SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12 (b) OR 12 (g) OF THE SECURITIES EXCHANGE ACT OF 1934
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 98-0213257
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
9060 Ryan Avenue, Dorval, (QC), Canada H9P 2M8
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code (514) 631-0023
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Securities to be registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name Of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
None N/A
Securities to be registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value
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ITEM 1. BUSINESS.
OVERVIEW
The functional currency of the Company is the Canadian dollar. All amounts
presented in this Form 10 in Canadian currency are identified as such. Other
amounts are expressed in United States dollars.
Lumenon Innovative Lightwave Technology, Inc. ("Lumenon" or the "Company") is a
development stage company that designs, develops, and plans to manufacture
components related to the Dense Wavelength Division Multiplexing ("DWDM") market
and other optical (photonic) segments of the global telecommunications and data
communications optical networking markets. DWDM is a technology that permits the
transmission of multiple sources of information and data simultaneously over a
single optic fiber. Companies like AT&T and MCI WorldCom are creating fiber
optic networks to transmit large quantities of data and information at high
speeds to accommodate the demand for applications such as the Internet, e-mail,
and electronic commerce. Such service providers must increase the capacity of
their networks to carry and deliver more information at high speeds without the
additional costs of having to install new fiber optic cable.
Lumenon makes DWDM components in the form of an "optical chip" on silicon
through a proprietary sol-gel manufacturing process. Lumenon has chosen an
optical chip form for its product development because it believes that this form
and its proprietary process will allow the Company to provide low cost, high
volume manufacturing of high quality DWDM technology and devices that will be
preferred over other industry technologies like micro-optic thin film or fiber
filters presently available.
Lumenon has focused on developing and producing DWDM components and products
because DWDM offers a bandwidth solution to a potentially large market, the
telecommunications market. The telecommunications market include long distance,
local, metropolitan, business call (enterprise) and access markets where
bandwidth, or information carrying capacity, is an issue. DWDM technology is
driving what is presently a $2.8 billion global optical networking market that
is growing at a rate of 20% per year (N. Dunay, KMI Market study, cited in Laser
Focus World, September, 1999). Moreover, according to a recent article, "A
Demand for DWDM Components Keeps Rising", in WDM Solutions, a supplement to
Laser Focus World, dated September 1999, the market for DWDM components alone
will grow to $1.3 billion by 2004.
INDUSTRY BACKGROUND
Optical fiber networks have been widely deployed by telecommunications service
providers for both domestic and international carriage. However, recent
increases in information traffic, growing competition and increased demand for
reliability at lower costs have required carriers to enhance the service they
provide.
Unprecedented Growth of Information Traffic
The growth in information traffic is largely attributable to the widening use of
the Internet, increased use of distributed computing, e-mail, e-commerce, video
conferencing, telecommuting, audio transmission and networking. The flow of
traffic is also increased by the growing capacity and processing speed of data
communications equipment, like Asynchronous Transfer Mode (ATM) switches and
Internet Protocol (IP) routers and the development of high bandwidth network
access technologies, such as cable modems, hybrid fiber coaxial architectures
and digital subscriber lines.
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Changes in Demands of Traffic
The telecommunications industry is now seeing traffic change from voice to
data-dominated traffic as computers increasingly process and send more
information across networks with greater speed and in greater quantity than the
quantity for which voice-centered networks were designed. New data-handling
protocols have been introduced to handle data more efficiently. New data
communications equipment has been designed and created to route and switch data
transmission at very high speeds.
Competition
Widespread telecommunications industry deregulation in the United States has
resulted in increased competition among service providers and, as some industry
analysts believe, increased the need for greater bandwidth capacity on networks.
As carriers seek to differentiate themselves from competitors, they have
emphasized high capacity technology to sell their services.
Reliability
Consumers and generators of information are becoming more dependent on network
reliability. Some analysts believe that in the future end-users will be less
tolerant of service interruptions. Network carriers have responded by
introducing fiber optic networks that can tolerate cable cuts or other equipment
failure between two points. These networks frequently utilize a "ring
architecture" in which routes are linked in a ring configuration, permitting
rerouting of traffic along the reverse path of the ring in the event of a
service interruption occasioned by a fiber optic cable cut or other equipment
failure. Ring architectures require twice the fiber capacity of non-ring
systems. These system designs therefore place greater bandwidth demand on
existing fiber networks.
The above factors, which impose capacity constraints on optical fiber networks,
can be resolved by utilizing DWDM technology. Dense Wavelength Division
Multiplexing is a technology that allows multiple wavelengths of light (the
information carrier) to be transported on a single fiber optical strand,
increasing the carrying capacity of optical fiber and transmitting information
at the speed of light. The multiplexing component of the DWDM is a method that
allows different wavelengths of light (that is, different colors or channels of
information) to be added to the optical fiber, which means more (dense) channels
or communication pathways are added to existing optical fiber for simultaneous
transport.
Lumenon, through its proprietary manufacturing process called PHASIC(TM), will
be able to accommodate low cost, high volume production of optical chips.
PHASICTM stands for Photonic Hybrid Active Silica Integrated Circuit, which
refers to the materials and processes Lumenon uses to produce its DWDM
components in the form of an integrated optical circuit on silicon microchips
similar to those used in computers. The optical circuit consists of a collection
of micron size Waveguides that have been arranged to combine (multiplex) or
separate (demultiplex) light at the telecommunications wavelength near 1.55
microns. More specifically, the Company uses proprietary "hybrid glasses" for
making its waveguides and a simplified manufacturing process for creating its
optical circuits on silicon. The Company expects to be the first to introduce
hybrid glasses for use in integrated optics.
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The optical chip has an optical circuit on it analogous to the micro-electronic
circuit that is produced on silicon microchips used in computers. Optical
circuits can be made with 4, 8, 16, 32, 64 and more arrays of channels (optical
waveguides) to transport different optical signals (light) carried at different
wavelengths. Light signals are combined and separated on the optical chip by
taking advantage of the differences in the length of the individual Waveguides.
These path differences translate into optical phase differences. This means that
light of a given wavelength (a given optical channel) can be combined with
others for input to an optical fiber (multiplexing). With the same device, light
can also be separated for output to individual optical fibers (demultiplexing).
BUSINESS STRATEGY
The Company believes that there is a commercial incentive for introducing DWDM
technology in the form of compact or miniature optical chips that are
manufactured in high volumes in a cost-effective manner for service providers
who desire to lower overall costs while enhancing their services.
Lumenon's goal is to provide high quality, low cost DWDM components. The Company
selected its PHASICTM process because it believes that high volume manufacturing
methods similar to those used by the microelectronics manufacturing industry are
necessary to meet telecommunications customer demands for high volume, low cost
and reliability. The Company believes that its materials, design tools and
process give it a technological edge that will allow it to cut component costs,
resulting in higher yield optical chip production, similar to the results
created when the microelectronics industry lowered costs in manufacturing
integrated circuits.
Lumenon intends to market its DWDM products and services, which will deliver
high performance and are feature-packed and fiber connected or pig-tailed DWDM
components, to the telecommunications market, which includes long distance,
local, metropolitan, business call and access markets. Lumenon's products will
address existing demand, and create conditions for expanded use of its devices
and families of devices, by utilizing its technology and expertise for existing
and new product development in a client-specific manner.
To implement its strategy, the Company intends to:
Establish Technology Leadership
There are three primary multiplexer component technologies currently used in
DWDM: thin film filters (Thin Filters), fiber Bragg gratings (Bragg Gratings)
and array waveguides (Waveguides). Bragg Gratings are the most expensive
technology and have the smallest market share. The Waveguide technology has
increased its market share since 1998 at the expense of Thin Filters. The
Company believes that there are three variables that will determine the relative
successes of the competing technologies: (i) manufacturing cost per channel,
(ii) size of the optical component and (iii) suitability to high volume
manufacture, and it believes that its products, which are based on Wavelength
technology, will enjoy an advantage in each case.
Manufacturing Cost Per Channel. In Wavelength technology, cost does not scale
with an increase in the number of channels per chip, because all channels are
created simultaneously. In Thin Filter and Bragg Gratings technology, additional
channels must be layered on, increasing the complexity of the task and adding
time and cost to the process.
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Size of Optical Components. Wavelength technology products are significantly
smaller than those produced by the competing technologies. Smaller components
are important because of space limitations in metropolitan area networks (MANS),
local area networks (LANS) and office systems, markets in which the Company
anticipates greatly increased demand for optical chips.
Suitability to High Volume Manufacture. The Company's manufacturing process is
simpler, because the complexity of the process is not affected by an increase in
channels per chip, as is the case with competing technologies. The Company
anticipates that as optical chip technology matures, customers will drive down
the price of chips. The Company's low temperature manufacturing process, which
distinguishes it even from other producers utilizing the Wavelength technology,
should permit lower cost production and higher product yield.
Leverage Existing Customer Relationship and Develop New Relationships
In May 1999, the Company entered into a Teaming Agreement with Molex,
Incorporated ("Molex"), a global manufacturer of electronic, electrical and
fiber optic interconnection products and systems. Under the Teaming Agreement,
the Company and Molex agreed to jointly develop certain DWDM products. Subject
to testing of the Lumenon technology and proof of Lumenon manufacturing
capability, Molex is committed to purchase to a maximum of 400 units per month
the entire first 12 months of Lumenon's production. For the succeeding 12-month
period, Molex has the option to purchase all Lumenon production. This
arrangement will provide a firm customer base for the Company's early
production. The Company also proposes to establish relationships with other
telecommunications equipment manufacturers and with manufacturers in other
industries with potential applications for its optical chips.
Target Metropolitan Area, Local Area and Office Environments
The Company believes that much of the potential expansion of the markets for its
products will occur not in long distance telephony, but in new markets, such as
metropolitan area, local area and office environments. This is a result of
technological advances and the potential to reduce manufacturing costs.
Expand Manufacturing Capability
The Company's prospective customers are expected to require high volumes of
components manufactured to high quality standards at gradually decreasing
prices. The Company will be required to expand beyond its present pilot
production plant to a full scale manufacturing facility. The Company is actively
investigating potential sources of funding for this purpose.
TECHNOLOGY AND PRODUCTS
Lumenon has begun making 8, 16 and 32 channel waveguide DWDM components in the
form of a miniature optical chip. It offers a product suite of phased array
waveguide DWDM components that it calls the [lambda]-PLEXTM family.
The Company uses a solution or liquid sol-gel process to produce its DWDM
optical components. Sol-gel processing converts molecules of silicon containing
compounds into a network of glasses or layering of glass through a three phase
liquid process at differing temperatures. The Company produces its glass at
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temperatures below 200(0)C, which is considerably lower than the temperatures
(greater than 500(0)C) otherwise used in the industry. The Company believes it
is the only producer of compact Waveguide DWDM components using a low
temperature sol-gel process for its hybrid glass on silicon. This process
permits production in one phase, giving the Company a manufacturing edge over
competitors. The proprietary low- temperature sol-gel process allows films of
glass to be dip-coated or spin-coated onto silicon substrates in large
quantities and at greater speed. To keep costs down and volume production up,
the Company uses conventional photolithography or an imprinting method to
"print" optical circuits and devices directly into its hybrid glasses. The glass
also contains a second monomer (an organic component) that can be polymerized
when it is exposed to light in the ultra-violet end of the spectrum.
Polymerization creates the optical waveguides that comprise the DWDM technology.
A pattern of waveguides is made by projecting an image of the pattern, exposing
a patterned mask (an optical mask) to ultra-violet light. The light passes
through the patterned openings of the mask and "writes" or "projects" the image
directly into the micron-thin hybrid glass film on a silicon substrate. The
procedure is similar to the way photographs are printed in a darkroom.
Platform Material Technology
Lumenon's proprietary "hybrid glass" technology combines the features of
inorganic silica glass and organic polymeric materials in a single matrix
(material glass platform) , which the Company refers to as its Platform
Technology. The "hybrid glass" provides a more flexible material for use in the
design, fabrication and manufacturing of components, resulting in greater
adaptability and increased options within the performance of a DWDM system.
Lumenon believes it is the only producer to introduce a sol-gel technology for
integrated optics that combines both polymer and glass material platforms in a
single material base for integrated optics devices on silicon, using polymer
manufacturing methods long accepted by the semiconductor and microelectronics
industries in the production of high quality hybrid silica glass integrated
optics devices. Through the use of the Platform Technology, the Company will, in
the future, be able to target products for a customer's product line by
supplying various and differing valuable components. For example, in the planar
lightwave circuit market, Lumenon can market its products to meet the broadest
possible range of applications. These applications might on the one hand call
for material properties very similar to those of glass. On the other hand, these
applications might require material properties similar to those of organic
polymers. Neither polymers nor silica alone are as flexible or adaptable as a
hybrid glass. Further, other target products that could be produced and utilized
in the telecommunications long-haul networks are Optical Add-Drop Multiplexers,
Optical Cross Connects and Photonic Switches, which can create more transparent
all-optical networks and replace many synchronous optical network ("SONET")
sub-systems. The Company believes that the relative simplicity of its PHASICTM
process, using hybrid glasses, will enable Lumenon to fabricate optical chips
across the broadest range of lightwave market opportunities in high volume at
lower cost.
Technological Leadership
Lumenon has assembled a team of scientists, engineers and technologists with
broad expertise in materials formulation, photonic device design, hybrid glass
integrated optics circuit fabrication, product definition, and industrial
process engineering. This team has pioneered the development of "optical chips
on silicon" based on proprietary formulations of hybrid glasses and the creation
of software design tools and processing knowledge, privileged to Lumenon. The
Company's triune technical structure comprises software development/optical
circuit design, materials formulation, and process engineering. This combination
of
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attributes should allow Lumenon to evolve as a significant provider of
integrated optics components to the photonic industry.
Advanced Software Design Tools
The Company uses both proprietary and industry standard design tools to create
its DWDM components. Lumenon has developed in-house theories and software
algorithms for creating product designs such as the Company's complex phased
Waveguide devices for DWDM. The Company is unaware of any commercially available
design packages that compete with the Company's software capability. The Company
has also obtained licenses for industry standard computer aided design (CAD) and
beam propagation method (BPM) software to model or design selected performance
features of simpler devices, such as couplers and splitters. The Company uses
the services of ADTEK Corporation to provide turnkey photomask service utilizing
state- of-the-art resolution e-beam writing equipment, which allows the Company
to concentrate its resources on the design of products, instead of creating and
maintaining an in-house mask shop.
The Company has built a library of design tools and designed elements that can
be used in modular form to assemble more complex device structures
(multi-functional devices on a chip). Lumenon's technical marketing and design
applications engineers have a broad knowledge of integrated optics device
systems design (architectures) and their integration in subsystems and systems.
With such expertise, the Company will be able to develop optical chip components
and devices for use in modern data and telecommunications equipment. This
modular approach facilitates the re-use of complex functional DWDM device
components in new designs, reducing Lumenon's DWDM product development cycles.
The Company believes that a large library of complex functions is required to
compete effectively in the market, especially in terms of cost and length of
development cycles.
Manufacturing
Lumenon currently manufactures its DWDM components in a pilot microfabrication
facility custom- designed to meet its product performance objectives. The
current capacity of the pilot facility is 20 DWDM chips (components) per day.
The facility includes a testing capability. Lumenon relies largely on its own
processes for the manufacture of its products. In order to meet the projected
demand for high volume, low cost photonic chip production, the Company will be
required to conduct, equip and man a full scale production facility. The Company
estimates the cost of such an initiative at $20 million and is actively
exploring potential sources of funding. There are a variety of risks associated
with the construction and operation of a new facility.
PROPRIETARY RIGHTS
Lumenon's future success and ability to compete are dependent, in part, upon its
proprietary technology. The Company relies in part on patent, trade secret,
trademark and copyright law to protect its intellectual property. The Company
currently has three patents pending that respectively cover processes for
optical chip fabrication, fiber connecting or pigtailing and diffraction
gratings in hybrid glasses.
There can be no assurance that any patents will be issued under the Company's
current or future patent applications or that any issued patents will not be
invalidated, circumvented, challenged or licensed to others. In addition, there
can be no assurance that the rights granted under any such patents will provide
competitive advantages to the Company. There can be no assurance that any
patents issued to the Company will be
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adequate to safeguard and maintain the Company's proprietary rights, to deter
misappropriation or to prevent an unauthorized third party from copying the
Company's technology, designing around the patents owned by the Company or
otherwise obtaining and using the Company's products, designs or other
information. In addition, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology.
Lumenon also relies on confidentiality agreements to protect its proprietary
rights. It is the Company's policy to require employees and consultants and,
when possible, suppliers, to execute confidentiality agreements upon the
commencement of their relationships with the Company. Litigation may be
necessary to enforce the Company's intellectual property rights and to protect
the Company's trade secrets, and there can be no assurance that such efforts
will be successful. The Company's inability to protect its proprietary rights
effectively would have a material adverse effect on the Company's business,
financial condition and results of operations.
Many participants in the photonics and related communications industries have a
significant number of patents and have frequently demonstrated a readiness to
commence litigation based on allegations of patent and other intellectual
property infringement. Although the Company is not aware of any claim of
infringement or misappropriation against the Company, there can be no assurance
that third parties will not assert such claims in the future with respect to the
Company's current or future products. The Company expects that companies will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Responding to such claims,
regardless of merit, could cause product shipment delays or require the Company
to enter into royalty or licensing arrangements. Any such claims could also lead
to time-consuming, protracted and costly litigation that would require
significant expenditures of time, capital and other resources by the Company and
its management. Moreover, no assurance can be given that any necessary royalty
or licensing agreement will be available or that, if available, such agreement
could be obtained on commercially reasonable terms.
MATERIAL AGREEMENTS
Agreements with Molex
On May 19 and June 21, 1999, Lumenon entered into several agreements (the "Molex
Agreements") with Molex (NASDAQ: MOLX), based in Lisle, Illinois. Molex is a
60-year-old global manufacturer of electronic, electrical and fiber optic
interconnection products and systems, switches, value-added assemblies, and
application tooling. Molex operates 49 plants in 21 countries and offers
approximately 100,000 products through a network of direct salespeople and
authorized distributors. The Molex Agreements include a Teaming Agreement, a
Stock Purchase Agreement, a Stock Restriction Agreement and a Registration
Rights Agreement. Under the Teaming Agreement, Lumenon and Molex agreed to
jointly develop certain DWDM products related to the DWDM market and other
photonics markets. The terms of the Molex Agreements are such that, subject to
Lumenon testing and proving its technology and its ability to manufacture and
deliver certain devices, Molex is committed to purchase the entire production of
Lumenon at gross cost plus 25% for the first twelve months, with a maximum
number of units per month, not to exceed 400. After the 12-month period, Molex
will have the option to purchase all production of Lumenon at fair market value.
Under certain circumstances, Molex may have the right to manufacture all
components of the jointly developed devices in return for a royalty of 25% of
gross cost to Molex.
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Under the Stock Purchase Agreement, Molex agreed to purchase 3,000,000 shares of
the Common Stock of Lumenon (the "Common Stock") at a price of $0.50 per share
in two stages. The first closing was held on June 21, 1999 for 1,500,000 shares
of Common Stock and the second closing is scheduled for March 2000 for an
additional 1,500,000 shares of Common Stock. The second closing is contingent
upon Lumenon's progress in proving its technology and its ability to manufacture
and deliver certain DWDM devices. Lumenon also issued to Molex a warrant to
purchase 1,666,667 additional shares of Common Stock at a price of $0.90 per
share. The warrant expires in September 2001 and the exercise is subject to
Molex fulfilling its obligations under the Teaming Agreement. All rights
relating to the warrant will be extinguished if Molex elects not to proceed with
the second closing under the Stock Purchase Agreement.
In addition, Lumenon issued Molex a Services Common Stock Purchase Warrant to
receive 5,800,000 additional shares of Common Stock in exchange for certain
services to be rendered by Molex to Lumenon under the Teaming Agreement as part
of the development of Lumenon's DWDM's technology. The warrant expires in June
2001 and is subject to Molex fulfilling its obligations under the Teaming
Agreement. All rights relating to the warrant will be extinguished if Molex
elects not to proceed with the second closing under the Stock Purchase
Agreement.
Under the Stock Restriction Agreement, certain stockholders of Lumenon have
agreed not to sell their respective shares of the company to a competitor of
Molex without Molex's prior consent. This agreement includes a right of first
refusal and certain preemptive rights in favor of Molex, except that Lumenon
can, without Molex's consent, issue up to 6,000,000 units (comprised of one
common share and a warrant for the purchase of one common share at a price of
not less than $0.90 per share) at a price not less than $0.50 per unit to raise
capital within a 24 month period after the closing of such agreement. The Stock
Restriction Agreement also requires the consent of Molex for certain
extraordinary actions relating to the governance of the Company and its
operations. Certain rights or restrictions contained in the Stock Restriction
Agreement terminate upon completion of a Public Sale or a Public Offering, as
defined in the agreement, or if Molex elects not to proceed with the second
closing under the Stock Purchase Agreement. The Stock Restriction Agreement will
also terminate if the Teaming Agreement is terminated.
The net proceeds of the issuance of stock to Molex were added to the Company's
working capital and are being used in part to accelerate the commercialization
of the Company's DWDM components.
Agreement with Polyvalor and McGill University
Lumenon entered into a license agreement (the "License Agreement") with
Polyvalor, a Canadian limited partnership, as represented by its General
Partner, Polyvalor Inc., and McGill University (together, Polyvalor and McGill
University referred to as the "Licensor") pursuant to which Lumenon acquired the
right to produce, sell, distribute and promote products derived from using the
Patents and Know-How, as such terms are defined in the License Agreement, of the
Licensor. Using a proprietary sol-gel process of the Licensor, Lumenon will
design an develop integrated optical components for DWDM and Plastic Optical
Fiber devices for the telecommunications and data communications markets.
Lumenon will pay a royalty of 5% on gross sales, up to a maximum cumulative
amount of $2,377,000 (CDN $3,500,000) to the Licensor until October 2017.
Polyvalor is a company which was created by Ecole Polytechnique for the purpose
of commercializing the technology in which Polytechnique has an interest.
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CUSTOMER RELATIONS
In addition to the relationship created under the Molex Agreements, the
manufacture of DWDM components implies that the Company will work in close
association with DWDM system manufacturers. Examples of these manufacturers are
Nortel Networks, Pirelli Cables and Systems, Alcatel, Lucent Technologies, and
CIENA Corporation. Lumenon believes that it will be important to its success to
work with customers directly to meet performance requirements in the design of
its DWDM components and throughout the entire life-cycle of its products. This
will allow the Company to foster a strong commitment to service, and to gain
insights into its customers' future plans and needs, identify emerging industry
trends and consequently deliver high-performance, cost-effective products with
wide market appeal.
COMPETITION
There are several competitors producing DWDM components on the market, but
Lumenon believes that it will distinguish itself from the competition by
offering the most cost-effective choice, while retaining high performance
standards. Lumenon believes that it can compete effectively because it will be
capable of manufacturing its products in high volumes and at lower cost that can
be offered by competing technologies. The Company has developed materials and
processes that use volume coating and optical circuit fabrication processes that
it believes are simpler than those of its competitors, giving it a significant
cost-performance advantage overall. For example, Photonic Integration Research
Incorporated uses a more complicated method called "Flame Hydrolysis Deposition"
(FHD) that requires very high temperature processing (greater than 1000(0)C) to
create a glass soot or dust on silicon which is then thermally consolidated, and
methods such as reactive ion etching and multi-level masks and resists are used
to make its product. Moreover, Lumenon believes that its Platform Technology
will allow it to produce a broader range of products in the optical components
markets related to optical networking than that of other competitors. Lumenon
believes that it is in a strong position to become a technological leader in the
industry by introducing its new processes and by defining industry standards for
volume optical chip manufacturing.
The Company expects competition to increase in the future from existing
competitors and from companies that may enter the Company's existing or future
markets, with similar or substitute solutions that may be less costly or provide
better performance or features than the Company's products. To be successful in
the future, Lumenon must continue to respond promptly and effectively to
changing customer performance, feature and pricing requirements, technological
change and competitors' innovations.
The photonics industry has been marked by the emergence of start-up companies
offering products at the component, sub-system and systems levels. Larger
companies have been aggressive in acquiring start-ups for preferred competitive
technological edge, to circumvent issues of increasing technological complexity,
and to accelerate time-to-market product introduction, avoiding the cost and
delay that would otherwise be inherent in in-house development. The Company's
success will depend on its customers' acceptance of outsourcing as an
alternative to in-house development by larger companies. Many of Lumenon's
potential customers have substantial technological capabilities and financial
resources. These customers may currently be developing, or may in the future
determine to develop or acquire, components or technologies that are similar to
or may be substituted for the Company's products and, this may diminish
purchases of the Company's products.
Third-party merchant competitors vary in the scope of the products and services
they offer. Many large companies develop and market optical components. In the
market for DWDM components, the Company's
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competitors include E-TEK Dynamics, Inc., JDS-Uniphase Corporation, CIENA
Corporation, and Photonic Integration Research, Inc. In addition, the Company
expects increased competition in the future from other emerging and established
companies in the optical chip arena. Examples of emerging companies are Kymata
Ltd., Lightwave Microsystems Corp. ("LMC"), and Bookham Technology Limited.
A number of Lumenon's current and potential competitors have longer operating
histories, greater name recognition, access to larger customer bases and
significantly greater financial, technical, marketing and other resources than
the Company. As a result, they may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or to devote greater
resources to the promotion and sale of their products. In addition, current and
potential competitors may determine, for strategic reasons, to consolidate, to
lower the price of their products substantially or to bundle their products with
other products. Current and potential competitors have established or may
establish financial or strategic relationships among themselves or with existing
or potential customers, resellers or other third parties. Accordingly, it is
possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share.
Lumenon believes that its ability to compete successfully depends on a number of
factors, both within and outside of its control. Such factors include including
the price, performance and quality of the Company's and its competitors'
products, the timing and success of new product and feature introductions by the
Company, its customers and its competitors, the emergence of new standards in
the optical communications industry, the development of technical innovations,
the availability of raw materials, the efficiency of production, the rate at
which the Company's customers design the Company's products into their products,
the number and nature of the Company's competitors in a given market, the
assertion of intellectual property rights and general market and economic
conditions.
SALES, MARKETING AND TECHNICAL SUPPORT
The Company has entered into an agreement with Molex that gives the Company
access to Molex's global distribution network. In the event that this
relationship changes and Molex is no longer able to provide Lumenon access to
Molex's distribution network, Lumenon would sell its products through a
combination of manufacturers' representatives, stocking representatives and
distributors. Manufacturers' representatives would service the North American
market. Outside North America, the Company would engage stocking representatives
who would normally act as distributors, but may also act occasionally as
commissioned representatives with respect to large volume orders. The Company
plans to develop an international network that would include offices in North
America, Europe, Asia-Pacific, Latin and South America. The Company would
develop relationships with new distributors and representatives; however, the
Company is unable to predict the extent to which these distributors and
representatives would be successful in marketing and selling the Company's
products.
Lumenon believes that providing its clients with comprehensive product service
and support is critical to maintaining a competitive position in the optical
communications market. The Company's practice will be work closely with its
customers to monitor the performance of its product designs and to provide
application design support and assistance. The Company will also provide a
valuable technical resource for consulting on photonic component trends and
implementations. Technical data will be provided to customers through the
Company's applications engineers, technical marketing and factory applications
engineers and, if
11
<PAGE>
necessary, product designers and architects or system designers. Local field
support will be provided in person or by telephone.
Lumenon intends to provide support at crucial stages of product development.
During the design phase, the Company may sell software simulation models of each
photonic component or device, to allow customers to simulate the performance of
the product in their entire system before committing to it. In the future, the
Company may also offer a line of evaluation modules, which are subsystems that
are representative of a typical customer design. These modules would enable
customers to evaluate the device, as well as hardware design and software
development functions, without significant development effort on their part,
thereby facilitating rapid time-to-market. Lumenon believes that close contact
with these customers will allow the Company to tailor its products to the market
and technical needs defined by key OEMs. Understanding its customers' particular
problems enables the Company to design and develop solutions in its next
generation of products.
RESEARCH AND DEVELOPMENT
The Company's research and development group focuses on developing new DWDM
products and may in the future focus on enhancing its existing products or
developing new products not related directly to DWDM. Product development input
will be obtained from customers, strategic partnership arrangements, and through
the Company's participation in industry organizations.
As of June 30, 1999, the Company's research and development staff consisted of
12 employees, all of whom are located in Dorval, Quebec and most of whom hold
science, engineering or other advanced technical degrees. The Company's gross
research and development expenditures from inception to June 30, 1999 were
$118,656 (CDN $174,662). The research and development expenses during the same
period were partially offset by government tax incentives in the aggregate
amount of $23,246 (CDN $34,218). The Company expects that it will commit
substantial resources to research and development in the future. Lumenon
aggressively pursues government funding for research and development and
contracts with local universities for research and development assistance.
HISTORY OF COMPANY
Lumenon's principal place of business is located adjacent to Montreal
International Airport - Dorval at 9060 Ryan Avenue, Dorval, Quebec. The Company
was incorporated in the state of Delaware in February 1996 under the name of WWV
Development, Inc. In July 1998, under an acquisition plan, the Company acquired
all of the issued and outstanding shares of Lumenon Innovative Lightwave
Technology, Inc., a Canadian corporation ("LILT") founded in 1998 by Professor
S. Iraj Najafi of the Ecole Polytechnique, Montreal (an engineering school), and
Professor Mark P. Andrews of McGill University, Montreal. Upon consummation of
the acquisition plan, the Company changed its name from WWV Development, Inc. to
Lumenon Innovative Lightwave Technology, Inc. As consideration for such
acquisition, the Company issued 12,200,000 shares of Common Stock to the
shareholders of LILT, which resulted in a change in control of the Company.
Under applicable accounting rules and policies, LILT is deemed the acquiring
corporation and the financial information contained herein is that of LILT, as
consolidated with Lumenon.
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<PAGE>
RISK FACTORS
INVESTMENT IN THE COMPANY'S SECURITIES INVOLVES A SUBSTANTIAL DEGREE OF RISK,
SHOULD BE REGARDED AS SPECULATIVE AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO
CAN REASONABLY AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. STOCKHOLDERS AND
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS FORM, THE FOLLOWING FACTORS RELATING TO THE
COMPANY AND ITS BUSINESS.
Risks of a Development Stage Company
Lumenon was founded in 1998. It is a development stage company and, to date, has
not generated revenues from sales of its products. Accordingly, the Company's
operating history provides no basis for evaluating the Company and its
prospects. The Company must, among other things, successfully develop and
commercialize its products, respond to competitive developments, attract, retain
and motivate qualified personnel, expand its operations and market and sell
products incorporating its technology in volume and at profitable prices. There
can be no assurance that the Company will be successful in addressing any or all
of these factors or that the Company will achieve or sustain significant
revenues or profitability.
The Company's future will depend on its ability to develop and commercialize
products based upon its proprietary technologies. The Company's first product,
the DWDM optical chip, has only recently entered pilot production in limited
quantities and the Company expects to make only limited shipments of chips in
2000. Even if the Company's products appear to be promising at commercial
launch, they may not achieve market acceptance, may be difficult or diseconomic
to produce in large volumes, fail to achieve expected performance levels, have a
price level that is unacceptable in the industry or be precluded from
commercialization by the proprietary rights of others. There can be no assurance
that the Company will be able to successfully develop, manufacture and market
products on a timely basis or at all, achieve anticipated performance levels,
gain industry acceptance of the Company's products or develop a profitable
business.
Projected Future Losses
The Company expects to invest considerable resources in developing and marketing
new products. It anticipates that its operating expenses will increase
substantially in the foreseeable future as it continues to develop its
technology and products, increases its sales and marketing activities, and
expands its assembly operations. It also anticipates that it will not recognize
revenues from product sales before the second quarter of 2000. The Company
therefore expects to incur losses for the balance of 2000. The extent of future
losses and the time required to achieve profitability, if achieved at all, is
highly uncertain. Moreover, if profitability is achieved, the level of such
profitability cannot be predicted and may vary significantly from quarter to
quarter.
Difficulties Inherent in New Product Development
The Company's business, financial condition and results of operations will
depend on its ability to become a key supplier of components to the photonics
industry. The Company's target markets are intensely competitive and
characterized by rapidly changing technology, evolving industry standards and
declining average selling prices. The Company must anticipate the features and
functionality that its original equipment manufacturer ("OEM") customers and
their end-user customers will demand, incorporate those features and
functionality into products that meet the exacting design requirements of such
customers, price
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<PAGE>
its products competitively, and introduce products to its OEM customers within
the limited window of market demand. The success of new product introductions is
dependent on several factors, including proper new product definition, the
timely completion and introduction of new product designs, the ability of OEM
customers to effectively design and implement the manufacture of new displays
that incorporate the Company's products, the quality and performance of new
products, the differentiation of new products from those of the Company's
competitors and market acceptance of the Company's and its OEM customers'
products. There can be no assurance that the Company's products will be
successfully developed, will incorporate the features and functionality required
by OEMs and their end-user customers or will be introduced on a timely basis.
New products are generally incorporated into an OEM customer's product or system
at the design stage. Design wins, which can often require significant
expenditures by a vendor such as the Company, may precede the generation of
volume sales, if any, by a year or more. No assurance can be given that the
Company will achieve design wins or that any design win will result in
significant future revenues.
