............................20
-----------------------------------
Section 7.4. General Covenants of Borrower...................................20
-----------------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.5. Risk of Loss....................................................22
------------
Section 7.6. Security Interests..............................................22
------------------
Section 7.7. Borrower May Improve or Alter...................................22
-----------------------------
Section 7.8. Covenants Regarding Operation and Maintenance...................22
---------------------------------------------
Section 7.9. Damage Destruction and Condemnation.............................23
-----------------------------------
Section 7.10. Financial Statements and Information...........................25
------------------------------------
Section 7.11. Reorganization or Fundamental Change...........................25
------------------------------------
Section 7.12. Maintenance of Tax-Exempt Status of Bonds......................26
-----------------------------------------
Section 7.13. Compliance with Applicable Laws................................30
-------------------------------
Section 7.14. Environmental Compliance.......................................30
------------------------
Section 7.15. Assignment of Loan Agreement...................................31
----------------------------
Section 7.16. Lease or Transfer of Project...................................31
----------------------------
Section 7.17. Inspection of the Project......................................31
-------------------------
Section 7.18. Relocation of the Project......................................31
-------------------------
Section 7.19. Payment of Prevailing Wage.....................................31
--------------------------
Section 7.20. Affirmative Action.............................................32
------------------
Section 7.21. Annual Certificate.............................................32
------------------
Section 7.22. Project Sign...................................................33
------------
ARTICLE VIII ASSIGNMENT; INDEMNIFICATION; REDEMPTION; RESERVATION OF
INTERESTS......................................................................34
Section 8.1. No Assignments Except as Permitted..............................34
----------------------------------
Section 8.2. Release and Indemnification Covenants...........................34
-------------------------------------
Section 8.3. Redemption of Bonds.............................................35
-------------------
Section 8.4. References to Bonds Ineffective After Bonds Paid................35
------------------------------------------------
Section 8.5. Issuer to Grant Security Interest to Trustee....................35
--------------------------------------------
ARTICLE IX DEFAULTS AND REMEDIES...............................................36
Section 9.1. Defaults Defined................................................36
----------------
Section 9.2. Remedies on Default.............................................37
-------------------
Section 9.3. No Remedy Exclusive.............................................37
-------------------
Section 9.4. Agreement to Pay Attorneys' Fees and Expenses...................38
---------------------------------------------
Section 9.5. No Additional Waiver Implied by One Waiver......................38
------------------------------------------
ARTICLE X SUPPLEMENTS AND AMENDMENTS...........................................39
Section 10.1. Amendment Without Consent......................................39
-------------------------
Section 10.2. Amendment Upon Approval of Two-Thirds of Owners of Bonds.......39
--------------------------------------------------------
ARTICLE XI MISCELLANEOUS.......................................................41
Section 11.1. Notices........................................................41
-------
Section 11.2. Binding Effect.................................................43
--------------
Section 11.3. Severability...................................................43
------------
Section 11.4. Amounts Remaining in Funds.....................................43
--------------------------
Section 11.5. Execution in Counterparts......................................43
-------------------------
Section 11.6. Applicable Law.................................................43
--------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 11.7. Cautions.......................................................43
--------
TESTIMONIUM....................................................................44
SIGNATORIES....................................................................44
EXHIBIT A Form of Requisition
EXHIBIT B Form of Borrower's Note
</TABLE>
iii
<PAGE>
THIS LOAN AGREEMENT dated as of the fifteenth day of August, 1991, by and
among the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (the "Issuer"), a public
body corporate and politic constituting an instrumentality of the State of New
Jersey and EPITAXX, INC. (the "Borrower").
WHEREAS, the New Jersey Economic Development Authority Act, constituting
Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey, approved on
August 7, 1974, as amended and supplemented, (the "Act") declares it to be in
the public interest and to be the policy of the State of New Jersey (the
"State") to foster and promote the economy of the State, increase opportunities
for gainful employment and improve living conditions, assist in the economic
development or redevelopment of political subdivisions within the State, and
otherwise contribute to the prosperity, health and general welfare of the State
and its inhabitants by inducing manufacturing, industrial, commercial,
recreational, retail, service and other employment promoting enterprises to
locate, remain or expand within the State by making available financial
assistance; and
WHEREAS, the Issuer, to accomplish the purposes of the Act, is empowered to
extend credit to such employment promoting enterprises in the name of the Issuer
on such terms and conditions and in such manner as it may deem proper for such
consideration and upon such terms and conditions as the Issuer may determine to
be reasonable; and
WHEREAS, the Borrower has applied to the Issuer for financial assistance in
the principal amount of $5,000,000 for financing the acquisition of land and a
42,000 square foot building, machinery and equipment for use in a manufacturing
facility (the "Project") to be located in the Township of Ewing, County of
Mercer, State of New Jersey, and the Issuer has, by resolution duly adopted in
accordance with the Act, accepted the application of the Borrower for assistance
in financing the Project, which application was approved by resolution of the
Authority at its meeting of July 2, 1991; and
WHEREAS, the Issuer has by resolution, duly adopted in accordance with the
Act, on August 6, 1991, authorized the issuance of $5,000,000 principal amount
of its Economic Development Revenue Bonds (Epitaxx, Inc. Project) Series 1991
for the purpose of making a loan to the Borrower; and
WHEREAS, the Issuer contemporaneously with the execution and delivery of
this Loan Agreement shall enter into a Bond Indenture dated as of August 15,
1991 (the "Indenture") wherein the Issuer has assigned certain of its rights
under this Loan Agreement to Sumitomo Bank of New York Trust Company, as Trustee
for the benefit of the Owners from time to time of the Bonds; and
WHEREAS, the execution and delivery of this Loan Agreement have been duly
authorized by the parties and all conditions, acts and things necessary and
required by the Constitution or statutes of the State of New Jersey or otherwise
to exist, to have happened, or to have been performed precedent to or in the
execution and delivery of this Loan Agreement do exist, have happened and have
been performed.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration paid by each of the
parties to the other, the receipt of which is hereby acknowledged, the Issuer
and the Borrower hereby agree as follows:
2
<PAGE>
ARTICLE I
DEFINITIONS
In addition to and except as elsewhere defined in this Agreement, the words
and terms as used in this Agreement shall have the same meaning and be subject
to the same construction as set forth and provided in the Indenture.
3
<PAGE>
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.1. Representations, Covenants and Warranties of Borrower.
-----------------------------------------------------
The Borrower represents, covenants and warrants that:
(a) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, is duly authorized
to do business in the State, is duly authorized to acquire, construct,
equip and operate the Project, has power to execute and deliver this
Agreement, the Borrower's Note, the Remarketing Agreement, the Tender Agent
Agreement, the Credit Agreement, the Pledge Agreement and the Bond Purchase
Agreement (said instruments and agreements, collectively, the "Bond
Documents"), and by proper action has been duly authorized to execute and
deliver the Bond Documents;
(b) The Borrower is not in material breach of or in material default under
any of the provisions of (i) its articles of incorporation or bylaws, (ii)
any judgment, decree, order, statute, rule or regulation applicable to it
or to its properties, or (iii) any material provision of any indenture,
mortgage, loan agreement or other contract or instrument to which it is a
party or by which it or any of its properties is bound;
(c) The Borrower is not required in connection with the transactions
contemplated by the Bond Documents to obtain, as the case may be, the
consent of any creditor not already obtained;
(d) Neither the execution and delivery of the Bond Documents, the
consummation of the transactions contemplated hereby and thereby, nor the
fulfillment of or compliance with the terms and conditions of any thereof
conflicts with or results in a material breach of the terms, conditions or
provisions of or will constitute a default under any restriction or any
agreement or instrument to which any is now a party or by which any is
bound, or result in the creation or imposition of any lien, charge or
encumbrance whatsoever upon any of the property or assets of either under
the terms of any such instrument or agreement except as provided or
permitted under this Agreement;
(e) There is no action, suit, proceeding, inquiry or investigation, at law
or in equity, before or by any court, public board or body, known to be
pending or threatened against or affecting the Borrower or any officers
thereof, or to the best of the knowledge of the Borrower is there any basis
therefor, wherein an unfavorable decision, ruling or finding would
materially adversely affect the transactions contemplated by this Agreement
or which would adversely affect, in any way, the validity or enforceability
of the Bonds or of the Bond Documents, or any thereof, or any agreement or
instrument to which the Borrower is a party, used or contemplated for use
in the consummation of the transactions contemplated hereby;
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(f) All Costs of the Project to be reimbursed with the proceeds of the
Bonds were paid or incurred or will be paid or incurred after July 2, 1991;
(g) The Borrower will fully and faithfully perform all the duties and
obligations which the Issuer has agreed in the Indenture to cause the
Borrower to perform and any duties and obligations that the Borrower is
required in the Indenture to perform;
(h) Each of the representations and warranties of the Borrower contained
in the Tax Certificate of the Borrower dated and delivered on the Closing
Date and hereby incorporated by reference is true, correct and complete and
the Borrower covenants that it will comply with the undertakings therein
set forth, to the same extent and manner as if all and several thereof were
fully set forth and contained herein, and that it otherwise will not take
or omit to take any action which would impair the exclusion of interest on
the Bonds from gross income of the Owners thereof for purposes of federal
income taxation;
(i) There has been no material adverse change in the financial condition
of the Borrower since the date of the financial statements submitted with
the Application;
(j) The availability of the financial assistance by the Issuer as provided
herein has been an important inducement to the Borrower to locate the
Project in the State;
(k) The Bond Documents, the Application, or any other document,
certificate or statement furnished to the Trustee, the Issuer or the Bank
by or on behalf of the Borrower do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements contained herein and therein not misleading or incomplete.
It is specifically understood by the Borrower that all such statements,
representations and warranties shall be deemed to have been relied upon by
the Issuer as an inducement to make the loan and by the Bank as an
inducement to issue the Letter of Credit and that if any such statements,
representations and warranties were false at the time they were made, the
Issuer or the Bank may, in its sole discretion, consider any such
misrepresentation or breach of warranty an Event of Default and exercise
the remedies provided for in this Loan Agreement;
(1) The operation of the Project in the manner presently contemplated and
as described in the Application will not conflict with any current zoning,
water, air pollution or other ordinances, orders, laws or regulations
applicable thereto. The Borrower has caused the Project to be designed in
accordance with all Federal, State and local laws or ordinances (including
rules and regulations) relating to zoning, building, safety and
environmental quality. The Borrower will complete the Project pursuant to
this Loan Agreement;
(m) The Project is located wholly within the borders of the Project
Municipality and the Premises are not contiguous with the borders of any
portion of the Project Municipality. The operation of the Project is not
integrated with any other facility in any neighboring municipality operated
by any Principal User of the Project. All of the
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facilities financed by the Bond Proceeds of the Bonds are located within
one state, and neither the Borrower nor any Related Person is a user of any
facility financed by the proceeds of the Bonds other than the Project;
(n) No Principal User of the Project is a tenant in any facility in the
Project Municipality, the landlord of which is a Person other than a
Principal User of the Project;
(o) No Person (or any Related Person within the meaning of Section
144(a)(3) of the Code) who was a substantial user of the Project, within
the meaning of Treas. Reg. Sec. 1.103-8(a)(5)(iv), at any time during the
five (5) year period immediately preceding the date hereof, and who will
receive, directly or indirectly, Bond Proceeds of the Bonds in an amount
equal to five per centum (5%) or more of the face amount of the Bonds in
payment for his interest in the Project, will be a Substantial User of the
Project or a Related Person at any time during the five (5) year period
beginning on the date of issuance of the Bonds;
(p) The Project was not acquired or placed in service by the Borrower
(determined in accordance with the provisions of Section 103 of the Code
and applicable regulations thereunder) more than one (1) year prior to the
date of issuance of the Bonds;
(q) Subsequent to thirty-one (31) days prior to the date hereof, the
Borrower or any Related Person (or group of related persons which includes
the Borrower) has not guarantied, arranged, participated in, assisted with,
borrowed the proceeds of, or leased facilities financed by obligations
issued under Section 103 of the Code by any state or local governmental
unit or any constituted authority empowered to issue obligations by or on
behalf of any state or local governmental unit other than the Issuer.
During the period commencing on the date of issuance of the Bonds and
ending thirty-one (31) days thereafter, there will be no obligations issued
under Section 103 of the Code which are guarantied by the Borrower or any
Related Person (or group of related persons which includes the Borrower) or
which are issued with the assistance or participation of, or by arrangement
with the Borrower or any Related Person (or group of related persons which
includes the Borrower) without the written opinion of Robinson, St. John &
Wayne, Esqs. or other nationally recognized bond counsel acceptable to
Robinson, St. John & Wayne, Esqs. to the effect that the issuance of such
obligation will not adversely affect their opinion as to exemption from
present Federal income taxes of interest on the Bonds. Other than the
Borrower or any Related Person (or group of related persons including the
Borrower), no person has (i) guarantied, arranged, participated in,
assisted with the issuance of, or paid any portion of the cost of the
issuance of the Bonds, or (ii) provided any property or any franchise,
trademark or trade name (within the meaning of Code Section 1253) which is
to be used in connection with the Project;
(r) The Project does not share "substantial common facilities", within the
meaning of Section 144 (a) (9) of the Code, with any other facility
financed by an outstanding tax-exempt bond; and
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(s) (i) There have been no claims, litigation, administrative
proceedings, whether actual or threatened, or judgments or orders,
relating to any hazardous substances, hazardous wastes, discharges,
emissions or other forms of pollution relating in any way to any
property or activities of the Borrower, including without limitation,
the real property and improvements located at the Premises.