Short Product Lifecycles; Declining Average Selling Prices and Fluctuating
Industry Conditions
The Company's target markets are subject to continuous, rapid technological
change, including evolving industry standards, frequent introduction of new
products, anticipated and unanticipated decreases in average selling prices and
fierce price competition. Such conditions often result in short product life
cycles and require the timely introduction of new products and substantial
expenditures for ongoing research and development activities. To compete
successfully, the Company must bring its products to market in a timely fashion
and at competitive prices, continue to enhance and improve its products, and
successfully develop and introduce new products that meet evolving industry
standards and changing needs of end users. Competitive pricing pressures from
other technologies may lead to lower margins than expected. There can be no
assurance that future prices or margins on sales of the Company's products will
not decline or that the Company's products will achieve market acceptance. As
the markets for its products continue to develop and competition increases, the
Company anticipates that product life cycles will shorten and average selling
prices will decline. In particular, average selling prices and, in some cases,
gross margins for the Company's products will decline as the Company's products
mature. Thus, the Company will need to introduce new products to maintain
average selling prices and low product costs.
The Company will be required to enhance its current and planned products and to
develop and introduce on a timely basis new products that address the evolving
needs of its customers. The development of new products and the incorporation of
new or enhanced technologies into the Company's products in the future, even if
successful, may require greater development time and expense than anticipated by
the Company. Because of the complexity of its products and the associated
assembly processes, the Company could experience delays from time to time in
completing development and introduction of its products, which could adversely
affect the success of those products.
Manufacturing and Assembly Risks; Yield Risks
The assembly of the Company's products is a complex process, requiring a clean
room and precision assembly equipment. Minute levels of contaminants in the
assembly environment, defects in cells, difficulties in the assembly process or
other factors can cause a significant number of chips to be nonfunctional or
have unacceptable defects. Many of these problems are difficult to detect and
time consuming or expensive to remedy.
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<PAGE>
The Company has never assembled products in commercial quantities. The Company
may encounter difficulties in scaling up production of its products relating to,
among other things, quality control and assurance, component supply and
availability of qualified personnel. There can be no assurance that, even if
successfully developed and introduced to market, any of the Company's products
can be assembled in sufficient quantities at acceptable costs while meeting
quality control standards.
The Company's reliance on its own assembly facility to assemble its products
could involve significant risks, including potential lack of adequate capacity,
technical difficulties and events limiting production, such as fires or other
damage to production facilities. Furthermore, if demand for the Company's
products increases, the Company will need to expand assembly capacity by
building another facility in an alternative location and by relying on contract
manufacturers. Building another facility will require a substantial capital
outlay and will involve the risks inherent in any manufacturing endeavor,
including poor production yields, technical difficulties with process control,
and events limiting production. As a result of one or more of the foregoing
factors, the Company could experience significant yield problems.
Dependence on Equipment Suppliers and Contract Manufacturers
The Company relies on outside suppliers for certain equipment to be used in its
manufacturing process. The Company does not maintain long-term agreements with
any of such suppliers. If equipment material to the manufacturing process were
to malfunction, the Company would at a minimum experience delays in the shipment
of its products and could be required to qualify an alternative source of
supply. Delays in shipment could result in the loss of customers, limitations or
reductions in the Company's revenues and other adverse effects on the Company's
operating results.
The Company may rely on contract manufacturers for the development, manufacture
and supply of certain components of its products. Risks associated with the
Company's potential dependence upon third party manufacturing relationships
include reduced control over delivery schedules, lack of quality assurance, poor
manufacturing yields and high costs, potential lack of adequate capacity during
periods of excess demand, unavailability or interruption of access to certain
process technologies and potential misappropriation of the Company's
intellectual property. There can be no assurance the Company will be able to
enter into such manufacturing contracts on commercially reasonable terms, if at
all, or that the Company's current or future contract manufacturers will meet
the Company's requirements for quality, quantity or timeliness. If the supply of
any such components is interrupted, components from alternative suppliers and
contract manufacturers may not be available in sufficient volumes within
required timeframes, if at all, to meet the Company's production needs.
Dependence on Strategic Relationships; Customer Concentration
The Company's initial marketing strategy is dependent upon the efforts of Molex.
Termination of the Molex Agreements or the Company's failure to secure
additional partners could materially and adversely affect the Company's
business, financial condition and the results of operations. For the foreseeable
future, the Company intends to market its products to only a limited number of
leading OEM customers. The Company will rely on its OEM customers to develop
their own systems, creating demand for the Company's products. OEM customers,
including Molex, may be expected to exert considerable leverage in negotiating
purchases from the Company. The Company anticipates sales to OEM customers to be
made on lower margins and on other less favorable terms, such as marketing
exclusivity, milestone requirements and onerous cancellation provisions. The
telecommunications equipment industry is dominated by a small number of
15
<PAGE>
large companies and has undergone considerable consolidation. Continued
consolidation would further reduce the number of potential customers in that
industry.
Competition
The photonics industry is highly competitive and is presently characterized by
price erosion, declining gross margins, rapid technological change and product
obsolescence. The Company expects such conditions to continue as existing
technologies are refined and as new technologies enter the marketplace. The
Company's competitors include large companies that have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines, greater name recognition and longer standing relationships with
customers than the Company. The Company's competitors include both companies
already manufacturing large volumes of products based on established
technologies, as well as companies selling emerging technological solutions.
Potential competitors include the Company's own customers, which may determine
to manufacture products competitive with those of the Company, rather than
purchasing the Company's products. There can be no assurance that potential
competitors have not developed or will not develop comparable or superior
technology and products.
Possible Inability to Manage Growth
The Company's success will depend on the expansion of its operations and the
effective management of growth, which will place a significant strain on the
Company's management, operations and financial resources. In particular, once
the Company begins volume assembly of its products, the Company's operations are
anticipated to expand substantially. To achieve its business objectives, the
Company will be required to invest in additional engineering, manufacturing,
marketing, sales, administrative and management personnel, as well as additional
equipment, facilities, information technology and other infrastructure. The
Company will also be required to continue to implement and improve its
management, operational and financial systems, procedures and controls, and to
expand, train and manage its employee base. Because the Company has had little
experience with the assembly, marketing or sale of its current and planned
products in large quantities, there can be little assurance that the Company
will be able to expand its business rapidly enough or manage this growth in a
manner adequate to successfully commercialize its technology. In particular,
there can be no assurance that the Company will be able to expand its employee
base or physical infrastructure adequately to meet the needs of its expanded
operations, or that the Company's management, operational and financial systems,
procedures and controls will be adequate to maintain and effectively manage
future growth. Inaccuracies in the Company's forecasts of market demand could
result in insufficient or excessive assembly facilities and excessive fixed
expenses for its operations.
Dependence Upon Key Personnel; Need to Hire Additional Qualified Personnel
The Company's success will depend to a significant degree upon the continued
services of key management, technical, and scientific personnel, including Dr.
S. Iraj Najafi, the Company's President and Chief Executive Officer, Dr. Mark
Andrews, the Company's Chief Technical Officer, and Dr. Chi-Yen Li, the
Company's Chief Operating Officer. In addition, the Company's success will
depend on its ability to attract and retain additional management and other
highly skilled personnel. Currently, the Company is seeking to hire, among other
employees, skilled engineers to operate, improve and refine the Company's
assembly process. The Company's competitors for qualified personnel are often
long-established, highly profitable companies and the process of hiring such
qualified personnel is often lengthy. There can be no assurance that the
16
<PAGE>
Company will be able to recruit such personnel on a timely basis, if at all. The
Company's management and other employees may voluntarily terminate their
employment with the Company at any time. The Company does not currently maintain
key-man life insurance on any of its personnel.
Substantial Future Capital Needs; Uncertainty of Additional Funding
The Company anticipates that it will require substantial additional funding over
the next several years to develop its technology, commercialize its products and
to expand assembly capacity. In particular, the Company anticipates requiring
approximately $20 million to construct and equip a high volume assembly facility
and upgrade its current facility. The Company's capital needs will depend on a
number of factors, including, but not limited to, the number of new product
development programs the Company undertakes, the rate at which the Company
develops and commercializes its technologies and products and expands its
assembly processes, the response of competitors, the level of customer and
end-user acceptance of the Company's products, competing technological
developments and changes in market demand. In addition, if the Company
experiences delays in the development or commercialization of its technology and
products, its capital needs may increase substantially, and it may be required
to expend capital resources faster than projected.
The Company expects to raise additional working capital primarily from the
following sources: (i) sales of equity or debt securities, (ii) equipment
leasing and other secured debt financing, and (iii) manufacturing and other
strategic partners. If the Company raises additional funds through the
incurrence of debt, it may become subject to restrictive financial covenants and
its interest obligations will increase. If the Company raises additional funds
through the issuance of equity, the holders of the Company's equity securities
may experience substantial dilution.
No assurance can be given that additional funding will be available on
commercially reasonable terms, or at all. Failure to obtain sufficient funding
may require the Company to delay or abandon some or all of its anticipated
expenditures, to curtail its operations significantly, to sell assets, or to
license to third parties potentially valuable technologies that the Company
currently plans to commercialize itself, all of which will adversely affect the
Company's ability to compete.
Lack of Sales and Marketing Experience
The Company has no experience in marketing, selling and distributing its
products. The Company's future profitability will depend on its ability to
develop an effective sales force. Competition for employees with sales and
marketing experience is intense. There can be no assurance that the Company will
be able to attract and retain qualified salespeople or that the Company will be
able to build an effective sales and marketing organization.
Risks of International Sales and Operations
The Company expects that international sales will account for a significant
portion of the Company's total revenues. International sales and operations are
subject to a number of risks, including the imposition of government controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability or conflicts, trade restrictions, changes in
tariffs and taxes, challenges to patents and other intellectual property rights,
difficulties in staffing and managing international operations, problems in
establishing or managing distributor relationships and general economic
conditions. In addition, as the
17
<PAGE>
Company expands its international operations, it may be required to invoice its
sales in local currencies, the value of which may fluctuate in relation to the
Canadian and U.S. dollars.
Weaknesses in Intellectual Property Protection; Possible Infringement by the
Company
The patent positions of technology companies, including the Company, are
uncertain and involve complex legal and factual questions. In addition, the
coverage claimed in a patent application can be significantly reduced before the
patent is issued. There can be no assurance that the Company's patent
applications will result in patents being issued or that any issued patents will
provide protection against competitive technologies or will be held valid if
challenged or circumvented. Others may independently develop products similar to
those of the Company or design around or otherwise circumvent patents issued to
the Company.
There can be no assurance that others will not assert claims against the Company
that result in litigation. Litigation, regardless of its outcome, would result
in significant cost to the Company as well as diversion of management time. If
any of the Company's products were found to infringe any third party patent, and
such patent were determined to be valid, the Company could be prevented from
practicing the subject matter claimed in its patents or be required to obtain
licenses from the patent owners or to redesign its products or processes to
avoid infringement. There can be no assurance that such licenses would be
available or, if available, would be on terms acceptable to the Company or that
the Company would be successful in any attempt to redesign its products or
processes to avoid infringement. In addition, the Company could suffer
significant monetary damages.
In addition to patent rights, the Company also relies on trade secret and
copyright law, and employee and third-party nondisclosure agreements to protect
its intellectual property rights in its products and technology. There can be no
assurance that these agreements and measures will provide meaningful protection
of the Company's trade secrets, copyrights, know-how, or other proprietary
information in the event of any unauthorized use, misappropriation or disclosure
or that others will not independently develop substantially equivalent
proprietary technologies. Litigation to protect the Company's trade secrets or
copyrights would result in significant cost to the Company as well as diversion
of management time.
The laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as do the laws of the United States. There
can be no assurance that the Company will be able to protect its intellectual
property in such markets.
Burdens of Compliance with Environmental Regulations
The Company's operations and assembly processes are subject to certain federal,
state and local environmental protection laws and regulations. These laws and
regulations relate to the Company's use, handling, storage, discharge and
disposal of certain hazardous materials and wastes, the pre-treatment and
discharge of process waste waters and the control of process air pollutants. The
Company has implemented procedures to effect compliance with these laws and
regulations. The Company has also initiated safety programs, including training
of personnel on safe storage and handling of hazardous materials and wastes. The
Company believes that it is in compliance in all material respects with
applicable environmental regulations. Environmental laws and regulations,
however, may become more stringent over time and there can be no assurance that
the Company's failure to comply with either present or future regulations will
not
18
<PAGE>
subject the Company to significant litigation expenses, compliance expenses or
fines, or production suspensions.
Continued Control by Insiders
As of the date hereof, the Company's management, Molex, Polyvalor and McGill
University collectively own approximately 57.8% of the Company's outstanding
Common Stock. Such stockholders determine the composition of the Board of
Directors and will be able to determine the outcome of corporate actions
requiring stockholder approval. This ability may have the effect of delaying or
preventing a change in control of the Company or causing a change of control of
the Company that may not be favored by other stockholders.
Potential Anti-Takeover Provisions
Certain provisions of the Company's Certificate of Incorporation and By-Laws and
of Delaware law could have the effect of making it more difficult for another
party to acquire or of discouraging another party from attempting to acquire the
Company. For example, the Certificate of Incorporation and By-Laws permit the
Company to issue Preferred Stock with rights senior to the Common Stock without
any further vote or action by stockholders and provide for a classified Board of
Directors. Although the Company has no present plans to issue Preferred Stock,
its issuance could have the effect of delaying, deterring or preventing a change
of control and could make it more difficult for holders of Common Stock to
effect certain corporate actions, including the replacement of incumbent
directors and the completion of transactions approved by incumbent directors.
Outstanding Options and Warrants
As of September 30, 1999, the Company had outstanding options to purchase an
aggregate of 1,995,000 shares of Common Stock at a weighted average exercise
price of $1.07 per share and outstanding warrants to purchase an aggregate of
5,814,366 shares of Common Stock at a weighted average exercise price of $1.33
per share. The exercise of outstanding options and warrants will dilute the then
current stockholders' ownership of Common Stock, and any sales in the public
market of shares acquired upon such exercise could adversely affect prevailing
prices of the Common Stock. Moreover, the terms on which the Company would be
able to obtain additional equity capital could be adversely affected, because
the holders of options and warrants can be expected to exercise them at a time
when the Company would in all likelihood be able to obtain needed capital on
terms more favorable than those provided by such securities.
No Dividends
The Company has never paid any dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. Any future earnings
of the Company will be used to finance its growth.
Possible Volatility in Market Price for Common Stock
The market price of the Common Stock has undergone a significant increase in the
past several months. Such market price could be subject to significant future
fluctuations in response to various factors and events including among others,
the depth and liquidity of the trading market for the Common Stock, quarter-to-
quarter variations in the Company's operating results and the correlation of
such results with the expectations
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<PAGE>
of stockholders and the investment community, the introduction of the Company's
products and conditions in the Company's industry. In addition, from time to
time, the public markets have experienced broad price and volume fluctuations
that often have been unrelated to the operating performance of issuers.
ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial data for the Company for the
periods indicated, derived from financial statements prepared in accordance with
generally accepted accounting principles in the United States that have been
audited by KPMG LLP, Montreal, Canada, for the periods ending June 30, 1999 and
December 31, 1998. The data set forth below should be read in conjunction with
the Company's financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. Unless otherwise indicated, all dollar amounts in
this Form 10 are expressed in United States dollars.
The Company changed its fiscal year end to June 30, effective in 1999.
Amounts reported for fiscal year 1999 are for the six months ended June 30, 1999
(the "Transition Period").
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
December 31, June 30, December 31, June 30,
1998 1999 1998 1999
------ ----- ---- ----
(U.S. dollars) (CDN dollars)
<S> <C> <C> <C> <C>
Current Assets $360,673 $1,388,885 $522,912 $2,044,584
Capital Assets -- 1,013,852 - 1,492,495
Total Assets 360,832 2,409,531 553,155 3,547,080
Liabilities 77,853 681,054 119,349 1,002,582
Stockholders' Equity 282,979 1,728,477 433,806 2,544,498
</TABLE>
<TABLE>
<CAPTION>
From Inception to From Inception to
December 31, Six Months Ended December 31, Six Months Ended
1998 June 30, 1999 1998 June 30, 1999
------ -------------- ---- -------------
(U.S. dollars) (CDN dollars)
<S> <C> <C> <C> <C>
Revenues $ 5,133 $ 796 $ 7,869 $ 1,172
Research and
Development
Expenditures (1) 8,018 110,299 12,291 162,370
Net Loss 187,547 509,171 287,509 749,551
Loss Per Share (2) $ 0.02 $ 0.03 $ 0.03 $ 0.04
</TABLE>
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- -----------------------------
(1) Amounts shown are net of investment tax credits.
(2) As of December 31, 1998 and June 30, 1999, the Company had
16,455,000 and 20,215,000 issued and outstanding shares,
respectively. The Company has never paid dividends on its
Common Stock.
At December 31, 1998 and June 30, 1999, the exchange rate between the Canadian
dollar and the US dollar was CDN$1.533 and CDN$1.472 to US$1.00, respectively,
based on the rate as of each date issued by the Bank of Canada.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements and Uncertainty of Financial Projections
Statements contained in this Form 10 that are not based on historical fact,
including without limitation statements containing the words "believes,"
"anticipates," "intends," "expects" and words of similar import, or references
to strategy, constitute forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, events or developments to be materially different from
any future results, events or developments expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
(i) competition and the pricing and mix of products offered by the Company and
its competitors; (ii) technology changes; (iii) market acceptance of the
Company's products; (iv) the ability to attract and retain qualified personnel;
(v) changes in the Company's development plans; (vi) inventory levels and
practices of the Company's customers; (vii) larger than expected fluctuations in
demand for the Company's products; (viii) general economic conditions; (ix)
economic and business conditions specific to the display market; and (x) the
other factors referenced in this Form 10. Although the Company believes that the
expectations reflected in its forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Given these
uncertainties, stockholders and prospective investors are cautioned not to rely
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future
results, events or developments.
Results of Operations
The Company is a Development Stage Enterprise, which has not, during the periods
presented in the Summary Financial Information above, realized any revenues from
operations. Revenues during the six-month period ending June 30, 1999 have been
derived from interest earned on the cash and short-term investments received
from the private placements of the Company. The Company's overall loss for the
six-month period ended June 30, 1999 amounted to $509,171 (CDN$749,551) or
$0.03 (CDN$0.04) share, compared to $187,547 (CDN$287,509), or
21
<PAGE>
$0.02 (CDN$0.03) share for the year ended December 31, 1998. The Company expects
to start generating operating revenues in the third quarter of its fiscal year
2000.
Costs and Expenses
Research and development expenditures have been $118,317 (CDN$174,661) from the
inception of the Company's operations to June 30, 1999. These research and
development expenditures have been incurred to prepare the Company's proprietary
technology for commercial production. During the six-month period ending June
30, 1999 most of the Company's workforce has been hired.
The low level of research and development charged to the Company since its
inception is due to the fact that over six years of research and development
have been performed at McGill University and Universite de Montreal
(Polytechnique). The technology that has been developed at these universities
has been transferred to the Company under a Licence Agreement between the
Company, McGill, and Polyvalor, an affiliate of Polytechnique.
From its inception (in 1998), the Company has been engaged in financial,
developmental and organizational activities. During the six-month period ending
June 30, 1999, the Company has made a significant investment in staffing and
equipment. These investments and costs are being financed mainly through
proceeds of private placements completed in during the six-month period ending
June 30, 1999 (gross proceeds of $1,982,086 (CDN $2,917,905)). In July 1999 and
September 1999, the Company raised additional funds through private placements
(gross proceeds of $2,488,265 (CDN $1,690,897)).
General and administrative expenses were $592,011 (CDN $871,440) from inception
of the Company to June 30, 1999. From inception of the Company to December 31,
1998, general and administrative expenses amounted to $184,669 (CDN $283,087)
and consisted mainly of costs related to the creation of the Company, its
organization and its financing. During the six-month period ending June 30,
1999, general and administrative expenses totaled $399,668 (CDN $588,353). The
charges for this period mainly consist of the costs of raising money and its
related professional fees and commissions. The increase from prior levels was
due principally to the Company's move to new premises during this period, which
included costs related to rent ($24,169) (CDN ($35,579)) and office charges
($22,346) (CDN ($32,896)).
Liquidity and Capital Resources
During the six-month period ended June 30, 1999, Lumenon issued 2,260,000 units
at a price of $0.50 (CDN $0.74) per unit. Each unit comprised one share of its
common stock and one warrant for the purchase of one additional share at a price
of $1.00 (CDN $1.47) per share, of which warrants to purchase 1,050,000 shares
expire on August 23, 2001 and warrants to purchase 1,210,000 shares expire on
August 23, 2000.
In March 1999, the Company issued $200,000 (CDN $294,400) principal amount of
its 10% Convertible Notes (the "Notes"). Each $1,000 (CDN $1,472) principal
amount of the Notes was initially convertible into common stock at $0.50 (CDN
$0.74) per share. Upon conversion of the Notes, the holder thereof was entitled
to receive for each $1,000 (CDN $1,472) principal amount thereof warrants to
purchase 1,000 additional shares of Common Stock at $0.90 (CDN $1.32) per share
with a term of 30 months.
In June 1999, the Company issued 1,500,000 shares of Common Stock, 1,667,667
cash common stock purchase warrants and 5,800,000 service common stock purchase
warrants to Molex under the Molex Agreements, for a cash consideration of
$750,000 (CDN $1,104,000). Each cash common stock purchase warrant entitles
22
<PAGE>
Molex to acquire one share of Common Stock at a price of $0.90 (CDN $1.32) on or
before August 1, 2001. Each service common stock purchase warrant entitles Molex
to receive one share of Common Stock for services rendered under the Molex
Agreements. See "Item 1. Business Agreements with Molex."
In July 1999, Lumenon issued 960,000 units of its capital at a price of US $1.00
(CDN $1.47) per unit. Each unit was comprised one share of Common Stock and one
warrant for the purchase of one additional share at a price of $1.50 (CDN
$2.21) per share before June 2001.
In September 1999, Lumenon issued 407,000 additional units at a price of $4.00
(CDN $5.89) per unit. Each unit was comprised one share of Common Stock and one
warrant for the purchase of one additional share at a price of $6.00 (CDN $8.83)
per share before September 2000.
In September 1999 Lumenon issued 400,000 additional units of its capital stock
to holders of convertible notes issued in 1999 in the principal amount of
$200,000 (CDN $294,400) upon the full conversion of their notes. Each unit
comprised one share of Common Stock and one warrant for the purchase of one
additional share at a price of $0.90 (CDN $1.32) per share before September 30,
2001. Lumenon issued an additional 30,000 units to the underwriter who had
placed the securities upon conversion of the notes into units.
The Company has made significant investments in property and equipment during
the six-month period ending June 30, 1999. The Company invested $1,013,857 (CDN
$7,492,495) in additional capital assets, consisting of investments in
laboratory equipment ($844,375) (CDN $1,242,920), leasehold improvement
($130,304) (CDN $191,807), computer equipment and software ($27,344) (CDN
$40,250) and office equipment and fixtures ($11,969) (CDN $17,618). Since
production has not yet started, no depreciation has been allocated to costs.
On June 30, 1999, the Company's cash and cash equivalents were $1,170,346 (CDN
$1,722,871). The net proceeds from the private placements should, in
management's estimation, be sufficient to meet the Company's financial needs to
at least the end of 2000, although the Company plans to seek additional capital
in order to increase its production capacity. The Company has no financial
obligations of significance as at June 30, 1999 other than operating lease
commitments for its premises of $3,912 (CDN $5,758) per month.
The Company does not believe that inflation has had a significant impact on its
results of operations.
Impact of Year 2000
The "Year 2000" issue results from the use in computer hardware and software of
two digits rather than four digits to define the applicable year. When computer
systems must process dates both before and after January 1, 2000, two-digit year
"fields" may create processing ambiguities that can cause errors and system
failures. The results of these errors may range from minor undetected errors to
complete shutdown of an affected system. These errors or failures may have
limited effects, or the effects may be widespread, depending on the computer
chip, system or software, and its location and function. The effects of the Year
2000 problem are exacerbated because of the interdependence of computer and
telecommunications systems throughout the world. Because of this
interdependence, the failure of one system may lead to the failure of many other
systems even though the other systems are themselves "Year 2000 compliant."
The Company relies heavily on Information Technology ("IT") systems and other
systems and facilities such as telephones, building access control systems and
heating and ventilation equipment ("non-IT") systems. If the Company's or
significant third parties' IT and/or non-IT systems do not adequately or
accurately process or manage day or date information beyond the year 1999, there
could be a material adverse impact
23
<PAGE>
on the Company's operations. The Company has obtained assurances from its
significant third party suppliers of products and systems to assure that the
products and systems supplied to the Company are Year 2000 compliant.
The extent and magnitude of the Year 2000 problem as it will affect the Company,
both before and for some period after January 1, 2000, are difficult to predict
or quantify for a number of reasons. Among the most important are lack of
control over systems that are used by third parties who are critical to the
Company's operation, including the Company's significant customers and vendors,
dependence on third party software vendors to deliver Year 2000 upgrades in a
timely manner, and the uncertainty surrounding how others will deal with
liability issues raised by Year 2000 related failures. Therefore it is very
difficult for the Company to assess the most reasonably likely worst case
scenario in the event that any Year 2000 problems arise.
Foreign Currency Transactions
Most of the Company's costs are denominated in Canadian dollars, but some
important equipment and investments in the ownership of the Company are made in
United States dollars. Because the Canadian dollar is the primary currency in
the economic environment in which the Company operates, the Canadian dollar is
its functional currency. Accordingly, monetary accounts maintained in currencies
other than the Canadian dollar (principally short-term investments) are
provided, in the financial statements of the Company, for convenience of
reference only and are based on the closing exchange rate at December 31, 1998
and June 30, 1999, which were $1.533 and $1.472, Canadian dollar per US dollar,
respectively. The rate stated is from the Bank of Canada for each respective
date.
The effects of foreign currency remeasurement are reported in current operations
and have been immaterial to date.
ITEM 3. DESCRIPTION OF PROPERTY.
Lumenon's corporate and technical headquarters are located in Dorval, near
Montreal, Canada. The facility consists of an aggregate of 7,149 square feet.
Approximately 70% of the space is occupied by its laboratory and the remainder
by its offices.
The lease for such headquarters is for a period of five years ending in January
2004, with annual rent in the amount of $3.12 (CDN$$4.59) net per square foot,
or $22,292 (CDN $32,814) in the aggregate. Taxes and expenses are estimated at
$1.27 (CDN$1.87) per square foot per year, $9,082 (CDN $13,369) in the
aggregate. Lumenon has the option to renew the lease for an additional period of
five years at a rate equal to the then current market price for comparable space
in the same building.
The Company believes that this facility is adequate for its business as
presently conducted and that suitable additional or substitute space will be
available at reasonable cost when needed.
As of June 30, 1999, the Company had spent $130,304 (CDN $191,807) on leasehold
improvements to construct and equip these premises.
24
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The voting securities of the Company outstanding on September 30, 1999 consisted
of 22,012,000 shares of Common Stock. The following table sets forth information
concerning ownership of Common Stock as of the Record Date by (i) each director,
(ii) each executive officer, (iii) all directors and executive officers as a
group, and (iv) each person who, to the knowledge of the Company, owned
beneficially more than 5% of the Common Stock. Unless otherwise indicated, the
address of each such holder is in care of the Company, 9060 Ryan Avenue, Dorval,
(QC), Canada H9P 2M8. Except as otherwise indicated, and subject to applicable
community property laws, each person has sole investment and voting power with
respect to the shares shown. Ownership information is based upon information
furnished by the respective holders and contained in the Company's records.
<TABLE>
<CAPTION>
Number of Shares
Directors, Nominees, Executive of Common Stock Beneficially
Officers and 5% Stockholders Owned (1) Percentage
------------------------------ ---------- ----------
<S> <C> <C>
Dr. S. Iraj Najafi.................................. 5,237,500(2) 23.6%
Najafi Holdings Inc. ............................... 5,037,500 22.9%
Dr. Mark P. Andrews................................. 4,887,500(3) 22.0%
Andrewma Holdings Inc............................... 4,687,500 21.3%
Xavier F. Clairardin(4)............................. 3,566,667(4) 14.9%
Molex Incorporated.................................. 3,166,667(5) 13.4%
Denis N. Beaudry(6)................................. 1,500,000(6) 6.8%
Dr. Chia-Yen Li..................................... --(7) --
Vincent Belanger.................................... 1,000(8) (9)
All Directors and Executive Officers as a
Group............................................... 15,192,667(10) 62.6%
</TABLE>
- ------------------------------------
(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after the Record Date
upon the exercise or conversion of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that options, warrants and convertible securities that are
held by such person (but not those held by any other person) and that
are exercisable or convertible within 60 days after the Record Date
have been exercised or converted.
(2) Includes (i) 200,000 shares of Common Stock issuable upon exercise of
options held by Dr. Najafi and (ii) 5,037,500 owned by Najafi Holdings
Inc., of which Dr. Najafi is the sole shareholder.
25
<PAGE>
(3) Includes (i) 200,000 shares of Common Stock issuable upon exercise of
options held by Dr. Andrews and (ii) 4,687,500 shares owned by Andrewma
Holdings Inc., of which Dr. Andrews is the sole shareholder.
(4) Xavier F. Clairardin is the representative of Molex on the Company's
Board of Directors. The shares reflected in the table above include (i)
200,000 shares of Common Stock issuable upon exercise of Warrants held
by Mr. Clairardin and (ii) the shares beneficially owned by Molex. They
do not include 50,000 shares of Common Stock issuable upon exercise of
an option held by Mr.
Clairardin.
(5) Includes (i) 1,500,000 shares of Common Stock held by Molex and (ii)
1,666,667 shares of Common Stock issuable upon exercise of outstanding
cash common stock purchase warrants (the "Cash Warrants"). Does not
include (i) 5,800,000 shares of Common Stock issuable upon exercise of
outstanding services common stock purchase warrants or (ii) 1,500,000
shares of Common Stock issuable upon exercise of an option held by
Molex. The address of Molex and Mr. Clairardin is 2222 Wellington
Court, Lisle, Illinois 60532.
(6) Denis N. Beaudry is the representative of Polyvalor ("Polyvalor"), a
Canadian limited partnership, and McGill University ("McGill"), on the
Company's Board of Directors. The shares reflected in the table above
represent the shares beneficially owned by Polyvalor and McGill. They
do not include 50,000 shares of Common Stock issuable upon exercise of
options held by Mr. Beaudry. The address of Polyvalor is 3744 Jean
Brillant Street, Montreal, (QC), Canada H3T 1P1. The address of McGill
is 3550 University Street, Montreal, (QC), Canada H3A 2A7.
(7) Does not include 250,000 shares of Common Stock issuable upon exercise
of options held by Dr. Li.
(8) Does not include 300,000 shares of Common Stock issuable upon exercise
of options held by Mr. Belanger.
(9) Less than 1%.
(10) Includes (i) an aggregate of 400,000 shares of Common Stock issuable
upon exercise of options, (ii) 1,666,667 shares of Common Stock
issuable upon exercise of the Cash Warrants and (iii) 200,000 shares of
Common Stock issuable upon exercise of warrants.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The directors and executive officers of Lumenon and their positions with the
Company are:
Name Age Position
Dr. S. Iraj Najafi 46 Director, Chief Executive Officer and President
26
<PAGE>
Dr. Mark P. Andrews 48 Director, Vice President, Chief Technical
Officer and Secretary
Xavier F. Clairardin 44 Director
Denis N. Beaudry 56 Director
Dr. Chia-Yen Li 37 Chief Operating Officer
Vincent Belanger 33 Chief Financial Officer and Treasurer
Dr. Iraj Najafi joined the Company in July 1998 as Director, President and Chief
Executive Officer. He was a co-founder of LILT Canada Inc., a wholly-owned
subsidiary of the Company, with Dr. Mark Andrews. Dr. Najafi received his Ph.D.
in Physics from the Ecole Centrale in Paris. He joined the Department of
Electrical Engineering at the Ecole Polytechnique in Montreal in 1986 as a
researcher and subsequently served as professor at the Ecole Polytechnique,
where he developed an international reputation as a pioneer in glass integrated
optics. Dr. Najafi has been elected a Fellow of the International Society for
Optical Engineering in recognition of his contributions to integrated optics.
Dr. Mark P. Andrews joined the Company in July 1998 as Director, Vice President,
Chief Technical Officer and Secretary of the Company. He was a co-founder of
LILT Canada Inc. Dr. Andrews received his Ph.D. in Physical Chemistry from the
University of Toronto. In 1984, Dr. Andrews joined the staff of AT&T Bell
Laboratories (now Lucent Technologies) as a Principal Investigator where his
research focused on the study of non-linear optical properties of polymer
composites. In 1990, he joined the Department of Chemistry at McGill University,
where he has developed new photonic glasses and polymers. Dr. Andrews has been
an Assistant Professor and currently is an Associate Professor at McGill
University and spends approximately 50% of his time on the affairs of the
Company.
Xavier F. Clairardin became a Director in June 1999. Mr. Clairardin has been
Vice President of Marketing of Molex Fiber Optics Inc., Chicago, Illinois, for
in excess of the past five years. The corporation is a subsidiary of Molex
Incorporated, which is in the business of manufacturing, marketing, and selling
electrical and optical terminals and connectors.
Denis N. Beaudry became a Director in June 1999. Mr. Beaudry is President of
Polyvalor, Montreal, Quebec, Canada, a limited partnership formed by the Ecole
Polytechnique for the purpose of commercializing the intellectual property of
the Ecole Polytechnique. Since 1984, he has occupied the position of Director of
the Centre de Developpement Technologique of the Ecole Polytechnique whose
sphere of activities includes technology transfer, licensing of technology and
software, joint creation with private industry of laboratories and research
centers, strategic alliances, research partnerships, industrial chairs and the
emergence of high technology enterprises. In 1998, he joined Polyvalor as
President and General Manager. His role consisted of enhancing the value of
research results for commercial use by means of start-up of high-tech companies
in which Polyvalor holds a participation or interest. Mr. Beaudry was President
of the Quebec Association of University Research Directors in 1992, and is at
present a member of the Board of Directors of the Centre des Technologies
Textiles, the College Rosemont, the Corporation de Financement de l'Institut de
Cardiologie de Montreal, the Centre de Technologies du Gaz Naturel, the
Corporation Commerciale de Materiaux Composites, the Centre de Developpement
Rapide de Produits et
27
<PAGE>
de Procedes, and the firms Sinlab Inc., Biosyntech Inc., Phytobiotech Inc.,
Polyplan Inc., Odotech Inc. and COESI Inc.