(ii) To the best of the Borrower's knowledge, after due inquiry and
investigation, there have been no hazardous substances or hazardous
wastes, as defined by the Environmental Cleanup Responsibility Act
(N.J.S.A. 13:lk-6 et seq.) ("E.C.R.A."), Spill Compensation and
Control Act (N.J.S.A 58:10-23.11 et seq.), Resource Conservation and
Recovery Act (42 U.S.C. Subsection 6901 et seq.) and the Comprehensive
Environmental Responsibility Compensation and Liability Act (42 U.S.C.
Subsection 9601 et seq.) generated, manufactured, refined,
transported, treated, stored, handled or disposed of on the Premises
by the Borrower or at any other location owned by the Borrower in the
State.
(iii) To the best of the Borrower's knowledge, after due inquiry and
investigation, there have been no discharges, spillages or disposals
of hazardous substances or hazardous wastes (as described in the prior
paragraph) on the Premises or at any other location owned by the
Borrower in the State.
(iv) The Project is not subject to the requirements of Section 13:lk-
9 of E.C.R.A. or, if it is subject to such requirements, the Borrower
or Borrower's transferor has complied with such provisions.
Section 2.2. Representations, Covenants and Warranties of the Issuer.
-------------------------------------------------------
The Issuer represents, warrants and covenants that:
(a) it is a public body corporate and politic constituting an
instrumentality of the State, duly organized and existing under the laws of the
State, particularly the Act. The Issuer is authorized to issue the Bonds in
accordance with the Act and to use the proceeds from the sale of the Bonds to
make the loan to the Borrower;
(b) the Issuer has complied with the provisions of the Act and has full
power and authority pursuant to the Act to consummate all transactions
contemplated by this Loan Agreement, the Bonds, the Indenture, the Resolutions,
and any and all other agreements relating thereto and to issue, sell and deliver
the Bonds as provided in the Indenture;
(c) by the Resolutions duly adopted by the Issuer and still in full force
and, effect, the Issuer has duly authorized the execution, delivery and due
performance of this Loan Agreement, the Indenture and the Bonds, and the taking
of any and all actions as may be required on the date hereof on the part of the
Issuer to carry out, give effect to and consummate the transactions contemplated
by this Loan Agreement and the Indenture. All approvals of the Issuer necessary
in connection with the foregoing have been received;
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(d) the Bonds have been duly authorized, executed, issued and delivered
and constitute the valid and binding special obligation of the Issuer, the
principal of, premium, if any, and interest on which are payable solely from the
revenues and other moneys derived pursuant to this Loan Agreement and pledged
therefor by the Resolutions. The Bonds shall not be in any way a debt or
liability of the State or of any political subdivision thereof, except the
Issuer, and shall not create or constitute any indebtedness, liability or
obligation of the State or of any political subdivision thereof, except the
Issuer, whether legal, moral or otherwise;
(e) the execution and delivery of this Loan Agreement, the Indenture and
the Bonds, and compliance with the provisions hereof and thereof, do not
conflict with or constitute on the part of the Issuer a violation of the
Constitution of the State or a violation or breach of or default under its by-
laws or any statute, indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which the Issuer is a party or by which the Issuer is
bound or, to the knowledge of the Issuer, any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Issuer or any
of its activities or properties. All consents, approvals, authorizations and
orders of governmental or regulatory authorities which are required to be
obtained by the Issuer for the consummation of the transactions contemplated
hereby and thereby have been obtained;
(f) the Issuer shall apply the proceeds from the sale of the Bonds and the
revenues derived under this Loan Agreement for the purposes specified and in the
manner provided in this Loan Agreement;
(g) to the best knowledge of the Issuer, there is no action, suit,
proceeding or investigation at law or in equity or before or by any court,
public board or body pending or threatened against or affecting the Issuer, or
any basis therefor, wherein an unfavorable decision, ruling or finding would
materially adversely affect the transactions contemplated hereby, or which in
any way would materially adversely affect the validity of the Bonds, the
Indenture, the Resolutions, this Loan Agreement, any agreement or instrument to
which the Issuer is a party and which is used or contemplated for use in
consummation of the transactions contemplated hereby or the exemption from
taxation as set forth herein; and
(h) any certificate signed by an Authorized Issuer Representative and
delivered to the Bank, the Trustee or the Borrower shall be deemed a
representation and warranty by the Issuer to the Bank, the Trustee or the
Borrower, as the case may be, as to the statements made therein.
It is specifically understood and agreed that the Issuer makes no
representation as to the financial position or business condition of the
Borrower and does not represent or warrant as to any of the statements,
materials (financial or otherwise), representations or certifications furnished
or to be made and furnished by the Borrower in connection with the sale of the
Bonds, or as to the correctness, completeness or accuracy of such statements.
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ARTICLE III
TERM, NATURE AND BENEFITS OF LOAN AGREEMENT
Section 3.1. Term. The term of this Agreement shall commence on the
----
date of its delivery (the "Closing Date"), and shall terminate (unless
discharged upon prepayment of all sums due hereunder by the Borrower prior
thereto as hereinafter provided) on the date on which the Bonds and all other
sums due under the Indenture, and hereunder by the Borrower, shall have been
paid or provision for their payment has been made in accordance herewith.
Section 3.2. Nature and Benefits of Obligations. This Agreement and
----------------------------------
the Borrower's Note, securing, inter alia, the Borrower's obligations hereunder
----------
and thereunder, have been executed and delivered in part to induce concurrently
herewith the purchase by others of the Bonds, and, accordingly, all covenants
and agreements on the part of the Borrower and the Issuer, as set forth therein
and herein, are hereby declared to be for the benefit of the Trustee for the
benefit of the Owners from time to time of the Bonds and the Bank. The Borrower
consents and agrees to the assignment by the Issuer to the Trustee under the
Indenture of all of the Issuer's, right, title and interest in, to and under
this Agreement and the Borrower's Note and agrees that the provisions thereof
may be enforced by the Trustee under the provisions of the Indenture. The
Borrower agrees to do all things within its power in order to comply with, and
to enable the Issuer to comply with, all requirements and to fulfill, and to
enable the Issuer to fulfill, all covenants of the Indenture and the Bonds.
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ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1. Conditions. The obligation of the Issuer to make the
----------
loan to the Borrower pursuant to this Agreement is subject to (i) there being no
Default hereunder or event which with notice or lapse of time, or both, would
become a Default hereunder, and (ii) the receipt by the Issuer, the Trustee and
the Bank, as hereinafter set forth, of the following (all of which shall be in
form and substance satisfactory thereto):
(1) original duly executed counterparts of:
(a) the Indenture;
(b) the Borrower's Note;
(c) this Agreement;
(d) the Credit Agreement;
(e) the Pledge Agreement;
(f) the Remarketing Agreement; and
(g) the Tender Agent Agreement;
(2) such certificates and documents respecting the Borrower and its
undertakings in connection herewith as counsel for Trustee or bond counsel
shall reasonably require;
(3) such opinions of counsel for the Borrower as counsel for the Trustee
or bond counsel shall reasonably require;
(4) appropriate certifications by the Borrower with respect to the use of
the proceeds of the Bonds in consideration of Section 103 of the Code;
(5) satisfactory evidence respecting the Borrower's compliance with the
insurance requirements of this Agreement;
(6) such other and further materials as the Issuer, the Trustee or the
Bank may reasonably require;
(7) the Letter of Credit.
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ARTICLE V
ISSUANCE OF THE BONDS;
APPLICATION OF BOND PROCEEDS
Section 5.1. Agreement to Issue Bonds; Application of Bond Proceeds.
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In order to provide for the payment of costs of and related to the issuance of
the Bonds and the Costs of the Project incurred to date and hereafter to be
incurred by the Borrower, subject to the provisions of Article IV hereof and
concurrently with the execution and delivery of this Agreement, the Issuer will
initially issue, sell and deliver Bonds in the aggregate original principal
amount of $5,000,000 and deposit the net proceeds thereof to the credit of the
Project Fund, as established and provided in Article VI of the Indenture. The
Issuer authorizes, and directs the Trustee to make disbursements from the
Project Fund of Bond proceeds from the sale of the Bonds for work performed on
the Project or to reimburse the Borrower for any costs and expenses of the
Project paid by it. Each disbursement shall constitute a Proper Charge and
shall be disbursed upon delivery to the Trustee of the following:
(a) a Requisition signed by an authorized Borrower Representative.
The Requisition Form shall state: (i) the requisition number; (ii) the name
and address of the Person to whom payment is to be made by the Trustee or,
if the payment is to be made to the Borrower for a reimbursable advance,
the name and address of the Person to whom such advance was made together
with proof of payment by the Borrower; (iii) the amount to be paid; (iv)
that each obligation for which payment is sought is a Proper Charge against
the Project Fund, is unpaid or unreimbursed, and has not been the basis of
any previously paid requisition; (v) if such payment is a reimbursement to
the Borrower for costs or expenses incurred by reason of work performed or
supervised by officer's or employees of the Borrower or any of its
affiliates, that the amount to be paid does not exceed the actual cost
thereof to the Borrower or any of its affiliates; (vi) that no Event of
Default has occurred under this Loan Agreement; and (vii) the Borrower has
received no written notice of any lien, right to lien or attachment upon,
or other claim affecting the right to receive payment of, any of the moneys
payable under such Requisition Form to any of the Persons named therein or,
if any of the foregoing has been received, it has been released or
discharged or will be released or discharged upon payment of the
Requisition Form;
(b) prior to the first disbursement from the Project Fund either (i) a
certificate of an authorized Borrower Representative stating that, for
purposes of the Prevailing Wage Provision and the Affirmative Action
Program, none of the moneys disbursed at any time from the Project Fund
will be used to pay or reimburse a payment for work done in performance of
any Construction Contract unless prior thereto there shall be submitted to
the Trustee an executed Contractor's Certificate and Agreement or (ii) a
Contractor's Certificate and Agreement executed by the Contractor.
Nevertheless, prior to the initial disbursement from the Project Fund for
payment of any Construction Contract, if not theretofore furnished, a
Contractor's Certificate and Agreement shall be submitted.
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There shall be retained in the Project Fund an amount equal to ten per
centum (10%) of each sum requisitioned for payment or reimbursement for payment
of a Construction Contract for purposes of the Affirmative Action Program (a
"holdback"); provided, however, if any such requisitioned sum is for
reimbursement of a payment by the Borrower, which payment itself was for only
ninety per centum (90%) of the payment requested by the Contractor or
Subcontractor pursuant to such Construction Contract, then such requisitioned
sum may be reimbursed without regard to the aforementioned holdback, but the
remaining ten per centum (10%), when requisitioned by the Borrower, shall only
be disbursed upon the holdback conditions hereinafter set forth. Said holdback
shall be disbursed from the Project Fund upon compliance with the preceding
terms and conditions of this Section and (i) the execution and filing of the
Contractor's Completion Certificate, (ii) the execution and filing of the
Borrower's Completion Certificate and (iii) receipt by the Borrower of a written
notice issued by the Issuer's Office of Affirmative Action that the Contractor
has complied with the requirements of the Affirmative Action Program.
Nothing contained herein or in any documents and agreements contemplated
hereby or in any other Loan Document shall impose upon the Trustee or the Issuer
any obligation to see to the proper application of such disbursements by the
Borrower or any other recipient thereof, and, in making such disbursements from
the Project Fund, the Trustee may rely on such Requisition Forms and proof
delivered to it. The Trustee and the Issuer shall be relieved of any liability
with respect to making such disbursements in accordance with the foregoing.
Thereafter and in the event of the issuance of additional Bonds as provided
in Section 2.19(B) of the Indenture, the Issuer will sell and deliver such Bonds
and deposit the net proceeds thereof to the credit of the Project Fund for
application as set forth above
Section 5.2. Projects Undertaking. The Borrower agrees that it shall
--------------------
proceed with due diligence and reasonable dispatch, delays caused by force
majeure, as defined in Section 9.1 hereof, alone excepted, to undertake and
complete the acquisition, construction, installation and equipping of the
Facilities.
In the event of the issuance of Additional Bonds, as provided in Section
2.19(B) of the Indenture, the Borrower agrees that it shall proceed with due
diligence and reasonable dispatch, delays caused by force majeure alone
excepted, to undertake and complete the next phase of the acquisition,
installation and equipping of the Facilities, as contemplated for the issuance
of the Additional Bonds.
Section 5.3. Projects Completion. Not later than August 1, 1994, or
-------------------
upon the completion of the Borrower's Project (the "Completion Date") and the
payment or provision for the payment of all of the Costs thereof, the Borrower
shall cause to be furnished to the Trustee the Borrower's Completion Certificate
signed by an authorized Borrower Representative stating the date of completion
of the Project and that, as of such date, except for amounts retained by the
Trustee at the Borrower's direction for any cost of the Project not then due and
payable or, if due and payable not then paid: (i) the Project has been
completed; (ii) the cost of all labor, services, materials and supplies used in
the Project have been paid, or will be paid from amounts retained
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by the Trustee at the Borrower's direction for any cost of the Project not then
due and payable or, if due and payable, not then paid; (iii) the Project
equipment, if any, has been installed to the Borrower's satisfaction, such
Project equipment so installed is suitable and sufficient for the efficient
operation of the Project for the intended purposes and all costs and expenses
incurred in the acquisition and installation of such equipment have been paid,
or will be paid from amounts retained by the Trustee at the Borrower's direction
for any cost of the Project not then due and payable or, if due and payable, not
then paid; (iv) the Project is being operated as an authorized "project" under
the Act and substantially as proposed in the Application; (v) the Borrower has
reviewed the Contractor's Completion Certificate and the Borrower has no
knowledge or information that the representations contained therein are false or
misleading; and (vi) the Borrower has required in all Construction Contracts
that wages paid to workers employed in the performance of Construction Contracts
be paid at a rate not less than the Prevailing Wage Rate. Notwithstanding the
foregoing, the Borrower's Completion Certificate may state that it is given
without prejudice to any rights against third parties which exist at the date of
the Borrower's Completion Certificate or which may subsequently come into being.