Dr. Chia-Yen Li joined the Company in August 1999 as Chief Operating Officer.
Dr. Li received his Ph.D. in Materials Science and Engineering from the
University of California in Los Angeles (UCLA). Dr. Li has 10 years of
experience in the development of sol-gel materials for photonics. From August
1994 to August 1995, Dr. Li was a Visiting Scholar at the Optical Services
Center of the University of Arizona where he conducted research on integrated
optical devices and materials on a short-term basis. From August 1995 to July
1997, Dr. Li was a Staff Scientist at NZ Applied Technologies, researching
federally funded projects relating to photonics materials and devices. From July
1997 until joining the Company, Dr. Li was a Senior Scientist at MicroTouch
Systems Incorporated, which is a supplier of touch and pen sensitive input
systems, including touchscreens and electronic whiteboards. Dr. Li was in charge
of designing and implementing manufacturing processes on behalf of MicroTouch.
Vincent Belanger joined the Company in June 1999 as Chief Financial Officer and
Treasurer. Mr. Belanger is a chartered accountant. From 1989 until September
1998, Mr. Belanger was employed in the corporate finance department of KPMG LLP,
an international accounting firm, in Montreal. From September 1998 until joining
the Company, Mr. Belanger was employed as Vice President Finances and Corporate
Controller of Viper International Holdings Ltd., a holding company established
for the purpose of making acquisitions.
Mr. Clairardin is the nominee of Molex which, under certain agreements with the
Company, has the right to appoint one nominee to the Board of Directors. Mr.
Beaudry is the nominee of Polyvalor and McGill University, which jointly have
the right to appoint one nominee to the Board of Directors under a certain
Licence Agreement. There are no family relationships among directors and
executive officers.
Commencing with the 1999 Annual Meeting of stockholders (scheduled to be held on
December 7, 1999), directors will be divided into three classes, with the
initial turn of officer of (i) the first class to expire at the 2000 annual
meeting of stockholders, (ii) the second class to expire at the 2001 annual
meeting of stockholders, and (iii) the third class to expire at the 2002 annual
meeting of stockholders. Commencing with the 2000 annual meeting of
stockholders, directors elected to succeed those directors whose terms will
expire will be elected for a turn of office to expire at the third succeeding
annual meeting of stockholders after this election.
ITEM 6. COMPENSATION OF OFFICERS AND DIRECTORS.
Compensation of Directors
No remuneration or directors' fees were paid to directors of the Company during
the year ended June 30, 1999, with the exception of reimbursement of expenses.
During the fiscal year ended June 30, 1999, the two non-employee directors were
granted the following options to purchase Common Stock:
Denis M. Beaudry was granted an option to acquire 50,000
shares at a price of $1.00 (CDN $1.47) per share vesting over
two years in equal tranches of 25,000, exercisable for a
period of two years after their vesting dates of May 21, 2000
and May 21, 2001, respectively.
28
<PAGE>
Xavier Clairardin was granted an option to acquire 50,000
shares at a price of $2.00 (CDN $2.94) per share vesting over
two years in equal tranches of 25,000, exercisable for a
period of two years after their vesting dates of August 4,
2000 and August 4, 2001, respectively.
The Board of Directors will determine the remuneration of the directors and
officers of the Company during the current and subsequent fiscal years.
EXECUTIVE COMPENSATION
The following table sets forth, for the periods indicated, all compensation
awarded to, earned by or paid to the chief executive officer of the Company (the
"CEO") and the other executive officers of the Company (collectively, the "Named
Executive Officers"). See Item 2. Financial Information. for information in
respect of the exchange ratio of Canadian and U.S. dollars.
29
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and Principal Position Year(1) Salary(2) Bonus Options
- --------------------------- ------- --------- ----- -------
<S> <C> <C> <C> <C>
S. Iraj Najafi 1999(3) $36,798 -- 200,000
Chief Executive Officer and 1998 31,311 -- --
President
Mark P. Andrews 1999(3) $20,663 -- 200,000
Secretary 1998 12,394 -- --
Vincent Belanger 1999(3) -- -- 300,000
</TABLE>
- ---------------------
(1) The Company commenced operations in 1998.
(2) Certain of the executive officers of the Company routinely receive
other benefits from the Company, the amounts of which are customary in
the Company's industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during each of the
periods reflected in the table above did not exceed the lesser of
$50,000 (CDN $73,600) or 10% of the compensation set forth above for
any named individual in respect of any such period.
(3) Represents solely the Transition Period.
EMPLOYMENT AGREEMENTS
Dr. Chia-Yen Li is employed by the Company as Chief Operating Officer of its
Montreal plant pursuant to an employment agreement effective August 1, 1999 for
a term of five years. The agreement provides for an initial base salary of
$84,918.48 (CDN $125,000) annually. The Company also granted Dr. Li an option to
acquire up to 250,000 shares of Common Stock. Throughout the employment period
and for a period of three years thereafter, the agreement restricts Dr. Li's
ability to engage in activities competitive with those of the Company. In
addition, throughout the employment period and for a period of two years
thereafter, Dr. Li has agreed that he will not solicit any person employed by
the Company to leave the Company, or employ or solicit for employment any person
who is employed by the Company. The agreement may be terminated by the Company
in the event of the bankruptcy, liquidation, or dissolution of the Company, if
Dr. Li disposes of his shares of Common Stock, if he commits certain acts
constituting cause or if he is in material breach of the agreement. Dr. Li may
terminate the employment agreement upon three months' prior written notice to
the Company.
30
<PAGE>
Vincent Belanger is employed by the Company as Chief Financial Officer pursuant
to an employment agreement effective June 14, 1999 for a term of five years. The
agreement provides for an initial base salary of $84,918.48 (CDN $125,000)
annually. The Company also granted Mr. Belanger an option to acquire up to
300,000 shares of Common Stock. Throughout the employment period and for a
period of three years thereafter, the agreement restricts Mr. Belanger's ability
to engage in activities competitive with those of the Company. In addition,
throughout the employment period and for a period of two years thereafter, Mr.
Belanger has agreed that he will not solicit any person employed by the Company
to leave the Company, or employ or solicit for employment any person who is
employed by the Company. The agreement may be terminated by the Company in the
event of the bankruptcy, liquidation, or dissolution of the Company, if Mr.
Belanger disposes of his shares of Common Stock, if he commits certain acts
constituting cause or if he is in material breach of the agreement. Mr. Belanger
may terminate the employment agreement upon one month's prior written notice to
the Company.
STOCK OPTIONS
The Company has created a stock option plan (the "Plan") for its key employees,
its Directors and officers and certain consultants. The Plan is administered by
the Board of Directors of the Company. The Board may from time to time designate
individuals to whom options to purchase shares of common stock of the capital
stock of the Company may be granted and the number of shares to be optioned to
each. The total number of common shares to be optioned to any one individual
shall not exceed 5% of the total of the issued and outstanding shares and the
maximum number of common shares which may be issued under the Plan shall not
exceed 10% of the number of shares outstanding. The option price per share for
common stock which are the subject of any option shall be fixed by the Board
when such option is granted and cannot involve a discount to the market price at
the time the option is granted. The period during which an option is exercisable
shall not exceed 10 years from the date the option is granted. The options may
not be assigned or transferred and expire within a fixed period from the
termination of employment or death of the beneficiary. In the event of certain
basic changes in the Company, including a reorganization, merger or
consolidation of the Company, or the purchase of shares pursuant to a tender
offer for shares of Common Stock of the Company, in the discretion of the Board,
each option may become fully and immediately exercisable. Options enabling their
beneficiaries to acquire a total of 1,995,000 shares of the Company's common
stock have been granted under the Plan as of September 30, 1999.
The following table sets forth certain information regarding stock option grants
under the Company's Stock Incentive Option Plan (the only stock option plan of
the Company) to the Named Executive Officers during and subsequent to the
Transition Period. The Company has never granted any stock appreciation rights.
No stock options were granted by the Company to the Named Executive Officers
prior to the Transition Period.
31
<PAGE>
OPTION GRANTS DURING AND SUBSEQUENT TO THE TRANSITION PERIOD
<TABLE>
<CAPTION>
Individual Grants
% of Total Potential realizable
Number-of Options value at assumed
Securities Granted to Exercise annual rates of stock
Underlying Employees of Base price appreciation for
Option in Fiscal Price option term
Name Granted(#) Year ($/share) Expiration Date 5% 10%
---- ---------- ---- --------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
S. Iraj Najafi 200,000 (1) 10.0% $1.00 May 21, 2001 210,000 220,500
Mark Andrews 200,000 (1) 10.0% $1.00 May 21, 2001 210,000 220,500
Vincent Belanger 60,000 (2) 15.0% $1.00 May 21, 2002 63,000 66,150
60,000 (3) May 21, 2003 63,000 66,150
60,000 (4) May 21, 2004 63,000 66,150
60,000 (5) May 21, 2005 63,000 66,150
60,000 (6) May 21, 2006 63,000 66,150
Chia-Yen Li 25,000 (7) 12.5% $1.00 January 20, 2002 26,250 27,563
25,000 (8) July 21, 2002 26,250 27,563
25,000 (9) January 21, 2003 26,250 27,563
25,000 (10) July 21, 2003 26,250 27,563
25,000 (11) January 21, 2004 26,250 27,563
25,000 (12) July 20, 2004 26,250 27,563
25,000 (13) January 20, 2005 26,250 27,563
25,000 (14) July 20, 2005 26,250 27,563
25,000 (15) January 20, 2006 26,250 27,563
25,000 (16) July 21, 2006 26,250 27,563
</TABLE>
- ---------------------
(1) These options vested on May 21, 1999
(2) These options vest on May 21, 2000
(3) These options vest on May 21, 2001
(4) These options vest on May 21, 2002
(5) These options vest on May 21, 2003
(6) These options vest on May 21, 2004
(7) These options vest on January 21, 2000
(8) These options vest on July 21, 2000
(9) These options vest on January 21, 2001
(10) These options vest on July 21, 2001
(11) These options vest on January 21, 2002
32
<PAGE>
(12) These options vest on July 21, 2002
(13) These options vest on January 21, 2003
(14) These options vest on July 21, 2003
(15) These options vest on January 21, 2004
(16) These options vest on July 21, 2004
OPTION EXERCISES AND OPTION VALUES
The following table provides information related to options exercised
by the Named Executive Officers and the number of and value of options held by
the Named Executive Officers on September 30, 1999.
<TABLE>
<CAPTION>
Securities Aggregate
Acquired Value Value of Unexercised in the
on Realized Unexercised Options as at money options as at
Name Exercise ($) September 30, 1999 (#) September 30, 1999 ($)
------ --------- ----- ------------------------ -----------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Iraj Najafi, --- --- 200,000 --- $1,706,000 ---
Chief Executive
Officer
Mark Andrews --- --- 200,000 --- $1,706,000 ---
Chief
Technology
Officer
Vincent --- --- --- 300,000 --- $2,559,000
Belanger,
Chief Financial
Officer
Chia-Yen Li, --- --- --- 250,000 --- $2,132,500
Chief Operating (CDN $3,139,040)
Officer
</TABLE>
OTHER COMPENSATION PLANS
The company has no pension plan or other compensation plans for its executive
officers or directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 7, 1998, the Company entered into agreements with the shareholders of
LILT, including Najafi Holdings Inc., a company controlled by Dr. S. Iraj
Najafi, who has since become the Chief Executive Officer and a director of the
Company, and Andrewma Holdings Inc., a company controlled by Dr. Mark Andrews,
who has since become a Vice President and a director of the Company, pursuant to
which the Company
33
<PAGE>
acquired all of the issued and outstanding shares of the capital stock of LILT
in exchange for a total of 12,200,000 shares of Common Stock.
On May 19 and June 21, 1999, the Company entered into several agreements (the
"Molex Agreements") with Molex. The Molex Agreements include a Teaming
Agreement, a Stock Purchase Agreement, a Stock Restriction Agreement and a
Registration Rights Agreement. Under the Teaming Agreement, the Company and
Molex agreed to jointly develop certain DWDM products related to the DWDM market
and other photonics markets. Under the Stock Purchase Agreement, Molex agreed to
purchase 3,000,000 shares of Common Stock at a price of $0.50 (CDN $0.74) per
share in two stages. The first closing was held on June 21, 1999 for 1,500,000
shares of Common Stock and the second closing is scheduled for March 2000 for an
additional 1,500,000 shares of Common Stock. Lumenon also issued to Molex a
warrant to purchase 1,666,667 additional shares of Common Stock at a price of
$0.90 (CDN $1.32) per share, expiring in September 2001, the exercise of which
is subject to Molex fulfilling its obligations under the Teaming Agreement. In
addition, the Company issued to Molex a Services Common Stock Purchase Warrant
for 5,800,000 shares of Common Stock in exchange for certain services to be
rendered by Molex to the Company under the Teaming Agreement, expiring in June
2001 and the exercise of which is subject to Molex fulfilling its obligations
under the Teaming Agreement. Under the Stock Restriction Agreement, (i) the
consent of Molex is required for certain extraordinary actions relating to the
governance of the Company and its operations and (ii) certain stockholders of
the Company have agreed not to sell their respective shares of the Company to a
competitor of Molex without Molex's prior consent. Mr. Xavier Clairardin, an
officer of Molex Fiber Optics Inc., is a director of the Company.
The Company has entered into a license agreement (the "License Agreement") with
Polyvalor, a limited partnership, as represented by its General Partner,
Polyvalor Inc. and McGill University (together, Polyvalor and McGill University
referred to as the "Licensor") pursuant to which Lumenon acquired the right
through October 2017 to produce, sell, distribute and promote products derived
from using the Patents and Know- How, as such terms are defined in the License
Agreement, of the Licensor. Using a proprietary sol-gel process of the Licensor,
Lumenon will design and develop integrated optical components for DWDM and
Plastic Optical Fiber devices for the telecommunications and data communications
markets. Lumenon will pay a royalty of 5% on gross sales, up to a maximum of
$2,377,000 (CDN $3,500,000) over the term of the License Agreement.
Additionally, the Company issued 750,000 shares of Common Stock to each of
Polyvalor and McGill University.
ITEM 8. LEGAL PROCEEDINGS.
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS.
The Common Stock of the Company has been quoted on the Over The Counter Bulletin
Board (OTCBB) since July 27, 1998. The following table sets out the high and low
bid prices of the Common Stock during the periods indicated. Such prices reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions.
34
<PAGE>
High ($) Low ($)
-------- -------
1998 3rd quarter (from July 27th) $ 4.00 $0.63
4th quarter $ 1.50 $0.25
1999 1st quarter $ 1.56 $0.25
2nd quarter $ 3.50 $0.44
3rd quarter $ 14.25 $1.63
4th quarter (to October 13th) $ 11.19 $7.56
According to information furnished to the Company by the transfer agent for the
Common Stock, as of October 27, 1999, there were 56 holders of record of the
Common Stock, including depositories.
The Company has never declared or paid any cash dividends on its Common Stock
and presently anticipates that all future earnings, if any, will be retained for
the development of its business. The payment of future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, capital requirements, the financial condition of the
Company, and general business conditions.
The closing price of the common shares of the Company on the OTCBB on November
1, 1999 was $9.88.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In July 1998, under a reorganization and acquisition plan, (i) Lumenon acquired
the outstanding stock of LILT in consideration of the issuance of 12,200,000
shares of Common Stock to the former shareholders of LILT and (ii) Lumenon
acquired the outstanding stock of Dequet Capital, Inc. ("Dequet") in
consideration of the issuance of 4,000,000 shares of Common Stock to the former
stockholders of Dequet. The shares issued in connection with the acquisition of
Lumenon were issued solely to persons who were not "U.S. Persons," within the
meaning of Rule 902 under the Securities Act of 1933, as amended (the
"Securities Act"). The shares issued in connection with the acquisition of
Dequet were issued under the exemption provided in Rule 504 of Regulation D
under the Securities Act. No underwriter was involved in such transaction.
During the six-month period ended June 30, 1999, Lumenon issued an aggregate of
2,260,000 Units at a price of $0.50 per unit. Each Unit comprised one share of
Common Stock and one warrant for the purchase of one additional share of Common
Stock at a price of $1.00 per share, of which warrants to purchase 1,050,000
shares expire on August 23, 2001 and warrants to purchase 1,210,000 shares
expire on August 23, 2000. The securities were offered and sold solely to
non-U.S. Persons. No underwriter was involved in such transaction.
In March 1999, the Company issued $200,000 principal amount of its 10%
Convertible Notes (the "Notes"). Each $1,000 principal amount of the Notes was
initially convertible into common stock at $0.50 per share. Upon conversion of
the Notes, the holder thereof is entitled to receive for each $1,000 principal
amount thereof warrants to purchase 1,000 additional shares of Common Stock at
$0.90 per share with a term of 30 months. The securities were offered and sold
entirely to non-U.S. persons. Groome Capital, Inc. acted as underwriter in
connection with such placement.
35
<PAGE>
In June 1999, the Company issued 1,500,000 shares of Common Stock, 1,666,667
cash common stock purchase warrants and 5,800,000 service common stock purchase
warrants to Molex under the Molex Agreements, for a cash consideration of
$750,000. Each cash common stock purchase warrant entitles Molex to acquire one
share of Common Stock at a price of $0.90 on or before August 1, 2001. Each
service common stock purchase warrant entitles Molex to receive one share of
Common Stock for services rendered under the Molex Agreements. See Item 1.
Business. Agreements with Molex. The securities were offered and sold in
reliance on the exemption provided in Section 4(2) of the Act and solely to an
accredited investor within the meaning of Rule 501 of Regulation D under the
Act. No underwriter was involved in such transaction.
In July 1999, the Company issued 960,000 units at a price of $1.00 per unit.
Each unit comprised one share of Common Stock and one warrant for the purchase
of one additional share of Common Stock at a price of $1.50 per share before
June 2001. The securities were offered and sold solely to non-U.S. Persons. No
underwriter was involved in such transaction.
In September 1999, the Company issued 407,000 additional units at a price of
$4.00 per unit. Each unit comprised one share of Common Stock and one warrant
for the purchase of one additional share of Common Stock at a price of $6.00 per
share before September 2000. The securities were offered and sold solely to
non-U.S. Persons. Groome Capital.com Inc. acted as underwriter in connection
with such placement.
In September 1999 the Company issued 400,000 additional units to holders of the
Notes in the principal amount of $200,000 upon the full conversion of their
Notes. Each unit comprised one share of Common Stock and one warrant for the
purchase of one additional share of Common Stock at a price of $0.90 per share
before September 30, 2001. The securities were offered and sold solely to
non-U.S. Persons. Groome Capital.com Inc. ("Groome") acted as underwriter in
connection with the placement of the Notes and their conversion, and upon
conversion of such notes, Groome exercised its option to purchase an additional
30,000 units for $15,000.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The capital stock being registered is Common Stock, $.001 par value.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of Common
Stock, $.001 par value, of which 22,012,000 are issued and outstanding as of
November 1, 1999, and 5,000,000 shares of Preferred Stock, $.001 par value, of
which no shares have been issued.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by stockholders. The shares of Common Stock have no preemptive or
conversion rights, no redemption or sinking fund provisions and are not liable
for further call or assessment. The outstanding shares of Common Stock are fully
paid and non-assessable. Subject to the rights of the holders of Preferred Stock
from time to time outstanding, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available for payment. Such
dividends may be paid in cash, property, or shares of Common Stock. The Company
has never declared or paid any cash dividends on its Common Stock and presently
anticipates that all future earnings, if any, will
36
<PAGE>
be retained for the development of its business. The payment of future dividends
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, capital requirements, the financial
condition of the Company, and general business conditions.
PREFERRED STOCK
The Board of Directors is expressly authorized to provide for the issuance of
all or any shares of the Preferred Stock, in one or more series, and to fix for
each such series such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof as
shall be stated and expressed in the resolution or resolutions adopted by the
Board of Directors providing for the issue of each such series and as may be
permitted by General Corporation Law of the State of Delaware (the "DGCL"). The
number of authorized shares of Preferred Stock may be increased (but not above
the number of authorized shares of the class) or decreased (but not below the
number of shares thereof then outstanding). Without limiting the generality of
the foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or junior
to any other series of Preferred Stock, to the extent permitted by law. Except
as provided in the Molex Agreements, no vote of the holders of the Preferred
Stock or Common Stock will be required in connection with the designation or the
issuance of any shares of any series of any Preferred Stock authorized by and
complying with the conditions herein.
WARRANTS AND OPTIONS
As of November 1, 1999, there are warrants outstanding to purchase 5,814,366
shares of the Company's Common Stock.
A total of 2,500,000 shares of Common Stock are currently authorized for grant
under the Company's Stock Option Plan. As of September 30, 1999, there were
options outstanding pursuant to the Stock Option Plan to purchase an aggregate
of 1,995,000 shares of Common Stock at exercise prices ranging from $1.00 to
$2.00 per share. A total of 505,000 shares of Common Stock remained available
for future grant. No options have been exercised under the Stock Option Plan as
of November 1, 1999.
CONTRACTUAL RIGHTS
The Company has entered into the Molex Agreements pursuant to which Molex has
certain preemptive rights with respect to the sale by the Company of additional
shares of its capital stock, together with certain rights that could prevent a
change in control of the Company.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the DGCL, the Company's Certificate of Incorporation, as
amended, limits the personal liability of a director to the Company for monetary
damages for breach of fiduciary duty of care as a director. Liability is not
eliminated for (i) any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends or stock purchases or redemptions pursuant to Section 174 of the DGCL,
or (iv) any transaction from which the director derived an improper personal
benefit.
37
<PAGE>
The Company's Certificate of Incorporation and By-Laws provide that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or an agent
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the defense or settlement of such action, suit or
proceeding, to the fullest extent and in the manner set forth in and permitted
by the DGCL, as from time to time in effect, and any other applicable law, as
from time to time in effect. Such right of indemnification is not be deemed
exclusive of any other rights to which such director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators of
each such person.
The Company proposes to enter into indemnity agreements with its directors and
executive officers. The indemnity agreements will provide that the Company shall
indemnify such directors and executive officers from and against any and all
liabilities, costs and expenses, amounts of judgments, fines, penalties and
amounts paid in settlement of or incurred in defense of any settlement in
connection with any threatened, pending or completed claim, action, suit or
proceeding in which such persons are a party (other than a proceeding or action
by or in the right of the Company to procure a judgment in its favor), or which
may be asserted against them by reason of their being or having been an officer
or director of the Company (the "Losses"), unless it is determined that such
directors and executive officers did not act in good faith and for a purpose
which they reasonably believed to be in, or in the case of service to an entity
related to the Company, not opposed to, the best interests of the Company and,
in the case of a criminal proceeding or action, that they had reasonable cause
to believe that their conduct was unlawful. The indemnity agreements will also
provide that the Company shall indemnify such directors and executive officers
from and against any and all Losses that they may incur if they are a party to
or threatened to be made a party to any proceeding or action by or in the right
of the Company to procure a judgment in its favor, unless it is determined that
they did not act in good faith and for a purpose that they reasonably believed
to be in, or, in the case of service to an entity related to the Company, not
opposed to, the best interests of the Company, except that no indemnification
for Losses shall be made in respect of (i) any claim, issue or matter as to
which they shall have been adjudged to be liable to the Company or (ii) any
threatened or pending action to which they are a party or are threatened to be
made a party that is settled or otherwise disposed of, unless and only to the
extent that any court in which such action or proceeding was brought determines
upon application that, in view of all the circumstances of the matter, they are
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper. Such indemnification will be in addition to any other rights
to which such officers or directors may be entitled under any law, charter
provision, by-law, agreement, vote of shareholders or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 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 an action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
38
<PAGE>
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLIMENTARY DATA.
See Items 2 and 15.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
KPMG LLP has served as the independent accountant for LILT since such
corporation's inception. Under applicable accounting rules and policies, LILT is
deemed to be the acquirer of the Company. Since such acquisition, KPMG LLP has
served as the independent accountant of the Company.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Consolidated Financial Statements of Lumenon Innovative
Lightwave Technology, Inc. (a Development Stage Enterprise) -
six-month period ended June 30, 1999 and periods from
inception (March 2, 1998) to December 31, 1998 and to June 30,
1999.
(b) Exhibits:
2.1 Amended Plan of Reorganization, Merger and Acquisition by which WWV
Development, Inc. (a Delaware corporation) acquired and merged into
itself Lumenon Innovative Lightwave Technology, Inc. (a Canadian
federal corporation), and acquired Dequet Capital, Inc. (a Nevada
corporation) as wholly-owned subsidiaries, dated July 7, 1998.
3.1 Amended and Restated Certificate of Incorporation of Lumenon Innovative
Lightwave Technology, Inc.
*3.2 Amended and Restated By-Laws.
4.1 Specimen Certificate for Shares of Common Stock.
4.2 Lumenon Innovative Lightwave Technology, Inc. Stock Option Incentive
Plan.
4.3 Form of Lumenon Innovative Lightwave Technology, Inc. Warrant to
Acquire Shares of Common Voting Stock.
10.1 Licence Agreement by and between Polyvalor and McGill University and
Lumenon Innovative Lightwave Technology, Inc.
39
<PAGE>
10.2 Teaming Agreement between Molex Incorporated and its subsidiary Molex
Fiber Optics, Inc., and Lumenon Innovative Lightwave Technology, Inc.
and its wholly-owned subsidiary LILT Canada Inc., dated May 19, 1999.
10.3 Stock Purchase Agreement between Molex Incorporated, Lumenon Innovative
Lightwave Technology, Inc., and LILT Canada, Inc., dated May 19, 1999.
10.4 Stock Restriction Agreement between Molex Incorporated, Lumenon
Innovative Lightwave Technology, Inc., and LILT Canada, Inc., Andrewma
Holding, Inc., and Najafi Holding Inc., dated June 21, 1999.
10.5 Registration Rights Agreement between Lumenon Innovative Lightwave
Technology, Inc. and Molex Incorporated, dated June 21, 1999.
21 Subsidiaries of the Registrant.
23 Consent of KPMG, LLP.
27 Financial Data Schedule(s).
- -----------------
* To be filed by Amendment.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereto duly authorized.
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY INC.
(Registrant)
By:/s/ S. Iraj Najafi
---------------------------------------------------
S. Iraj Najafi, President and Chief Executive Officer
41
<PAGE>
kpmg
Consolidated Financial Statements of
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Six-month period ended June 30, 1999 and periods from
inception (March 2, 1998) to December 31, 1998 and to
June 30, 1999
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Lumenon Innovative Lightwave
Technology, Inc. (the "Corporation") as at June 30, 1999 and December 31, 1998
and the consolidated statements of operations, cash flows and stockholders'
equity for the six-month period ended June 30, 1999 and for the periods from
inception (March 2, 1998) to December 31, 1998 and to June 30, 1999. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Corporation as at
June 30, 1999 and December 31, 1998 and the consolidated results of its
operations and cash flows for the six-month period ended June 30, 1999 and for
the periods from inception (March 2, 1998) to December 31, 1998 and to June 30,
1999, in accordance with generally accepted accounting principles in the United
States.
/s/ KPMG LLP
- -----------------
KPMG LLP (signed)
Chartered Accountants
Montreal, Canada
September 3, 1999
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Financial Statements
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999
Financial Statements
Consolidated Balance Sheets............................................ 1
Consolidated Statements of Operations.................................. 2
Consolidated Statements of Cash Flows.................................. 3
Consolidated Statements of Stockholders' Equity........................ 4
Notes to Consolidated Financial Statements............................. 5
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, June 30, December 31,
1999 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$)
(Note 2 (a))
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,170,346 $ 1,722,871 $ 529,670
Sales tax receivable 161,360 237,539 21,093
Research tax credits receivable 23,244 34,218 2,149
Prepaid expenses 33,935 49,956 -
- ----------------------------------------------------------------------------------------------------------------------------------
1,388,885 2,044,584 552,912
Property and equipment (note 4) 1,013,852 1,492,495 -
Other assets 6,794 10,001 243
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2,409,531 $ 3,547,080 $ 553,155
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 355,671 $ 523,550 $ 71,349
Accrued liabilities 122,463 180,312 48,000
Convertible promissory notes (note 5) 202,920 298,720 -
- ----------------------------------------------------------------------------------------------------------------------------------
681,054 1,002,582 119,349
Stockholders' equity:
Share capital (note 6) 20,603 30,330 24,802
Additional paid-in capital 2,312,614 3,404,408 696,513
Deposit on subscription of shares (note 9) 99,735 146,820 -
Accumulated deficit (704,475) (1,037,060) (287,509)
- ----------------------------------------------------------------------------------------------------------------------------------
1,728,477 2,544,498 433,806
Commitments (note 7 and 8)
Subsequent event (note 9)
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2,409,531 $ 3,547,080 $ 553,155
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
______________________ Director
______________________ Director
-1-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six months Six months From From
ended ended inception to inception to
June 30, June 30, December 31, June 30,
1999 1999 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$) (CAN$)
note 2 (a))
<S> <C> <C> <C> <C>
Revenues - interest $ 796 $ 1,172 $ 7,869 $ 9,041
Expenses:
Research and development:
Salaries and fringe
benefits 110,484 162,644 14,440 177,084
Training 4,616 6,795 - 6,795
External research 16,983 25,000 - 25,000
Research tax credits (21,784) (32,069) (2,149) (34,218)
- ------------------------------------------------------------------------------------------------------------------------------------
110,299 162,370 12,291 174,661
General and administrative:
Compensation cost
(note 6 (b)) 163,762 241,058 - 241,058
Professional fees 74,774 110,092 124,793 234,885
Salaries and fringe
benefits 42,544 62,629 115,016 177,645
Rent 24,169 35,579 21,235 56,814
Office 22,346 32,896 3,428 36,324
Promotion 21,979 32,355 5,094 37,449
Travel 15,927 23,446 19,077 42,523
(Gain) loss on foreign
exchange 12,802 18,846 (7,348) 11,498
Other 12,227 18,000 - 18,000
Communication 9,138 13,452 1,792 15,244
- ------------------------------------------------------------------------------------------------------------------------------------
399,668 588,353 283,087 871,440
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $ 509,171 $ 749,551 $ 287,509 $ 1,037,060
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ 0.03 $ 0.04 $ 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number
of shares outstanding 17,480,967 17,480,967 8,723,182
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six months Six months From From
ended ended inception to inception to
June 30, June 30, December 31, June 30,
1999 1999 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$) (CAN$)
(Note 2 (a))
Cash flows from:
Operations:
<S> <C> <C> <C> <C>
Net loss $ (509,171) $ (749,551) $ (287,509) $ (1,037,060)
Adjustment for item not
involving cash:
Compensation cost
(note 6 (b)) 163,762 241,058 - 241,058
Change in operating assets
and liabilities:
Sales tax receivable (147,042) (216,446) (21,093) (237,539)
Research tax credits
receivable (21,786) (32,069) (2,149) (34,218)
Prepaid expenses (33,938) (49,956) - (49,956)
Accounts payable and
accrued liabilities 397,088 584,513 119,349 703,862
- ------------------------------------------------------------------------------------------------------------------------------------
(151,087) (222,451) (191,402) (413,853)
Financing:
Proceeds from issuance of
common shares 1,877,754 2,764,297 372 2,764,669
Cash from the acquisition of a
subsidiary - - 814,322 814,322
Share issue expenses (198,323) (291,932) (93,379) (385,311)
Deposit on subscription of shares 99,735 146,820 - 146,820
Proceeds from issuance of
convertible promissory notes 202,920 298,720 - 298,720
- ------------------------------------------------------------------------------------------------------------------------------------
1,982,086 2,917,905 721,315 3,639,220
Investments:
Additions to property
and equipment (1,013,852) (1,492,495) - (1,492,495)
Additions to other assets (6,631) (9,758) (243) (10,001)
- ------------------------------------------------------------------------------------------------------------------------------------
(1,020,483) (1,502,253) (243) (1,502,496)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash
equivalents 810,516 1,193,201 529,670 1,722,871
Cash and cash equivalents,
beginning of period 359,830 529,670 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 1,170,346 $ 1,722,871 $ 529,670 $ 1,722,871
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity
Periods from inception (March 2, 1998) to June 30, 1999
(in Canadian dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
paid-in Accumulated
Shares Par value capital deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issue of common shares
at inception 255,000 $ 372 $ - $ - $ 372
Issue of common shares 16,200,000 24,430 789,892 - 814,322
Share issue expenses - - (93,379) - (93,379)
Loss for the period - - - (287,509) (287,509)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as at December 31,
1998 16,455,000 24,802 696,513 (287,509) 433,806
Issue of common shares 3,760,000 5,528 2,758,769 - 2,764,297
Share issue expenses - - (291,932) - (291,932)
Compensation cost related to
stock option grant - - 241,058 - 241,058
Loss for the period - - - (749,551) (749,551)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as at June 30, 1999 20,215,000 30,330 3,404,408 (1,037,060) 2,397,678
before deposit on
subscription of shares
Deposit on subscription
of shares (note 9) 146,820
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as at June 30, 1999 $ 2,544,498
- ------------------------------------------------------------------------------------------------------------------------------------
US dollars (note 2 (a))
Balance as at June 30, 1999
before deposit on
subscription of shares $ 20,603 $2,312,614 $ (704,475) $ 1,628,742
Deposit on subscription of shares 99,735
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as at June 30, 1999 $ 1,728,477
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS ACTIVITIES:
Lumenon Innovative Lightwave Technology, Inc. ("Lumenon"), a shell
company, was incorporated in the State of Delaware in February 1996 under
the name of WWV Development Inc.
In July 1998, under an acquisition plan, Lumenon acquired LILT Canada Inc.
("LILT"), a Canadian corporation, by issuing 12,200,000 common shares to
the shareholders of LILT which resulted in the change in control of
Lumenon. Accordingly, LILT has been determined the acquiring corporation
and these consolidated financial statements present the results of
operations and cash flows of LILT since its inception, March 2, 1998.
Under the plan mentioned above, Lumenon issued 4,000,000 common shares to
acquire Dequet Capital, Inc., a Nevada corporation. Dequet Capital, Inc.'s
only asset was cash in the amount of $814,322 (US$540,000). This company
was subsequently dissolved.
The Corporation's principal business activity is to develop products
related to the Dense Wavelength Division Multiplexing market and other
photonics markets. Year-end has been changed from December 31, to June 30.
The Corporation is subject to a number of risks, including successful
development and marketing of its technology and attracting and retaining
key personnel. In order to achieve its business plan, the Corporation
anticipates the need to raise additional capital (see notes 3 and 9).
2. SIGNIFICANT ACCOUNTING POLICIES:
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States. The
significant accounting principles are as follows:
(a) Consolidated financial statements and basis of presentation:
The consolidated financial statements include the accounts of
Lumenon Innovative Lightwave Technology, Inc. and the accounts of
LILT Canada Inc. All intercompany transactions and balances have
been eliminated.
US dollar amounts presented on the consolidated balance sheets,
consolidated statements of operations and cash flows are provided
for convenience of reference only and are based on the closing
exchange rate at June 30, 1999, which was $1.472 Canadian dollar per
US dollar.
-5-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Cash and cash equivalents:
The Corporation considers all investments that are highly liquid
with an original maturity of three months or less and readily
convertible into cash to be cash equivalents.
(c) Property and equipment:
Equipment and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line
method and the following annual rates:
-----------------------------------------------------------
Assets Rate
-----------------------------------------------------------
Computer equipment and software 3 years
Office equipment and fixtures 5 years
Leasehold improvements Term of lease
Laboratory and pilot plant equipment 3 and 10 years
-----------------------------------------------------------
(d) Other assets:
Other assets, consisting of license and patent costs, are recorded
at cost when acquired and are being amortized on a straight-line
basis over their economic useful lives or their legal terms of
existence, ranging between 10 and 20 years. The capitalized amount
with respect to those assets does not necessarily reflect their
present or future value and the amount ultimately recoverable is
dependent upon the successful commercialization of the related
products.
(e) Research and development expenditures:
Research expenditures, net of research tax credits, if any, are
expensed as incurred. Research tax credits earned on eligible
research expenses incurred in Canada are accounted for as a
reduction of research and development expenses.
The costs of intangibles that are purchased from others for use in
research and development activities and that have no alternative
future uses are considered research and development costs at the
time of acquisition and are expensed as incurred.
-6-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Foreign exchange:
Foreign denominated monetary assets and liabilities are translated
at the rate of exchange prevailing at the balance sheet date.
Non-monetary assets and liabilities are translated at the rate of
exchange prevailing at the date of the transaction. Revenues and
expenses are translated at the monthly average exchange rate
prevailing during the period. Foreign exchange gains and losses are
included in the determination of net earnings. The Canadian dollar
is the functional currency of the Corporation.
(g) Income taxes:
The Corporation uses the asset and liability method of accounting
for income taxes. Under 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. This method also requires the
recognition of future tax benefits such as net operating loss
carryforwards, to the extent that realization of such benefits is
more likely than not. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years 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.
(h) Comprehensive income:
Effective January 1, 1998, the Corporation adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive
Income, which establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of this
statement has no impact on the Corporation's net income or
stockholders' equity.
(i) Stock option plan:
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion no. 25,
Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its fixed plan stock options. As
such, compensation expense would be recorded on the date of grant
only if the then current market price of the underlying stock
exceeded the exercise price.
-7-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(j) Impairment of long-lived assets and long-lived assets to be disposed
of:
The Corporation accounts for long-lived assets in accordance with
the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This
statement requires that long-lived assets and certain identifiable
intangibles be 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 exceed 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.
(k) Net loss per share:
Net loss per share is computed using the weighted average number of
shares outstanding during the period. The fully diluted loss per
share has not been disclosed because the effect of common shares
issuable upon the exercise of options and warrants is antidilutive.
(l) 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 liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ
from those estimates.
3. THE MOLEX AGREEMENTS:
(a) Under the terms of a Stock Purchase Agreement dated May 19, 1999:
Molex Incorporated (Molex), a Delaware corporation, agreed to
purchase from Lumenon 3,000,000 common shares at $0.74 (US$0.50) per
share in two transactions. The first closing was held in June 1999
for 1,500,000 common shares and the second closing will take place
in March 2000 for an additional 1,500,000 common shares. The second
closing is contingent on the progress made by Lumenon proving out
its technology and its ability to manufacture and deliver certain
devices.
-8-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
3. THE MOLEX AGREEMENTS (CONTINUED):
(a) Under the terms of a Stock Purchase Agreement dated May 19, 1999
(continued):
Lumenon granted to Molex a Services Common Stock Purchase Warrant to
receive 5,800,000 common shares. The warrant expires in June 2001
and is subject to Molex fulfilling its obligations pursuant to a
Teaming Agreement. Value of the shares issued will be recorded as
Molex fulfills such obligations (see (c) thereafter). In addition,
if Molex elects not to proceed with the second closing referred to
above, all rights related to the warrant will be extinguished except
to the extent of expenses incurred under the Teaming Agreement.
Lumenon granted to Molex a Cash Common Stock Purchase Warrant to
purchase 1,667,667 common shares at a price of $1.32 (US$0.90) per
share. The warrant expires in September 2001 and is subject to Molex
fulfilling its obligations pursuant to a Teaming Agreement. In
addition, if Molex elects not to proceed with the second closing
referred to above, all rights related to the warrant will be
extinguished.
(b) Under the terms of a Stock Restriction Agreement dated June 21, 1999:
No primary stockholders can sell any share to competitors of Molex
without Molex's prior consent. The agreement includes Right of First
Refusal and Preemptive rights except that Lumenon can issue
6,000,000 units (one common share and a warrant for the purchase of
one common share at a price not less than $1.32 (US$0.90) per share)
at a price not less than $0.74 (US$0.50) per unit to raise capital
within 24 months.
Certain rights or restrictions might be terminated upon completion
of a Public Sale, a Public Offering as defined in the agreement, or
if Molex elects not to proceed with the second closing referred to
above. In addition, this agreement will terminate if Molex does not
purchase common shares under the Cash Common Stock Purchase Warrant
within a certain period as per the agreement, or if the teaming
agreement is terminated.
-9-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
3. THE MOLEX AGREEMENTS (CONTINUED):
c) Under the terms of a Teaming Agreement dated May 19, 1999:
Lumenon and Molex agreed to jointly develop certain products related
to the Dense Wavelength Division Multiplexing market and other
photonics markets. Under the terms of the agreement, Molex is
committed to contribute $1,840,000 (US$1,250,000) in services
towards the development of the products. Subject to Lumenon proving
out its technology and its ability to manufacture and deliver
certain devices, Molex is committed to purchase the entire
production of Lumenon for the first twelve months with a maximum
number of units per month. After the twelve-month period, Molex will
have the option to purchase all production of Lumenon at fair market
value. Under certain circumstances, Molex may have the right to
manufacture all components of the devices in return of a royalty of
25% of gross cost of Molex. At June 30, 1999, no cost was incurred
under this agreement.
4. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
June 30, 1999
Accumulated Net book
Cost depreciation value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software $ 40,250 $ - $ 40,250
Office equipment and fixtures 17,618 - 17,618
Leasehold improvements 191,807 - 191,807
Laboratory and pilot plant equipment 1,242,820 - 1,242,820
- --------------------------------------------------------------------------------------------------------------
$ 1,492,495 $ - $ 1,492,495
- --------------------------------------------------------------------------------------------------------------
</TABLE>
All capital assets were purchased during the six-month period ended June
30, 1999 and installation was completed in July 1999. No depreciation was
recorded as at June 30, 1999.
5. CONVERTIBLE PROMISSORY NOTES:
The convertible promissory notes bear interest at 10% and are convertible
into 400,000 common shares at the option of the holders. In addition, upon
conversion, the Corporation shall issue 400,000 common share purchase
warrants for the purchase of 400,000 common shares at a price of $1.32
(US$0.90) per share to be exercised before September 2001. The principal
amount not converted into common shares is due September 1999.
-10-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
6. SHARE CAPITAL:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------
Authorized:
1,000,000 preferred shares, par value of
US$0.001 per share
100,000,000 common shares, par value of
US$0.001 per share
Issued and outstanding:
<S> <C> <C>
20,215,000 common shares (1998 - 16,455,000) $ 30,330 $ 24,802
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Issue of shares:
As mentioned in note 1, Lumenon acquired LILT in 1998 under a
reorganization and acquisition plan by issuing 12,200,000 common
shares to the shareholders of that corporation. At the date of
acquisition, there were 255,000 outstanding common shares of Lumenon
at an amount of $372 (US$255). In addition, Lumenon issued 4,000,000
common shares to the shareholders of Dequet Capital, Inc. Assets of
the latter consisted of cash in the amount of $814,322 (US$540,000).
During the six-month period ended June 30, 1999, the Corporation
issued 3,760,000 common shares for a cash consideration of
$2,764,297 (US$1,880,000).
(b) Stock option plan:
Under a stock option incentive plan established in May 1999, the
Corporation may grant options to purchase common shares to key
employees, directors, officers and service-providers. The terms,
number of common shares covered by each option as well as the
permitted frequency of the exercise of such options will be
determined by the Board of Directors. The plan contemplates that a
maximum of 2,500,000 common shares may be optioned under the stock
option plan. In addition, no optionee shall hold options to purchase
more than 5% of the number of shares issued and outstanding at any
one time. The subscription price for each share covered by an option
shall be established by the Board of Directors but such price shall
not be lower than the fair market value at the date of grant.
Options granted have to be exercised over a period not exceeding ten
years. At June 30, 1999, 830,000 outstanding options are exercisable
and 1,100,000 outstanding options vest over a period of two to five
years.
-11-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (CONTINUED):
(b) Stock option plan (continued):
(i) Changes in outstanding options for the year were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Number Exercise price per share
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding, January 1, 1999 - $ -
Granted 1,860,000 1.47 (US$1.00)
Granted * 80,000 0.74 (US$0.50)
--------------------------------------------------------------------------------------------------
Options outstanding, June 30, 1999 1,940,000
--------------------------------------------------------------------------------------------------
</TABLE>
* A holder of 30,000 options has the right to receive
30,000 warrants for the purchase of 30,000 additional
common shares at a price of $1.32 (US$0.90) per share
before September 2001.
(ii) Stock-based compensation:
The Corporation applies APB Opinion 25, Accounting for Stock
Issued to Employees, in accounting for its stock option plan.
Compensation cost of $241,058 (1998 - nil) for stock options
granted to non-employees has been recognized in the financial
statements for 1999. Had compensation cost for the
Corporation's stock option plan been determined based on the
fair value at the grant dates for awards under the plan
consistent with the method of FASB Statement 123, Accounting
for Stock-Based Compensation ("SFAS 123"), the Corporation's
net loss would have been adjusted to the pro-forma amounts
indicated below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Six months From From
ended inception to inception to
June 30, December 31, June 30,
1999 1998 1999
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss As reported $ 749,551 $ 287,509 $ 1,037,060
Pro-forma 1,120,362 287,509 1,407,871
------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (CONTINUED):
(b) Stock option plan (continued):
(ii) Stock-based compensation (continued):
The fair value of each option grant was estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: 1999 - risk-free
interest rate of 5.5%, dividend yield of 0%, expected
volatility of 90%, and expected life of 3 years. The per share
weighted average fair value of stock options granted during
1999 was $0.87 (US$0.59) (1998 - nil).
The effects of applying SFAS 123 for the pro-forma disclosures
are not representative of the effects expected on reported net
earnings in future years since valuations are based on highly
subjective assumptions about the future, including stock price
volatility and exercise patterns.
(c) Warrants:
During the six-month period ended June 30, 1999, the Corporation
issued warrants to purchase 9,727,667 common shares as follows:
- --------------------------------------------------------------------------------
Expiry date Exercise price per share
- --------------------------------------------------------------------------------
1,210,000 warrants August 2000 $ 1.32 (US$0.90)
2,717,667 August 2001 1.32 (US$0.90)
5,800,000 August 2001 0.74 (US$0.50)
- --------------------------------------------------------------------------------
9,727,667
- --------------------------------------------------------------------------------
Exercise price per share of the 5,800,000 warrants has been
determined at fair value at the time of the agreement. The rights of
certain warrants granted to Molex can be extinguished upon certain
circumstances (see note 3).
-13-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
7. LICENSE AGREEMENT:
Under the terms of a license agreement entered into in July 1998, Lumenon
has the rights to produce, sell, distribute and promote products derived
from the know-how relating to integrated optical components for Dense
Wavelength Division Multiplexing and Plastic Optical Fibre devices for
telecommunication, data communications and sensor applications. Lumenon is
committed to pay a royalty of 5% on gross sales up to a maximum amount of
$3,500,000 as defined in the agreement until October 2017.
8. Commitments:
(a) LILT leases premises under an operating lease agreement that expires
in January 2004. The lease contains a renewal option for a period of
five years at the end of the initial term and requires the
Corporation to pay all executory costs such as maintenance and
insurance. Rental payments under the terms of this lease are secured
by a prepayment of $6,500 and a pledge of $45,600 on the
universality of equipment in the leased premises.
Minimum lease payments under operating lease agreements for premises
and telephone equipment for the next five fiscal years are as follows:
- --------------------------------------------------------------------------------
2000 $ 69,100
2001 69,100
2002 69,100
2003 69,100
2004 40,300
- --------------------------------------------------------------------------------
(b) Under the terms of an agreement for the construction of the pilot
plant and the purchase of related equipment, the Corporation is
committed to pay $303,000.
9. SUBSEQUENT EVENT:
In July 1999, the Corporation issued 960,000 common shares at a price of
$1.47 (US$1.00) per share of which $146,820 was received before year-end
and 960,000 warrants for the purchase of 960,000 additional common shares
at a price of $2.21 (US$1.50) per share before June 2001. Effective
September 2, 1999, the Corporation issued 407,000 common shares at a price
of $5.89 (US$4.00) per share and 407,000 warrants for the purchase of
407,000 additional shares at a price of $8.83 (US$6.00) per share before
September 2000.
-14-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
10. INCOME TAXES:
Details of the components of income taxes are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
Net loss:
<S> <C> <C>
US operations $ 241,058 $ -
Canadian operations 508,493 287,509
- ----------------------------------------------------------------------------------------------------------
749,551 287,509
Basic income tax rate 38% 38%
- ----------------------------------------------------------------------------------------------------------
Computed income tax recovery 284,829 109,253
Adjustment in income taxes resulting from:
Loss carryforwards and unclaimed
deductions not recognized 193,227 109,253
Compensation cost not deductible for tax purposes 91,602 -
- ----------------------------------------------------------------------------------------------------------
$ - $ -
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, the income tax effect of temporary
differences that give rise to the net deferred tax assets are presented
below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Scientific research and experimental development $ 79,420 $ 4,500
Non-capital losses 228,000 104,000
Investment tax credits 280,000 -
Less valuation allowance (587,420) (108,500)
- -----------------------------------------------------------------------------------------------
$ - $ -
- -----------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
10. INCOME TAXES (CONTINUED):
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 and tax planning strategies in making this assessment. Since the
Corporation is a development stage corporation, the generation of future
taxable income is dependent on the successful commercialization of its
products and technologies.
At June 30, 1999, LILT, the Canadian Corporation, had accumulated
scientific research and experimental expenditures and other unclaimed
deductions which are available to reduce future years' taxable income.
Details of the available deductions are as follows:
- --------------------------------------------------------------------------------
Federal Provincial
- --------------------------------------------------------------------------------
Research and development expenditures,
without time limitation $ 209,000 $ 209,000
Losses carried forward:
Expiring 2006 600,000 600,000
- --------------------------------------------------------------------------------
In addition, research tax credits, not recorded in the accounts and
available to reduce future Federal income taxes payable, amount to
$280,000 and expire in 2009.
11. FINANCIAL INSTRUMENTS:
(a) Foreign currency risk management:
Options and warrants are exercisable in US dollars and convertible
promissory notes are payable in such currency. Ultimate proceeds
upon exercise of options and warrants as well as payments of
promissory notes may vary due to fluctuations in the value of the
Canadian dollar relative to the US currency.
-16-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS (CONTINUED):
(b) Credit risk:
Financial instruments that potentially subject the Corporation to
significant concentrations of credit risk consist principally of
short-term investments and accounts receivable.
The Corporation has investment policies that require placement of
short-term investments in financial institutions evaluated as highly
creditworthy.
In the normal course of business, the Corporation evaluates the
financial condition of the parties with which it contracts on a
continuing basis and reviews the credit worthiness of all new
parties. The Corporation determines an allowance for doubtful
accounts to reflect specific risks.
(c) Fair values:
The following table presents the carrying amounts and estimated fair
values of the Corporation's financial instruments at June 30, 1999
and December 31, 1998. The fair value of a financial instrument is
the amount at which the instrument could be exchanged in a current
transaction between willing parties. Fair value estimates are made
as of a specific point in time using available information about the
financial instrument. These estimates are subjective in nature and
often cannot be determined with precision.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
- ------------------------------------------------------------------------------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,722,871 $1,722,871 $ 529,670 $ 529,670
Sales tax receivable 237,539 237,539 21,093 21,093
Financial liabilities:
Accounts payable 523,550 523,550 71,349 71,349
Accrued liabilities 180,312 180,312 48,000 48,000
Convertible promissory note 298,720 298,720 - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying amounts shown in the table are included in the consolidated
balance sheet under the indicated captions.
-17-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Six-month period ended June 30, 1999 and periods from inception (March 2, 1998)
to December 31, 1998 and to June 30, 1999 (in Canadian dollars)
- --------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS (CONTINUED):
(c) Fair values (continued):
The following method and assumption were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, sales tax receivable, accounts payable,
accrued liabilities and convertible promissory note: The carrying
amounts approximate fair value because of the short maturity of
these instruments.
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Corporation,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
-18-
Plan of Reorganization, Merger and Acquisition
BY WHICH
WWV Development, Inc.
(A DELAWARE CORPORATION)
SHALL ACQUIRE AND MERGE INTO ITSELF
Lumenon Innovative Lightwave Technology, Inc.
(A CANADIAN FEDERAL CORPRATION)
AND SHALL ACQUIRE DEQUET CAPITAL, INC.
(a Nevada corporation)
AS WHOLLY-OWNED SUBSIDIARIES
This Plan of Reorganization, Merger and Acquisition was made and dated
this day of July 7, 1998, by and between the above referenced corporations, and
shall become effective on "the Effective Date" as defined herein.
I. RECITALS
A. The Parties to this Plan
1. WWV DEVELOPMENT, INC. ("WWV"), is a public Delaware
Corporation.
2. LUMENON INNOVATIVE LIGHTWAVE TECHNOLOBY, INC. ("Lumenon"), is
a private Canadian Federal corpration, as opposed to a
Canadian Provincial Corporation.
3. DEQUET CAPITAL, INC., A NEVADA CORPORATION("Dequet"), is a
private Nevada corporation, and a majority owned subsidiary of
Lumenon.
B. The Capital of the Parties:
1. THE CAPITAL OF WWV consists of 20,000,000 shares of common
voting stock of $.001 par value authorized, of which 255,000
shares are issued and outstanding, and 1,000 shares of
preferred stock of $0.001 par value, of which no shares are
issued or outstanding.
2. THE CAPITAL OF LUMENON consists of 100,000,000 shares of
common voting stock of no par value, of which 12,200,000
whares are issued and outstanding.
3. THE CAPITAL OF DEQUET consists of 50,000,000 shares of common
voting stock of $.001 par value authorized, of which
14,000,000 shares are issued and outstanding: 10,000,000
shares are owned by Lumenon ("The Dequet Control Block"), and
4,000,000 shares are owned by investors ("The Dequet
Investors").
<PAGE>
C. The Background for the Acquisition: WWV desires to acquire Lumenon by
merger and the shareholders of Lumenon wich to be acquired by the public company
and to be merged into it, with the result that the post-merger company shall
acquire the name of Lumenon. Dequet, being a majority-owned subsidiary of
Lumenon, the parties intend that Dequet shall become and thereafter be a
wholly-owned subsidiary of the resulting post-merger company.
D. The Board of Directors of all three Corporations respectively have
determined that it is advisable and in the best interests of each of them and
both of them to proceed with the acquisition by the Delaware Corporation, in a
tax-free corporate reorganization with reference to IRS ss.ss. 354 and 368 and
related provisions.
II. PLAN OF ACQUISITION AND MERGER
A. Reorganization and Acquisition: WWV Development, Inc. and the Lumenon
Innovative Lightwave Technology, Inc. are hereby reorganized, such that
(1) Lumenon shall be merged into WWV;
(2) The resulting post-merger Delaware Company shall be re-named
Lumenon Innovative Lightwave Technology, Inc.
(3) The Shareholders of Lumenon and the Shareholders of Dequet shall
both become shareholders of the resulting post-merger company; and
(4) Dequet Capital, Inc. shall become and be a wholly-owned
subsidiary of that resulting post-merger company.
B. Effective Date: This PLAN OF REORGANIZATION AND ACQUISITION shall
become effective immediately upon approval and adoption by the parties hereto,
in the manner provided by the law of the places of incorporation and constituent
corporate documents, subject to the laws and filing requirement of their
respective corporate jurisdictions, and the time of such effectiveness shall be
called the effective date hereof.
C. Conversion of Outstanding Stock: Forthwith upon the effective date
hereof, WWV Development, Inc. shall issue 16,200,000 shares of its common stock,
to or for the shareholders of Lumenon Innovative Lightwave Technology, Inc. and
the shareholders of Dequet Capital, Inc., share for share, such that the former
shareholders of Lumenon and of Dequet shall become and be shareholders of the
resulting post-merger company, in the following manner:
(1) The 12,200,000 existing shares of Lumenon shall be converted
to 12,200,000 new investment shares of WWV, pursuant to ss.4(2) of the
Securities Act of 1933;
-2-
<PAGE>
(2) The existing 10,000,000 shares of "Dequet Control Block" owned
by Lumenon shall be cancelled;
(3) the remaining 4,000,000 of Dequet shares owned by "the Dequet
Investors" shall be converted to 4,000,000 shares of WWV, pursuant to regulation
D, rule 504.
D. Surviving Corporation: The Delaware, Canadian and Nevada corporations
shall survive the Reorganization herein contemplated and shall continue to be
governed by the laws of its respective State of Place of Incorporation. The
Canadian Federal corporation, being merged into the Delaware Corporation shall
not survive the Reorganization.
E. Rights of Dissenting Shareholders:
WWV Development, Inc. is the entity responsible for the rights of
dissenting shareholders.
a. Service of Process: WWV Development, Inc.: may be served with
process in Canadian Federal in any proceeding for the enforcement of
the rights of a dissenting share holder, if any, pursuant to any extent
required by the laws thereof. The President of corporation hereby
irrevocably appoints the Canadian Federal Officer designated by law, if
any, as agent to accept service of process for the Canadian corporation
with respect to any such proceeding to the extent required by the laws
thereof.
b. Agent for Mailing Process: corporation hereby further attempts to
comply with the laws of Canada as may be applicable, by designating a
person to whom process served upon the Secretary of that state may be
forwarded and mailed: William Stocker, Special counsel, 34700 Pacific
Coast Highway, Suite 303, Capistrano Beach CA 92624.
F. Surviving Articles of Incorporation: the Articles of Incorporation of
each the Delaware and Nevada corporations shall remain in full force and effect,
unchanged.
G. Surviving By-Laws: the By-Laws of each surviving Corporation shall
remain in full force and effect, unchanged.
H. Further Assurance, Good Faith and Fair Dealing: the directors of each
Company shall and will execute and deliver any and all necessary documents,
acknowledgements and assurances and to do all things proper to confirm or
acknowledge any and all rights, titles and interests created or confirmed
herein; and both companies covenant hereby to deal fairly and good faith with
each other and each others' shareholders.
THIS PLAN OF REORGANIZATION AND MERGER is executed on behalf of each
Company by its duly authorized representatives, and attested to, pursuant to the
laws of its respective place of incorporation and in accordance with its
constituent documents.
-3-
<PAGE>
WWV Development, Inc. Lumenon Innovative
(a Delaware corporation) Lightwave Technology, Inc.
(a Canadial Federal corporation)
by
by
/S/ Louie Mikulic
_____________________________ /S/ S. Iraj Najafi
Louie Mikulic ______________________________
President S. Iraj Najafi
President
/S/ Pamela Alexander /S/ Mark P. Andrews
- ------------------------------ ------------------------------
Pam Alexander Mark P. Andrews
Secretary Secretary
Dequet Capital, Inc.
(a Nevada corporation)
/S/ Louie Mikulic /S/ Pamela Alexander
- ------------------------------ --------------------------------
Louie Mikulic Pam Alexander
President Secretary
-4-
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), hereby certifies as follows:
FIRST: The name of the Corporation is LUMENON INNOVATIVE
LIGHTWAVE TECHNOLOGY, INC.
SECOND: The name under which the Corporation was originally
incorporated was WWV Development, Inc., and the date of the filing of its
original Certificate of Incorporation with the Secretary of State was February
12, 1996.
THIRD: The Certificate of Incorporation of the Corporation is
hereby amended by this Amended and Restated Certificate of Incorporation as
follows:
1. Article FOURTH, referring to the Corporation's capital, is
amended to increase the authorized capital of the Corporation;
2. Former Article FIFTH, referring to the Corporation's
incorporator, is deleted in its entirety;
3. A new Article FIFTH, relating to indemnification of the
Corporation's directors, officers, employees and agents,
making mandatory such indemnification to the fullest extent
permitted by the General Corporation Law of the State of
Delaware (the "DGCL"), is added;
4. Article SIXTH (former Article SEVENTH), providing for
exculpation of the Corporation's directors, is amended to
incorporate without further act subsequent changes in the
DGCL's exculpatory provisions and to provide that the
subsequent repeal of the Article shall not affect rights
accruing prior to such repeal;
5. A new Article SEVENTH, providing for classification of the
Board of Directors, is added;
6. A new Article EIGHTH, making certain provisions for the
management of the Corporation, is added;
<PAGE>
7. A new Article NINTH, incorporating the provisions of DGCL
Section 102(b)(2), is added; and
8. A new Article TENTH, reserving the right to subsequently
amend, change or repeal any provision of the Amended and
Restated Certificate of Incorporation, is added.
FOURTH: The provisions of the Certificate of Incorporation of
the Corporation as herein amended are hereby restated and integrated into a
single instrument, which is hereinafter set forth, and which is entitled Amended
and Restated Certificate of Incorporation of Lumenon Innovative Lightwave
Technology, Inc., without any further amendment other than the amendments herein
certified and without any discrepancy between the provisions of the Certificate
of Incorporation and the provisions of such single instrument hereinafter set
forth.
FIFTH: The Amended and Restated Certificate of Incorporation
herein certified has been duly adopted by the Board of Directors of the
Corporation and has been duly approved by the stockholders of the Corporation in
accordance with Sections 228, 242 and 245 of the DGCL. Prompt written notice of
the adoption of the Restated and Amended Certificate of Incorporation herein
certified shall be given to those stockholders of the Corporation who have not
consented in writing thereto, as provided in Section 228(d) of the DGCL.
SIXTH: The effective time of the Amended and Restated
Certificate of Incorporation shall be upon its filing with the Secretary of
State of the State of Delaware.
SEVENTH: The text of the Corporation's Certificate of
Incorporation as heretofore and hereby amended is hereby restated to read as
herein set forth in its entirety:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
FIRST: The name of the Corporation is Lumenon Innovative Lightwave
Technology, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington, County of New Castle, State of Delaware 19801. The
name of the registered agent of the Corporation in the State of Delaware at such
address is The Corporation Trust Company.
THIRD: The nature of the business and, the objects and purposes
proposed to be transacted, promoted and carried on, are to do any lawful act or
thing for which a corporation may be organized under the General Corporation Law
of the State of Delaware (the "DGCL").
FOURTH: The aggregate number of shares of stock that the Corporation
shall be authorized to issue is 105,000,000, consisting of (i) 100,000,000
shares of common stock, $.001 par value (the "Common Stock"), and (ii) 5,000,000
shares of preferred stock, $.001 par value (the "Preferred Stock"). The Board of
Directors is expressly authorized to provide for the issuance of all or any
shares of the Preferred Stock, in one or more series, and to fix for each such
series such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof as shall be
stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of each such series and as may be permitted by
the DGCL. The number of authorized shares of Preferred Stock may be increased
(but not above the number of authorized shares of the class) or decreased (but
not below the number of shares thereof then outstanding). Without limiting the
generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or junior to the Preferred Stock of any other series to the extent
permitted by law. No vote of the holders of the Preferred Stock or Common Stock
shall be required in connection with the designation or the issuance of any
shares of any series of any Preferred Stock authorized by and complying with the
conditions herein, the right to have such vote being expressly waived by all
present and future holders of the capital stock of the Corporation.
FIFTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the DGCL, as the same may be amended and supplemented (or such
other provisions of the DGCL as may hereafter amend, modify or supersede such
Section 145), indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
<PAGE>
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
such offices, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
SIXTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, as it may hereafter be
amended from time to time, for any unlawful payment of dividend or unlawful
stock purchase or redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit. If the DGCL 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 DGCL, as
so amended. Any repeal or modification of this Article SIXTH by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation with respect to events occurring prior to the time
of such repeal or modification.
SEVENTH:
A. Subject to the rights, if any, of the holders of any series
of Preferred Stock to elect additional directors under specified circumstances,
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 total
number of directors that the Corporation would have if there were no vacancies
(the "Whole Board").
B. Directors shall be elected by a plurality of votes cast
and, commencing with the election of directors at the 1999 annual meeting of
stockholders of the Corporation, shall be divided into three classes, with
respect to the time that they severally hold office, as nearly equal in number
as possible, with the initial term of office of the first class of directors to
expire at the 2000 annual meeting of stockholders of the Corporation and until
their respective successors are elected and qualify (the "Class I Directors"),
the initial term of office of the second class of directors to expire at the
2001 annual meeting of stockholders of the Corporation and until their
respective successors are elected and qualify (the "Class II Directors") and the
initial term of office of the third class of directors to expire at the 2002
annual meeting of stockholders of the Corporation and until their respective
successors are elected and qualify (the "Class III Directors"). Commencing with
the 2000 annual meeting of stockholders of the Corporation, directors elected to
succeed those directors whose terms have thereupon expired shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders of the Corporation after their election and until their respective
successors are elected and qualify.
-2-
<PAGE>
C. (1) If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain or attain, if
possible, the equality of the number of directors in each class, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director. If such equality is not possible, the increase or decrease shall be
apportioned among the classes in such a way that the difference in the number of
directors in any two classes shall not exceed one.
(2) Subject to the rights of the holders of any series of
Preferred Stock, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause (other than a vacancy resulting from removal by the
stockholders, in which case such vacancy shall be filled by the stockholders)
shall be filled only by a majority vote of the directors then in office, though
less than a quorum, and a director so chosen shall hold office for the unexpired
portion of the term of the class in which such Director was chosen to serve and
until his successor is elected and qualifies. No decrease in the numbers of
authorized directors constituting the Whole Board shall shorten the term of any
incumbent director.
D. The affirmative vote of the holders of 80% of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock"), voting together as a single class, shall be required to amend or
repeal, or to adopt any provision inconsistent with Article SEVENTH Sections (B)
and (C), unless approved by at least two-thirds (2/3rds) of the Whole Board. In
the event that at least two-thirds (2/3rds) of the Whole Board approve any such
provision, then the affirmative vote of the holders of outstanding stock
representing at least a majority of the voting power of all of the then
outstanding shares of Voting Stock, voting together as a single class, shall be
required to amend or repeal, or to adopt any provision inconsistent with Article
SEVENTH Section (B) or (C).
E. Subject to the rights of the holders of Preferred Stock,
and unless this Certificate of Incorporation otherwise provides, where the Board
of Directors is classified as provided in Section 141(d) of the DGCL, any
director or the entire Board of Directors may be removed by stockholders only
for cause, and the affirmative vote of at least a majority of the voting power
of all the then outstanding shares of Voting Stock, voting together as a single
class, shall be required to effect such removal.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and its stockholders or
any class thereof, as the case may be, it is further provided:
A. The management of the business and the conduct of the
affairs of the Corporation, including the election of the Chairman of the Board
of Directors, if any, the President, the Treasurer, the Secretary, and other
principal officers of the Corporation, shall be vested in its Board of
Directors. The number of directors that shall constitute the Whole Board shall
be fixed by, or in the manner provided in, the By-Laws. No election of directors
need be by written ballot.
-3-
<PAGE>
B. The power to make, alter, or repeal the By-Laws, and to
adopt any new ByLaw, except a By-Law classifying directors for election for
staggered terms, shall be vested in the Board of Directors.
C. Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock that is denied voting power under the
provisions of the Certificate of Incorporation shall entitle the holder thereof
to notice of, and the right to vote at, any meeting of stockholders, except as
the provisions of paragraph (b) (2) of Section 242 of the DGCL, as the same may
be amended and supplemented, shall otherwise require.
NINTH: 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 Title 8 of the Delaware Code or on the application
of trustees in dissolution under Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or 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 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 the case may be, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, subject to the
limitations set forth in this Amended and Restated Certificate of Incorporation
and in the manner now or hereafter provided herein by statute, and all rights,
-4-
<PAGE>
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Amended and
Restated Certificate of Incorporation in its present form or as amended are
granted subject to the rights reserved in this Article TENTH.