Any amount remaining in the Project Fund thereafter (except for amounts therein
sufficient to cover costs of the Project not then due and payable or not then
paid) shall be transferred by the Trustee to the Principal Account in accordance
with Section 4.01 of the Indenture and shall not be invested at a yield
materially higher than the yield on the Bond
Section 5.4. Borrower Required to Pay if Project Fund Insufficient.
-----------------------------------------------------
In the event the moneys in the Project Fund available for payment of the costs
of the Project are not sufficient to pay all costs of the Project in full, the
Borrower agrees to complete the Project and to pay that portion of the cost in
excess of the moneys available therefor in the Project Fund. The Issuer, the
Bank and the Trustee make no warranty, either express or implied, that the
moneys paid into the Project Fund and available for payment of the costs of the
Project will be sufficient to pay all of such costs. The Borrower agrees that
if, after disbursement of all the money in the Project Fund available for
payment of costs of the Project, the Borrower should pay any portion of the
costs of the Project pursuant to the provisions of this Section, it shall not be
entitled to any reimbursement therefor from the Issuer, the Bank or the Trustee.
Section 5.5. Investment of Moneys. Any moneys held under the
--------------------
Indenture as a part of any fund or account, other than the Bond Fund, shall,
subject to Section 4.01(d) of the Indenture, be invested or reinvested by
Trustee, to the extent permitted by law, at the written request (or verbal
request if confirmed in writing) of and as directed by the Borrower
Representative, in Authorized Investments as provided in the Indenture.
The Trustee may make any and all such investments through departments of
any bank or trust company under common control with the Trustee. All such
investments shall at all times be a part of the Fund or Account from which the
moneys used to acquire such investments shall have come and all income and
profits on such investments shall be credited to, and losses thereon shall be
charged against, the Earnings Sub-Accounts of such Funds and Accounts. Such
investments shall be registered in the name of the Trustee, as Trustee under the
Indenture.
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Section 5.6. Special Arbitrage Covenant. The Borrower covenants not
--------------------------
to cause or direct any moneys on deposit in any fund or account to be used in a
manner which would cause the Bonds to be classified as "arbitrage bonds" within
the meaning of Section 148 of the Code, and the Borrower certifies and covenants
to and for the benefit of the Issuer and the Owners of the Bonds Outstanding
that so long as there are any Bonds Outstanding, moneys on deposit in any Fund
or Account in connection with the Bonds, whether such moneys were derived from
the proceeds of the sale of the Bonds or from any other sources, will not be
used in a manner which will cause the Bonds to be classified as "arbitrage
bonds" within the meaning of Section 148 of the Code. The event of
classification of the Bonds as "arbitrage bonds" under Section 148 of the Code
shall be treated as a "Determination of Taxability" under Section 6.5 hereof and
shall not constitute a Default by the Borrower.
In connection herewith and for purposes of insuring compliance with the
provisions of Section 148 of the Code, as the same may from time to time be
amended and the application thereof interpreted, the Borrower acknowledges that
its financial officers, Borrower's Representative and its accountant have read
and are familiar with the requirements of Sections 4.01(d), 4.01(e) and 5.04 of
the Indenture and hereby agrees (i) to timely make or cause to be made the
annual determinations required under Section 4.01(e) of the Indenture, (ii) to
furnish the Trustee such statements and instructions as are required under said
Section 4.01(e), (iii) to timely make or to cause, to be made the determinations
required under said Section 4.01(d) (1) of the Indenture, (iv) to furnish to the
Trustee such forms, statements, instructions and funds, if any, as are required
under subparagraph (i), (ii) and (iii) of said subsection 4.01(d)(1), (v) as
required, to secure and furnish to the Trustee a statement of its Accountant as
provided for under Section 4.01(d)(4) of the Indenture, (vi) to keep and retain
such records as are required under Section 4.01(d)(6) thereof. In addition, the
Borrower shall keep or cause to be kept such records as shall enable it to
fulfill its obligations and responsibilities under this Section and Section 148
of the Code and shall retain such records for a period of six (6) years
following the final payment of principal on the Bonds. In further connection
herewith, the Borrower expressly agrees that any failure, for any reason
whatever, of the Trustee to give any notice, determination, report or statement
required or provided for in said Section 4.01(d), shall not cause the Trustee or
the Issuer to comply with the requirements of Section 148 of the Code, and,
further, that the Borrower, shall pay all such costs as may be incurred by the
Trustee in engaging a firm of certified public accountants or other firm having
expertise in the subject matter to make such calculations and prepare such
certifications as are or may be required under said Sections 4.01(d) or 4.01(e)
in the event of the Borrower's failure to cause or secure the same; provided,
however, that this provision shall in no manner be deemed to require such an
engagement by the Trustee in the event of the Borrower's failure to perform all
its obligations under this Section 5.6
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ARTICLE VI
PAYMENT PROVISIONS; OPTIONS TO PREPAY;
OBLIGATIONS TO TERMINATE AGREEMENT; NOTICES TO ISSUER
Section 6.1. Amounts Payable. The Borrower, for and in consideration
---------------
of the issuance of the Bonds under and pursuant to Sections 2.19(A) and 2.19(B)
of the Indenture by the Issuer and the lending of the proceeds thereof by the
Issuer to the Borrower through the application of such proceeds as provided in
the Indenture and Article V hereof for the benefit of the Borrower, hereby
covenants and agrees to make the following payments (collectively called the
"Payments"):
(a) Payments, in advance, in the aggregate an amount sufficient for:
(A) Prior to the Conversion Date (as defined in the Indenture), the
payment in full of the Bonds Outstanding, including (i) on or before
the fifth (5th) Business Day preceding each Interest Payment Date,
payment of an amount equal to the estimated interest to become due on
the Bonds on such Interest Payment Date and on each Interest Payment
Date such additional amount, if any, as together with the aforesaid
payment shall equal all interest becoming due on the Bonds on such
Interest Payment Date, (ii) on each date such amounts become due (or
earlier as provided in Section 3.02 of the Indenture), principal and
redemption payments with respect to the Bonds and (iii) when due, such
amounts as are required to be paid by the Borrower to pay or cause to
be paid to the Trustee such amounts as shall be necessary to enable
the Trustee to pay the Purchase Price of the Bonds delivered to the
Tender Agent for purchase pursuant to the provisions of Section 2.12,
3.05, 3.06 or 3.07 of the Indenture, provided, however, that the
obligation of the Borrower to make any such payment required under
this clause (iii) shall be reduced by the amount of moneys available
for such payment described in Section 2.13(A) and (C) of the
Indenture; and, provided further, that the obligation of the Borrower
to make the payments required under clauses (i), (ii) and (iii) hereof
shall be deemed to be satisfied and discharged to the extent of any
corresponding payment made by the Bank to the Trustee under the Letter
of Credit; and
(B) From and after the Conversion Date, the payment in full of the
Bonds then outstanding, including (i) the total interest becoming due
and payable on such Bonds to the respective dates of payment thereof,
(ii) the total principal amount of such Bonds, and (iii) the
redemption premium, if any, that shall be payable on the redemption of
such Bonds prior to their stated maturity date, and (iv) such amounts,
if any, as shall be required to be paid by the Borrower for deposit to
the credit of the Bond Reserve Fund Account as provided in the
Indenture.
The obligation of the Borrower to make payments equal to the aggregate amount of
the principal and interest requirements of the Bonds is evidenced by the
Borrower's Note, the form of which is attached hereto as Exhibit B and made a
---------
part hereof, which shall be executed and delivered by
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the Borrower concurrently with the execution and delivery of this Agreement and
thereupon assigned by the Issuer to and to be held by the Trustee. All such
payments shall be payable directly to the Trustee for the account of the Issuer
and shall be applied by the Trustee in the manner provided in Section 4.01 of
the Indenture. It is understood and agreed that all payments payable by the
Borrower under this subsection (a) are assigned by the Issuer to the Trustee for
the benefit of the Owners of the Bonds and the Bank. The Borrower assents to
such assignment. The Issuer hereby directs the Borrower and the Borrower hereby
agrees to pay to the Trustee at the Principal Office of the Trustee all payments
payable by the Borrower pursuant to this subsection (a);
(b) Default or delay payments, upon being invoiced therefor, consisting of
-------------------------
the amounts, fees and expenses which the Issuer may incur or be or become
legally obligated to pay under the terms of the Indenture by reason of any
default hereunder or thereunder or any default or delay in payment of the
sums due hereunder or thereunder (provided that such default or delay shall
have resulted from the Borrower's default or breach of covenant under this
Agreement) and the amounts expended or indebtedness incurred by the Issuer
or the Trustee for the purpose of curing the Borrower's defaults hereunder
or thereunder or in connection with any defaults under the Indenture, and
all costs, expenses and charges, including reasonable attorneys' fees,
incurred by the Issuer or the Trustee in collecting the Payments or in
enforcing any covenant or agreement of the Borrower contained in this
Agreement or incurred in pursuing any remedy provided under this Agreement
or under the Indenture;
(c) Expense Payments consisting of the fees, charges and expenses of the
----------------
Issuer, Trustee, the Tender Agent, the Remarketing Agent and any other
person required to be paid under the terms of the Indenture and the Bonds,
such fees, charges and expenses to be paid directly to such person,
provided that the Borrower may, without creating a Default hereunder,
contest in good faith the reasonableness of any such fees, charges or
expenses;
(d) Issuer's Fee. The Issuer's fee of $25,000 payable on the issuance date
------------
of the Bonds.
(e) Rebate payments consisting of such amounts as are required to be paid
---------------
by the Borrower into the Rebate Fund pursuant to Section 4.01(d) of the
Indenture.
In the event the Borrower should fail to make any installment of the Payments
described in clauses (a), (b) and (c) above, or any portion thereof, the
installment or portion thereof so in default shall continue as an obligation of
the Borrower until the amount in default shall have been fully paid, and the
Borrower agrees to pay the same with interest thereon (to the extent permitted
by law) at the Late Payment Rate.
The Payments paid by the Borrower shall be applied in the following order of
priority:
A. Payments due under clause (a);
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B. Payments due under clauses (b) and (c); and
C. Payments due under clause (e).
Credits against and reduction of the Payments shall be derived from the
following sources:
A. surplus moneys (including investment earnings) contained in any funds
or accounts which are Available Moneys;
B. advance payments or prepayments on the Note or hereunder, provided the
same are Available Moneys; and
C. reductions in principal and interest requirements of Bonds due to the
purchase or redemption of Bonds as provided in the Indenture.
Section 6.2. Obligation to Make Payments Unconditional. The
-----------------------------------------
obligation of the Borrower to make the Payments shall be absolute, certain and
unconditional and shall not be subject to, nor shall the Borrower be entitled to
assert any rights of abatement, deduction, reduction, deferment, recoupment,
setoff or counterclaim by the Borrower or any other person, nor shall the
Payments be abated, abrogated, waived, diminished, postponed, delayed or
otherwise modified under or by reason of any circumstance or occurrence that may
arise or take place, irrespective of what statutory rights the Borrower may have
to the contrary, including but without limiting the generality of the foregoing
(none of which shall bar the Borrower from bringing any action or suit arising
therefrom):
A. any damage to or destruction of part or all of the Project or the
Facilities;
B. the taking or damaging of part or all of the Facilities or any
temporary or partial use thereof by any public authority or agency in the
exercise of the power of eminent domain, sequestration or otherwise;
C. any assignment, merger, consolidation, transfer of assets, leasing or
other similar transaction of or affecting Borrower, except as otherwise
provided in this Agreement;
D. any change in the tax or other laws of the United States, the State or
other governmental authority;
E. any lawful or unlawful prohibition of the Borrower's use of the
Facilities or any portion thereof or the interference with such use by any
person or commercial frustration or loss or revocation of any permits,
licenses or other authorizations required in connection with the
Facilities; and
F. any failure of the Issuer, the Trustee or the Bank to perform and
observe any agreement or covenant, expressed or implied, or any duty,
liability or obligation arising
17
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out of or in connection with this Agreement, the invalidity,
unenforceability or disaffirmance of any provisions of the Borrower's Note,
the Letter of Credit, the Credit Agreement or any instruments contemplated
thereunder, this Agreement, the Indenture, the Bonds, or for any other
cause similar or dissimilar to the foregoing.
Furthermore, the Borrower covenants and agrees that it will remain obligated
under this Agreement in accordance, with its terms and that it will not take or
participate or acquiesce in any action to terminate, rescind or avoid this
Agreement.
Section 6.3. Substitute Letter of Credit and Substitute Support
--------------------------------------------------
Facility. The Borrower may provide for the delivery to the Trustee of a
Substitute Letter of Credit and/or a Substitute Support Facility as a
replacement for the then effective Letter of Credit as described in the
Indenture.
Section 6.4. Prepayment. So long as all amounts which have become due
----------
under the Borrower's Note have been paid, the Borrower may at any time and from
time to time pay in advance and in any order of due dates all or part of the
amounts to become due under this Agreement if, not less than 60 days prior to
the redemption date set forth in such notice (which date shall be an Interest
Payment Date if prepayment is in part and any Business Day if in whole), the
Borrower gives notice to the Issuer, the Trustee and the Bank of the intention
to make a prepayment and of the amount thereof and if, not later than the date
of the prepayment, the Borrower directs the Trustee as to the application of the
amounts prepaid to retire Bonds by purchase, redemption or both purchase and
redemption prior to or on the next succeeding redemption date in accordance with
Section 3.01 of the Indenture. Any such prepayment shall be made not less than
60 days prior to the redemption date unless a conditional notice of redemption
is given to the Trustee, in which case prepayment shall be made on or prior to
11 A.M. on the date set for redemption, and in either event prepayment shall be
in an amount sufficient to accomplish any such redemption or reasonably
estimated to be sufficient to accomplish any such purchase. Prepayments made
under this Section shall be credited against amounts to become due on this
Agreement as provided in Section 6.1 hereof.
To exercise such option, the Borrower shall give written notice to the
Issuer, the Bank and the Trustee and shall specify therein the date of
redemption of Bonds pursuant to Section 3.02 of the Indenture, which date shall
be the date in respect of which the required notice of redemption can be given,
and shall make arrangements satisfactory to the Trustee for the giving of the
required notice of redemption. In order to exercise such option, the Borrower
shall pay, or cause to be paid, on or prior to the applicable redemption date at
the time or times required by Section 3.01 of the Indenture, to the Trustee, an
amount equal to the sum of the following:
(1) an amount of money which, when added to the amount then on deposit and
available in the Bond Fund, will be sufficient to retire and redeem, as
provided and/or required under Section 3.01 of the Indenture, all or that
portion of the Bonds outstanding that are to be redeemed on the earliest
possible redemption date after the giving of notice as provided in the
Indenture, plus
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(2) if all of the Bonds are to be redeemed, such sums as may be due and
payable by the Borrower under Section 4.01(d) of the Indenture, together
with an amount of money equal to the Trustee's fees and expenses under the
Indenture accrued and to accrue until final payment and redemption of the
Bonds, plus
(3) if all of the Bonds are to be redeemed, an amount of money equal to the
Issuer's fees and expenses under this Agreement accrued and to accrue until
final payment and redemption of the Bonds.
Section 6.5. Obligation to Prepay. The Borrower shall be required to
--------------------
prepay its obligations under Section 6.1 hereof on the Automatic Conversion
Date, if the Bonds are to be redeemed pursuant to Section 3.01(C) of the
Indenture, and on the applicable redemption date if the Bonds are to be redeemed
pursuant to Section 3.01(E) or 3.01(F) of the Indenture. In addition, the
Borrower shall be required to prepay that portion of its obligations under
Section 6.1 hereof to the extent such obligations relate to Bonds redeemed or to
be redeemed pursuant to Section 3.01(G) of the Indenture.
Section 6.6. Place of Payment. All payments hereunder and all
----------------
payments of principal and Purchase Price of and premium, if any, and interest on
and with respect to the Bonds, including the redemption price thereof and all
other fees and charges under this Agreement to be made to the Issuer or the
Trustee shall be made in lawful money of the United States of America and shall
be made at the principal corporate trust office of the Trustee not later than
11:00 o'clock a.m. on the date due. If any such payment falls due on a day
other than a Business Day, then such due date shall be extended to the next
succeeding full Business Day and interest shall accrue and be payable in respect
of such extension. Notwithstanding the foregoing, amounts payable to the Issuer
pursuant to Section 6.1(d) hereof shall be made at the Issuer's principal
office.
Section 6.7. Change in Interest Rate Mode Notice. The Borrower, if it
-----------------------------------
so elects, may cause the Issuer to effect a Change in Interest Rate Mode (as
defined in the Indenture) by giving the Issuer the notice and meeting the
conditions set forth in Section 2.02(A)(v) of the Indenture.
Section 6.8. Optional Conversion Notice. The Borrower, if it so elects,
--------------------------
may exercise the Conversion Option by giving the notice and meeting the
conditions set forth in Section 3.06 of the Indenture.
19
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ARTICLE VII
GENERAL COVENANTS
Section 7.1. No Warranty of Condition of Suitability by Issuer. THE
-------------------------------------------------
BORROWER ACKNOWLEDGES AND AGREES THAT THE ISSUER MAKES (i) NO WARRANTY, EITHER
EXPRESS OR IMPLIED AS TO THE PROJECT OR THE FACILITIES, OR THE CONDITION OF
EITHER THEREOF, OR THAT THE FACILITIES OR PROJECT WILL BE SUITABLE FOR THE
PURPOSES OR NEEDS OF THE BORROWER; (ii) NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, THAT THE BORROWER WILL HAVE QUIET AND PEACEFUL POSSESSION OF THE
FACILITIES OR PROJECT; (iii) NO REPRESENTATION AS TO THE FACILITIES OR THE
PROJECT; AND (iv) NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO THE MERCHANTABILITY, CONDITION OR WORKMANSHIP OF ANY PART OF THE
FACILITIES OR PROJECT OR THEIR SUITABILITY FOR THE BORROWER'S PURPOSES.
Section 7.2. Further Assurances and Corrective Instruments. The
---------------------------------------------
Issuer and the Borrower agree that they will, from time to time, execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such supplements hereto and such further instruments as may reasonably be
required for correcting any inadequate or incorrect description of the Project
or for carrying out the expressed intention of this Agreement.
Section 7.3. Issuer and Borrower Representatives. Whenever under the
-----------------------------------
provisions of this Agreement, the approval of the Issuer or the Borrower is
required, or the Issuer or the Borrower is required to take some action at the
request of the other, such approval or such request shall be given for the
Issuer by the Issuer Representative and for the Borrower by the Borrower
Representative; the Trustee, and any party hereto shall be authorized to act on
any such approvals or requests.
Section 7.4. General Covenants of Borrower. Borrower further
-----------------------------
expressly covenants and agrees:
(a) to comply with the terms, covenants and provisions, expressed or
implied, of all contracts pertaining to, affecting or involving the Project
and the Facilities or the business of the Borrower the violation or breach
of, which would materially and adversely affect the ability of the Borrower
to fulfill its obligations hereunder;
(b) to comply with the terms, covenants and provisions, expressed or
implied, of all rules and regulations and all contracts pertaining to,
affecting or involving the continual qualification of the business of the
Borrower the violation or breach of which would materially and adversely
affect the ability of the Borrower to fulfill its obligations hereunder;
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<PAGE>
(c) whenever and so often as requested so to do by the Trustee or the
Issuer, promptly to execute and deliver or cause to be executed and
delivered all such other and further instruments and documents, and to
promptly do or cause to be done all such other and further things, as may
be necessary or reasonably required in order to further and more fully vest
in the Issuer, the Trustee and the Owners of the Bonds all rights,
interests, powers, benefits, privileges and advantages conferred upon them
by this Agreement and by the Indenture;
(d) promptly, upon the request of the Issuer or the Trustee from time to
time, to take such action as may be necessary or proper to remedy or cure
any material defect in or cloud upon the title to the Facilities, or any
part thereof, whether now existing or hereafter developing, and to
prosecute all such suits, actions and other proceedings as may be
appropriate for such purpose and to indemnify and save the Issuer and the
Trustee harmless from all loss, cost, damage and expense, including
attorneys' fees, which they or either of them may ever incur by reason of
any such defect, cloud, suit, action or proceeding;
(e) to defend against every suit, action or proceeding at any time brought
against the Issuer or the Trustee based on any claim arising out of the
receipt, application or disbursement of any of the Trust Estate, revenues,
income or proceeds from the Facilities, or involving the Issuer's or the
Trustee's rights under this Agreement or the Indenture; to indemnify and
save harmless the Issuer and the Trustee against any and all liability
claimed or asserted by any person whomsoever, arising out of such receipt,
application or disbursement, excepting gross negligence, willful
malfeasance and bad faith on the part of the Issuer or the Trustee;
provided, further, that the Trustee or any Owner of Bonds at its or his
election and expense may appear in and defend against any such suit, action
or proceeding; and notwithstanding any contrary provision hereof, this
covenant shall continue and remain in full force and effect until all
indebtedness, liabilities, obligations and other sums secured hereby may
have been released of record and the lien hereof discharged;
(f) to fulfill its obligations and to perform punctually its duties and
obligations under this Agreement and to otherwise administer the Project an
the Facilities in accordance with the terms hereof to assure the continued
proper operation, management repair and maintenance of the Facilities, the
Payment and all other amounts due and payable under this Agreement and
under the Indenture and payment of the operation and maintenance expenses
of the Facilities; and
(g) that it will pay and discharge and indemnify an save the Issuer and
the Trustee harmless of, from and against, any and all costs, claims,
damages, expenses, liabilities, liens, obligations, penalties and taxes of
every character and nature, by or on behalf of any person, firm,
corporation, entity or governmental, authority regardless or by whom
advanced, asserted held, imposed or made, which may be imposed upon
incurred by or asserted against the Issuer and/or the Trustee arising out
of, resulting from or in any way connected with this Agreement, the Bonds
or the Indenture, excepting gross negligence,
21
<PAGE>
willful malfeasance and bad faith on the part of the Issuer or the Trustee.
The Borrower also covenants and agrees at its expense, to pay and to
indemnify and to save the Issuer and the Trustee harmless of, from and
against, all costs, reasonable counsel fees, expense and liabilities
incurred in any action or proceeding brought by reason of any such claim or
demand
Section 7.5. Risk of Loss. The risk of loss or of decrease in the
------------
enjoyment and beneficial use of the Facilities in consequence of the damage or
destruction thereof by acts of God, fire, the elements, casualties, thefts,
riots, civil strife, war, nuclear explosion or otherwise or in consequence of
foreclosures, attachments, levies or executions is expressly assumed by the
Borrower, and the Issuer and the Trustee shall in no event be answerable,
accountable or liable therefor, nor shall any of the foregoing events entitle
the Borrower to any abatement of its obligations hereunder.
Section 7.6. Security Interests. The Borrower agrees to execute and
------------------
file any and all financing statements or amendments thereof or continuation
statements thereto necessary to perfect and continue the perfection of the
security interests granted in the Indenture. The Borrower shall pay all costs
of filing such instruments.
Section 7.7. Borrower May Improve or Alter. The Borrower at its own
-----------------------------
cost and expense may make such additions, improvements or alterations to the
Facilities or may install such furnishings or equipment as it deems desirable;
provided, that such additions, improvements, alterations or installation of
furnishings or equipment will neither impair nor adversely affect the structural
integrity or operational utility value of the Facilities.
Section 7.8. Covenants Regarding Operation and Maintenance. The
---------------------------------------------
Borrower expressly covenants and agrees that it shall pay all costs of operating
and maintaining the Facilities and further:
(a) That it shall operate and maintain the Facilities and each and every
portion thereof, including all additions and improvements and all
facilities adjoining and/or appurtenant thereto and otherwise in good
operating order and condition, reasonable and ordinary wear and tear alone
excepted, and make all necessary repairs thereto, interior and exterior,
structural and nonstructural, ordinary and extraordinary, foreseen and
unforeseen, and otherwise to make all replacements, alterations,
improvements and modifications to the Facilities necessary to insure that
the same shall not be materially impaired or diminished, and, in connection
therewith, shall cause the Facilities and the operation and utilization
thereof to be insured under such terms of coverage and at such limits with
respect to facilities of the same nature and type as the Facilities,
whether similar in whole or in part, due regard being given to the type of
Facilities and their use provided that any liability insurance issued
pursuant hereto shall name the Issuer and the Trustee as additional
insureds;
(b) That it shall have full and sole responsibility for the condition,
operation, repair, replacement, maintenance and management of the
Facilities; provided, however, the
22
<PAGE>
Issuer, the Trustee and their agents shall have the right to inspect the
Facilities at any reasonable time in a manner which will not interfere
unreasonably with the Borrower's use thereof;
(c) That it shall pay as the same respectively becomes due, all taxes and
assessments, whether general or special, and governmental charges of any
kind whatsoever that may at any time be lawfully assessed or levied against
or with respect to the Facilities; provided the Borrower may contest any
such item of tax, assessment, other governmental charge, lien or other
encumbrance and, in the event of such contest, may permit the item so
contested to remain unpaid during the period of such contest and appeal
therefrom if the Borrower shall first notify the Trustee and the Bank of
its intention to do so;
(d) That it shall comply with all present and future laws, ordinances,
orders, rules, regulations and requirements of every duly constituted
governmental authority or agency and all orders, rules and regulations of
any regulatory body exercising similar functions, which pertain to the
Project and the Facilities, and shall likewise perform and comply in all
material respects with all duties and obligations of any kind imposed by
law, covenant, condition, agreement or easement with respect to the Project
or the Facilities; the foregoing obligations shall include, but not be
limited to, the duty of the Borrower to obtain any certificates of
occupancy with respect to all or any portion of the Facilities which may at
any time be required by any governmental agency having jurisdiction thereof
and to procure, maintain and comply with all licenses and other
authorizations required for the use of the Facilities then being made; and
(e) That it shall not use or allow the Facilities to be used or occupied
for any unlawful purpose or in violation of any private covenant,
restriction, condition, easement or agreement covering or affecting the use
of the Facilities, or suffer any act to be done or any condition to exist
in the Facilities or any article to be brought therein or thereon which may
be dangerous, unless safeguarded as required by law, or which, under law,
constitutes a nuisance, public or private, or which may make void or
voidable any insurance then in force with respect thereto;
(f) That it shall operate or cause the Project to be operated as an
authorized project for a purpose and use as provided for under the Act
until the expiration or earlier termination of this Loan Agreement. The
Project is of a character included within the definition of "project" in
the Act, and its estimated cost is $5,000,000. The Borrower will complete
and operate the Project substantially in: the form represented in the
Application and will neither (a) materially alter the operation of the
Project without the prior written consent of the Issuer, nor (b) cause a
change in the use of the Project such that the Bonds would cease to be
qualified small issue bonds (within the meaning of Section 144(a) of the
Code).