IN WITNESS WHEREOF, the undersigned has duly executed this Amended and
Restated Certificate of Incorporation on this 1st day of November, 1999.
------------------------------------
Name: Vincent Belanger
Title: Treasurer and Chief Financial Officer
-5-
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATRED UNDER THE LAWS OF THE STATE OF DELAWARE
Capitalization 20,000,000 Shares CUSIP 55024L 10 9
COMMON STOCK
NUMBER at $.001 Par Value SHARES
1081 4,187,500
LUMENON INNOVATIVE LIGHTWAGE
TECHNOLOGY, INC.
THIS CERTIFIES THAT
RESTRICTED STOCK
SEE REVERSE SIDE
FOR LEGEND
IS THE RECORD HOLDER OF
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated: December 2, 1998
______________________________ __________________________
Secretary President
* CORPORATE SEAL * CORPORATE SEAL * CORPORATE SEAL
Lumenon Innovative Lightwave Technology Inc.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS A COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT HAS
BEEN MADE OR UNLESS AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION
PROVISIONS HAS BEEN ESTABLISHED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
SCHEDULE A
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
STOCK OPTION INCENTIVE PLAN
1. NAME AND PURPOSE OF PLAN
1.1 The stock option plan constituted hereby shall be known as the Stock Option
Incentive Plan.
1.2 The purpose of the Plan is to provide a means whereby those Employees of the
Company and its Subsidiaries who have the principal responsibility for the
successful administration and management of the Company and whose present and
potential contributions are important to its success can obtain a proprietary
interest in the Company thereby providing an incentive for continuing beneficial
service to the Company.
2. INTERPRETATION
In this Plan and in any Option, unless the context otherwise requires:
"Board" means, at any time, the board of directors of the Company in
office at that time;
"Company" means LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC., any of
its subsidiaries and any successor or continuing company resulting from
amalgamation of the Company and any other company or resulting from any
other form of corporate reorganization;
"Employee"means an individual who is a bona fide employee, director, or
officer of the Company and an individual or entity which is a
consultant of the Company;
"Employment" means the relationship of an individual who is a bona fide
employee, director, or officer of the Company and the relationship of
an individual or entity which is a consultant of the Company;
"Market Price" on any particular day means an average of daily high and
low board lot trading prices (with no discount) for the immediately
preceding five days on which trades occurred, on any public market on
which the shares of the company are traded;
"Option" means any option granted pursuant to the Plan;
"Optionee" means an Employee who has been granted an Option;
"Option Price" means the price at which Optioned Shares may be
subscribed for pursuant to an Option.
"Optioned Shares" means Shares which are the subject of an Option;
"Plan" means the Stock Option Incentive Plan as embodied herein and as
from time to time amended in accordance with the provisions hereof;
<PAGE>
"Shares" means Common Shares without par value in the capital of the
Company, as constituted at the effective date hereof;
"Subsidiary" has the same meaning, with respect to the Company, as that
term has under the Quebec Companies Act .
2.1 The masculine gender shall include the feminine gender and singular shall
include the plural and vice versa.
3. SHARES SUBJECT TO THE PLAN
3.1 The aggregate number of Shares which may be issued in respect of which
Options may be granted, at any time, shall be 2,500,000 which number of Shares
shall include the balance of authorized and unissued Shares in respect of which
Options are outstanding at that time (or such number, class and kind of shares
which, in accordance with section 12 hereof, shall be substituted therefor or
into which they shall be altered) and the requisite number of Shares shall from
time to time be appropriated for the purposes of the Plan and reserved and set
aside for issue upon the due exercise of Options. If any Option shall expire or
terminate for any reason without having been exercised in full, any Optioned
Shares not subscribed for thereunder shall be available for further Options.
3.2 The aggregate number of Shares in respect of which Options may be granted,
at any time to any one person, shall be that number of Shares which is equal to
5% of the number of Shares of the Company which are issued and outstanding at
that time, (or such number, class and kind of shares which, in accordance with
section 12 hereof, shall be substituted therefor or into which they shall be
altered).
4. GRANT OF OPTIONS AND ADMINISTRATION OF THE PLAN
Subject only to the express provisions of the Plan, the Board shall have the
sole authority:
- - to determine, in its own discretion, each Employee to whom, and the
time or times at which, and the Option Price and term for which, an
Option shall be granted and the number of Optioned Shares to be subject
to the Option;
- - to determine and approve from time to time the form of Options, and to
authorize an officer or officers to execute and deliver any Option on
behalf of the Company;
- - to interpret the Plan and to amend the Plan;
- - to modify or cancel the vesting period established in respect of any or
all Options, notably in the case of a take-over bid of the Company or
other forms of going private transaction;
- - to delegate its authority hereunder or any part thereof to the
remuneration committee of the Board; and
- - to make all other determinations and perform all such other actions as
the Board deems necessary or advisable to implement and administer the
Plan.
4.2 In making any determinations under subsection 4.1, the Board may take into
account the nature of the services rendered by the Employee, his present and
potential contribution to the
-2-
<PAGE>
success of the Company and its Subsidiaries and such other factors as to the
Board in its discretion shall deem applicable to carry out the purposes of the
Plan. The Board may, in its discretion, authorize the granting of additional
Options to an Optionee before an existing Option has terminated.
4.3 All decisions and interpretations of the Board respecting the Plan or
Options shall be binding and conclusive on the Company and on all Optionees and
their respective legal personal representatives and on all Employees.
5. TERM OF OPTIONS
5.1 No Option shall be for a term longer than ten years from the date of the
granting of the Option.
6. OPTION PRICE
6.1 The Option Price in any Option shall not be an amount less than the market
price of the optioned shares.
7. EXERCISE OF OPTIONS
7.1 Subject to the provisions of this section and sections 10 and 11 hereof,
each Option shall be exercisable in whole at any time or in part from time to
time during the term thereof.
7.2 An Option may be exercised at the applicable times and in the applicable
amounts by giving to the Company written notice of exercise signed by the
Optionee specifying the number of Shares to be subscribed for and accompanied by
full payment for the Shares to be subscribed for in cash or by cheque certified
by a Canadian chartered bank.
7.3 Except as provided in sections 9, 10 and 11 hereof, no Option may be
exercised in whole or in part at any time unless at the time of such exercise
the Optionee is an Employee.
7.4 At any time the Board may, by notice in writing to all Optionees under the
Plan, require each Optionee to elect, within such period as the Board shall
prescribe, to subscribe and pay for all the Optioned Shares then remaining
unsubscribed for under his Option, or to accept termination of his Option in the
event of his failing within such period to so elect or to exercise his Option
and to subscribe and pay for all such remaining Optioned Shares.
8. RIGHTS OF OPTIONEE
8.1 No Optionee shall have any of the rights of a member of the Company with
respect to any Optioned Shares until such Optioned Shares have been issued to
him upon exercise of the Option and full payment therefor has been made by him
to the Company.
-3-
<PAGE>
9. NON-TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by an Optionee and any
purported assignment or transfer of an Option shall be void and shall
render the Option void, but if the employment or position of an
Optionee with the Company or any of its Subsidiaries, as the case may
be, is terminated by reason of his death, the Optionee's legal personal
representative or representatives may exercise the Option in accordance
with section 10.
10. DEATH OR RETIREMENT OF OPTIONEE
10.1 If the employment or position of an Optionee with the Company or any of its
Subsidiaries, as the case may be, is terminated by reason of his death at any
time during the term of an Option, then, until the earlier of the expiry date of
the Option specified at the time of its grant, or the date which is one year
from the death of the Optionee, the Option may be exercised by the Optionee's
legal personal representative or representatives as to such maximum number of
Optioned Shares which the Optionee would have otherwise been entitled to
exercise the Option in respect of at the date of his death.
10.2 If the employment or position of an Optionee with the Company or any of its
Subsidiaries, as the case may be, is terminated by reason of his retirement in
accordance with the Company's policies relating to retirement of Employees at
any time during the term of an Option, then, until the earlier of the expiry
date of the Option specified at the time of its grant, or the date which is one
year from the retirement of the Optionee, the Option may be exercised by the
Optionee or by the Optionee's legal personal representative or representatives
if the Optionee dies within the period so specified as to such maximum number of
Optioned Shares which the Optionee would have otherwise been entitled to
exercise the Option in respect of at the date of his retirement.
11. TERMINATION OF EMPLOYMENT OF OPTIONEE
11.1 If the employment or position of an Optionee with the Company or any of its
Subsidiaries, as the case may be, is terminated for any reason other than as
specified in section 10 or subsection 11.2, then, until the earlier of the
expiry date of the Option specified at the time of its grant, or the date which
is 90 days from the termination of employment of the Optionee, the Optionee may
exercise his Option in respect of the number of Optioned Shares which the
Optionee was entitled to subscribe and pay for under the Option on the date of
termination of his employment.
11.2 If the employment or position of an Optionee with the Company or any of its
Subsidiaries, as the case may be, is terminated by the Company or any Subsidiary
for lawful cause, all of the rights of the Optionee under his Option shall
terminate and the Option shall become null and void effective immediately upon
such termination taking effect.
-4-
<PAGE>
11.3 Nothing contained in the Plan or any Option shall confer on any Optionee
any right to, or guarantee of continued employment by the Company or any
Subsidiary, or in any way limit the right of the Company or a Subsidiary to
terminate the employment of the Optionee at any time.
12. CHANGES IN CAPITALIZATION OR NUMBER OF OUTSTANDING SHARES
12.1 If, and whenever, prior to the issuance by the Company of all the Optioned
Shares under an Option, the Shares are from time to time consolidated into a
lesser number of Shares or subdivided into a greater number of Shares, the
number of Optioned Shares remaining unissued under the Option shall be decreased
or increased proportionately, as the case may be, and the subscription price to
be paid by the Optionee for each such Share shall be adjusted accordingly.
12.2 If from time to time any other change is made in the capital of the Company
or the Company amalgamates or combines, merges or consolidates with one or more
other companies or corporations (and the right so to do is hereby expressly
reserved by the Company) whether by way of arrangement, by exchange of shares,
or otherwise, in each such case each Option shall, unless the provisions of
paragraph 7.4 are made applicable, extend to and cover the number, class and
kind of shares or other obligations to which the holder of the Option would have
been entitled had the Option been fully exercised immediately prior to the date
such amalgamation, merger, combination or consolidation becomes effective and
the then prevailing subscription price of the Shares or other obligations so
covered shall be correspondingly adjusted if and to the extent that the Board
considers it to be equitable and appropriate.
12.3 Except as expressly provided in this section 12, the issue by the Company
of shares of any class, or of securities convertible into shares of any class,
for cash or property, or for labour or services, either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of Optioned Shares.
12.4 No Option shall in any way affect the right or power of the Company or its
members to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the capital structure of the Company or its
business, or any amalgamation, combination, merger or consolidation of the
Company, or any issue of bonds debentures, shares with special rights and
restrictions ranking ahead of or affecting the shares or the rights thereof, or
the dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business or any other corporate act or proceeding,
whether of a similar character or otherwise.
13. AMENDMENT AND TERMINATION OF THE PLAN
13.1 The Board may at any time terminate the Plan or make such amendments to the
Plan as it shall deem advisable provided that no such termination or amendment
shall adversely affect any outstanding Option except with the consent of all
affected Optionees.
-5-
<PAGE>
14. RIGHT TO OPTIONS
14.1 Nothing contained herein or in any resolution adopted or hereafter adopted
by the Board or any action taken by the Board shall vest the right in any person
whomsoever to receive any Option. No person shall acquire any of the rights of
an Optionee unless and until a written Option, in form satisfactory to the
Board, shall have been duly executed on behalf of the Company and delivered to
the Optionee and executed and delivered by the Optionee to the Company. Any
agreement purporting to be an Option shall, to the extent it may be contrary to
the express provisions of the Plan, be unenforceable by the Optionee against the
Company.
15. REGULATORY AND STOCK EXCHANGE APPROVALS OR CONSENTS
15.1 The Plan and all Options are subject to all consents, receipts, approvals
or other authorization by any securities commission, administrative agency,
other governmental authority or stock exchange on which shares in the capital of
the Company are or may become listed, which are requisite to the Plan and the
granting of Options.
16. EFFECTIVE DATE OF THE PLAN
16.1 The Plan shall become effective when it has been approved by the Board and
all requisite consents, receipts, approvals or other authorizations have been
obtained and complied with.
-6-
Warrant Number Number of Warrants
WW0002 LUMENON INNOVATIVE LIGHTWAVE 50,000
TECHNOLOGY, INC.
Incorporated Under The Laws Of The State Of Delaware
WARRANTS TO ACQUIRE SHARES OF COMMON VOTING STOCK
OF PAR VALUE $0.01, FULLY PAID AND NON-ASSESSABLE
This is to Certify that, for value received heretofore, Societe Financiere
Mirelis, S.A. or its registered assign, is the holder of 50,000 (Fifty Thousand)
warrants to purchase one share of common stock each, for and exercise price of
$0.90 per share exercise, at any time on or before August 23, 2001; and further,
is entitled, upon exercise, to receive a certificate or certificates for the
Common Stock so purchased, upon presentation and surrender to the Company, with
the form or subscription duly executed, and accompanied by payment of the
exercise price for each share purchased, either in cash or by certified check or
bank cashier's check, payable to the order of the company. Fractional shares of
the Company's Common Stock will not be issued upon the exercise of this Warrant.
The Company covenants and agrees that all shares of Common Stock which
may be delivered upon the exercise of this Warrant will, upon delivery, be free
from all taxes, liens and charges with respect to the purchase thereof
hereunder. This Warrant shall not be exercised by Holder in any state where such
exercise would be unlawful such as a state in which the Company's Common Stock
is not registered. The Company will not attempt to qualify the shares
represented by this Warrant for sale in jurisdictions where Holders of the
Company's Warrants reside, unless done as a part of the initial registration of
its securities.
The number of shares of Common Stock purchasable upon the exercise of
this Warrant and the purchase price shall be subject to adjustment from time to
time for any forward or reverse split of the Company's Common Stock.
The Company agrees at all times to reserve or hold available a
sufficient number of the shares of Common Stock to cover the number of shares
issuable upon the exercise of this and all other Warrants of the like tenor then
outstanding.
Witness the facsimile Seal of the Corporation and the facsimile Signatures of
its duly authorized officers.
S. Iraj Najafi Mark P. Andrews
President Secretary
LICENSE AGREEMENT
BY AND BETWEEN: POLYVALOR, Societe en commandite, hereinafter
represented by its General Partner, Polyvalor inc.,
having its principal place of business at 3744,
Jean-Brillant Street, 6th floor, Montreal (Quebec);
H3T 1P1;
(hereinafter referred to as "Polyvalor");
AND: MCGILL UNIVERSITY-THE ROYAL INSTITUTION FOR THE
ADVANCEMENT OF LEARNING, having its place of business
at 3550, University Street, Montreal (Quebec), H3A2A7;
(hereinafter referred to as "McGill")
(Polyvalor and McGill being collectively referred to as the "Licensor")
AND: LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGIES INC., having
its place of business at 481, Victoria, Westmount
(Quebec), H3Y 2R3;
(hereinafter referred to as "Licensee")
WHEREAS Licensor is the owner of valuable Know-How (as hereinafter
defined) relating to integrated optical components for Dense Wavelength Division
Multiplexing ("DWDM") and Plastic Optical Fibre ("POF") devices for
telecommunication, data communications and sensor applications;
WHEREAS Licensor is the owner of Patents (as hereinafter defined);
WHEREAS Licensor wishes to grant unto Licensee and Licensee wishes to
acquire from Licensor an exclusive Patent and Know-How License as to enable
Licensee to produce, sell, distribute and promote Products (as hereinafter
defined) throughout the world (the "Territory").
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS
HEREIN CONTAINED, IT IS HEREBY COVENANTED AND AGREED BY AND BETWEEN THE PARTIES
HERETO AS FOLLOWS:
<PAGE>
DWDM/POF Licence Agreement Page 2
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SECTION I - DEFINITIONS
1.1 In this Agreement,
1.1.1 "Patents" shall mean an Invention of M. Amir Farfad, Mark P. Andrews
and S. Iraj Najafi entitled "Solvent-assisted lithographic process
using photosensitive sol-gel derived glass for depositing ridge
waveguides on silicon" as more particularly described in a patent
application therefor filed in the Canadian Patent Office on October 10,
1997 under No. 2,218,273 and in the U.S. Patent and Trademark Office on
October 10, 1997 under No.08/948,511 as well as all improvements
referred to in section 5.1 and all patent applications which may be
filed in relation thereto in the Territory and all patents which may
issue therefrom and any continuation, extension, division, revalidation
, reissue or other combination or renewal of same;
1.1.2 "Know-How" shall mean all the present technical knowledge and
accumulated experience acquired by Licensor and its predecessors in
title under the supervision of Mark P. Andrews and/or S. Iraj Najafi as
a result of research, practical experience or otherwise, in the design,
manufacture, production, and/or use of integrated optical components
for DWDM and POF devices for telecommunication, data communications and
sensor applications including, without limiting the generality of the
foregoing: ideas, unpatented inventions, processes, manufacturing
procedures, methods, designs and data;
1.1.3 "Product" shall mean any product produced, sold or distributed by
Licensee embodying or using the Patents or the Know-How;
1.1.4 "Contract Year" shall mean that period of time commencing on the
Effective Date (as defined in section 10.1) and ending on December
31st, 1999 and any subsequent calendar year.
SECTION II - GRANT OF LICENSE
2.1 Subject only to the license granted to OPS Technology Inc. ("QPS") on
May 4, 1998, Licensor hereby grants unto Licensee, the latter hereby
accepting, the exclusive license to use the Patents and/or the Know-How
to manufacture, produce , sell and distribute Products in the Territory
and for no other purpose.
2.2 For so long as this Agreement shall remain in effect, Licensor
undertakes and agrees that it will not distribute or sell, now will it
grant to any party other than QPS any other right or license to
manufacture, produce, import, distribute, sell or otherwise deal in
Products or parts thereof anywhere in the Territory.
<PAGE>
DWDM/POF Licence Agreement Page 3
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2.3 However, it is understood that the Licensor and Ecole Polytechnique
shall have the right to use and to allow its students, professors,
staff and other researchers affiliated therewith and those of their
affiliates to use the Patents and Know-How but only for research and
teaching purposes.
2.4 Notwithstanding the above, it is understood that the Patents and
Know-How are licensed on an "as is basis". Except as otherwise
expressly set forth in this Agreement, McGill and Polyvalor make no
representations and extend no warranties of any kind, either expressed
or implied, including but not limited to warranties of merchantability
fitness for any particular purpose and validity of the Patents or the
Know-How.
SECTION III - CONSIDERATION
3.1 As consideration for the entering into of this Agreement and for the
rights granted herein, Licensee undertakes and agrees to:
3.1.1 pay to each of The Office of Technology Transfer of McGill and
Polyvalor a licensing fee of $5,000.00 payable upon signature of this
agreement;
3.1.2 pay to each of McGill and Polyvalor a royalty at the rate of two and
one half percent (2.5%) of Licensee's total gross sales and those of
any sub-licensee to dealers, distributors and users of any products and
services up to cumulative total royalty of $1,750,000 for each of
McGill and Polyvalor;
3.1.3 to issue to each of McGill and Polyvalor or their nominee(s) 750,000
publicly traded common shares of Licensee. However, McGill and
Polyvalor agree that such share will be subject to a hold period of up
to one year. Such hold period shall not be more unfavourable to McGill
and Polyvalor than the one imposed on the other shareholders of
Licensee which have similar shareholdings in Licensee. As long as
Licensor remains the beneficial owner of at least 500,000 common shares
of Licensee. Licensor shall have the right, to have one of its
representatives to be advised of and attend all board meetings as an
observer. If requested by Licensor, Licensee shall cause its
shareholders to appoint Licensor's representative as a director of
Licensee. In the event Licensor appoints a director, Licensee shall
obtain and pay for director liability insurance covering such director.
In addition, Licensor shall have the same rights to subscribe
additional common shares, to receive warrants and options for such
common shares and to be issued convertible debentures or other
securities of Licensee as the principal shareholders, officers and
directors of Licensee.
3.2 As used herein, the term "gross sales" mean the gross amount charged by
Licensee to its customers, less all sales, use or other similar taxes
paid or payable by Licensee in connection with such sales, quantity and
cash discounts actually allowed and credits for returned goods,
<PAGE>
DWDM/POF Licence Agreement Page 4
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cancelled sales or bad debts. In the event such sales are made to an
entity which is directly or indirectly controlled by Licensee or
related to Licensee in any way, "gross sales" for such sales shall be
deemed to be the gross sales price charged by Licensee for identical
products or services sold in the same period to similar customers not
so related or controlled to or by Licensee. If there are no such other
sales, then the "gross sales" shall be the gross sales price of such
related and/or controlled customers of Licensee to their customers.
3.3 For the purpose of computing when royalties pursuant to the provisions
of section 3.1.2 are due, a "gross sale" shall be deemed to have
occurred on the date on which the Licensee issues, in the ordinary
course of trade, an invoice to a customer with respect to the wares or
services referred to in section 3.1.2.
3.4 For the purposes of this section the term "License" includes any and
all allowed sub- licensees.
3.5 All such royalties shall be paid quarterly within thirty (30) days
after the end of each calendar quarter, and shall be accompanied by a
report reflecting the quantities of Products, produced and sold by
Licensee during each such quarter and such other information as
Licensor may reasonably require to substantiate the royalties due and
payable by Licensee hereunder.
3.6 If the payment of any royalties is delayed for any reason, interest
shall accrue on the unpaid principal amount of such royalties from and
after the date on which the same became due pursuant to this Section at
a rate equal four percent (4%) over the prime rate of interest charged
from time to time by the Laurentian Bank to its most credit-worthy
customers. This shall not be interpreted as giving the Licensee a right
not to pay on time under section 3.5.
3.7 In order that the royalties payable hereunder may be accurately
determined, and the statements provided for hereinabove be verified,
Licensee undertakes and agrees to keep full, clear, accurate and
complete books and records relating to its operations under this
Agreement, to be kept available for at least three (30 years from the
end of the financial year during which a sale was reported to Licensor.
All of the said records and books of Licensee shall be open at all
reasonable times and upon a five (5) day notice during business hours
for inspection and audit by any duly authorized representative or
representatives of Licensor, at the latter's expense, to ascertain the
accuracy of the royalty payments made hereunder by Licensee or claimed
to be due hereunder by Licensor, provided however, that if there shall
have been an error in favour of Licensee in excess of two percent (2%)
in computing royalties for the period audited, all reasonable expenses
in connection with such inspection and audit shall be borne by and paid
for by Licensee.
<PAGE>
DWDM/POF Licence Agreement Page 5
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3.8 Licensor shall hold strictly confidential and secret, and shall not
disclose and information concerning royalty payments or any information
learned in the course of any inpection or audit of the records and
accounts of Licensee, except as required by law or when it is necessary
for Licensor to reveal such information in order to enforce its rights
pursuant to the provisions of this Agreement.
3.9 Upon the demand of Licensor, but not more than once during any calendar
year, Licensee shall at its expense furnish to Licensor a detailed
statement by an independent Chartered Accountant, attesting to the
royalties due and payable hereunder as of Licensee's last fiscal year
end.
3.10 Receipt or acceptance by Licensor of any statement furnished pursuant
to this Agreement or any sum paid hereunder shall not preclude Licensor
from questioning the correctness thereof at any time during the period
three (3) years from receipt thereof but not thereafter, and in the
event that any mistake is discovered in any such statement or payment,
and Licensee is appraised thereof, Licensee shall immediately rectify
same.
3.11 Licensee shall allocate and pay Licensor all royalties payable
hereunder separately for each country and all required statements to be
provided to Licensor hereunder by Licensee shall be separate and
distinct with respect to each country.
3.12 All monetary amounts stated herein shall refer to the lawful currency
of Canada and all payments to Licensor hereunder shall be in Canadian
dollars based upon the foreign exchange rate existing upon the date of
payment to Licensee.
SECTION IV - MARKETING AND SALES PROMOTIONS
4.1 Licensee shall use its best efforts to develop, manufacture, produce,
promote, sell and distribute the Product in accordance with the terms
and conditions set forth in this Agreement.
SECTION V - DEVELOPMENTS AND IMPROVEMENTS
5.1 If during the term of this Agreement, Licensor shall develop new
improvements and/or additional know-how pertaining to DWDM or POF,
Licensor shall forth with supply Licensee with complete details
thereof. Licensee shall have a period of thirty (30) days from the
receipt of such details to notify Licensor in writing of its intentions
to obtain a license for the use of such improvements and/or Know-how.
Failure to respond shall be deemed a refusal. The parties agree to
negotiate in good faith the terms and conditions of such licence.
Licensor agrees not to disclose such details until the first of: i)
termination of licence
<PAGE>
DWDM/POF Licence Agreement Page 6
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negotiations or ii) six (6) months have elapsed since the date on which
the details where disclosed to Licensee.
5.2 If during the term of this Agreement, Licensee shall develop
independently new improvements to the Product and/or additional
know-how pertaining to the design, manufacture, production or use of
the Product, Licensee shall supply Licensor with complete details
thereof including details relating to all intellectual property rights
and any other rights relating to same. Licensee shall be the sole owner
of all of the above. Licensor as well as Ecole Polytechnique shall have
a perpetual paid-up non-exclusive license to use such improvements for
the purposes set forth in section 2.3 once adequate patent protection
is filed for.
SECTION VI - PATENTS
6.1 Licensor shall, at the reasonable request of Licensee, diligently file
and prosecute applications for the Patents for the strongest protection
reasonably available, maintain the Patents in force and transmit
promptly to the Licensee a copy of all applications, Patents and
official communications to and from any Patent Office as soon as
received. Licensee shall bear the fees and disbursements for the
preparation, filing, prosecution and maintenance of such applications
and Patents.
6.2 In the event Licensor refuses to file or prosecute a patent application
when requested by Licensee pursuant to section 6.1, intends not to file
or prosecute an application prior to a statutory or other deadline,
intends not to maintain a patent in force when so requested by Licensee
pursuant to Section 6.1 or fails to do any of the above, Licensor must
notify Licensee at least thirty (30) days prior to such deadline, and
Licensee may, in the name of the Licensor, file or prosecute such
application or maintain such Patent.
SECTION VII - INFRINGEMENT
7.1 Licensee agrees to notify Licensor, in writing, of any acts of
infringement or violation of the Patents immediately after any such
acts are brought to its attention or it has otherwise acquired
knowledge thereof. The parties agree to consult with each other as to
how to respond to each infringement or violation of the Patents. If the
parties jointly conclude that legal action should be taken with respect
to such infringement or violation, Licensor and Licensee shall promptly
and diligently prosecute such action. In such event, each shall pay the
following proportion of all costs and expenses and receive the same
proportion of all recoveries and awards with respect to said action:
Licensor: 5%
Licensor: 95%
<PAGE>
DWDM/POF Licence Agreement Page 7
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7.2 In the event Licensee advises Licensor that it will not participate in
such legal action, the Licensor shall be free to prosecute such action
as Licensor may deem advisable and in that connection, Licensee shall
assist Licensor in all reasonable ways and at all reasonable times, and
Licensor shall have the right to use the name of Licensee as a party to
the proceedings, either solely or jointly with Licensor's own name,
provided that Licensor shall pay all costs and expenses and in such an
event, Licensor shall be entitled to receive all recoveries and awards
in connection with such proceedings.
7.3 In the event Licensor advises Licensee that it will not participate in
such legal action, the Licensee shall be free to prosecute such action
as Licensee may deem advisable and in that connection, Licensor shall
assist Licensee in all reasonable ways and at all reasonable times, and
Licensee shall have the right to use the name of Licensor as a party to
the proceedings, either solely or jointly with Licensee's own name,
provided that Licensee shall pay all costs and expenses and in such an
event, Licensee shall be entitled to receive all recoveries and awards
in connection with such proceedings.
7.4 In the event that any suit, action, or other proceeding shall be
brought against Licensee involving any claim of patent infringement
based upon Licensee's manufacture and/or use, or sale of any Product:
7.4.1 Licensee shall promptly send to Licensor a copy of all proceedings
which have been served in such suit, action or other proceeding;
7.4.2 in the defence of any such claim, Licensor will cooperate fully with
Licensee, and will, from time to time, make available to Licensee all
relevant records, papers, information, samples, specimens and other
similar material;
7.4.3 should such suit, action or other proceeding relate to any Product
produced, sold or distributed by Licensee or method used by any user
thereof embodying or using the Patents or the Know-How and should
independent patent counsel acceptable to Licensor and to Licensee be of
the opinion that such Product or method constitute a clear infringement
of one or more of the claims mentioned in such suit, action or other
proceeding which has not been settled to the full exoneration of
Licensee six (6) months after the date of service thereof upon the
Licensee, Licensee shall have, as its sole recourse, the right to
terminate this Agreement upon written notice to Licensor.
7.5 Licensee and Licensor agree not to contest the ownership or validity of
the Patents either directly or indirectly in any way whatsoever.
<PAGE>
DWDM/POF Licence Agreement Page 8
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SECTION VIII - MAINTENANCE OF STANDARDS
8.1 All Products shall be manufactured, sold and advertised in compliance
with all applicable governmental laws, rules and regulations as well as
those of applicable certification agencies such as CSA and UL. Licensee
shall cause truthful and accurate labelling regarding the care,
maintenance and use of the Products, where applicable, to be affixed to
such Products.
SECTION IX - SUB-LICENSE AND ASSIGNMENT
9.1 Licensee shall not sub-license the rights and license granted pursuant
to the terms of this Agreement, except under the following conditions:
9.2 such sub-license shall terminate not later than on the date of
termination of this Agreement, whenever and for whatever cause such
agreement may be terminated;
9.2.1 Licensee will remain liable for the payment of the full royalty
required to be paid hereunder, aggregating all of the gross sales of
Licensee and such sub-licensees;
9.2.2 such sub-license shall require the sub-licensee to comply with all of
the terms, covenants and provisions of this Agreement other than the
payment of royalties of fees to Licensor as if it was the Licensee
under this Agreement;
9.2.3 save as other wise specified herein, Licensee will remain responsible
for the performance of all the terms, covenants and provisions of this
Agreement.
9.3 Licensee shall not have the right to assign the rights and license
granted pursuant to this Agreement, without the consent of Licensor,
which consent may not be unreasonably withheld. However, Licensor's
consent shall not be required if such assignment is made in the context
of a corporate reorganization and Licensor remains jointly and
severally responsible for the performance of all the terms, covenants
and provisions of this agreemently such assignee.
SECTION X - TERM OF AGREEMENT
10.1 The Effective Date of this Agreement and its obligations shall be the
day following the last closing of the proposed issue of up to US
$5,000,000 special warrants by private placement as specified in the
confidential information memorandum dated October 23, 1998. In the
event such closing does not occur prior to May 31, 1999, Licensor shall
have no further obligations under this Agreement which shall then be
deemed to never have existed.
10.2 This Agreement shall endure and continue in force and effect from the
Effective Date until October 10, 2017 unless previously terminated in
accordance with the provisions of this Agreement.
<PAGE>
DWDM/POF Licence Agreement Page 9
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SECTION XI - TERMINATION
11.1 The occurrence of any one or more of the Following events shall
constitute a default under this Agreement.
11.1.1 if any payment on account of the royalty is not made on due day;
11.1.2 Licensee institutes proceedings seeking relief under a bankruptcy law
or any similar law, or consents to entry of an order for relief against
it in any bankruptcy or insolvency proceeding or similar proceeding, or
files a petition for or consent or answer consenting to reorganization
or other relief under any bankruptcy act or other similar law, or
consents to the filing against it of any petition for the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of it or of any substantial part of its property, or
makes an assignment or a proposal for the benefit of creditors, or
admits in writing its inability to pay its debts as they become due, or
takes any action in furtherance of the foregoing;
11.1.3 the calling of a meeting of creditors, appointment of a committee of
creditors or liquidating agents, or offering of a composition or
extension to creditors by, for or of Licensee;
11.1.4 if Licensee or Licensor breaches materially any other provision of this
Agreement.
11.2 In the event of a default specified in sub-paragraph 11.1.1 which is
not corrected within thirty (30) days of written notice of such
default, Licensor thereafter shall have the right to immediately
terminate this Agreement. In the event of defaults specified in
sub-paragraph 11.1.2. or 11.1.3, Licensor will have the right to
immediately terminate this Agreement without notice.
11.3 In the event of a default specified in sub-paragraph 11.1.4 which is
not corrected within sixty (60) days of receipt of written notice
specifying the respect in which the defaulting party has breached this
Agreement, the other party shall have the right to immediately
terminate this Agreement.
11.4 No assignee for the benefit of creditors, receiver, liquidator,
sequestrator, trustee in bankruptcy, sheriff or any other officer of
the court or official charged with taking over custody of Licensee's
assets or business shall have any right to continue to use the Patents
or the Know-How.
11.5 Termination of this Agreement shall not release Licensee from any
payments or obligations due and payable or accrued to Licensor or
rescind any payment made or paid by Licensee
<PAGE>
DWDM/POF Licence Agreement Page 10
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to Licensor hereunder prior to the time such termination becomes
effective nor release Licensee from those obligations hereunder which
survive termination.
11.6 Furthermore, termination of this Agreement prior to the expiration of
its term shall be without prejudice to any other rights which Licensor
may have against Licensee, including, without limitation, damages for
breach to the extent that same may be recoverable.
11.7 In the event of the expiration or termination of this Agreement for any
reason, the Licensee and all allowed sub-licensees shall cease all use
of the Patents and the Know-How. Notwithstanding the foregoing, the
Licensee and its allowed sub-licensees shall the right:
11.7.1 for a period not exceeding three (3) months from the date of expiration
or termination, to complete the manufacture of Product components,
accessories and supplies which are in the process of manufacture at the
date of expiration or termination;
11.7.2 for a period not exceeding three (3) months from the date of expiration
or termination, to sell Products or parts thereof which are in its
possession, custody or control at the date of expiration or termination
or are made under the authority of section 11.7.1; and
11.7.3 complete the performance of services relating to Products if such
services were contracted for prior to the date of expiration or
termination.
SECTION XII - REPRESENTATIONS AND WARRANTIES OF THE LICENSOR
12.1 Licensor hereby represents and warrants unto Licensee that:
12.1.1 it is the owner of all rights, title, property, benefit and interest in
and to the Patents[ ] and that it has every legal right to enter into
this Agreement and to perform the terms and conditions hereof or its
part to be performed, fee of any encumbrances whatsoever;
12.1.2 it has made proper application in Canada for the Patent under No.
2,218,273 and in the US under No. 08/948,511.
12.1.3 it has entered no relationship or agreement, written or oral, expressed
or implied, inconsistent with the provisions of this Agreement except
for the license with QPS referred to in section 2.1;
12.1.4 Licensor has not received any notice that the manufacture, sale or use
any part of the Product by Licensee will constitute an infringement of
any patents or other proprietary rights owned by any third party;
<PAGE>
DWDM/POF Licence Agreement Page 11
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12.1.5 Licensor has made no investigations as to the matters set forth in
sub-paragraph 12.1.4 Licensee agrees that Licensor will not be charged
with constructive knowledge of any such infringement.
SECTION XIII - INDEMNIFICATION
13.1 Licensee shall indemnify and save and hold harmless Licensor from any
liabilities, claims, causes of action, suits, damages and expenses
(including reasonable attorney's fees and expenses) which Licensor is
or becomes liable for, or may incur, or be compelled to pay or pay by
reason of any acts, whether of omission or commission, that may be
committed or suffered by Licensee or any of its servants, agents or
employees in connection with Licensee's performance under the terms of
this Agreement or arising out of the use of any part of the Products
manufactured by or on behalf of or sold by Licensee. Licensee and/or
its sub-contractors and allowed sub-licensees shall assume all warranty
obligations to their customers in respect of such Products, and
Licensor shall have no liability either to Licensee, any allowed
sub-licensee or their respective customers in respect of such warranty
obligations.
SECTION XIV - ARBITRATION
14.1 Any dispute arising out of the present agreement shall be submitted to
the determination of a single arbitrator to be appointed in accordance
with provisions of the Quebec Code of Civil Procedure and his
determination of such matter shall be final and binding on both parties
and shall not be subject to appeal by either party. The fees and
expenses of the arbitrator, shall be borne equally by the parties.
SECTION XV - NOTICES
15.1 Any notice, demand, consent or other communication to be given in
connection with this Agreement (collectively and individually the
"Notice") shall be in writing and addressed to its addressee at the
address stated above or such addresses as a party may specify from time
to time by Notice.
15.2 Notices may be delivered by hand, overnight courier service (e.g.,
FEDEX, DHL) registered or certified mail or fax and shall be deemed to
have been received as follows:
15.2.1 If delivered by hand: at the time of delivery to a person
who appears reasonably to be in
charge.
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DWDM/POF Licence Agreement Page 12
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15.2.2 If sent by fax: at the time of
confirmed transmission provided a
confirmation copy is sent by airmail
or registered or certified mail
within twenty-four (24) hours after
the transmission.
15.2.3 If sent by registered or certified mail or by overnight courier service:
at the time of delivery or of
attempted delivery in the case
delivery cannot be completed due to
no fault of the sender.
15.3 If the time of such deemed receipt as provided in paragraph 15.2 hereof
is not during the customary hours of business, the Notice shall be
deemed to have been received at 10:00 a.m. at the place of delivery on
the first customary day of business thereafter.
SECTION XVI - GENERAL PROVISIONS
16.1 Interpretation. The parties hereto hereby declare that it is their
intention that the provisions of the Agreement apply fairly and without
detriment to the interest of any of them. [ ] Any inconsistency which
may exist between any terms and conditions of this document and that of
any related agreement shall be resolved in favour of the terms and
conditions of this document, unless such related agreement contains a
specific mention that such terms and conditions are not applicable.
16.2 Preamble. The preamble to this Agreement forms an integral part hereof.
16.3 Headings. Headings are for reference purposes and do not in any way
affect interpretation of this Agreement.
16.4 Entire Agreement. This Agreement and the memorandum referred to in
section 10.1 set forth the entire Agreement and understanding between
the parties with respect to the subject matter of this Agreement and
merges, supersedes and cancels all prior discussions, representations,
inducements, promises, undertakings, understandings, agreements or
otherwise, whether oral, in writing or otherwise, between the parties
with respect to such subject matter. Without limiting the generality of
the foregoing, no oral explanation or oral information provided by the
parties hereto, or any of them, shall alter the meaning or
interpretation of this Agreement. There are no statements, terms,
conditions, undertakings, representation, warranties or collateral
agreements still in force or effect which have not been embodied in
this Agreement. This Agreement may be altered, modified or amended only
by a written document signed by all the parties.
16.5 Further Agreements and Actions. The parties agree to cooperate with
each other and execute and deliver such further or other documents and
assurances and do such other acts as may, from time to time, reasonably
be required or deemed useful by the other party to protect the
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DWDM/POF Licence Agreement Page 13
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Patents or to effectively carry out or better evidence or perfect the
full intent and meaning of this Agreement or to otherwise give effect
to the provisions of this Agreement the party requesting any such act
shall reimburse the other party complying with such request for the
full cost of perform such act. Licensee agrees to assume all reasonable
costs relating thereto.
16.6 Independent Contractors. Each party is an independent contractor and
does not have any power (nor will it represent itself as having any
power) to in any way enter into commitments or contracts, assume
obligations, give any warranties, make any representation or incur
liability of any kind in the name of the other party or on behalf of
the other party or to otherwise bind or obligate the other or to assume
or create any expressed or implied obligation or responsibility on
behalf of the other or in the other's name. Nothing in this Agreement
shall construed to create a relationship of partners, joint venturers,
fiduciaries, master-servant, agency or other similar relationship
between the parties.
16.7 Waiver in Writing. No waiver of any breach of any term or provision
hereof shall be effective or binding unless made in writing and signed
by the party purporting to give the same and, unless other wise
provided, shall be limited to the specific breach waived.
16.8 Use of name. Licensee undertakes not to use the name of Polyvalor,
Ecole Polytechnique, McGill or any of their faculties or affiliates in
any brochure, catalogue, advertisement, notice, memorandum, prospectus
or other communications unless required by law or regulatory
authorities having jurisdiction without having previously obtained the
written consent of such person(s) which shall not be unreasonably
withheld.
16.9 Successors & Assigns. Subject to the provisions of section IX, this
Agreement shall enure to the benefit of and be binding upon the heirs,
executors, administrators, successors and permitted assigns of the
parties.
16.10 Applicable Law. This Agreement shall be governed, construed and
enforced in accordance with the laws in force in the Province of Quebec
and those of Canada applicable therein except for Patent matters which
shall be governed by the laws of the relevant country. Any disputes
arising under this Agreement, shall be subject to the exclusive
jurisdiction of the Courts of the Province of Quebec and both parties
hereby irrevocably attorn to the jurisdiction of the Courts of such
province.
16.11 Language. This Agreement has been drafted in the English language at
the request of the parties. A la demande des parties, cette convention
a ete redigee en langue anglaise.
<PAGE>
DWDM/POF Licence Agreement Page 14
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IN WITNESS WHEREOF, the parties have signed.
EXECUTED AT MONTREAL, QUEBEC, this __ day of __, 1998.
POLYVALOR INC.
Per: /s/ Dennis A. Beaudry
----------------------------------------
Name: Denis A. Beaudry
Title: President Directeul-General
MCGILL UNIVERSITY
Per: /s/ Alex Nauarre
----------------------------------------
Name: Alex Nauarre
Title: Director
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGIES INC.
Per: /s/ Najafi /s/ M. Andrews
----------------------------------------
Name: Najafi M. Andrews
Title: President Vice President
TEAMING AGREEMENT
THIS TEAMING AGREEMENT is made and entered into as of
the 19th day of May, 1999 ("Effective Date"), by and between Molex Incorporated,
a Delaware corporation ("Molex Inc."), having its principal place of business at
2222 Wellington Court, Lisle, Illinois 60532 and its subsidiary Molex Fiber
Optics, Inc. ("Molex Fiber"), having its principal place of business at 5224
Katrine, Downers Grove, Illinois 60515 and Lumenon Innovative Lightwave
Technology, Inc., a Delaware corporation ("Lumenon Parent") and Lilt Canada
Inc., Lumenon Parent's wholly-owned subsidiary ("LILT"), having a principal
place of business at 9060 Ryan Avenue, Dorval, Quebec H9P 2M8, Canada. "Molex"
and "Lumenon" have the meanings specified in Section 1. Hereinafter Molex and
Lumenon are sometimes collectively referred to as the "Parties."
WHEREAS Molex is in the business of manufacturing,
marketing and selling electrical and optical terminals and connectors;
WHEREAS Molex has the exclusive right to various
intellectual property related to its business, which intellectual property has
great value to Lumenon;
WHEREAS Lumenon has developed and acquired technical
knowledge and valuable expertise in development and design of integrated optical
waveguide;
WHEREAS Lumenon has the exclusive, worldwide right
(subject only to a license previously granted to QPS Technology Inc.) by license
between Polyvalor, McGill University and Lumenon Innovative Lightwave
Technology, Inc. of Canada (now Lilt Canada Inc.) to manufacture, produce, sell
and distribute products produced embodying or using the invention disclosed in
U.S. and Canadian patent applications entitled "Solvent-assisted lithographic
process using photosensitive sol-gel derived glass for depositing ridge
waveguides on silicon" filed in the Canadian Patent Office on October 10, 1997
under No. 2,218,273 and in the U.S. Patent and Trademark Office on October 10,
1997 under No. 08/948,511 and all present technical knowledge and accumulated
experience acquired by Licensor and its predecessors under the supervision of
Mark P. Andrews and/or S. Iraj Najafi;
WHEREAS Molex is interested in investing up to
$2,750,000 in cash and in kind contributions as part of a joint development with
Lumenon for the purpose of developing products for the DWDM market and other
photonics markets for which investment Lumenon is willing to issue to Molex a
certain number of shares in Lumenon Parent as provided for in the Stock
Restriction Agreement;
WHEREAS Molex and Lumenon have entered into a Stock
Purchase Agreement and Stock Restriction Agreement contemporaneously herewith,
wherein the Stock Restriction Agreement provides, among other terms, the right
for Lumenon Parent to raise $3,000,000 during the first twenty-four months after
the Effective Date pursuant to the specific terms and conditions set forth in
the Stock Restriction Agreement; and
<PAGE>
WHEREAS Molex, after Lumenon successfully proves out the
DWDM Technology by producing and delivering to Molex Three Device Types in
accordance with the terms and conditions hereinafter set forth, may continue to
support efforts to produce, market and distribute products based on these
Technologies.
In consideration for the mutual agreements set forth
below and other good and valuable consideration set forth in this Agreement,
the Parties agree as follows:
Section 1
DEFINITIONS
"Change of Control" shall have the meaning set forth in the Stock
Restriction Agreement.
"Control" (including, with correlative meanings, the terms
"Controlled by" and "under common Control with"), as used with
respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership
of voting securities, by agreement or otherwise.
"DWDM Technology" means all Intellectual Property owned by Lumenon,
either directly or via its shareholders and/or principals, related
to Dense Wavelength Division Multiplexing.
"Execution" means that each Party to this Teaming Agreement has
executed the Teaming Agreement.
"Gross Cost" means the sum of: (1) the cost of raw materials; (2)
direct labor including wages and employee benefits for the direct
labor people; (3) freight and duty for materials or for transfer of
products during the manufacturing process between factories; (4)
variable overhead costs related to volume of production, utilities,
and packing materials; (5) fixed overhead costs including
toolmakers, production engineering, supervisory labor, insurance,
depreciation, property taxes, and other manufacturing related
expenses; (6) administrative costs (at no more than 10% of Gross
Cost); and (7) royalties payable to non-Affiliate third parties for
intellectual property embodied or used in manufacturing the
products. The fixed and variable overhead costs shall be limited to
standard rates within the industry and shall not reflect any
additional costs caused by the nature of a start-up operation.
Depreciation will be based on useful lives as follows: molds (3
years); dies (3 years); assembly equipment (4 years); production
equipment (10 years) and buildings (25 years). Each Party will use
commercially reasonable efforts, subject to its good faith business
judgment, to minimize the elements of the "Gross Cost" within its
control.
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<PAGE>
"Initial Lumenon Intellectual Property" means Intellectual Property
that has been acquired, originated, developed, made, conceived,
authored or reduced to practice by Lumenon alone or jointly with
third persons other than Molex, its Affiliates and employees of
Molex and its Affiliates as of the Effective Date.
"Initial Molex Intellectual Property" means Intellectual Property
that has been originated, developed, made, conceived, authored or
reduced to practice by Molex and/or its Affiliates alone or jointly
with third persons other than Lumenon, its Affiliates and Lumenon's
employees or principals as of the Effective Date.
"Intellectual Property" means any and all information, inventions,
innovations, discoveries, improvements, ideas, developments,
methods, designs, reports, charts, drawings, analyses, concepts,
original works of authorship or similar information, including
methods, technology, reports, records, brochures, instructions,
manuals, computer apparatuses and/or software, programs and
manufacturing techniques, whether or not protectable by patent or
copyright.
"Lumenon" means Lumenon Parent and LILT, jointly.
"Marketing Phase" shall mean the commercial production of products
embodying the sol-gel waveguide portion of each of the Three Device
Types as described in Section 4 hereof.
"Molex" means Molex Inc. and Molex Fiber, jointly.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental or
regulatory body or other entity.
"Services Common Stock Purchase Warrant" means the Services Common
Stock Purchase Warrant to be issued by Lumenon to Molex Inc.
"Sol-Gel Technology" means all Intellectual Property owned by
Lumenon, either directly or via its shareholders and/or principals,
related to sol-gel technology
"Stock Restriction Agreement" means the Stock Restriction Agreement
dated as of the date hereof among Molex Inc., Lumenon Parent and
LILT and other stockholders of Lumenon Parent, which shall include,
among other terms, installation of a Molex Inc. designee and a Molex
Inc. observer on each of the governing boards of Lumenon Parent and
LILT.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated
as of the date hereof between Molex Inc., Lumenon Parent and LILT.
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<PAGE>
"Teaming Project" means all joint efforts between Molex and Lumenon
to technologically develop the Three Device Types in accordance with
the terms and conditions of this Teaming Agreement.
"Teaming Project Phase" shall have the meaning given to it in
Section 2.2 of this Teaming Agreement
"Three Device Types" means 8, 16 and 32 channel
multiplexers/demultiplexers.
"Target Specification" means the specification attached hereto as
Exhibit 1 for the Three Device Types.
Section 2
TERM OF TEAMING AGREEMENT
2.1 General Term of Teaming Agreement. The term
of this Teaming Agreement includes a Teaming Project Phase and then, at Molex's
sole option, a Marketing Phase. Molex may exercise its option to enter into the
Marketing Phase, in writing, no later than 60 days after the successful
completion of the Teaming Project Phase. This option period may be extended by a
writing executed by all of the Parties to this Teaming Agreement.
2.2 Term of Teaming Project Phase. The Teaming
Project Phase shall begin on the Effective Date of this Teaming Agreement and
continue for thirteen months or less if Molex determines that the Three Device
Types meets the Target Specification ("Project Completion Date"). The Project
Completion Date shall be extended by (1) written agreement of a management
committee comprised of the project managers from Lumenon and Molex and/or (2)
any aggregate delay caused by Lumenon's failure to timely reach any of the
milestones set forth in the Teaming Project Phase schedule set forth in Exhibit
2 hereto. Successful completion of a milestone shall be reasonably evaluated by
Molex.
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<PAGE>
Section 3
TEAMING PROJECT PHASE
3.1 Molex's Indirect Financial Contribution. In
addition to the cash provided to Lumenon in association with the Stock Purchase
Agreement, Molex will indirectly contribute an additional $1,250,000 in services
pursuant to this Agreement. To facilitate management of this indirect
contribution, upon Execution of this Teaming Agreement, Molex shall establish a
Special Account for the benefit of the teaming project. The "Special Account"
shall initially have a balance of zero and shall be used during the Teaming
Project Phase to track the increase of the amount of Molex's indirect financial
contribution. Nothing in this Teaming Agreement shall require Molex to segregate
any specific moneys for this Special Account. The Special Account will be
maintained according to standard accounting practices. In partial consideration
of Molex's performance of the services under this Agreement, Lumenon shall issue
a certain number of shares of Common Stock under the terms set forth in the
Services Common Stock Purchase Warrant.
3.2 Payments from the Molex Financial
Contribution. On a monthly basis, Molex shall submit an invoice to the Molex
Program Coordinator for expenses incurred by Molex during the previous month
with a copy of each invoice being sent to Lumenon. Such invoices shall contain a
breakdown of all expenses. Molex shall make payment or otherwise transfer money
on Molex's books for all acceptable expenses. To the extent they are associated
with the Teaming Project, acceptable expenses include: (a) reasonable
compensation for Teaming Project employees (including all federal, state, local
or foreign income, employment, social security and other taxes); (b) travel; (c)
food & lodging for Molex employees while in Canada; (d) additional equipment;
(e) supplies; and (f) rental of the Molex clean room facility (@ $250/day). All
invoiced expenses will be capable of substantiation.
3.3 Personnel. Lumenon and Molex shall assign
competent personnel in the performance of the work hereunder and will provide
each other a list of persons assigned to the teaming project phase with their
respective responsibilities, background and experience. The assignments shall
include the positions enumerated in Exhibit 3, which in Molex's case shall be
chargeable at the rates up to those disclosed in Exhibit 3. Lumenon shall not
assign any non-employees to work on this Teaming Project phase or otherwise
subcontract any of their obligations pursuant to this Teaming Agreement, without
prior written approval from the Molex Program Coordinator.
All persons furnished by Lumenon shall be considered solely Lumenon
employees or agents and Lumenon shall be responsible for payment to those
persons of their agreed compensation and all unemployment, social security and
other employment taxes including making contributions on their behalf when
required by law.
All persons furnished by Molex shall be considered solely Molex
employees or agents and Molex shall be responsible for payment to those persons
of their agreed compensation and
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<PAGE>
all unemployment, social security and other employment taxes including making
contributions on their behalf when required by law, which shall be chargeable to
the Special Account to the extent such payments are acceptable expenses.
Employees and agents of either of the Parties shall, while on the
premises of the other, comply with all reasonable requests of the other Party
and all rules and regulations for such facility including where required by
government regulation, submission of satisfactory clearance from the U.S.
Department of Defense or other governmental authority.
All Parties shall have their respective employees sign appropriate
confidentiality agreement to protect confidential information relating to this
Teaming Agreement.
3.4 Scope of Work - Lumenon. Lumenon shall be
responsible for developing the specifications and products for the Three Device
Types including material and process development; assisting in packaging design
and testing; producing Sol-Gel waveguides for testing and providing
characterization of same; and producing masks for device fabrication. Such work
shall proceed in accordance with the Schedule of Work set forth in Exhibit 2.
3.5 Scope of Work - Molex. Molex shall be
responsible for developing specifications and products for the Three Device
Types including pigtailing and packaging development and perform testing of
various devices. Such work shall proceed in accordance with the Schedule of Work
set forth in Exhibit 2.
Section 4
MARKETING PHASE
4.1 Source and Sales of Products. During the
Marketing Phase, the Three Device Types and the sol-gel wave guide portion of
the Three Device Types shall be produced, packaged (including pigtailing) and
sold under the conditions set forth below:
(a) Exclusivity Period. During the period from the
commencement of the Marketing Phase to the date 12 months thereafter
(the "Exclusivity Period"), the Parties agree that (i) Lumenon shall
be the sole manufacturer of the Three Device Types (including the
sol-gel waveguide portion thereof), (ii) Molex shall be the sole
packager (including pigtailing) of the Three Device Types; (iii)
Molex in its discretion may grant Lumenon the right to package the
Three Device Types; (iv) Lumenon shall sell its entire output of the
Three Device Types (including the sol-gel waveguide portion thereof)
to Molex, and Molex shall purchase at a price of the Gross Cost of
the Three Device Types plus 25%, Lumenon's entire output of the
Three Device Types; and (v) Lumenon shall not sell the sol-gel
waveguide portion of the Three Device Types to any Person other than
Molex. Notwithstanding the foregoing, in no event shall Molex be
required to purchase in excess of 400 units per calendar month
during the Exclusivity Period.
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<PAGE>
(b) Remaining Period. Following the completion of the
Exclusivity Period (the "Remaining Period"), the Parties agree that,
except as provided in Section 4.1(d) below, (i) Lumenon shall
manufacture and package (including pigtailing) the Three Device
Types (including the sol-gel waveguide portion thereof), and (ii)
Molex shall have the option of purchasing all of the Three Device
Types (including the sol-gel waveguide portion thereof) which are
produced by Lumenon on the terms which are contained on Exhibit 4
hereto. Molex shall be permitted to purchase such products from
Lumenon at their fair market value, subject to the provisions of
Section 4.1(c). Lumenon shall not sell any of the Three Device Types
(including the sol-gel waveguide portion thereof) without giving 30
days prior written notice to Molex.
(c) Pricing. During both the Exclusivity Period and the
Remaining Period, (i) Molex agrees to exercise its commercially best
efforts to sell products embodying the Three Device Types in
commercially reasonable quantities; and (ii) Lumenon agrees that it
shall sell to Molex its products, including but not limited to the
Three Device Types, on price terms not less favorable than offered
by Lumenon to any of Lumenon's other customers acquiring such
products (the "Price Terms"). Lumenon shall maintain adequate
records evidencing its compliance with this Section 4.1(c) (the
"Lumenon Pricing Records") for not less than two years from the date
of the payment of product sold to Molex by Lumenon . On not less
than 15 days' notice, the Pricing Records shall be made available to
a duly authorized representative of Molex during normal business
hours (the "Molex Pricing Audit") in order that Molex may verify
such calculation. Molex may only conduct a Molex Pricing Audit once
per calendar year. Molex shall have a period of one year from the
date of any payment for the sale of a product to notify Lumenon in
writing that Molex disagrees with the calculation of the Pricing
Terms for a product, following which such payment shall be deemed
final and in full satisfaction of Molex's rights thereto. Molex may
retain a recognized firm of chartered accountants reasonably
acceptable to Lumenon to conduct the Molex Pricing Audit, provided
that such accountants shall enter into a confidentiality agreement
with Lumenon containing the provisions set forth in Section 8.1 of
this Teaming Agreement. Such audit shall be at the cost of Molex
unless a shortfall of more than 10% is established in the amount of
the prices charged for the products during the audit period, in
which event Lumenon shall be under the obligation to reimburse Molex
twice the amount of such shortfall together with the cost of such
audit. Lumenon may dispute the findings of the audit pursuant to the
dispute resolution procedures of Section 10.14
(d) Failure to Supply or Change of Control. In the event
(i) Lumenon is unable to supply Molex or Molex Affiliates on a
timely basis with a commercially reasonable quantity of Three Device
Types (including the
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<PAGE>
sol-gel waveguide portion thereof), or (ii) there is a Change of
Control of Lumenon, then in each case Molex shall have the right to
manufacture all components of the Three Device Types (including the
sol-gel waveguide portion thereof). In the event that the condition
described in (i) in the preceding sentence takes place during the
Exclusivity Period, Molex's sole recourse (except as provided in the
following sentence) shall be the right to fabricate or purchase the
Three Device Types (including the sol-gel waveguide portion thereof)
elsewhere. Notwithstanding the foregoing sentence, if Lumenon is
unable to supply Molex or Molex Affiliates on a timely basis with a
commercially reasonable quantity of Three Device Types (including
the sol-gel waveguide portion thereof) following Lumenon's
acceptance of a purchase order with respect to such Three Device
Types, Lumenon shall be liable for all reasonable damages for which
Molex is liable to third parties as a result of such failure as well
as any premium transportation or other costs required to meet any
delivery schedule of Molex.
(e) Royalty. If Molex manufacturers the Three Device
Types (including the sol-gel waveguide portion) on a quarterly basis
Lumenon shall receive a royalty on each Three Device Type sold by
Molex (the "Lumenon Royalty"). The Lumenon Royalty shall be 25% of
the Gross Cost incurred by Molex which is directly attributable to
the Three Device Type sold. Lumenon Parent shall specify whether the
royalty shall be paid to Lumenon Parent or LILT. All payments shall
be made in U.S. dollars. With each payment of the Lumenon Royaly,
Molex will provide to Lumenon a report setting forth the calculation
of such Lumenon Royalty. Subject to the following sentence, if Molex
manufactures the Three Device Types (including the sol-gel waveguide
portion) and manufactures and sells more than 400 units in a
calendar month (the "Trigger Month"), the parties shall negotiate in
good faith a new royalty amount based on fair market value of such a
royalty for the units sold in excess of 400 units per calendar
month. In the event the Parties cannot agree within 90 days of the
last day of the Trigger Month on a new royalty for the units in
excess of 400 units per calendar month, any Party may submit the
dispute for resolution pursuant to Section 10.14 of this Teaming
Agreement. The foregoing two sentences shall not apply and be of no
force and effect if there is a Change of Control of Lumenon or if
Molex terminates this Teaming Agreement pursuant to Section 9.1 of
this Teaming Agreement. Molex shall maintain adequate records
evidencing the calculation of the Gross Cost related to each Lumenon
Royalty (the "Lumenon Royalty Records") for not less than two years
from the date of the payment of the Lumenon Royalty. On not less
than 15 days' notice, the Lumenon Royalty Records shall be made
available to a duly authorized representative of Lumenon during
normal business hours (the "Lumenon Royalty Audit") in order that
Lumenon may verify such calculation. Lumenon may only conduct a
Lumenon Royalty Audit once per calendar year. Lumenon shall have a
period of one year from the date of any payment of the Lumenon
Royalty to notify Molex in writing that Lumenon disagrees with the
calculation of the Lumenon Royalty following which such payments
shall be deemed final and in full satisfaction of Lumenon's rights
thereto. Lumenon may retain a recognized firm of chartered
accountants reasonably acceptable to Molex to conduct the Lumenon
Royalty Audit, provided that such accountants shall enter into a
confidentiality agreement with Molex containing the provisions set
forth in
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<PAGE>
Section 8.2 of this Teaming Agreement. Such audit shall be at the
cost of Lumenon unless a shortfall of more than 10% is established
in the amount of the Lumenon Royalty during the audit period, in
which event Molex shall be under the obligation to reimburse Lumenon
twice the amount of such shortfall together with the cost of such
audit. Molex may dispute the findings of the audit pursuant to the
dispute resolution procedures of Section 10.14.
4.2 Improved Packaging Source. If a third party
has packaging technology and/or method(s), which is jointly determined by Molex
and Lumenon to be an improvement over the packaging technology and/or method(s)
developed and/or used as part of this Teaming Agreement, Molex and Lumenon shall
cooperate (i) in purchasing outright or obtaining a license to use and/or
practice that improved third party packaging technology and/or method(s) or (ii)
if such technology and/or method is in the public domain, in developing such
improved packing technology and/or method(s).
4.3 Other Applications. Molex reserves the right
to use the products in applications other than those expressly contemplated by
this Teaming Agreement. Such use would be subject to the royalties enumerated in
Section 4.2.
4.4 Term of Marketing Phase. If Molex exercises
its option, the Marketing Phase shall commence upon the successful completion of
the Teaming Project Phase. The Marketing Phase shall continue for three (3)
years (the "Initial Term") and be renewable for an additional three year term,
at Molex's sole option, at (i) the conclusion of the Initial Term and (ii) each
successive three year period thereafter. Each such renewal option to be
exercised by Molex, in writing, no later than 120 days before the end of then
current term.
Section 5
COMPANY REPRESENTATIONS AND WARRANTIES
5.1 General Representations and Warranties. Each
of Lumenon Parent and LILT hereby represent, warrants and covenant to Molex
that:
(a) the facts set forth in the third, fourth and sixth
recitals hereto are true and correct;
(b) (i) it has all power and authority, statutory and
otherwise, to execute and deliver this Teaming Agreement, (ii) its
entry into this Teaming Agreement has been duly authorized by all
appropriate corporate action, and that its entry into this Teaming
Agreement does not constitute a breach of its Certificate of
Incorporation, By-laws, or any order, law, regulation, contract,
agreement or other instrument binding upon it and (iii) this Teaming
Agreement constitutes the legal, valid and binding obligation of
Lumenon enforceable against it in accordance with its terms except
as such enforceability may be limited by (1) bankruptcy, insolvency,
reorganization or other
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similar laws affecting the enforcement of creditors' rights
generally and (2) general principles of equity;
(c) it is a corporation duly organized, validly existing
and in good standing and has full corporate power to own, operate
and lease its properties and to carry on its business as now
conducted. Each of Lumenon Parent and LILT is duly qualified to do
business in Delaware and Quebec and is in good standing in such
jurisdictions;
(d) the execution, delivery and performance of this
Teaming Agreement by each of Lumenon Parent and LILT does not and
will not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which
Lumenon is a party or by which any of Lumenon Parent or LILT is
bound;
(e) Subject only to the terms of the license agreement
with Polyvalor and McGill University (a copy of which is attached
hereto as Exhibit 5), Lumenon has sufficient rights in and to all of
the Initial Lumenon Intellectual Property necessary to perform its
obligations pursuant to this Agreement; and
(f) Subject only to the terms of the license agreement
with Polyvalor and McGill University (a copy of which is attached
hereto as Exhibit 5), Lumenon is not party to or bound by any
employment agreement, non-compete agreement, confidentiality
agreement or other agreement with any other person or entity which
would affect Lumenon's ability to perform his obligations under this
Teaming Agreement.
Section 6
MOLEX REPRESENTATIONS AND WARRANTIES
6.1 General Representations and Warranties. Each
of Molex Inc. and Molex Fiber hereby represents, warrants and covenants to
Lumenon that:
(a) the facts set forth in the first, second, fifth,
sixth and seventh recitals hereto are true and correct;
(b) (i) it has all power and authority, statutory and
otherwise, to execute and deliver this Teaming Agreement, (ii) its
entry into this Teaming Agreement has been duly authorized by all
appropriate corporate action, and that its entry into this Teaming
Agreement does not constitute a breach of its Certificate of
Incorporation, By-laws, or any order, law, regulation, contract,
agreement or other instrument binding upon it and (iii) this Teaming
Agreement constitutes the legal, valid and binding obligation of
Molex enforceable against it in accordance with its terms except as
such enforceability may be limited by (1) bankruptcy, insolvency,
reorganization or other similar laws
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affecting the enforcement of creditors' rights generally and (2)
general principles of equity;
(c) it is a corporation duly organized, validly existing
and in good standing and has full corporate power to own, operate
and lease its properties and to carry on its business as now
conducted and that each of Molex Fiber and Molex Inc. is duly
qualified to do business in the State of Illinois and is in good
standing in such jurisdiction;
(d) the Execution, delivery and performance of this
Teaming Agreement by Molex Inc. and Molex Fiber does not and will
not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which
Molex is a party or by which Molex Inc. or Molex Fiber is bound;
(e) Molex is not party to or bound by any employment
agreement, non-compete agreement or confidentiality agreement with
any other person or entity which would affect Molex's ability to
perform its obligations under this Teaming Agreement; and
(f) Molex has sufficient rights in and to all of the
Initial Molex Intellectual Property necessary to perform its
obligations pursuant to this Agreement.
Section 7
INSURANCE AND INDEMNITY
7.1 Insurance.
(a) Lumenon Parent and LILT shall use commercially
reasonable best efforts, jointly, at all times during the term of
this Teaming Agreement and at their own expense provide and maintain
in effect, for commercially reasonable rates, those insurance
policies and minimum limits of coverage as designated below in
insurance companies each of which must be licensed to do business in
both the Canada and United States and be reasonably acceptable to
Molex and will comply with all the requirements stated in this
Section 7 with regard to such coverage:
(i) Worker's compensation and
similar employee benefits as required by
law.
(ii) Commercial General
Liability on an occurrence basis covering
all operations by or on behalf of Lumenon
arising out of or connected with this
Teaming Agreement providing insurance for
bodily injury, personal injury and property
damage liability with limits of liability
not less than: $ 1,000,000 USD for each
occurrence combined single limit (for bodily
injury and property damage).
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(iii) Auto Insurance on an
occurrence basis covering all driving by or
on behalf of Lumenon arising out of or
connected with this Teaming Agreement
providing insurance for bodily injury,
personal injury and property damage
liability with limits of liability not less
than $1,000,000 USD for each occurrence
combined single limit.
(iv) Umbrella/excess liability
Insurance on an occurrence basis covering
over the Commercial General Liability
Insurance and Auto Insurance providing
insurance for bodily injury, personal injury
and property damage liability with limits of
liability not less than: $ 5,000,000 USD for
each occurrence combined single limit (for
bodily injury and property damage).
(v) The total general aggregate
of the insurance policies required by
clauses (ii), (iii) and (iv) shall be no
less than $7,000,000.
The insurance shall not contain
any provision for co-insurance coverage and
shall include coverage against punitive
damages to the extent allowed by law. In no
way do these minimum requirements limit the
liability assumed elsewhere in this Teaming
Agreement.
(b) Molex and its Affiliates and their respective
officers, directors, employees and agents shall be named as
additional insureds for the General Liability policy. The policy(s)
shall be endorsed to stipulate that Lumenon Parent and LILT
insurance shall be primary insurance and that any other insurance
maintained by Molex and its Affiliates shall be excess only and
non-contributing.
(c) Certificates of Insurance shall be furnished by
Lumenon to Molex before work under this Teaming Agreement is
commenced by Lumenon and thirty (30) days prior to policy renewal.