Section 7.9. Damage Destruction and Condemnation. Unless the Borrower
-----------------------------------
shall have exercised its option to prepay pursuant to the provisions of Section
6.4 of this Agreement, if prior to full payment of the Bonds (or prior to
provision for payment thereof having been made in
23
<PAGE>
accordance with the provisions of the Indenture) (i) the Facilities or any
portion thereof are destroyed (in whole or in part) or damaged by fire or other
casualty or (ii) title to or any interest in, or the temporary use of, the
Facilities or any part thereof shall be taken under the exercise of the power of
eminent domain by any governmental body or by any person, firm or corporation
acting under governmental authority, the Borrower shall be obligated to continue
to pay the amounts specified in Section 6.1 of this Agreement.
The Issuer, the Trustee and the Borrower will cause the Net Proceeds of any
insurance proceeds or condemnation award resulting from any event described
above involving $100,000 or more per occasion or event to be deposited in a
separate trust fund within the Project Fund held the Trustee. All such Net
Proceeds so deposited shall be applied in one or more of the following ways as
shall be elected by the Borrower in a written notice to the Issuer and the
Trustee:
(a) To the prompt repair, restoration, modification or improvement of the
Project or the Facilities by the Borrower. (The Issuer has, in the
Indenture, authorized and directed the Trustee to make disbursements from
such separate fund for such purposes or to reimburse the Borrower for costs
paid by it in connection therewith.) Any balance of the Net Proceeds
remaining after such work has been completed shall be transferred to the
Bond Fund to be applied to the reimbursement of the Bank for amounts owing
under the Credit Agreement and/or otherwise in accordance with Section
4.01(a) of the Indenture.
(b) To the transfer into the Redemption Account of the Bond Fund for
application for redemption of the Bonds on the next succeeding redemption
date as specified in a written notice by the Borrower to the Trustee in
accordance with the Indenture, provided that no part of the Net Proceeds
may be applied for such redemption unless (1) all of the Bonds are to be
redeemed in accordance with the Indenture upon termination of this
Agreement or (2) in the event that less than all of the Bonds are to be
redeemed, the Borrower shall furnish to the Issuer, the Bank and the
Trustee, a certificate of Borrower Representative acceptable to the Issuer,
the Bank and the Trustee stating that (i) the property forming the part of
the Project and the Facilities that was damaged or destroyed by such
casualty or was taken by such condemnation proceedings is not essential to
the use or possession of the Project and the Facilities by the Borrower or
(ii) the Project and the Facilities has been repaired, restored, modified
or improved to operate as designated.
If such Net Proceeds are insufficient to pay in full the cost of any
repair, restoration, modification or improvement referred to in this Section
7.9, the Borrower will nonetheless complete the work and will pay any cost in
excess of the amount of the Net Proceeds held by the Trustee. The Borrower
agrees that if by reason of any such insufficiency of such Net Proceeds, the
Borrower shall make any payments pursuant to the provisions of this Section, the
Borrower shall not be entitled to any reimbursement therefor from the Issuer,
the Trustee or the Owners of any of the Bonds, nor shall the Borrower be
entitled to any diminution of the amounts payable under Section 6.1 of this
Agreement.
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Section 7.10. Financial Statements and Information. (a) The Borrower
------------------------------------
will, upon request, furnish to the Issuer and the Trustee copies of the
following financial statements, reports and information: within 120 days after
the close of each fiscal year of the Borrower (a "Fiscal Year"), a balance sheet
as of the end of such Fiscal Year and statements of changes in cash flows,
revenue and expenses and changes in financial position of the Borrower for such
Fiscal Year, each prepared in accordance with generally accepted accounting
principles consistently applied, in reasonable detail and certified by a firm of
independent certified public accountants, together with a statement of the chief
financial officer of the Borrower to the effect that no event which constitutes
a Default under this Agreement has occurred and is continuing or if such an
event has occurred and is continuing a statement specifying the nature and
period of existence thereof.
(b) The Borrower shall promptly, from time to time, furnish to the Issuer
and the Trustee such information regarding the business, operations and
financial condition of the Borrower, as the Issuer may reasonably request.
Section 7.11. Reorganization or Fundamental Change. The Borrower
------------------------------------
shall not initiate any proceedings to dissolve or liquidate without making prior
provisions for the payment in full of its Indebtedness (as such term is defined
in the Credit Agreement). The Borrower will not consolidate with, merge into or
permit any other corporation or entity to consolidate with, merge into it,
unless the following conditions are met:
(i) the successor formed by or resulting from such consolidation
or merger (the "Successor Corporation") is a corporation, or similar
entity, organized under the laws of the United States or any state,
district or territory of the United States and qualified to do business in
the State and in such other states as the Borrower conducts business;
(ii) the Successor Corporation (if other than the Borrower) shall
expressly assume in writing the full and faithful performance of the
duties, obligations and covenants of the Borrower under this Agreement and
the Borrower's Note, and any and all such other agreements and instruments
as the Borrower may execute and deliver in connection with any of the
foregoing (collectively, the "Bond Documents");
(iii) both before and immediately after such consolidation or
merger, neither the Borrower nor the Successor Corporation shall be in
default in the performance or observance of any duties, obligations or
covenants of the Borrower under any of the Bond Documents;
(iv) the Borrower shall have furnished to the Issuer and the
Trustee an opinion of counsel experienced in matters relating to tax
exemption of interest on bonds issued by states and their political
subdivision, and/or a letter of ruling of the Internal Revenue Service,
satisfactory to the Issuer and the Trustee, to the effect that the interest
on the Bonds will not become, by reason of the merger or consolidation,
includable in the gross income of the recipients thereof for purposes of
federal income taxation;
25
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(v) the Borrower shall have furnished to the Issuer and the
Trustee evidence in the form of financial statements prepared by an
independent certified public accountant or firm of such accountants showing
that the net assets of the Successor Corporation are at least equal to the
net assets of the Borrower prior to such merger or consolidation as shown
by the last previous audited financial statement of the Borrower prior to
such merger or consolidation; and
(vi) the Successor Corporation shall not be subject to any pending
or threatened litigation or other contingent liabilities which, in the
opinion of counsel to the Borrower (which may be rendered in reliance upon
the opinion of counsel to the Successor Corporation), would result in any
material adverse change in the financial condition or operations of such
successor or which might materially adversely affect the obligations
hereunder or in connection with the transactions contemplated hereby.
If a merger or consolidation is effected as provided in this Section 7.11,
the provisions of this Section 7.11 shall continue in full force and effect and
no further merger, consolidation, sale or transfer shall be effected except in
accordance with the provisions of this Section 7.11.
Section 7.12. Maintenance of Tax-Exempt Status of Bonds.
-----------------------------------------
(a) Neither the Borrower nor the Issuer shall use, permit the use of, or
omit to use Gross Proceeds or any other amounts (or any property acquired,
constructed, or improved with Gross Proceeds) in a manner which, if made or
omitted, respectively, would cause interest on any Bond to become includable in
the gross income, as defined in Section 61 of the Code, of the owners thereof
for federal income tax purposes. Without limiting the generality of the
foregoing, unless and until the Borrower and the Issuer shall have received an
Opinion of Counsel to the effect that failure to comply with such covenant will
not adversely affect any exemption from federal income tax of interest on any
Bond, the Borrower and the Issuer shall comply with each of the specific
covenants in this Section.
(b) The Borrower covenants and agrees that at least 95% of the proceeds of
the Bonds actually expended will be used to pay costs of the Project incurred
subsequent to July 2, 1991, (in respect of work performed or items purchased
after such date) which are costs of land or property subject to the allowance
for depreciation provided by Section 167 of the Code and are chargeable to the
capital account of the Borrower for federal income tax purposes or would be so
chargeable either with a proper election by the Borrower under the Code or but
for a proper election by the Borrower under, the Code to deduct such amounts.
For purposes of this paragraph, "proceeds of the Bonds" means the proceeds
derived by the Issuer from the sale of the Bonds plus earnings from the
investment of amounts deposited in the Project Fund. In the event that proceeds
of the Bonds remain unspent after the completion of the Project, the Borrower
covenants and agrees that all of such unspent proceeds will be used to redeem
the largest portion of the Bonds callable under the terms of the Indenture
without premium or penalty that does not exceed the amount of such unspent
proceeds. Pending such redemption, the Borrower covenants and agrees that any
such unspent proceeds will be deposited in escrow as soon as possible after the
completion of the Project and invested to produce a yield no greater than the
yield on the Bonds.
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(c) The Borrower covenants and agrees that costs of issuance of the Bonds
financed directly or indirectly from the proceeds of the Bonds shall not, exceed
2% of the proceeds of the Bonds.
(d) The Borrower covenants and agrees that the weighted average maturity
of the Bonds will not exceed 120 percent of the average reasonably expected
economic life of the Project, both as calculated pursuant to Section 147(b) of
the Code.
(e) The Borrower represents and covenants that, except for the Bonds,
there are no obligations issued by or on behalf of any state, territory, or
possession of the United States, or political subdivision of the foregoing, or
of the District of Columbia which constitute "private activity bonds" within the
meaning of Section 141 of the Code:
(i) which are secured by any financial commitment on the part of
the Borrower or any related person to the Borrower, within the meaning of
Section 144(a)(3) of the Code, and which were or will be issued within the
period beginning 60 days prior to the Closing Date and ending 60 days
thereafter; or
(ii) the proceeds of which were or will be used with respect to the
Project or any other facility using substantial common facilities with the
Project (e.g., in the same building, enclosed shopping mall, or strip of
stores, offices, or warehouses), within the meaning of Section 144(a)(9) of
the Code; or
(iii) the proceeds of which are or will be used primarily with
respect to facilities the principal user of which is or will be the
Borrower or any related person to the Borrower, within the meaning of
Section 144 (a) (3) of the Code, and which are located in the Township of
Ewing, New Jersey or if located outside of the Township of Ewing, New
Jersey which are contiguous to or integrated with such facilities.
(f) The Borrower covenants and agrees that:
(i) no proceeds of the Bonds will be used to provide:
(A) any private or commercial golf course, country club,
massage parlor, tennis club, skating facility (including roller
skating, skateboard, and ice skating), racquet sports facilities
(including handball and racquetball), hot tub facility, suntan
facility, or racetrack, or
(B) any airplane, skybox or other private luxury box, any
health club facility, any facility primarily used for gambling, or any
store the principal business of which is the sale of alcoholic
beverages for consumption off premises,
(ii) not more than 5 percent of the proceeds of the Bonds will be
used directly or indirectly, to provide real property for family units,
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(iii) not more than 25 percent of the proceeds of the Bonds will be
used to provide a facility the primary purpose of which is (or so long as
any Bonds remain Outstanding will be):
(A) retail food and beverage services (including all eating
and drinking places but excluding grocery stores),
(B) automobile sales or services, or
(C) the provision of recreation or entertainment,
(iv) less than 25 percent of the proceeds of the Bonds will be used
(directly or indirectly) for the acquisition of land (or an interest
therein) and none of such land shall be used (directly or indirectly) for
farming purposes,
(v) with respect to any building and the equipment therefor (or an
interest therein) acquired with the proceeds of the Bonds, the first use of
which is not pursuant to such acquisition, rehabilitation expenditures (as
defined in Section 147(d) of the Code) for such building will equal or
exceed 15 percent of the portion of the cost of acquiring such building
(and equipment) financed with the proceeds of the Bonds, and such
rehabilitation expenditures will be incurred within two years after the
later of the date such building was acquired or the Closing Date, and
(vi) with respect to any facilities other than buildings acquired
with proceeds of the Bonds, the first use of which is not pursuant to such
acquisition, rehabilitation expenditures (as defined in Section 147(d) of
the Code) for such facility will equal or exceed 100 percent of the portion
of the cost of acquiring such facility financed with the proceeds of the
Bonds, and such rehabilitation expenditures will be incurred within two
years after the later of the date such facility was acquired or the Closing
Date.
(g) The Borrower shall comply with all effective rules, rulings or
regulations promulgated by the Department of the Treasury or the Internal
Revenue Service with respect to obligations issued under Section 144(a) of the
Code as a "qualified small issue bond" the interest on which is exempt from
federal income taxation.
(h) The Borrower covenants that it will refrain, and it will cause all
principal users, as defined in Prop. Treas. Reg. (S)1.103-10(h), of the Project
and all related persons, as defined in Section 144(a)(3) of the Code, to
refrain, from incurring or paying for capital expenditures during the six-year
period commencing three years prior and ending three years after the Closing
Date, which would cause the $10,000,000 limitation contained in Section
144(a)(4) of the Code to be exceeded.
(i) The Borrower also covenants that it will not cause, or will not take
or omit to take or permit any person to take or omit to take any action which
would cause, the "aggregate
28
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authorized face amount" of the Bonds and any exempt facility bonds, as defined
in Section 142 of the Code, qualified small issue bonds or qualified
redevelopment bonds, as defined in Section 144 of the Code, and any industrial
development bonds, as described in Section 103(b)(4), (5), and (6) of the
Internal Revenue Code of 1954, as in effect on the day prior to the adoption of
the Tax Reform Act of 1986, allocated to any owner or "principal user", as
defined in Prop. Treas. Reg. (S)1.103-10(h), including all persons related
thereto within the meaning of Section 144(a)(3) of the Code, of the Project at
any time during the three year period beginning on the later of the date the
Project is placed in service or the Closing Date, as described in Section
144(a)(10) of the Code, to exceed $40,000,000.
(j) Neither the Issuer nor the Borrower shall take any action or omit to
take any action with respect to the proceeds of sale of the Bonds or of any
amounts expected to be used to pay the principal (and premium, if any) thereof
and the interest thereon which, if taken or omitted, respectively, and if
reasonably expected on the date of the initial delivery of the Bonds, would
result in constituting the Bonds "arbitrage bonds" within the meaning of Section
148 of the Code, or take any deliberate action motivated by arbitrage which
would have such result, nor shall the Borrower take or omit to take any other
action which would otherwise adversely affect any exemption under the Code from
federal income taxation of the interest on any Bond. Further, neither the
Borrower nor the Issuer shall, at any time prior to the final maturity of the
Bonds, directly or indirectly invest Gross Proceeds in any Investment (or use
Gross proceeds to replace money so invested), if as a result of such investment
the Yield from the Closing Date of all Investments acquired with Gross proceeds
(or with money replaced thereby) whether then held or previously disposed of,
exceeds the Yield of the Bonds. Notwithstanding the foregoing, however, the
following investments shall be excluded from the limitation and calculation
described in this Subsection (j):
(i) Investments acquired with proceeds from the sale of the Bonds
or income from the investment, to the extent such Investments are held
during the first three years after the Closing Date or prior to the date on
which the Project has been completed, whichever is shorter;
(ii) Investments acquired with income from investment of proceeds
from the sale of the Bonds, to the extent such Investments are held during
the first year after receipt of such income;
(iii) Investments acquired with amounts held for the credit of the
Bond Fund, to the extent such Investments are held during the first 13
months after the date of deposit of such amounts to the Bond Fund; and
(iv) any other Investments to the extent the aggregate cost thereof,
adjusted upward by the amortized portion (calculated on a straight-line
basis) of any discount at which such Investments were acquired, does not
exceed the lesser of 5% of the proceeds from the sale of the Bonds of
$100,000.
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The Borrower shall pursue work on the Project with due diligence until
completion. Neither the Borrower nor the Issuer shall (a) use any money to pay
principal or interest on the Bonds, or pledge (or permit to be pledged) or
otherwise restrict any money, funds or Investments so as to give reasonable
assurance of their availability for such purpose, except in each case amounts
deposited to the Bond Fund, or (b) apply any proceeds from the sale of the Bonds
or income from the investment thereof, directly or indirectly, to pay principal
of or interest on any other indebtedness of the Issuer.
(k) The Borrower shall not take any action or willfully omit to take any
action with respect to the proceeds of the loan made hereunder or the Project
which, if taken or omitted, respectively, would adversely affect any exemption
from inclusion in gross income for purposes of income taxation of interest on
any Bond under the Code. All parties hereto agree to execute such amendments
and supplements hereto (and to comply with the provisions thereof) as may, in
the Opinion of Counsel, be necessary to preserve or perfect any exemption from
inclusion in gross income for purposes of federal income taxation of interest on
any Bond under the Code.
(1) The Issuer and the Borrower covenant that, no later than the 15th day
of the second calendar month after the close of the calendar quarter in which
the Bonds are issued, the Issuer shall file with the Secretary of the Treasury
the information required to be filed pursuant to Section 149(e) of the Code.
The Borrower covenants that it shall furnish to the Issuer in a timely manner
whatever information is necessary for the Issuer to make such filing.
(m) Neither the Issuer nor the Borrower shall take, or omit to take any
action which, if taken or omitted, would cause the Bonds to be "federally
guaranteed" within the meaning of Section 149 of the Code.
Section 7.13. Compliance with Applicable Laws. The Borrower agrees to
-------------------------------
construct, operate and maintain the Project in accordance with all applicable
Federal, State, county and municipal laws, ordinances, rules and regulations now
in force or that may be enacted hereafter including, but not limited to such
environmental protection, workers' compensation, sanitary, safety, non-
discrimination and zoning laws, ordinances, rules and regulations as shall be
binding upon the Borrower.
Section 7.14. Environmental Compliance. The Borrower shall not permit
------------------------
any action to occur which would be in direct violation of any and all applicable
Federal, State, county and municipal laws, ordinances, rules and regulations now
in force or hereinafter enacted, including the regulations of the Issuer and the
regulations of the Department of Environmental Protection.
The Borrower shall give immediate written notice to the Issuer and the
Trustee of any inquiry, notices of investigation or any similar communication,
from the Department of Environmental Protection regarding potential violations
of the Environmental Cleanup Responsibility Act (N.J.S.A. 13:lK-6 et seq.)
and/or the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.).
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Section 7.15. Assignment of Loan Agreement. The Borrower may not
----------------------------
assign or transfer the whole or any part of this Loan Agreement without the
prior express written consent of the Issuer. Any assignment of this Loan
Agreement by the Borrower without the prior express written consent of the
Issuer shall be void.
Section 7.16. Lease or Transfer of Project. The Borrower shall not
----------------------------
lease, sublease, sell or otherwise dispose of any possessory interest in whole
or part of the Project without the prior express written consent of the Issuer.
In the event that the Borrower proposes to lease or sublease the Project or any
portion thereof, the Borrower and the proposed lessee shall submit to the Issuer
an application for project occupants in the form currently in use by the Issuer
and a copy of the proposed lease. The Issuer may review the proposed lease and
application to determine if it tends to further the public purposes for which
the Issuer was created, and if the Issuer determines that the lease would not
promote these purposes, it may disapprove the proposed lease.
In making the determination described above, the Issuer may consider, among
other criteria, (i) if the proposed occupancy complies with the conditions
specified in the Act for the Issuer's assistance to "projects" as defined in the
Act; (ii) if the proposed occupancy is consistent with the provisions respecting
tax-exempt qualified small issue bond financings set forth in Section 144 of the
Code; and (iii) if the proposed lease will result in the loss of employment for
a substantial number of New Jersey workers by reason of relocating the business
of the lessee from one part of the State to another or for any other reason
If the Issuer fails to deliver notice of either approval or disapproval of
a proposed lease within twenty (20) days from the day the Issuer receives a
proposal for the lease, including all of the information identified above and
such other information as the Issuer may reasonably require, the proposed lease
shall be deemed to be approved by the Issuer. The Borrower shall promptly send
a copy of each executed lease to the Issuer.
Section 7.17. Inspection of the Project. The Borrower agrees that the
-------------------------
Issuer and its duly authorized agents shall have the right, at all reasonable
times and upon prior notice, to enter upon and to examine and inspect the
Project. The Issuer and its respective officers and agents shall also be
permitted, at all reasonable times and upon prior notice, to examine the books
and records of the Borrower with respect to the Project and to make copies or
abstracts thereof.
Section 7.18. Relocation of the Project. The Borrower covenants and
-------------------------
agrees that during the term of this Loan Agreement it will not relocate the
Project or a substantial number of its employees to another location either
within or without the State without first obtaining the prior express written
consent of the Issuer.
Section 7.19. Payment of Prevailing Wage. Notwithstanding the
--------------------------
provisions of Section 7.9 hereof, the Borrower shall, in every Construction
Contract to which it is a party, require the Contractor to pay workers engaged
in the performance of such Construction Contract a wage rate not less than the
Prevailing Wage Rate. The Borrower shall further require, in every Construction
Contract to which it is a party, that the Contractor execute the Contractor's
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Certificate and Agreement, submit certified copies of payroll records to the
Issuer as required by the Issuer, and execute and file the Contractor's
Completion Certificate.
Section 7.20. Affirmative Action. The Borrower shall require, in
------------------
every Construction Contract to which it is a party, that the Contractor make a
good faith effort to hire, or cause to be hired, minority workers in such job
classifications, trades and crafts and for such percentages of the total hours
of construction work in each trade or craft as shall be necessary to satisfy the
minority employment goals established in the Affirmative Action Program. The
Borrower shall further require, in every Construction Contract to which it is a
party, that the Contractor or Contractors execute the Contractor's Certificate
and Agreement and submit to the Issuer any certificates, reports and records as
may be necessary to demonstrate the Contractor's compliance with the Affirmative
Action Program.
The Borrower agrees to include in all construction bid specifications for
the Project and in every Construction Contract to which it is a party, such
terms, conditions and provisions as are prescribed in the Affirmative Action
Program.
The Borrower agrees to include or cause to be included in every
Construction Contract to which it is a party, a provision, term or condition
authorizing and allowing a holdback equal to ten per centum (10%) of the total
amount agreed to be paid to the Contractor for the work done pursuant to the
Construction Contract, said sum to be disbursed to the Contractor only upon: (i)
the execution and filing of the Contractor's Completion Certificate; (ii) the
execution and filing of the Borrower's Completion Certificate; and (iii) receipt
by the Borrower of a written notice issued by the Issuer's Office of Affirmative
Action that the Contractor has complied with the requirements of the Affirmative
Action Program.
The Borrower shall designate, and shall require each Contractor to
designate, an officer or employee who will supervise and coordinate the
operations of the Affirmative Action Program for the Project.
Section 7.21. Annual Certificate. On each anniversary date of the
------------------
loan, the Borrower shall furnish to the Issuer and the Trustee the following:
(a) a certificate of an authorized Borrower Representative to the effect
that he is not aware of any condition, event or act which constitutes an Event
of Default under any of the Bond Documents; and
(b) a written description of the present use of the Project and a
description of any anticipated material change in the use of the Project or in
the number of employees employed at the Project.
The Borrower shall also furnish to the Issuer upon request, which request
shall not be made more frequently than once a year, an employment report on a
form to be supplied by the Issuer.
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Section 7.22. Project Sign. During the period from the effective date
------------
of this Loan Agreement and until thirty (30) days after the Completion Date, the
Borrower shall cause to be posted and maintained at the site of the Project, a
sign to be provided to the Borrower by the Issuer indicating that financial
assistance for the Project has been provided by the Issuer. The cost of the
sign and the maintenance of the sign shall be at the expense of the Borrower.
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ARTICLE VIII
ASSIGNMENT; INDEMNIFICATION; REDEMPTION;
RESERVATION OF INTERESTS
Section 8.1. No Assignments Except as Permitted. The Borrower shall
----------------------------------
not, without the prior written consent of the Issuer, the Trustee and the Bank,
assign its interests under this Agreement.
In addition, prior to any assignment and as a condition precedent to the
validity thereof, the Issuer shall cause to be filed with the Trustee an opinion
of an attorney or firm of attorneys experienced in matters relating to municipal
bonds to the effect that such assignment will not adversely affect the status of
the interest on the Bonds as exempt from inclusion in the gross income of the
recipients thereof for purposes of federal income taxation.
Notwithstanding the foregoing, this Agreement shall be expressly subject
and subordinate to the assignment and pledge by the Issuer to the Trustee
pursuant to the Indenture of its interests in this Agreement and any moneys
receivable under this Agreement.
Section 8.2. Release and Indemnification Covenants.
-------------------------------------
(a) The Borrower shall and hereby agrees to defend and indemnify and save
the Issuer and the Trustee harmless against and from all claims by or on
behalf of any person, firm, corporation or other legal entity arising from
the conduct or management of, or from any work or thing done on, the
Project or the Facilities during the term of this Agreement, including
without limitation, (i) any condition of the Project or the Facilities,
(ii) any breach or default on the part of the Borrower in the performance
of any of its obligations under this Agreement, (iii) any act or negligence
of the Borrower or of any of its agents, contractors, servants, employees
or licensees or (iv) any act or negligence of any assignee or lessee of the
Borrower, or of any agents, contractors, servants, employees or licensees
of any assignee or lessee of the Borrower. The Borrower shall defend and
indemnify and save the Issuer and the Trustee harmless from any such claim
arising as aforesaid, or in connection with any action or proceeding
brought thereon, and upon notice from the Issuer or the Trustee, the
Borrower shall defend them or either of them in any such action or
proceeding; provided that such defense shall be undertaken by counsel
reasonably acceptable to the party being defended, such counsel to be
deemed approved if not disapproved by such party within twenty (20) days of
notice by the Borrower of the name of such counsel.
(b) Notwithstanding the fact that it is the intention of the parties
hereto that the Issuer shall not incur any pecuniary liability by reason of
the terms of this Agreement or the undertakings, required of the Issuer
hereunder, by reason of the issuance of the Bonds, by reason of the
execution of the Indenture or by reason of the performance of any act
requested of the Issuer by the Borrower, including all claims, liabilities
or losses arising in connection with the violation of any statutes or
regulation pertaining to the foregoing;
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<PAGE>
nevertheless, if the Issuer should incur any such pecuniary liability, then
in such event the Borrower shall indemnify and hold the Issuer harmless
against all claims, demands or causes of action whatsoever, by or on behalf
of any person, firm or corporation or other legal entity arising out of the
same or out of any offering statement or lack of offering statement in
connection with the sale or resale of the Bonds and all costs and expenses
incurred in connection with any such claim or in connection with any action
or proceeding brought thereon, and upon notice from the Issuer, the
Borrower shall defend the Issuer in any such action or proceeding. All
references to the Issuer in this Section 8.2 shall be deemed to include its
members, officers, employees and agents.
Notwithstanding anything to the contrary contained herein, the Borrower
shall have no liability to indemnify the Issuer or the Trustee against claims or
damages resulting from the Issuer's or the Trustee's own gross negligence or
willful misconduct.
Section 8.3. Redemption of Bonds. The Borrower shall have and is
-------------------
hereby granted the option to cause all or a portion of the Bonds to be redeemed
at the times permitted by the Indenture. The Issuer, at the request of the
Borrower, shall forthwith take all steps (other than the payment of any money
required for such redemption and other than such as are reserved unto the
Trustee) necessary under the applicable redemption provisions of the Indenture
to effect redemption of all or part of the Outstanding Bonds, as may be
specified by the Borrower, on the date established for such redemption.