The Certificates of Insurance shall provide that there will be no
cancellation or non-renewal of coverage without thirty (30) days
prior written notice to Molex. Copies of the endorsements required
hereunder shall be furnished with the certificates. If reasonably
requested by Molex, a certified copy of the actual policy(s) with
appropriate endorsement(s) shall be provided to Molex.
(d) To the extent permitted by law, Lumenon Parent and
LILT do hereby, and Lumenon shall use its commercially reasonable
efforts to cause its insurers and their subcontractor(s),
consultants, suppliers, and agents who are providing goods or
services in connection with this Agreement (regardless of tier) in
excess of $25,000 aggregated and their respective insurers, to waive
all rights of recovery or subrogation against Molex, its Affiliates
and their respective officers, directors, employee, agents, and
insurers. Lumenon Parent and LILT shall use commercial reasonable
effort to cause its subcontractor(s), consultants, suppliers and
agents (regardless of tier) and their
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respective insurers to acknowledge and agree to such waiver and
shall provide Molex with a copy of such waiver.
(e) Lumenon shall obtain insurance or shall reimburse
Molex and its Affiliates for loss or damage to any Molex-owned
property in the care, custody, or control of Lumenon, for all losses
including, but not limited to theft, loss, misappropriation or
destruction caused by Lumenon Parent and LILT, their employees,
agents, members or consultants whether intentional or through
negligence.
7.2 Indemnity.
(a) Each Party (the "Indemnifying Party") covenants and
agrees to defend, indemnify and hold harmless the other Party, its
Affiliates and their respective officers, directors and employees
from and against any claim, suit, loss or damage, including
reasonable attorneys fees, resulting from any third party suits
(excluding suits by Affiliates) to the extent arising out of or
relating to (i) the breach by the Indemnifying Party or its
employees or agents of any representation, warranty or covenant
contained in this Teaming Agreement, (ii) the injury or death of any
person resulting from the negligence or willful misconduct of the
Indemnifying Party or its employees or agents, (iii) damage to real
or tangible personal property resulting from the negligence or
willful misconduct of the Indemnifying Party or its employees or
agents, or (iv) the employment relationship of the Indemnifying
Party with its employees or the termination by the Indemnifying
Party of such employment relationship.
(b) Any Party seeking indemnification (the "Indemnified
Party") shall promptly notify the Indemnifying Party in writing of
any claim believed to be subject to indemnification; provided,
however, that no delay on the part of the Indemnified Party in
providing such notice shall relieve the Indemnifying Party from its
indemnification obligations except to the extent the Indemnifying
Party is prejudiced thereby. The Indemnified Party shall allow the
Indemnifying Party to control the defense of any third party claim
for which the Indemnified Party seeks indemnity under this Section 7
and shall cooperate in the Indemnifying Party's defense thereof, at
the expense of the Indemnifying Party. In the event the Indemnifying
Party shall not assume the defense of any such claim, the
Indemnified Party shall have the right, following written notice to
the Indemnifying Party, to undertake to defend or settle such claim
on behalf of and for the account of and risk of loss of the
Indemnifying Party. The Indemnifying Party shall not settle any
claim or consent to the entry of any judgment without the prior
written consent of the Indemnified Party. Notwithstanding the
foregoing sentence, the Indemnifying Party may settle any such claim
solely for the payment of money by the Indemnifying Party provided
that the Indemnified Party has no obligations with respect to such
settlement nor is precluded from acting in any manner thereby.
Section 8
CONFIDENTIALITY AND OWNERSHIP
OF INTELLECTUAL PROPERTY
8.1 Protection of Initial Lumenon Intellectual
Property.
(a) Trade Secrets.
(i) Molex acknowledges that
Lumenon is engaged in the business of
developing and designing integrated optical
waveguides (the "Lumenon Business"), and
that (1) the Lumenon Business is conducted
throughout the world (the "Territory"); (2)
Molex's work with Lumenon will give Molex
access to trade secrets of, and confidential
information concerning, Lumenon; (3) the
agreements and covenants contained in this
Teaming Agreement are essential to protect
the business and goodwill of Lumenon; and
(4) Molex has means to support Molex and
Molex's dependents and the provisions of
this Section will not impair such ability.
Molex specifically acknowledges that the
consideration provided to Molex is intended
to and does compensate Molex for any
inconveniences or economic deprivation
resulting from Molex's agreements hereunder.
Molex also acknowledges and agrees that the
restrictions imposed upon Molex by this
Section and the purposes for such
restrictions are reasonable and are designed
to protect the good will, trade secrets,
confidential and proprietary business
information and the continued success of
Lumenon without unduly restricting Molex's
future business.
(ii) Molex acknowledges that
Lumenon has a legitimate and continuing
proprietary interest in the protection of
confidential information of it and its
Affiliates and that, prior to the date
hereof, Lumenon has invested substantial
sums, and Lumenon will continue to invest
substantial sums, to develop, maintain and
protect confidential information. Molex
agrees that, during the term of this Teaming
Agreement and at all times thereafter Molex,
its principals, agents and employees shall,
and shall cause their Affiliates to, keep
secret and retain in strictest confidence,
and shall not use or disclose to any Person
for Molex's benefit or the benefit of others
any proprietary, confidential or secret
knowledge, data or matters, whether
transmitted in writing, orally, visually or
otherwise, used in, associated with or
related to Lumenon, its Affiliates, the
current or anticipated business of Lumenon
or its Affiliates, the research and
development activities of Lumenon or its
Affiliates together with analyses or
documents which contain or otherwise reflect
such matters ("Lumenon Confidential
Information"),
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including know how, technology, technical or
business information, financial information,
trade secrets, customer lists, names or
identities, details of client or consultant
contracts, pricing policies, operational
methods, marketing plans or strategies,
product development techniques or plans,
business acquisition plans, new personnel
acquisition plans, methods of manufacture,
drawings, specifications, personnel data,
processes, formulas, designs and design
projects, computer programs, inventions and
research projects of Lumenon, its Affiliates
or any other entity which may hereafter
become an Affiliate thereof, except as set
forth in Section 8.1(a)(iv). Without
limiting the foregoing, Molex acknowledges
and agrees that the Lumenon Confidential
Information consists of trade secrets and
confidential and proprietary business
information of Lumenon and is subject to the
protection of any applicable federal or
state trade secrets act.
(iii) Molex shall treat as
confidential all Lumenon Confidential
Information, shall not use such Lumenon
Confidential Information except as expressly
set forth herein or otherwise authorized in
writing, shall implement reasonable
procedures to prohibit the disclosure,
unauthorized duplication, misuse or removal
of Lumenon's Confidential Information and
shall not disclose such Lumenon Confidential
Information to any third party except as may
be necessary and required in connection with
the rights and obligations of such party
under this Teaming Agreement, and subject to
confidentiality obligation at least as
protective as those set forth herein.
Without limited the foregoing, Molex shall
use at least the same procedures and degree
of care which it uses to prevent the
disclosure of its own confidential
information of like importance to prevent
disclosure of Confidential Information
disclosed to it under this Teaming
Agreement, but in no event less than
reasonable care.
(iv) Notwithstanding the above,
the foregoing restriction shall not apply
with regard to any Lumenon Confidential
Information which:
(A) was generally
known and available at the time
it was disclosed or becomes
generally known and available
through no fault of Molex;
(B) was known to
Molex, without restriction, at
the time of disclosure as shown
by the files of Molex in
existence at the time of
disclosure;
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<PAGE>
(C) is disclosed
with the prior written approval
of Lumenon;
(D) was
independently developed by Molex
without any use of the Lumenon
Confidential Information and by
employees or other agents of
Molex who have not been exposed
to the Lumenon Confidential
Information, provided that Molex
can demonstrate such independent
development by documented
evidence prepared
contemporaneously with such
independent development;
(E) become known to
Molex, without restriction, from
a source other than Lumenon or
its Affiliates and disclosure of
such Lumenon Confidential
Information was without breach
of this Teaming Agreement by
Molex and otherwise not in
violation of Lumenon's rights;
or
(F) to the extent
(but only the extent) required
to be disclosed pursuant to the
order or requirement of a court,
administrative agency, or other
governmental body; provided,
that Molex shall provide prompt,
advanced notice thereof and to
enable Lumenon to seek a
protective order or otherwise
prevent such disclosure.
(v) All memoranda, notes, lists,
records, engineering drawings, technical
specifications and related documents and
other documents or papers (and all copies
thereof) relating to Lumenon, the Lumenon
Business, any of the Lumenon's Affiliates,
any of their respective successors and
assigns, any entity which might thereafter
become an Affiliate thereof or the business
of such Affiliates, including such items
stored in computer memories, microfiche or
by any other means, made or compiled by or
on behalf of Molex or made available to
Molex during the course of this Teaming
Agreement by Lumenon, its Affiliates or
their respective successors or assigns or
any entity which may hereafter become an
Affiliate thereof, shall remain the property
of Lumenon, its Affiliates or their
respective successors or assigns, and shall
be delivered to Lumenon promptly upon the
termination of this Teaming Agreement or at
any other time upon request. Molex shall
purge any and all copies of the data from
any computer storage medium or device and
provide Lumenon with written certification
of its compliance with such requirement.
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<PAGE>
(b) Patents, Trademarks, Copyrights and Mask Works.
Lumenon and its Affiliates shall retain ownership of any and all
patents, trademarks, copyrights, mask works which comprise part of
the Initial Lumenon Intellectual Property.
(c) License Grant by Lumenon. Subject to the terms of
this Teaming Agreement, Lumenon grants, and Molex accepts, a
worldwide, royalty-free, non-exclusive license to import,
manufacture, reproduce and/or use any and all products embodying
Initial Lumenon Intellectual Property during the Teaming Project
Phase of this Teaming Agreement. Upon the occurrence of the
circumstances described in the first sentence of Section 4.1(d) or
the termination of this Teaming Agreement for any reason (but
subject to Section 9.4), Lumenon grants, and Molex accepts, a
worldwide, non-exclusive license to import, manufacture, reproduce
and/or use any and all products embodying the Initial Lumenon
Intellectual Property subject to the royalty provisions of Section
4.1(e). The license set forth in the preceding sentence shall
include the right of Molex to sublicense the Initial Lumenon
Intellectual Property for the sole purpose of manufacturing and/or
reproducing products embodying the Initial Lumenon Intellectual
Property for delivery solely to Molex or a Molex Affiliate for (i)
Molex's or Molex Affiliates' use or (ii) sale by Molex or a Molex
Affiliate. The entity receiving the sublicense shall enter into a
confidentiality provision substantially similar to the provisions of
Section 8.1 prior to receiving any Initial Lumenon Intellectual
Property.
8.2 Protection of Initial Molex Intellectual
Property.
(a) Trade Secrets.
(i) Lumenon acknowledges that
Molex is engaged in the business of
designing, manufacturing and marketing
electrical and optical terminals, connectors
and conductors, including various products
for use in fiber optic communications (the
"Molex Business"), and that (1) the Molex
Business is conducted throughout the
Territory; (2) Lumenon's work with Molex
will give Lumenon access to trade secrets
of, and confidential information concerning,
Molex; (3) the agreements and covenants
contained in this Teaming Agreement are
essential to protect the business and
goodwill of Molex; and (4) Lumenon has means
to support Lumenon and Lumenon's dependents
and the provisions of this Section will not
impair such ability. Lumenon specifically
acknowledges that the consideration provided
to Lumenon is intended to and does
compensate Lumenon for any inconveniences or
economic deprivation resulting from
Lumenon's agreements hereunder. Lumenon also
acknowledges and agrees that the
restrictions imposed upon Lumenon by this
Section and the purposes for such
restrictions are reasonable and are designed
to protect the good will, trade secrets,
confidential and
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proprietary business information and the
continued success of Molex without unduly
restricting Lumenon's future business.
(ii) Lumenon acknowledges that
Molex has a legitimate and continuing
proprietary interest in the protection of
confidential information of it and its
Affiliates and that, prior to the date
hereof, Molex has invested substantial sums,
and Molex will continue to invest substantial
sums, to develop, maintain and protect
confidential information. Lumenon agrees
that, during the term of this Teaming
Agreement and at all times thereafter
Lumenon, its principals, agents and employees
shall, and shall cause their Affiliates to,
keep secret and retain in strictest
confidence, and shall not use or disclose to
any Person for Lumenon's benefit or the
benefit of others any proprietary,
confidential or secret knowledge, data or
matters, whether transmitted in writing,
orally, visually or otherwise, used in,
associated with or related to Molex, its
Affiliates, the current or anticipated
business of Molex or its Affiliates, the
research and development activities of Molex
or its Affiliates together with analyses or
documents which contain or otherwise reflect
such matters ("Molex Confidential
Information"), including know how,
technology, technical or business
information, financial information, trade
secrets, customer lists, names or identities,
details of client or consultant contracts,
pricing policies, operational methods,
marketing plans or strategies, product
development techniques or plans, business
acquisition plans, new personnel acquisition
plans, methods of manufacture, drawings,
specifications, personnel data, processes,
formulas, designs and design projects,
computer programs, inventions and research
projects of Molex, its Affiliates or any
other entity which may hereafter become an
Affiliate thereof, except as provided in
Section 8.2(a)(iv). Without limiting the
foregoing, Lumenon acknowledges and agrees
that the Molex Confidential Information
consists of trade secrets and confidential
and proprietary business information of Molex
and is subject to the protection of any
applicable federal or state trade secrets
act.
(iii) Lumenon shall treat as
confidential all Molex Confidential
Information, shall not use such Molex
Confidential Information except as expressly
set forth herein or otherwise authorized in
writing, shall implement reasonable
procedures to prohibit the disclosure,
unauthorized duplication, misuse or removal
of Molex Confidential Information and shall
not disclose such Confidential Information
to any third party except as may be
necessary and required in connection with
the rights and obligations of such Party
under this Teaming Agreement, and subject to
confidentiality obligation at least as
protective as those set forth herein.
Without limited the foregoing, Lumenon shall
use at least the same
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procedures and degree of care which it uses
to prevent the disclosure of its own
confidential information of like importance
to prevent disclosure of Molex Confidential
Information disclosed to it by the other
Party under this Teaming Agreement, but in
no event less than reasonable care.
(iv) Notwithstanding the above,
the foregoing restrictions shall not apply
with regard to any Confidential Information
which:
(A) was generally
known and available at the time
it was disclosed or becomes
generally known and available
through no fault of Lumenon;
(B) was known to
Lumenon, without restriction, at
the time of disclosure as shown
by the files of Lumenon in
existence at the time of
disclosure;
(C) is disclosed
with the prior written approval
of Molex;
(D) was
independently developed by
Lumenon without any use of the
Molex Confidential Information
and by employees or other agents
of Lumenon who have not been
exposed to the Molex
Confidential Information,
provided that Lumenon can
demonstrate such independent
development by documented
evidence prepared
contemporaneously with such
independent development;
(E) become known to
Lumenon, without restriction,
from a source other than Lumenon
or its Affiliates and that the
disclosure of such Molex
Confidential Information was
without breach of this Teaming
Agreement by Lumenon and
otherwise not in violation of
Molex's rights; or
(F) to the extent
(but only the extent) required
to be disclosed pursuant to the
order or requirement of a court,
administrative agency, or other
governmental body; provided,
that Lumenon shall provide
prompt, advanced notice thereof
and to enable Molex to seek a
protective order or otherwise
prevent such disclosure.
(v) All memoranda, notes, lists,
records, engineering drawings, technical
specifications and related documents and
other
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documents or papers (and all copies thereof)
relating to Molex, the Molex Business, any
of the Molex's Affiliates, any of their
respective successors and assigns, any
entity which might thereafter become an
Affiliate thereof or the business of such
Affiliates, including such items stored in
computer memories, microfiche or by any
other means, made or compiled by or on
behalf of Lumenon or made available to
Lumenon during the course of this Teaming
Agreement by Molex, its Affiliates or their
respective successors or assigns or any
entity which may hereafter become an
Affiliate thereof, shall remain the property
of Molex, its Affiliates or their respective
successors or assigns, and shall be
delivered to Molex promptly upon the
termination of this Teaming Agreement or at
any other time upon request. Lumenon shall
purge any and all copies of the data from
any computer storage medium or device and
provide Molex with written certification of
its compliance with such requirement.
(b) Patents, Trademarks, Copyrights and Mask Works.
Molex and its Affiliates shall retain ownership of any and all
patents, trademarks, copyrights, mask works which comprise part of
the Initial Molex Intellectual Property.
8.3 Contingent License Of Molex Intellectual Property. Upon
successful completion of the Teaming Project Phase if (i) Molex does not elect
to enter into the Marketing Phase or (ii) the Marketing Phase terminates through
no fault of Lumenon then, and only then, Molex grants, and Lumenon accepts, a
world-wide non-exclusive license to import, manufacture, reproduce, and/or sell
the Three Device Types embodying the Initial Molex Intellectual Property used in
connection with this Agreement. The license set forth in the preceding sentence
shall include the right of Lumenon to sublicense the Initial Molex Intellectual
Property for the sole purpose of manufacturing and/or reproducing products
embodying the Initial Molex Intellectual Property for delivery solely to Lumenon
for (i) Lumenon's use or (ii) sale by Lumenon. In such an event, Lumenon shall
pay Molex on a quarterly basis a royalty of twenty-five percent (25%) of the
Gross Cost incurred by Lumenon for each Three Device Type sold by Lumenon which
is directly attributable to the Three Device Type sold (the "Molex Royalty").
Such license is non-transferable. Lumenon shall maintain adequate records
evidencing the calculation of the Gross Cost related to each Molex Royalty (the
"Molex Royalty Records") for not less than two years from the date of the
payment of the Molex Royalty. On not less than 15 days' notice, the Molex
Royalty Records shall be made available to a duly authorized representative of
Molex during normal business hours (the "Molex Royalty Audit") in order that
Molex may verify such calculation. Molex may only conduct a Molex Royalty Audit
once per calendar year. Molex shall have a period of one year from the date of
any payment of the Molex Royalty to notify Molex in writing that Molex disagrees
with the calculation of the Molex Royalty following which such payments shall be
deemed final and in full satisfaction of Molex's rights thereto. Molex may
retain a recognized firm of chartered accountants reasonably acceptable to Molex
to conduct the Molex Royalty Audit, provided that such accountants shall enter
into a confidentiality agreement with
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Lumenon containing the provisions set forth in Section 8.1 of this Teaming
Agreement. Such audit shall be at the cost of Molex unless a shortfall of more
than 10% is established in the amount of the Molex Royalty during the audit
period, in which event Lumenon shall be under the obligation to reimburse Molex
twice the amount of such shortfall together with the cost of such audit. Lumenon
may dispute the findings of the audit pursuant to the dispute resolution
procedures of Section 10.14.
8.4 Non-Grant of Rights.
(a) Lumenon acknowledges that it has and will have no
right, title or interest in Initial Molex Intellectual Property or
technology other than as granted pursuant to this Teaming Agreement
and that it will not seek to obtain any patents, copyrights,
trademark rights, or other proprietary rights with respect thereto,
unless with the written consent and cooperation of Molex.
(b) Molex acknowledges that it has and will have no
right, title or interest in Initial Lumenon Intellectual Property
or technology other than as granted pursuant to this Teaming
Agreement and that it will not seek to obtain any patents,
copyrights, trademark rights, or other proprietary rights with
respect thereto, unless with the written consent and cooperation
of Lumenon.
8.5 Protection of Joint Intellectual Property.
(a) Generally. Both Molex and Lumenon acknowledge that
one of the primary purposes of this Teaming Agreement is to develop
marketable uses of the DWDM, POF, PHASIC and SOL-GEL Technologies,
including but not limited to the Three Device Types. Molex and
Lumenon agree that any information, inventions, innovations,
discoveries, improvements, ideas, developments, methods, designs,
reports, charts, drawings, analyses, concepts, original works of
authorship or similar information relating to the purposes of this
Teaming Agreement, including methods, technology, reports, records,
instructions, manuals, computer apparatus, programs and
manufacturing techniques, whether or not protectable by patent or
copyright, that have been originated, developed, made, conceived,
authored or reduced to practice ("Agreement Intellectual Property")
by Lumenon, its affiliates, Molex and/or its Affiliates jointly
during the term of this Teaming Agreement shall be the property of
and belong to both Molex and Lumenon, jointly.
(b) Disclosure of Intellectual Property. All Parties
shall promptly and fully disclose to the others the origination or
development of any Agreement Intellectual Property and shall provide
the others with any information that it may reasonably request about
the Agreement Intellectual Property.
-21-
<PAGE>
(c) Obtaining Necessary Rights to Intellectual Property.
Lumenon and Molex shall obtain from their respective employees and
agents any rights vested with those employees and agents and shall
assign same, as well as any rights held by Lumenon and Molex, to
each other as joint owners of all of the Agreement Intellectual
Property. Lumenon and Molex shall sign and shall require their
employees and agents to sign all documents necessary or appropriate
and shall otherwise fully cooperate with each other in order to
enable both to register or otherwise perfect the joint ownership of
the Agreement Intellectual Property, including for the preparation
and prosecution of copyright applications, patent applications,
design patent applications or similar filings and the procurement
and maintenance thereof. Any and all writings, software and/or other
copyrightable subject matter have been created as a "work for hire"
and accordingly are the property of Lumenon and Molex, jointly. In
the event that the copyrightable subject matter cannot constitute
work made for hire for the benefit of both companies under
applicable law, or in the event that any employees and/or agents
should otherwise retain any rights to any Agreement Intellectual
Property, Lumenon and Molex both agree to contractually obligate
their employees to:
(i) assign, and upon creation
thereof automatically assign, all right,
title, and interest in and to such Agreement
Intellectual Property to Lumenon and Molex,
jointly, without further consideration and
waive any and all moral rights such
employees may have therein;
(ii) execute any documents of
assignment or registration of copyright
requested by the Parties respecting any and
all copyrightable subject matter as directed
by the Parties and any waiver of moral
rights in connection therewith;
(iii) mark all materials created
under this Teaming Agreement with a
proprietary notice as directed by Lumenon
and Molex and shall take all actions deemed
necessary by Company to perfect Company's
rights therein;
(iv) acknowledge that all right,
title, and interest in and to any programs,
systems, data, and materials furnished to
Employee by Lumenon and/or Molex are and
shall remain the property of each respective
Party or both Parties jointly.
8.6 Employees and Consultants of the Other
Parties. During the period of this Teaming Agreement and continuing for a period
of one year commencing on the date of the termination (for any reason, with or
without cause) of the Teaming Agreement, neither Party nor any of its agents
shall, without the prior written consent of the other party, directly or
indirectly, hire or solicit, or cause others to hire or solicit, for employment
or engagement by any Person any employee or consultant of the other Parties or
their Affiliates or their
-22-
<PAGE>
respective successors or assigns or any person who was an employee or consultant
of any of such Parties at any time within the six-month period immediately prior
to the date on which such hiring would take place, or encourage any such
employee or consultant to leave such employee's or consultant's employment or
engagement.
8.7 Rights and Remedies Upon Breach. If
receiving Party and/or any of its agents breaches, or threatens to commit a
breach of, any of the provisions contained in this Section of the Teaming
Agreement (the "Restrictive Covenants"), the other Party shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to
these Parties under law or in equity:
(a) Specific Performance. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or
threatened breach of the Restrictive Covenants would cause
irreparable injury to the other Parties and that money damages would
not provide an adequate remedy to the other Parties.
(b) Accounting. The right and remedy to require the
receiving Party to account for and pay over to the other Parties all
compensation, profits, moneys, accruals, increments or other
benefits derived or received by the receiving Parties as the result
of any action constituting a breach of the Restrictive Covenants.
(c) Tolling. If the receiving Party engages in any
business in violation of the covenants set forth in this Teaming
Agreement, the running of the periods of limitation referred to in
this Section shall be tolled until such violation shall cease and
shall begin to run again only when the receiving Party shall be in
compliance with the provisions of such covenant, whether voluntarily
or pursuant to an order of a court.
(d) Severability of Covenants. The receiving Party
acknowledges and agrees that the Restrictive Covenants are
reasonable and valid in duration and geographical scope and in all
other respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full effect without regard to the invalid
portions.
(e) Blue-Pencilling. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographical scope of such provision,
such court shall have the power to reduce the duration or scope of
such provision, as the case may be, and, in its reduced form, such
provision shall then be enforceable.
-23-
<PAGE>
(f) Enforceability in Jurisdictions. Lumenon and Molex
intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of Illinois or any other jurisdiction
within the geographical scope of such Restrictive Covenants where
any breach of, or threatened breach of, any of the Restrictive
Covenants has occurred. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason
of the breadth of such scope or otherwise, it is the intention of
Lumenon and Molex that such determination not bar or in any way
affect the right of the other Parties to the relief provided above
in the courts of any other jurisdiction within the geographical
scope of such Restrictive Covenants, as to breaches of such
Restrictive Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
Section 9
TERMINATION
9.1 Termination by Molex. Molex Inc. shall have
the right to terminate this Agreement following the occurrence of any of the
following events:
(a) failure to complete the Teaming Project Phase as a
result of Lumenon's failure to perform its obligations pursuant to
this Agreement within 13 months following the Effective Date or such
late date as the parties may agree; or
(b) Lumenon's failure to comply with the Schedule of
Work attached hereto as Exhibit 2; or
(c) Molex's final rejection of any of the Three Device
Types by Molex during the Teaming Project Phase based upon
reasonable evaluation against the outlined specifications set forth
in Exhibit 1 hereto; or
(d) Lumenon Parent's or LILT's voluntary or involuntary
entrance into liquidation or receivership, or dissolution, or the
filing of a petition for bankruptcy or reorganization or for
suspension of payments, or adjudication as a bankrupt, or becoming
insolvent, or making any composition of assets for the benefit of
creditors; or
(e) Lumenon or any person acting on behalf of Lumenon
taking any act which violates any law and adversely affects
Lumenon's performance of its obligations under this Teaming
Agreement or any other Molex's reputation or goodwill or the
occurrence of any event that shall have the effect of making
performance of Lumenon's obligations hereunder illegal under the
laws of the United States or Canada; or
(f) failure by Lumenon to fulfill any of its other
material obligations or agreements under this Teaming Agreement, and
if such failure is capable of being
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<PAGE>
cured, such failure is not cured and remedied in full within thirty
(30) days after written notice is given to Lumenon by Molex; or
(g) Lumenon's failure to satisfy the closing conditions
specified in the Stock Purchase Agreement for the First Closing or
the Second Closing (each as defined in the Stock Purchase
Agreement); provided, however, that Molex shall not have the right
to terminate this Teaming Agreement pursuant to this Subsection
9.1(g) if Molex shall waive such closing conditions and consummate
the First Closing or Second Closing, as applicable.
9.2 Termination by Lumenon. Lumenon Parent shall
have the right to terminate this Agreement following the occurrence of any of
the following events:
(a) failure to complete the Teaming Project Phase before
the Project Completion Date as a result of Molex's failure to
perform its obligations pursuant to this Agreement; or
(b) Molex's failure to comply with the Schedule of Work
attached hereto as Exhibit 2; or
(c) Molex Inc.'s or Molex Fiber's voluntary or
involuntary entrance into liquidation or receivership, or
dissolution, or the filing of a petition for bankruptcy or
reorganization or for suspension of payments, or adjudication as a
bankrupt, or becoming insolvent, or making any composition of assets
for the benefit of creditors; or
(d) Molex or any person acting on behalf of Molex taking
any act which violates any law and adversely affects Molex's
performance of its obligations under this Teaming Agreement or
Lumenon's reputation or goodwill or the occurrence of any event that
shall have the effect of making performance of Molex's obligations
hereunder illegal under the laws of the United States or Canada; or
(e) failure by Molex to fulfill any of its other
material obligations or agreements under this Teaming Agreement, and
if such failure is capable of being cured, such failure is not cured
and remedied in full within thirty (30) days after written notice is
given to Molex by Lumenon.
9.3 Termination if No Second Closing at Molex's
Election. Unless otherwise agreed by Molex Inc. and Lumenon Parent, this Teaming
Agreement shall terminate immediately upon the date of the Second Closing if
Molex elects not to purchase shares of Common Stock pursuant to Section 1.6 of
the Stock Purchase Agreement.
9.4 Continuation of Certain Terms of this
Teaming Agreement. Following termination of this Teaming Agreement Sections 1,
4(i)(e), 5, 6, 7, 8 (provided, however, that
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<PAGE>
Section 8.3 shall only survive if the parties agree that the Teaming Project
Phase has been successfully completed as of the date of termination) and 10
shall remain in force in perpetuity. Notwithstanding the foregoing sentence,
Section 8.1(c) shall not survive termination of this Teaming Agreement if this
Teaming Agreement shall terminate pursuant to Section 9.3 hereof.
Section 10
OTHER PROVISIONS
10.1 Relationship of the Parties. The
relationship between Molex and Lumenon under this Teaming Agreement shall not be
seen as creating a partnership, joint venture, or association of any other kind.
(a) Lumenon shall be in no way authorized to make any
contract, agreement, warranty or representation on behalf of Molex
or to create any obligation on the behalf of Molex. Lumenon agrees
not to hold itself out as an agent of Molex. Lumenon shall be
responsible for and pay all federal, state, local or foreign income,
employment, social security and other taxes relating to its
engagement hereunder.
(b) Molex shall be in no way authorized to make any
contract, agreement, warranty or representation on behalf of Lumenon
or to create any obligation on the behalf of Lumenon. Molex agrees
not to hold itself out as an agent of Lumenon. Molex shall be
responsible for and pay all federal, state, local or foreign income,
employment, social security and other taxes relating to its
engagement hereunder.
10.2 Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission or sent by a nationally-recognized
overnight delivery service or by certified or registered mail, postage prepaid,
return receipt requested. Any such notice shall be deemed given when so
delivered personally or sent by facsimile transmission (with request of
assurance of receipt in a manner customary for communication of such type) and
on the date of actual receipt if sent by a nationally recognized overnight
delivery service or if mailed, as follows:
(a) if to Molex, to:
Molex Incorporated
2222 Wellington Court
Lisle, IL 60532
Attention: Louis Hecht, Corporate Secretary and
General Counsel and
Thomas Lee, Vice President,
New Ventures and Acquisitions
Fax: (630) 416-4962
-26-
<PAGE>
with a copy to:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Michael M. Froy, Esq.
Fax No. (312) 876-7934
(b) if to Lumenon, to:
Lumenon Innovative Lightwave Technology, Inc.
9060 Ryan Avenue
Dorval, Quebec H9P 2M8, Canada
Attention: Dr. Iraj S. Najafi
Fax No. (514) 631-0053
with a copy to:
De Grandpre Chaurette Levesque
2000 McGill College Avenue, Suite 1600
Montreal, Quebec H3A 3H3
Attention: Pierre Barnard
Fax No. (514) 499-0469
Either Party may change its contact person, address and facsimile
number for notice hereunder by notice to the other Party hereto.
10.3 Entire Agreement. This Teaming Agreement
contains the entire agreement between the Parties with respect to the subject
matter hereof and supersedes all prior discussions and agreements, written or
oral, with respect thereto. This Teaming Agreement shall be read in association
with the Stock Restriction and Stock Purchase Agreements.
10.4 Time of the Essence. Time is of the essence
for this Agreement.
10.5 Force Majeure. No liability hereunder shall
result to either Party from delay in performance or non-performance caused by
circumstances beyond the reasonable control of that party, such as acts of God,
fire, flood or other casualty, failure of utilities, war or government action.
In the event of any delay in a party's performance due in whole or in part to
any cause beyond that party's reasonable control, that Party shall promptly
notify the other Party in writing of such event and shall have such additional
time for performance as may be reasonably necessary under the circumstances.
Notwithstanding the foregoing, if such
-27-
<PAGE>
event continues for more than thirty (30) days, Molex may cancel any order with
respect to any products not delivered and purchase products elsewhere, and Molex
shall be under no obligation to accept or pay for the same or compensate Lumenon
for any expense which it may have incurred.
10.6 Exclusion of Consequential Damages. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY AND ITS SUCCESSORS OR
ASSIGNS, FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, LOST PROFITS, COSTS OF DELAY, ANY FAILURE OF DELIVERY, COSTS OF LOST
OR DAMAGED DATA OR DOCUMENTATION, OR OTHER LIABILITIES TO THIRD PARTIES ARISING
FROM ANY SOURCE.
10.7 Waivers and Amendments. This Teaming
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms and conditions hereof may be waived, only by a written instrument signed
by the Parties or, in the case of a waiver, by the Party waiving compliance. No
delay on the part of any Party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof. No waiver on the part of any Party
of any right, power or privilege hereunder, or any single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
10.8 Governing Law and Enforcement. This Teaming
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois, U.S.A. and enforcement of this Teaming Agreement or any
action taken or held with respect to this Teaming Agreement may be taken in the
courts of appropriate jurisdiction in Illinois. Each of the Parties agrees that
if, at the commencement of or during such action, a Party does not then reside
within the jurisdiction of that court before which the action is brought, that
Party will submit to the jurisdiction of that court and will accept service of
process and any other papers, orders or judgments by any method permitted by the
rules of that court, by mail, by private process server or by any other method
ordered by the court.
10.9 Assignment and Subcontracting. Neither Party
may delegate its duties hereunder without the prior written consent of the other
party. This Teaming Agreement shall not be assignable by either party. Any
attempt by either Party to delegate any of its duties or to assign any of its
rights hereunder without the written prior consent of the other Party shall be
null and void. Notwithstanding the foregoing provisions of this Section 10.9,
Molex Fiber may, without the prior consent of Lumenon, transfer this Teaming
Agreement to (i) Molex Inc. or (ii) any wholly-owned subsidiary of Molex Inc. if
such subsidiary acquires substantially all the operations of Molex Fiber and
provided that Molex Inc. shall be responsible for the performance by such
Affiliate of its obligations pursuant to this Agreement.