Section 8.4. References to Bonds Ineffective After Bonds Paid. Upon
------------------------------------------------
payment in full of the Bonds (or provision for payment thereof having been made
in accordance with the provisions of the Indenture), payment of all fees and
charges of the Trustee and payment of all amounts payable to the Bank under the
Credit Agreement, all references in this Agreement to the Bonds, the Bank and
the Trustee shall be ineffective, and neither the Trustee, the Bank nor the
Owners of any of the Bonds shall thereafter have any rights hereunder, saving
and excepting those that shall have theretofore vested or would affect the tax-
exempt status of the Bonds.
Section 8.5. Issuer to Grant Security Interest to Trustee. The
--------------------------------------------
parties hereto agree that pursuant to the Indenture, the Issuer shall pledge,
assign and transfer to the Trustee in order to secure payment of the Bonds and
of amounts payable to Bank in respect of the Letter of Credit and the Credit
Agreement, all of the Issuer's rights, titles and interests in, to and under
this Agreement, excepting Issuer's rights under Section 6.1(b), 6.1(d), 7.4(e),
7.4(g), 7.8(f), 7.15, 7.16, 8.2 and 9.4 hereof, and in, to and under the
Borrower's Note.
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ARTICLE IX
DEFAULTS AND REMEDIES
Section 9.1. Defaults Defined. The following shall be "Defaults"
----------------
under this Agreement and the term "Default" shall mean, whenever it is used in
this Agreement, any one or more of the following events:
(a) failure by the Borrower to pay any amount required to be paid under
subsection (a) of Section 6.1 hereof or under Section 6.5 hereof, in either
case, as and when due, or failure by the Borrower to pay any amount
required to be paid under subsection (b) or (c) of Section 6.1 hereof
within five (5) days of written notice of such amount; or
(b) failure by the Borrower to observe and perform any covenant, condition
or agreement on its part to be observed or performed, other than as
referred to in Subsection 9.1(a) above, for a period of thirty (30)
Business Days after written notice specifying such failure and requesting
that it be remedied shall have been given the Borrower by the Issuer or the
Trustee (and if by the Issuer with the approval of the Trustee and the
Bank), unless the Issuer and the Trustee shall agree in writing to an
extension of such time prior to its expiration; provided, however, if the
failure stated in the notice cannot be corrected within the applicable
period, neither the Issuer nor the Trustee, as the case may be, will
unreasonably withhold consent to an extension of such time if corrective
action is instituted by the Borrower within the applicable period and
diligently pursued until such failure is corrected; or
(c) the dissolution or liquidation of the Borrower, or the voluntary
initiation by the Borrower of any proceeding under any federal or state law
relating to the bankruptcy, insolvency, arrangement, reorganization,
readjustment of debt or any other form of debtor relief, or the initiation
against the Borrower of any such proceeding which shall remain undismissed
for sixty (60) days, or failure of the Borrower to promptly have discharged
any execution, garnishment or attachment of such consequence as would
impair the ability of the Borrower to carry on its business operations, or
assignment by the Borrower for the benefit of creditors, or the entry of
the Borrower into an agreement of composition with creditors or the failure
generally by the Borrower to pay its debts as they become due; or
(d) the occurrence of a Default under the Indenture.
The provisions of subsection (b) of this Section are subject to the following
limitation: if by reason of force majeure the Borrower is unable in whole or in
----- -------
part to carry out any of its agreements contained herein (other than its
obligations contained in Article VI hereof), the Borrower shall not be deemed in
Default during the continuance of such inability. The term "force majeure" as
-------------
used herein shall mean, without limitation, the following: acts of God; strikes
or other industrial disturbances; acts of public enemies; orders or restraints
of any kind of the government of the United States of America or of the State or
of any of their departments,
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agencies or officials, or of any civil or military authority; insurrections;
riots; landslides; earthquakes; fires; storms; droughts; floods; explosions;
breakage or accident to machinery, transmission pipes or canals; and any other
cause or event not reasonably within the control of the Borrower. The Borrower
agrees, however, to remedy with all reasonable dispatch the cause or causes
preventing the Borrower from carrying out its agreement, provided that the
Borrower shall not be unreasonably required to settle any strike or industrial
disturbance.
Nothing contained in this Section 9.1 shall limit the rights and remedies
of the Bank under the Credit Agreement in respect of defaults thereunder.
Section 9.2. Remedies on Default. Whenever any Default referred to in
-------------------
Section 9.1 hereof shall have happened and be continuing, then, subject to the
proviso of the final paragraph of Section 9.3 hereof, the Trustee or the Issuer
with the written consent of the Trustee may take one or any combination of the
following remedial steps:
(a) if the Trustee has declared the Bonds immediately due and payable
pursuant to Section 6.02 of the Indenture, by written notice to the
Borrower, declare an amount equal to all amounts then due and payable on
the Bonds, whether by acceleration or maturity (as provided in the
Indenture) or otherwise, to be immediately due and payable as liquidated
damages under this Agreement and not as a penalty, whereupon the same shall
become immediately due and payable;
(b) have reasonable access to and inspect, examine and make copies of the
books and records and any and all accounts, data and income tax and other
tax returns of the, Borrower during regular business hours of the Borrower
(except books, records, accounts and other information which the Borrower
is required by law to keep confidential) if reasonably necessary in the
opinion of the Trustee; or
(c) take whatever action at law or in equity may appear necessary or
desirable to collect the amounts then due and thereafter to become due, or
to enforce performance and observance of any obligation, agreement or
covenant of Borrower under this Agreement or the Borrower's Note.
Any amounts collected pursuant to action taken under this Section shall be
paid into the Bond Fund and applied in accordance with the provisions of the
Indenture.
Section 9.3. No Remedy Exclusive. Subject to Section 6.02 of the
-------------------
Indenture, no remedy herein conferred upon or reserved to the Issuer or the
Trustee is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Agreement or now or hereafter existing at
law or in equity.
No delay or omission to exercise any right or power accruing upon any
Default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right or power may be exercised from time to time
and as often as may be deemed expedient. In order to
37
<PAGE>
entitle the Issuer or the Trustee to exercise any remedy reserved to it in this
Article, it shall not be necessary to give any notice, other than such notice as
may be required in this Article; PROVIDED, HOWEVER, that prior to the Letter of
Credit Termination Date and so long as the Bank shall not have failed to make
lawful payment under the Letter of Credit in accordance with the terms and
conditions of the Letter of Credit, neither the Issuer nor the Trustee shall
exercise any such remedy without the prior consent of the Bank. Such rights and
remedies as are given the Issuer hereunder shall also extend to the Trustee, and
the Trustee and the Owners of the Bonds, subject to the provisions of the
Indenture, shall be entitled to the benefit of all covenants and agreements
herein contained.
Section 9.4. Agreement to Pay Attorneys' Fees and Expenses. In the
--------------------------------------------- -
event the Borrower should Default under any of the provisions of this Agreement,
and the Issuer or the Trustee should employ attorneys or incur other expenses
for the collection of payments required hereunder or the enforcement of
performance or observance of any obligation or agreement on the part of the
Borrower herein contained, the Borrower agrees that it will on demand therefor
pay to the Issuer and the Trustee, as the case may be, the reasonable fee of
such attorneys and such other expenses so incurred, and any such amounts paid by
the Issuer and the Trustee shall be added to the indebtedness secured by the
Indenture.
Section 9.5. No Additional Waiver Implied by One Waiver. In the event
------------------------------------------
any agreement contained in this Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
38
<PAGE>
ARTICLE X
SUPPLEMENTS AND AMENDMENTS
Section 10.1. Amendment Without Consent. The Issuer and the Borrower
-------------------------
with the consent of the Trustee and the Bank, but without the consent of the
Owners of any of the Bonds Outstanding, may enter into supplements to this
Agreement and the Note which shall not be inconsistent with the terms and
provisions hereof for any of the purposes heretofore specifically authorized in
this Agreement or the Indenture, and in addition thereto for any one or more of
the following purposes:
(a) so as to more precisely identify the Project or the Facilities, or to
substitute or add additional improvements or equipment to the Protect, or
additional rights or interests in property acquired in accordance with the
terms of this Agreement;
(b) to cure any ambiguity or formal defect or omission in this Agreement or
the Borrower's Note or, if required or otherwise appropriate, to conform
the provisions or requirements of this Agreement or the Borrower's Note to
the terms of, including any subsequent change therein, the Indenture;
(c) to enter into an indenture or indentures supplemental to the Indenture
as provided in Article VIII of the Indenture;
(d) so as to obtain or maintain from Moody's a securities rating on the
Bonds of at least Aa3, VMIG-1 or P-1, or from S&P a securities rating on
the Bonds of at least AA/A-1;
(e) by addition or deletion, to conform to the requirements of or
procedures authorized under this Agreement, to such additional
requirements, limitations or prohibitions as may be made under the Code
with respect to obligations of the character of the Bonds, the use of
proceeds of the Bonds and investment earnings thereon and the conversion of
the interest rate on the Bonds;
(f) by addition, to include covenants governing the Borrower's financial
affairs to the extent reasonably required in connection with the Borrower's
exercise of its Conversion Option; or
(g) to effect any other change herein which, in the judgment of the
Trustee, is not to the prejudice of the Trustee or the Owners of the Bonds.
Section 10.2. Amendment Upon Approval of Two-Thirds of Owners of
--------------------------------------------------
Bonds. Except for the amendments, changes or modifications as provided in
Section 10.1 hereof, no other amendment, change or modification of this
Agreement or the Borrower's, Note shall be undertaken without the mailing of
notice of such proposed amendment, change or modification to and the written
approval or consent of the Bank and the Owners of at least two-thirds (2/3) in
39
<PAGE>
aggregate principal amount of the Outstanding Bonds given as in this Section
provided, provided that the consent of the Bank and the Owners of all Bonds
Outstanding is required for any amendment, change or modification of this
Agreement that would permit the termination or cancellation of this Agreement or
a reduction in or postponement of the payments under this Agreement or the
Borrower's Note or any change in the provisions relating to payment hereunder or
thereunder.
If at any time the Issuer and the Borrower shall request the consent of the
Trustee to any such proposed amendment, change or modification of this Agreement
or the Borrower's Note, the Trustee shall, upon being satisfactorily indemnified
with respect to expenses, cause notice of such proposed amendment, change or
modification to be given to the Bank, and each national rating agency by which
any of the Bonds are then rated and to the Owners of the Bonds by mailing notice
by registered or certified mail to the Owner of each Bond at the address shown
on the registration books. Such notice shall briefly set forth the nature of
such amendment, change or modification and shall state that copies thereof are
on file at the Principal Office of the Trustee for inspection by all Owners of
Bonds. If, within sixty (60) days or such longer period as shall be prescribed
by Issuer following such notice, the Owners of not less than (a) two-thirds
(2/3rds) in aggregate principal amount of or, as may be required, (b) all the
Outstanding Bonds at the time of the execution of any such proposed amendment,
change or modification shall have consented to and approved the execution
thereof as herein provided, no Owner of any Bond shall have any right to object
to any of the terms and provisions contained therein, or the operation thereof,
or in any manner to question the propriety of the execution thereof, or to
enjoin or restrain the Trustee, the Borrower or the Issuer from executing the
same or from taking any action pursuant to the provisions thereof. Upon the
execution of any such proposed amendment, change or modification as in this
Section permitted and provided, this Agreement or the Borrower's Note shall be
and be deemed to be modified and amended in accordance therewith.
The Issuer, the Borrower and the Trustee shall be entitled to receive, and
shall be fully protected in relying upon the opinion of counsel, who may be
counsel for the Issuer, as conclusive evidence that any such proposed supplement
or amendment, change or modification complies with the provisions of this
Agreement and the Indenture and that it is proper for the Issuer, and the
Trustee under the provisions of this Article to execute and approve the same.
40
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices. (a) Unless otherwise expressly specified or
-------
permitted by the terms hereof, all notices, consents or other communications
required or permitted hereunder shall be deemed sufficiently given or served if
given in writing, hand delivered or mailed by first class mail, postage prepaid
and addressed as follows (to be effective upon first receipt by the addressee or
its counsel):
(1) if to the Issuer, addressed to:
New Jersey Economic Development Authority
200 South Warren Street
Capital Place One
Trenton, New Jersey 08625
with a copy to their attorneys, addressed to:
Bernard S. Davis, Esq.
Robinson, St. John & Wayne
One Gateway Center
Newark, New Jersey 07102
(2) if to the Trustee, addressed to:
Sumitomo Bank of New York Trust Company
One World Trade Center
Suite 8505
New York, New York 10048
Attention: Corporate Trust Department
with a copy to their attorneys, addressed to:
The Sumitomo Bank, Limited, New York Branch
One World Trade Center
Suite 9651
New York, New York 10048
Attention: Robert W. Bulger, Esq.
Vice President and Corporate Counsel
(3) if to the Borrower, addressed to:
Epitaxx, Inc.
3490 U.S. Route 1
41
<PAGE>
Princeton, New Jersey 08540
Attention: James D. Coleman, Vice President
with a copy to:
James F. X. Rudy, Esq.
Katzenbach, Gildea & Rudner
Princeton Pike Corporate Center
997 Lenox Drive, Building 3
Lawrenceville, New Jersey 08648-2311
(4) if to the Bank, addressed to:
The Sumitomo Bank, Limited, New York Branch
One World Trade Center
Suite 9651
New York, New York 10048
with a copy to:
Mudge, Rose, Guthrie, Alexander & Ferdon
180 Maiden Lane
New York, New York 10038
(5) if to Remarketing Agent, addressed to:
BT Securities Corporation
One Bankers Trust Plaza
New York, New York .10015
Attention: Municipal Capital Markets Group
(6) if to Tender Agent, addressed to:
Sumitomo Bank of New York Trust Company
One World Trade Center
Suite 8505
New York, New York 10048
Attention: Corporate Trust Department
A duplicate copy of each notice required to be given hereunder by the
Trustee to either the Issuer or the Borrower shall also be given to the other
and to the Bank. The Issuer, the Borrower, the Trustee, the Bank, the
Remarketing Agent and the Tender Agent may designate any further or different
addresses to which subsequent notices, certificates or other communications
shall be sent. Any notice to an Owner of Bonds shall also be made to the Bank.
42
<PAGE>
Section 11.2. Binding Effect. This Agreement shall inure to the
--------------
benefit of and shall be binding upon the Issuer, the Borrower, the Bank, the
Trustee, the Owners of Bonds and their respective successors and assigns,
subject, however, to the limitations contained in Section 8.1 hereof.
Section 11.3. Severability In the event any provision of this
------------
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
Section 11.4. Amounts Remaining in Funds. Subject to the provisions
--------------------------
of the Indenture, it is agreed by the parties hereto that any amounts remaining
in the Bond Fund or any other Fund or Account created under the Indenture upon
expiration or earlier termination of this Agreement, as provided herein, payment
in full of the Bonds (or provision for payment thereof having been made in
accordance with provisions of the Indenture) and the fees and expenses of the
Issuer and the Trustee in accordance with the Indenture, shall be paid
immediately to the Bank to the extent of any indebtedness of the Borrower to the
Bank under the Credit Agreement, and, after payment or repayment of all such
indebtedness, such amounts shall belong to the Borrower and shall be paid to the
Borrower by the Trustee.
Section 11.5. Execution in Counterparts. This Agreement may be
-------------------------
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
Section 11.6. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State.
Section 11.7. Cautions. The captions and headings in this Agreement
--------
are for convenience only and in no way define, limit or describe the scope or
intent of any provisions or Sections of this Agreement.
43
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed by
its Executive Director or Deputy Director and attested by its Secretary or
Assistant Secretary and has caused its official seal to be affixed hereto and
the Borrower for itself, its successors or assigns, has caused this Agreement to
be executed by its duly authorized officers, all as of the day and year above
written.
ATTEST: NEW JERSEY ECONOMIC DEVELOPMENT
AUTHORITY
/s/ Frank T. Mancici, Jr. By:/s/ John F. Walsh
- ----------------------------- ------------------------------
Frank T. Mancini, Jr. John F. Walsh
Assistant Secretary Deputy Director
44
<PAGE>
ATTEST: EPITAXX, INC.
/s/ James D. Coleman, Secretary By /s/ Vladimir S. Ban, Vice President
- ------------------------------- -----------------------------------
45
<PAGE>
EXHIBIT A TO LOAN AGREEMENT
TO: Sumitomo Bank of New York Trust Company
One World Trade Center
Suite 8505
New York, New York 10048
REQUISITION NO.
The undersigned, a Borrower Representative of Epitaxx, Inc., pursuant to
the Loan Agreement by and among Epitaxx, Inc. (the "Borrower") and the New
Jersey Economic Development Authority dated as of August 15, 1991 (the "Loan
Agreement") makes the following requisition for payment from the Project Fund
established pursuant to the Loan Agreement entered into with regard to the
(Epitaxx, Inc. Project) Series 1991.
Payment to:
Amount:
Reason for Payment:
Such amount is based on an obligation properly incurred pursuant to the
provisions of the Loan Agreement, is a Proper Charge against said Project Fund,
is unpaid or unreimbursed from the Project Fund and has not been the basis of
any previous withdrawal. The amount requested, to the extent it represents work
performed or supervised by officers or employees of the Borrower, does not
exceed the actual cost to the Borrower of any cost or expense incurred by reason
of work performed or supervised by officers or employees of the Borrower or any
of its affiliates. The Borrower is not in default under any provision of the
Loan Agreement.
I further certify that no written notice of any lien, right to lien,
attachment upon or claim, affecting the right to receive payment of, any of the
monies payable under this requisition has been received, or if any notice of any
such lien, attachment or claim has been received, such lien, attachment or claim
has been released or discharged or will be released or discharged upon payment
of this requisition.
IN WITNESS WHEREOF, I have hereunto set my hand this __________ day of
____, 19__.
EPITAXX, INC.
By
----------------------------------
Borrower Representative
46
<PAGE>
EXHIBIT B
BORROWER NOTE
-------------
$5,000,000 Newark, New Jersey
August 29, 1991
FOR VALUE RECEIVED, EPITAXX, INC. (the "Borrower") promises to pay to the
order of the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (the "Issuer") at its
offices located at 200 South Warren Street, Capital Place One, Trenton, New
Jersey, the sum of Five Million Dollars ($5,000,000) in lawful money of the
United States. The Borrower will make payments, in advance, in an aggregate
amount sufficient for:
(a) Prior to the Conversion Date (as defined in the Indenture), the
payment in full of the Bonds Outstanding, including (i) on or before the fifth
(5th) Business Day preceding each Interest Payment Date, payment of an amount
equal to the estimated interest to become due on the Bonds on such Interest
Payment Date and on each Interest Payment Date such additional amount, if any,
as together with the aforesaid payment shall equal all interest becoming due on
the Bonds on such Interest Payment Date, (ii) on each date such amounts become
due (or earlier as provided in Section 3.02 of the Indenture), principal and
reception payments with respect to the Bonds and (iii) when due such amounts are
as required to be paid by the Borrower to pay or cause to be paid to the Trustee
such amounts as shall be necessary to enable the Trustee to pay the Purchase
Price of the Bonds delivered to the Tender Agent for purchase pursuant to the
provisions of Section 2.12, 3.05, 3.06 or 3.07 of the Indenture, provided,
however, that the obligation of the Borrower to make any such payment required
under this clause (iii) shall be reduced by the amount of moneys available for
such payment described in Section 2.13(A) and (C) of the Indenture; and,
provided further, that the obligation of the Borrower to make the payments
required under clauses (i), (ii) and (iii) hereof shall be deemed to be
satisfied and discharged to the extent of any corresponding payment made by the
Bank to the Trustee under the Letter of Credit; and
(b) From and after,, the Conversion Date, the payment in full of the Bonds
then Outstanding, including (i) the total interest becoming due and payable on
such Bonds to the respective dates of payment thereof, (ii) the total principal
amount of such Bonds, and (iii) the redemption premium, if any, that shall be
payable on the redemption of such Bonds prior to their stated maturity date, and
(iv) such amounts, if any, as shall be required to be paid by the Borrower for
deposit to the credit of the Bond Reserve Fund Account as provided in the
Indenture.
In the event that interest on the Bonds issued by the Issuer in connection
with the Project (as defined in the Loan Agreement hereinafter referred to) ever
ceases to be excludable from the gross income of the recipients thereof within
the meaning of Section 103 of the Internal Revenue Code of 1986, as amended (the
"Code") (except if the reason for such inclusion is because the
47
<PAGE>
recipient is a "substantial user" or "related person", as provided for in
Section 147(a) of the Code) (a "Determination of Taxability") the interest rate
on this Note shall, from the date of such inclusion (the "Taxable Date"), be
increased to the Taxable Rate as determined under the Indenture (the "Taxable
Rate").
This Note is the Note referred to in the Loan Agreement dated as of August
15, 1991 by and between the parties hereto and is subject to all the terms and
provisions of said Loan Agreement.
Undersigned and all endorsers (if any) of this Note waive presentment,
demand for payment, protest and notice of dishonor of this Note, and authorize
the holder, without notice or further consent, to grant extensions of time in
the payment of any moneys payable under this Note and to waive compliance with
any of the provisions of this Note.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed by its proper corporate officer and its seal to be affixed and
attested, pursuant to the resolution of its Board of Directors, the day and year
first above written.
[SEAL] EPITAXX, INC.
ATTEST:
------------------------------- -------------------------------
48
<PAGE>
EXHIBIT 10.9
FORM OF PROMISSORY NOTE
$[________________]
West Trenton, New Jersey
February 9, 1998
FOR VALUE RECEIVED, EPITAXX, Inc. a Delaware corporation with a principal
place of business at 7 Graphics Drive, West Trenton, New Jersey 08628 (the
"Borrower"), promises to pay to [Name of Stockholder] (the "Stockholder"), by
FedWire transfer of immediately available funds to the account hereinafter
designated, the principal sum of $[______________], plus interest. Interest
shall accrue on the principal balance outstanding from time to time, from the
date hereof until the whole of this Note (including principal and interest) has
been paid, at the rate of 6.02% per annum. Interest on this Note shall be
computed on the basis of a year of three hundred sixty-five (365) days and the
actual number of days elapsed.
This Note has been executed and delivered subject to the following terms
and conditions:
a. The principal of this Note constitutes the dividend declared and
payable by the Borrower to the Stockholder, the principal shareholder
of the Borrower, pursuant to resolutions dated December 11, 1997
adopted by the Board of Directors of the Borrower.
b. The principal shall be payable on the earlier of (i) the third
anniversary of the date of this Note, provided that the Borrower's
total stockholders' equity equals or exceeds Fifteen Million Dollars
($15,000,000) and (ii) the date the Borrower's total stockholders'
equity first equals or exceeds Fifteen Million Dollars ($15,000,000).
In any such event, the whole of this Note, both principal and accrued
and unpaid interest, shall be immediately due and payable upon the
Stockholder's demand.
Accrued interest shall be payable semiannually, on the last day of
each succeeding December and June until this Note shall be paid in
full. Notwithstanding the foregoing, whenever any payment on this
Note shall be stated to be due on a day that is not a business day in
the States of New York and New Jersey, such payment shall be made on
the next succeeding business day and such extension of time shall be
included in the computation of the interest payable on this Note. For
the purpose of this Note, the term "business day" shall mean any day
other than a Saturday, a Sunday or any day which is a legal holiday
under the laws of the States of New York and New Jersey or is a day
on which banking institutions located in the States of New York and
New Jersey are authorized or are required by law or other
governmental action to close. Payments shall be made to the
<PAGE>
following account, unless otherwise designated in writing by the
Stockholder to the Borrower:
---------------------------
[Bank]
---------------------------
[Address]
---------------------------
[Account #]
---------------------------
[ABA #]
In favor of [Name of Stockholder]
This Note shall be paid without claim of set-off, counterclaim or
deductions of any nature or for any cause whatsoever.
c. If this Note or interest hereon is not paid when due, or suit is
brought, the Borrower, and each endorser, guarantor, and any other
person who is now or may hereafter become primarily or secondarily
liable for the payment of this Note or any portion thereof, agree to
pay all costs of collection, including reasonable attorneys' fees and
disbursements, incident to the enforcement, protection or preservation
of any right or claim of the Stockholder under this Note, any guaranty
of the debt hereunder or any security interest which may hereafter
secure the debt hereunder. In the event of any bankruptcy or similar
proceedings, costs of collection shall include all costs and attorneys'
fees incurred in connection with such proceedings, including the fees
of counsel for attendance at meetings of creditors or other committees.
d. This Note may be prepaid in whole or in part at any time and from time
to time without premium or penalty; provided, that any partial payment
shall be allocated first to interest and the balance, if any, to
principal.
e. Borrower and each endorser, guarantor and any other person who is now
or may hereafter become primarily or secondarily liable for the payment
of this Note or any portion hereof, waives notice, presentment, notice
of dishonor and protest or demand in connection with the delivery,
acceptance, performance, default or enforcement of this Note.
f. Borrower acknowledges receipt of a copy of this Note.
2
<PAGE>
g. This Note shall be governed by the laws of the State of Delaware.
EPITAXX, INC.
By:
----------------------
Noboru Hiraguri
Its: Chief Executive Officer and Vice
Chairman
3
<PAGE>
EXHIBIT (23.1)
INDEPENDENT AUDITORS' REPORT AND CONSENT
The Board of Directors and Stockholders
EPITAXX, Inc.:
The audits referred to in our report dated January 19, 1998, included the
related financial statement schedule on Valuation and Qualifying Accounts for
each of the years in the three-year period ended March 31, 1997 and the nine-
month period ended December 31, 1997, included in the registration statement.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
Short Hills, New Jersey
January 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF EPITAXX, INC. AS OF MARCH 31, 1996 AND 1997, AND
DECEMBER 31, 1997, AND FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED
MARCH 31, 1997 AND THE NINE MONTH PERIOD ENDED DECEMBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1998
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> MAR-31-1997 DEC-31-1997
<CASH> 109 940
<SECURITIES> 0 0
<RECEIVABLES> 2,379 2,437
<ALLOWANCES> (47) (75)
<INVENTORY> 3,676 3,995
<CURRENT-ASSETS> 7,656 8,266
<PP&E> 8,932 9,495
<DEPRECIATION> (5,543) (6,516)
<TOTAL-ASSETS> 16,977 18,286
<CURRENT-LIABILITIES> 6,261 15,960
<BONDS> 0 0
0 0
0 0
<COMMON> 51 51
<OTHER-SE> 4,679 (3,817)
<TOTAL-LIABILITY-AND-EQUITY> 16,977 18,286
<SALES> 21,209 18,348
<TOTAL-REVENUES> 21,209 18,348
<CGS> 13,978 10,720
<TOTAL-COSTS> 19,706 15,672
<OTHER-EXPENSES> (30) (20)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 486 377
<INCOME-PRETAX> 1,047 2,319
<INCOME-TAX> 409 765
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 638 1,554
<EPS-PRIMARY> .11 .26
<EPS-DILUTED> .11 .26
</TABLE>