-28-
<PAGE>
10.10 Counterparts. This Teaming Agreement may be
executed in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
10.11 Headings. The headings in this Teaming
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Teaming Agreement.
10.12 Severability. This Teaming Agreement shall
be deemed severable and the invalidity or unenforceability of any term or
provision shall not affect the validity or enforceability of this Teaming
Agreement or of any other term or provision hereof.
10.13 Parties in Interest. Except as expressly
contemplated hereby, this Teaming Agreement shall be binding upon and inure
solely to the benefit of each Party hereto, and nothing in this Teaming
Agreement is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Teaming Agreement. Affiliates,
successors and assigns of Molex and Lumenon are expressly entitled to the
benefits inuring to them under this Teaming Agreement.
10.14 Dispute Resolution. In the event of any
dispute, claim, question, or disagreement arising from or relating to this
Teaming Agreement or the breach thereof, the Parties hereto shall attempt to
settle the dispute, claim, question, or disagreement. To this end, they shall
consult and negotiate with each other in good faith and attempt to reach a just
and equitable solution satisfactory to both Parties . If they do not reach such
solution within thirty days, then, upon notice by either Party to the other,
dispute claims, questions, or difference shall be settled by binding arbitration
under the Commercial Rules of Arbitration of the American Arbitration
Association by open arbitrator appointed in accordance with said rules. The
arbitrator shall apply Illinois law to the merits of any dispute or claim,
without reference to rules of conflict or law or arbitration. The arbitrator's
award shall be in writing and shall specify the factual and legal bases for the
award. The arbitrator will have no authority to issue an injunction or to award
punitive or other damages not measured by the prevailing party's actual damages
and may not, in any event, make any ruling, finding, or award that does not
conform to the terms and conditions of this Teaming Agreement. Judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction
hereof. The arbitral proceedings and all pleadings and written evidence shall be
in English language. Any written evidence originally in language other than
English shall be submitted in English translation accompanied by the original or
a true copy thereof. Neither Party nor an arbitrator may disclose the existence,
contest, or results of any arbitration hereunder without the prior written
consent of both Parties . Notwithstanding the foregoing, the Parties may apply
to any court of competent jurisdiction for injunctive relief without breach of
this arbitration provision.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this
Teaming Agreement as of the date first above written.
MOLEX INCORPORATED
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
MOLEX FIBER OPTICS, INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
LILT CANADA INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
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<PAGE>
EXHIBIT 1
Preliminary Data Sheet for Dense WDM Multiplexer and Demultiplexer
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------- ----------------------------------------------------
Specification Parameter
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
8, 16, 32 Number of channels
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
200 GHz, 100 GHz Channel spacing
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
+0.1 nm Channel center accuracy
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
>0.3 nm @ 100 GHz spacing Channel width (3 dB)
>1.0 nm @ 200 GHz spacing
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
<5 dB for 32 Channel Optical insertion loss
<4 dB for 16 Channel
<4 dB for 8 Channel
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
<1.5 dB Insertion loss uniformity
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
>35 dB Optical return loss
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
<-30 dB Optical crosstalk
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
0(degree)C to 70(degree)C Operating temperature range
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
-40(degree)C to 85(degree)C Storage temperature range
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
+5 GHz over operating temperature range Temperature dependence of channel
center frequency
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
+0.5 dB over operating temperature Temperature dependence of insertion
range loss
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
Open Dimensions
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
Standard SM Fiber
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
Customer specified Connector
- ----------------------------------------------------- ----------------------------------------------------
</TABLE>
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<PAGE>
EXHIBIT 2
---------
Article 1 Define details target specification for 8, 16,
and 32 channel DWDM multiplexers/demultiplexers.
Article 2.1
Title:
Material and process development
Purpose:
Determine specific device parameters needed
to produce final devices by iteratively producing
waveguide devices and measuring characteristics.
Output:
Device parameters are acceptable input to
Article 3, allowing successful design of devices Primary
responsibility:
Lumenon
Facilities/Equipment:
Molex Fiber Optics clean room
Personnel:
2 Lumenon engineers @ Molex Fiber Optics
Timeline:
Months 1-6
Article 2.2
Title:
Pigtailing and packaging development
Purpose:
Determine pigtailing and packaging strategy.
Output:
Acceptable pigtailing method is developed
that satisfies coupling requirements over specified
range of environmental conditions.
Responsibility:
o Molex Fiber Optics to design/test pigtailing
o Lumenon to assist in design/test
Facilities/Equipment:
Molex Fiber Optics clean room
Personnel:
o 1 Molex Fiber Optics engineer
o 1 Lumenon engineer @ Molex Fiber Optics
Timeline:
Months 1-6
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<PAGE>
Article 2.3
Title:
Sol-gel chip reliability
Purpose:
Determine environmental effects on sol-gel
waveguides.
Output:
Determination whether sol-gel waveguides can
handle Bellcore environmental stresses under (i)
unpackaged, (ii) encapsulated, or (iii) hermetically
packaged conditions Responsibility:
o Lumenon to provide sol-gel waveguides
o Lumenon to provide characterization of
waveguides
o Molex Fiber Optics to perform environmental
testing
Facilities/Equipment:
Molex Fiber Optics environmental chamber
Personnel:
o 1 Lumenon engineer @ Lumenon
o 1 Molex Fiber Optics engineer
Timeline:
Months 1-2
Article 3
Title:
Device design
Purpose:
Design fully functional devices as specified
in Article 1 Output:
o Successful design of functional devices
using device parameters determined in
Article 2.1
o Photolithography mask sets needed to
fabricate devices
Responsibility:
Lumenon
Facilities/Equipment:
None
Personnel:
1 Lumenon engineer @ Lumenon
Timeline:
Month 7
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<PAGE>
Article 4
Title:
Device manufacturing/first article
Purpose:
Build fully functional, packaged devices
that can be sampled to customers Output:
5 fully packaged, functional devices of each
device type meeting the parameters specified in Article
1 Responsibility:
o Device fabrication; Lumenon
o Device packaging: Molex Fiber Optics
o Device characterization: Lumenon
o Environmental testing: Molex Fiber Optics
Facilities/Equipment:
o Molex Fiber Optics clean room
o Molex Fiber Optics environmental testing
chambers
o Lumenon characterization facility
o Molex-supplied equipment needed for
characterization Personnel:
o 3 Lumenon engineer @ Molex Fiber Optics
o 1 Lumenon engineer @ Lumenon
o 2 Molex Fiber Optics engineers
Timeline:
Months 8-13
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<PAGE>
EXHIBIT 3
---------
- --------------------------------------------------------------------------------
Employer Job Description Salary Travel & Living
- --------------------------------------------------------------------------------
Molex Packaging Engineer $150,000 $25,000
- --------------------------------------------------------------------------------
Molex Reliability & Testing Engineer $150,000 $25,000
- --------------------------------------------------------------------------------
Molex Clean Room Technician $150,000 $25,000
- --------------------------------------------------------------------------------
Molex Program Coordinator $200,000 $50,000
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT 4
---------
TERMS AND CONDITIONS OF PURCHASE AND SALE
ALL PURCHASES AND SALES OF PRODUCTS UNDER THE MARKETING PHASE OF
THIS TEAMING AGREEMENT ARE SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS:
1. Agreement. These terms and conditions shall govern all purchases and
sales of Products under the Teaming Agreement between seller
("Seller") and buyer ("Buyer"). No terms or conditions in any way
adding to, modifying or otherwise changing the provisions stated
herein shall be binding upon either party unless made in writing and
signed and approved by an officer of both Parties . These terms will
not be modified by Seller's shipment of Products following receipt
of Buyer's purchase order, shipping request or similar forms
containing printed terms and conditions conflicting or inconsistent
with the terms herein, or by Seller's use of its own sales forms
with printed terms and conditions conflicting or inconsistent with
the terms herein.
2. Orders Subject to Acceptance. All orders are subject to acceptance
in writing by Seller at its principal office. An acknowledgement of
each order must be returned by Seller to Buyer promptly after the
receipt of same, and must contain price and definite delivery data.
Signing of an acknowledgement, or holding an order ten (10) days or
longer, shall constitute an acceptance of an order.
3. Prices. All prices are F.O.B. Factory and shall be quoted in U.S.
dollars, and exclude all federal, state or local taxes. All taxes
and excises of any nature whatsoever now or hereafter levied by
governmental authority, whether federal, state or local, either
directly or indirectly, upon the sale or transportation of any goods
covered hereby, shall be paid and borne as agreed by the parties
pursuant to Section 4 of the Teaming Agreement.
4. Payment. All accounts shall be paid in U.S. dollars net at Seller's
principal office within thirty (30) days after the date of invoice
or date of shipment, whichever is later. A service charge of the
lesser of 1 1/2% per month or the maximum permissible rate will be
added to all past due accounts.
5. Material and Manufacture. All material must conform strictly to
specifications. On any new parts, a sample must be approved by Buyer
before Seller proceeds with manufacture of a quantity run.
6. Quantity. Seller must furnish the entire quantity ordered hereunder
and said quantity cannot be varied by Seller unless Buyer's director
of purchasing agrees in writing to accept a different quantity.
Buyer reserves the right to reject any
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<PAGE>
unauthorized quantities and to return same to Seller at Seller's
risk and expense. Notwithstanding the foregoing, Seller shall have
the option, upon written notice to Buyer, of manufacturing, shipping
and billing a portion of Buyer's order and later, within the time
specified in Buyer's order, manufacturing, shipping and billing the
remainder of any such order.
7. Delivery Terms. Seller will attempt to meet the requirements of
Buyer's delivery schedule but shall be obligated only to the
delivery schedule shown on the order acknowledgment. All delivery
expenses, including transportation, insurance and other shipping
costs, shall be for Buyer's account.
8. Title/Risk of Loss. Delivery of goods to carrier shall be deemed
delivery to Buyer, and thereupon title to such goods, and risk of
loss or damage, shall be Buyer's. Any claim by Buyer against Seller
for shortage or damage occurring prior to such delivery must be made
in writing within thirty (30) days after receipt of shipment and
accompanied by original transportation bill signed by carrier noting
that carrier received goods from Seller in the condition claimed.
Any claim by Buyer for damage occurring during shipment shall be
made directly against the freight carrier, with a copy of such claim
promptly forwarded to Seller.
9. Buyer's Inspection. All Products purchased hereunder will be subject
to Buyer's right of inspection and rejection. Buyer shall have
thirty (30) days from receipt of the Products to inspect them and to
notify Seller of any nonconformance. Buyer may reject any Products
which do not conform to the terms of this Agreement or any order,
or, with Seller's consent, may repair or correct them at Seller's
cost. If rejected, they will be held for disposition at Seller's
risk and expense. Any payment on account thereof will be promptly
refunded by Seller. Any inspection by Buyer of Products at Seller's
plant during or after manufacture, whether or not such inspection at
said plant is provided for by the terms hereof, shall be provisional
only, and shall not constitute final inspection, nor be construed as
a waiver of the foregoing right of inspection and rejection after
receipt of same.
10. Buyer's Changes. Buyer shall have the right at any time to make
changes in drawings, specifications, or both of them, relating to
any order by giving Seller written notice of such change. If such
changes cause an increase or decrease in the amount due under an
order or in the time required for Seller's performance, an equitable
adjustment shall be made by mutual agreement between the Parties
hereto.
11. Cancellation. Buyer reserves the right to cancel all or any part of
the undelivered portion of any order if Seller does not make
deliveries as specified, time being of the essence of this contract,
or if Seller breaches any of the terms hereof including, without
limitation, the warranties of Seller. Any provisions herein for
delivery of Products or the rendering of services by installments
shall not be construed as making the obligations of Seller
severable.
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12. Buyer's Termination. Buyer may at any time for its convenience
terminate any order, in whole or in part, by written or by facsimile
notice, or by verbal notice confirmed in writing. If an order is
terminated for Buyer's convenience, any claim of Seller shall be
settled on the basis of the reasonable costs it has incurred in the
performance of that order, plus five percent (5%).
13. Force Majeure. No liability hereunder shall result to either party
from delay in performance or non-performance caused by circumstances
beyond the reasonable control of that party, including, but not
limited to, acts of god, fire, flood or other casualty, war,
government action, accident, labor strikes or other difficulty, or
shortage of or inability to obtain fuel, energy, material, equipment
or transportation. In the event of any delay in a party's
performance due in whole or in part to any cause beyond that party's
reasonable control, that party shall promptly notify the other party
in writing of such event and shall have such additional time for
performance as may be reasonably necessary under the circumstances.
Notwithstanding the foregoing, if such event continues for more than
thirty (30) days Buyer may cancel any order with respect to any
Products not delivered and purchase products elsewhere, and Buyer
shall be under no obligation to accept or pay for the same or
compensate Seller for any expense which it may have incurred.
14. Warranty and Disclaimer. Seller warrants to Buyer that any Products
sold hereunder will be free from defects in workmanship and
materials under normal conditions of use for six (6) months from the
date of delivery to Buyer. This warranty will survive acceptance of
the Products.
THE FOREGOING WARRANTY IS IN LIEU OF AND EXCLUDES ALL OTHER
WARRANTIES ON THE PRODUCTS WHETHER EXPRESS OR IMPLIED BY OPERATION
OF LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS.
Seller's liability and Buyer's sole remedy hereunder for a breach of
warranty is expressly limited, at Seller's election, to repair or
replacement (in the form originally shipped) of Products not
complying with this agreement, or to the repayment of, or crediting
Buyer with, an amount equal to the purchase price of such Products.
Any claim by Buyer with reference to the Products sold hereunder for
any cause shall be deemed waived by Buyer unless submitted to Seller
in writing within ninety (90) days from the date Buyer discovered,
or should have discovered, any claimed breach.
15. Limitation of Remedies. Seller shall not be liable for incidental or
consequential losses, damages or expenses, directly or indirectly
arising from the sale, handling or use of the Products, or from any
other cause with respect to the Products or any
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order, whether such claim is based upon breach of contract, breach
of warranty, strict liability in tort, negligence or any other legal
theory.
16. Security. If Buyer fails to fulfill the terms of payment or if
Seller shall have any doubt at any time as to Buyer's financial
condition, Seller may decline to make further deliveries except upon
receipt of cash or satisfactory security. This requirement will not
release Buyer from any previous obligation. Seller's rights under
this Section shall be in addition to all other rights and remedies
available to Seller upon Buyer's default.
17. Compliance with Laws. In fulfilling this order, Seller shall comply
with all applicable laws and governmental regulations and orders,
federal, state, local and foreign. With respect to goods produced in
the United States, Seller specifically warrants that all goods
furnished hereunder will be produced and sold in compliance with all
applicable requirements of the Fair Labor Standards Act, as amended,
including Section 6, 7 and 12, and the regulations and orders issued
under Section 14 thereof, and that it will certify such compliance
on each invoice submitted in connection with this order.
18. Seller's Indemnification. Seller shall indemnify and hold harmless
Buyer, and its successors, assigns, employees and agents, from and
against all claims, direct losses, penalties, damages (excluding
incidental and consequential damages), costs and expenses (including
reasonable attorneys' fees) arising out of (a) any alleged or actual
infringement or contributory infringement of any letters patent or
trade secrets or trademarks or service marks by reason of the use,
sale or lease of any Products purchased hereunder, excepting
unpatented staple articles of commerce, Products manufactured in
accordance with Buyer's design, or otherwise non-infringing Products
incorporated into a product of Buyer, (b) any alleged or actual
defects in the Products, whether latent or patent, and whether of
design, warning or manufacture, (but excluding any claims arising
out of designs provided by Buyer), or (c) any alleged or actual
failure of the Products to include necessary safety features or
otherwise conform to the requirements of any federal, state or local
health or safety law, standard regulation or ordinance, when used in
a manner and for a purpose intended by Seller. Buyer shall duly
notify Seller of any such claims, proceedings or suits, and Seller
shall, at its own expense, defend all claims, proceedings or suits
against Buyer, its successors, assigns, officers directors,
employees or agents, in which any of the aforesaid claims are
alleged. At its own expense, Buyer may be represented by counsel of
its own choosing in connection with any such claim, proceeding or
suit. In the event that it is determined that Seller was not solely
responsible for the entire claim, Buyer shall reimburse Seller for
any expenses Seller has incurred under this provision on a pro rata
basis in proportion to each party's or third party's share of the
responsibility for the claim. In addition, if Seller fails timely to
deliver Products ordered hereunder, Seller shall reimburse Buyer for
the cost of any work in process for a customer that is cancelled as
a result of such delay or parts in Buyer's inventory which have
become obsolete as a result of such delay.
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19. Insurance. Seller agrees to procure and maintain, at its own
expense, products liability and other appropriate insurance covering
Seller's obligations hereunder, and including Buyer as one of the
name insureds. Seller agrees to furnish evidence of said insurance
satisfactory to Buyer as Buyer may request from time to time. All
policies of insurance procured or maintained hereunder (a) shall
provide that coverage thereunder shall not be terminated without ten
(10) day's written notice to Buyer, and (b) shall apply separately
to each insured against whom claim is made or suit is brought and
shall contain no provision which excludes coverage under a claim
made by one insured under the policy against another insured under
the policy.
20. Assignment; Subcontracting. This order may not be assigned or
subcontracted by Buyer or Seller, in whole or in part.
21. Waiver. Waiver by either party of any breach of these terms and
conditions shall not be construed as a waiver of any other breach,
and failure to exercise any right arising from any default hereunder
shall not be deemed a waiver of such right which may be exercised at
any subsequent time.
22. Severability. In the event that any one or more of these terms or
conditions is held invalid, illegal or unenforceable, such provision
or provisions shall be severed and the remaining terms and
conditions shall remain binding and effective.
23. Controlling Law. Except as otherwise provided herein, this agreement
and all rights and obligations hereunder, including matters of
construction, validity and performance, shall be governed by the
internal laws of the state of Illinois, including the Uniform
Commercial Code as enacted in that jurisdiction, without giving
effect to that jurisdiction's choice of law principles. This
agreement will not be governed by the U.N. Convention on Contracts
for the International Sale of Goods.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of May 19,
1999, is made among Molex Incorporated, a Delaware corporation ("Purchaser"),
Lumenon Innovative Lightwave Technology, Inc., a Delaware corporation (the
"Company"), and Lilt Canada Inc., a Canadian company ("Subsidiary").
R E C I T A L S
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1. The Subsidiary has developed and acquired technical knowledge and
valuable expertise in development and design of integrated optical waveguide.
2. Purchaser and the Company have entered into that certain Teaming
Agreement dated as of the date hereof pursuant to which the parties shall
develop jointly products for the DWDM (the "Teaming Agreement"). Capitalized
terms used but not defined herein shall have the meanings set forth in the
Teaming Agreement.
3. Each of the stockholders listed on Schedule 2.5 legally and
beneficially owns the shares of the Company's common stock, $.01 value (the
"Common Stock"), set forth opposite such Stockholder's name on Schedule 2.5
attached hereto under the caption "Number of Shares of Common Stock Owned."
4. The Company desires to sell to Purchaser, and Purchaser desires
to purchase from the Company, 3,000,000 shares of Common Stock ("New Shares")
for the cash purchase price of $1,500,000.
5. In consideration for Purchaser fulfilling its obligations
pursuant to the Teaming Agreement, the Company desires to grant to Purchaser the
right to acquire, and Purchaser desires to receive from the Company the right to
acquire, 5,800,000 shares of Common Stock on the terms set forth in that certain
Services Common Stock Purchase Warrant dated as of the date hereof (the
"Services Common Stock Purchase Warrant").
6. In further consideration for the Purchaser fulfilling its
obligations pursuant to the Teaming Agreement and for entering into this
Agreement, the Company desires to grant to Purchaser the right to purchase up to
an additional 1,667,667 shares of Common Stock on the terms set forth in that
certain Cash Common Stock Purchase Warrant dated as of the date hereof (the
"Cash Common Stock Purchase Warrant").
7. Purchaser's acquisition of the New Shares and Purchaser's
exercise of all the shares of Common Stock issuable under the Services Common
Stock Purchase Warrant will result in Purchaser owning approximately 28.6%
(fully-diluted to include all options and warrants pursuant to which Common
Stock may be issued except the Cash Common Stock Purchase Warrant) of the
outstanding Common Stock as of the date hereof.
AGREEMENTS
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<PAGE>
NOW, THEREFORE, in consideration of the recitals (which are deemed
to be a part of this Agreement), mutual covenants, representations, warranties
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
PURCHASE AND SALE OF SHARES
Agreement to Purchase and Sell. Subject to the satisfaction of the
closing conditions set forth in Section 1.4A, on the date of the First Closing
(as such term is defined below), the Company shall issue and sell 50% of the New
Shares to Purchaser or its designees and Purchaser or its designees shall
purchase 50% of the New Shares from the Company. Subject to the closing
conditions set forth in Section 1.4B and subject to Section 1.6, on the date of
the Second Closing (as such term is defined below), the Company shall issue and
sell 50% of the New Shares to Purchaser or its designee and Purchaser or its
designee shall purchase 50% of the New Shares from the Company.
Closing. The closings of the transactions contemplated by this
Agreement shall take place at the offices of Sonnenschein Nath & Rosenthal, 8000
Sears Tower, Chicago, Illinois 60606, or such other place as agreed by the
parties. In full consideration for the New Shares, Purchaser will pay to the
Company the Purchase Price as provided in Section 1.3. The first Closing (the
"First Closing") shall occur on June 4, 1999 (or at such later date as agreed by
the parties), and the Purchaser shall purchase 1,500,000 shares of Common Stock
by wire transferring to the Company $750,000. If the second Closing (the "Second
Closing", referred to collectively with the First Closing as the "Closings")
shall occur, it shall take place 9 months after the date of the First Closing,
and the Purchaser shall purchase 1,500,000 shares of Common Stock by wire
transferring to the Company $750,000.
Purchase Price. The total purchase price for the New Shares is
$1,500,000 (the "Purchase Price"). One-half of the Purchase Price is payable at
each of the Closings described above.
Closing Conditions of the Company and the Primary Stockholders.
(a) Conditions of the First Closing. The obligations of the Purchaser to
purchase Common Stock on the date of the First Closing shall be subject to the
satisfaction to the following conditions on or before the date of the First
Closing: (i) the Primary Stockholders, the Subsidiary and the Company shall
deliver or cause to be delivered to Purchaser all of the documents and
instruments set forth on Exhibit 1.4A (including the opinion of counsel to the
Company and the Subsidiary in substantially the form attached hereto as Exhibit
1.4B), the Additional Agreements to which such Person is a party and such other
certificates, agreements and documents as Purchaser or its counsel shall
reasonably request, all in form and substance reasonably satisfactory to
Purchaser and its counsel; (ii) the Nevada Subsidiary (as defined in Section
2.6(c) hereof) shall have been dissolved; (iii) Molex shall have completed its
due diligence and be satisfied in its reasonable discretion with the results of
that due diligence; and (iv) the Company and the Subsidiary shall have exercised
their best efforts in assisting Molex in
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obtaining the agreement of all Stockholders other than the Primary Stockholders
that such stockholders will (A) grant Molex a right of first refusal with
respect to any sales of such Common Stock; and (B) not sell any shares of Common
Stock to any Molex Competitor (as defined in the Stock Restriction Agreement).
(b) The Second Closing. The obligations of the Purchaser to purchase Common
Stock on the date of the Second Closing shall be subject to satisfaction of the
following conditions on or before the date of the Second Closing: the Primary
Stockholders, the Subsidiary and the Company shall deliver or cause to be
delivered all of the documents and instruments set forth on Exhibit 1.4A
including the opinion of counsel to the Company in form and substance reasonably
acceptable to the Purchaser, and other such certificates, agreements and
documents as such Purchaser or its counsel shall reasonably request, all in form
and substance reasonably satisfactory to Purchaser and its counsel.
Section 1.5. Purchaser's Closing Deliveries. Subject to the
conditions set forth in this Agreement, at the First Closing, simultaneous with
the deliveries of the Primary Stockholders, the Company and the Subsidiary
hereunder, Purchaser shall deliver or cause to be delivered to the Company, all
of the documents and instruments set forth on Exhibit 1.5 hereto, the Additional
Agreements to which Purchaser is a party and such other certificates, agreements
and documents as the Company or its counsel shall reasonably request, all in
form and substance reasonably satisfactory to the Company and its counsel.
Section 1.6. Additional Rights of Purchaser. Purchaser's obligations
to purchase shares of Common Stock at the Second Closing shall be contingent
upon Purchaser's reasonable determination that satisfactory progress is being
made by the Company under the Teaming Agreement towards the Company proving out
the DWDM Technology, including but not limited to, satisfactory progress by the
Company towards the production and delivery to Purchaser of the Three Device
Types. In the event that Molex elects not to purchase the shares of Common Stock
which it is permitted to purchase at the Second Closing, the Teaming Agreement
shall terminate and Molex shall forfeit any and all of its rights under the
Teaming Agreement (except to the extent provided in Section 9.4 of the Teaming
Agreement) and shall forfeit its rights to purchase shares of Common Stock under
the Cash Common Stock Purchase Warrant and shall forfeit its right to purchase
Common Stock under the Services Common Stock Purchase Warrant, except to the
extent of the balance in the Special Account as of the date of the Second
Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company and the Subsidiary hereby jointly and severally
represent and warrant to Purchaser as set forth below. Without limiting the
other provisions of this Article II or Article V of this Agreement, the Company
and Purchaser acknowledge that the Company and Subsidiary are making the
representations and warranties as set forth below principally to allocate the
risks of the matters addressed thereby as further provided in the
indemnification provisions of Article V and that there are statements contained
in this Article II with respect to which the Company
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and the Stockholders have no actual knowledge as to their accuracy. The
information disclosed on any Schedule attached hereto shall be deemed to relate
solely to the section of this Article II to which such Schedule relates and
shall not be deemed made for other sections to which such disclosure may apply
unless such disclosure is cross-referenced in the Schedule(s) relating to such
other section(s), and, in each such case, only to the extent that the applicable
information or risk and scope thereof is described.
Section 2.1. Organization and Authority. Each of the Company and the
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, with all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. The Company is not insolvent
within the meaning of Section 1-201(23) of the Uniform Commercial Code and the
Subsidiary is not insolvent within the meaning of any applicable bankruptcy or
insolvency law. No order has been made or petition presented or resolution
adopted which relates to the winding-up or the liquidation of the Company or the
Subsidiary or for an administration order in respect of the Company or the
Subsidiary, nor has any administrative receiver, receiver or receiver and
manager been appointed by any Governmental Authority or other Person with
respect to all or part of the assets of the Company or the Subsidiary, and no
power to make any such appointment has arisen. The Company has delivered to
Purchaser complete and correct copies of the Articles of Incorporation and
Bylaws (or comparable organizational documents) presently in effect for the
Company and the Subsidiary, and neither the Company nor the Subsidiary is in
default under or in violation of any provision of such documents. The Company
does not have any subsidiaries or investments, direct or indirect, in any Person
other than the Subsidiary.
Section 2.2. Qualification. Each of the Company and the Subsidiary
is qualified or licensed to do business and is in good standing in each
jurisdiction in which the ownership or leasing of property by it or the conduct
of its business requires such licensing or qualification. Schedule 2.2 contains
a list, for the Company and the Subsidiary, of all jurisdictions in which the
Company or the Subsidiary (as applicable) is qualified or licensed to do
business.
Section 2.3. Authorization. Each of the Company and the Subsidiary
has full corporate power and authority to enter into, execute and deliver this
Agreement and the Additional Agreements to which it is a party and to perform
and observe fully its obligations hereunder and thereunder and to perform the
transactions contemplated hereby and thereby. The Company's and the Subsidiary's
respective Boards of Directors have taken all action required by law, the
Company's and the Subsidiary's respective Articles of Incorporation and Bylaws,
or otherwise to authorize the execution, delivery and performance of this
Agreement and the Additional Agreements to which such Person is a party and the
consummation by the Company and the Subsidiary of the transactions contemplated
hereby and thereby. This Agreement and the Additional Agreements to which such
Person is a party have been duly and validly executed and delivered by the
Company and the Subsidiary. Subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the effect of
rules of law governing specific performance, injunctive relief and other
equitable remedies, and, assuming due authorization, execution and delivery by
Purchaser, this Agreement and the Additional Agreements to which such Person is
a party constitute valid and binding legal obligations of the Company and the
Subsidiary, enforceable against the Company and the Subsidiary in accordance
with their terms.
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Section 2.4. No Violation. Neither the execution, delivery or
performance of this Agreement or the Additional Agreements nor the consummation
of the transactions contemplated hereby or thereby will (a) violate, conflict
with or result in any breach of any provision of the Articles of Incorporation
or Bylaws (or comparable organizational documents) of the Company or the
Subsidiary, (b) violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under, or permit the termination of, or require any notice under, or require the
consent of any other party to, or result in the acceleration of, or entitle any
party to accelerate (whether as a result of a change in control of the Company,
the Subsidiary or otherwise) any obligation or agreement, or result in the loss
of any benefit or the imposition of any fee or penalty, or give rise to the
creation of any Lien upon any of the respective properties or assets of the
Company or the Subsidiary, in each case under any of the terms, conditions or
provisions of any debt, note, bond, mortgage, indenture, deed of trust, license,
lease, permit, agreement or other instrument or obligation to which the Company,
the Subsidiary or any of the Stockholders is a party or by which they or any of
their respective properties or assets may be bound or affected or (c) violate
any Rules (including the securities laws of the United States, the Commonwealth
of Canada, and any state or province) of any Governmental Authority applicable
to the Company, the Subsidiary, any of the Stockholders or any of their
respective properties, assets or operations.
Section 2.5. Capitalization of the Company. The authorized capital
stock of the Company consists solely of 100,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock. As of the date hereof, there are issued and
outstanding 18,715,000 shares of Common Stock owned of record and beneficially
by the Persons and in the amounts specified on Schedule 2.5 attached hereto,
free and clear of all Liens. As of the date hereof, no shares of Preferred Stock
are issued and outstanding. As of the date hereof, there are no shares of Common
Stock, and no shares of Preferred Stock, held by the Company as treasury stock.
All of the issued and outstanding shares of Common Stock are validly issued,
fully paid, non-assessable and are without, and were not issued in violation of,
any preemptive rights. Except as set forth on Schedule 2.5, there are no
options, warrants, calls, subscriptions, conversion or other rights, agreements
or commitments to acquire from the Company or any Stockholder any shares of
capital stock of the Company, or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of the Company, or any other security of the Company. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no voting agreements, voting trust
agreements, proxies or stockholder or similar agreements relating to the capital
stock of the Company. All of the issued and outstanding shares of Common Stock
were issued either (i) in compliance with any applicable registration, filing or
registration requirements under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state blue sky laws or (ii) pursuant to valid
exemptions from any such otherwise applicable registration, filing or
qualification requirements. The Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock. Upon delivery and payment for the New Shares as
herein provided, such New Shares shall be duly authorized, validly issued, fully
paid and non-assessable and will not be issued in violation of applicable
preemptive rights.
Section 2.6. Ownership of Subsidiary's Capital Stock.
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(a) All of the issued and outstanding shares of capital stock of the Subsidiary
are owned of record and beneficially by the Company, have been duly authorized
and are validly issued, fully paid and non-assessable, are without, and were not
issued in violation of, any preemptive rights, were not issued in violation of
applicable securities laws of the United States, the Commonwealth of Canada, or
any state or province and are owned free and clear of all Liens.
(b) All voting rights in the Subsidiary are vested exclusively in the
Subsidiary's capital stock. Except as provided in Schedule 2.10, there are no
options, warrants, calls, subscriptions, conversion or other rights, agreements
or commitments to acquire from the Company or the Subsidiary shares of capital
stock of the Subsidiary, any securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock or any
other security of the Subsidiary. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Subsidiary.
There are no voting agreements, voting trust agreements, proxies or stockholder
or similar agreements relating to the capital stock of the Subsidiary. The
Subsidiary is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock.
Section 2.7. Consents and Approvals. No filing or registration with,
no notice to and no permit, authorization, consent or approval of, any third
party or any Governmental Authority is necessary for the consummation by the
Company and the Subsidiary of the transactions contemplated by this Agreement or
the Additional Agreements or to enable the Company and the Subsidiary to
continue to conduct their business after the Closings in a manner which is
consistent with that in which it is presently conducted.
Section 2.8. Books and Records. The books and records of the Company
and the Subsidiary are, and have been, maintained in the usual, regular,
ordinary and appropriate manner by the Company and the Subsidiary in accordance
with the Rules, and all of the transactions of such Persons are properly
reflected therein.
Section 2.9. Reserved.
Section 2.10. Absence of Undisclosed Liabilities. Except as set
forth on Schedule 2.10, there are no Liabilities, commitments or obligations of
the Company or the Subsidiary of any kind whatsoever, there is no valid basis
for the assertion of any such Liabilities, commitments or obligations, and no
existing condition, situation or set of circumstances which is reasonably likely
to result in such a Liability, commitment or obligation, other than Liabilities,
commitments and obligations incurred in the ordinary course of business, none of
which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement or
violation of law or relates to indebtedness for borrowed money or inter-company
debt or debt owed to Affiliates and such additional Liabilities, commitments and
obligations are not, in the aggregate, material.
Section 2.11. Absence of Certain Changes. The Company and the
Subsidiary have conducted their respective businesses only in the ordinary and
usual course and there has been no adverse change in or effect on the assets,
properties, business, operations, prospects, customer, supplier or employee
relations, operating results or condition (financial or otherwise) of the
Company and the Subsidiary taken as a whole or in the ability of the Company or
the Subsidiary to perform this
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Agreement, the Additional Agreements and the transactions contemplated hereby
and thereby (an "Adverse Effect"). There is no event, condition, circumstance
or, to the Knowledge of the Company or the Subsidiary, prospective development
which may or threatens to have an Adverse Effect.
Section 2.12. Litigation. Except as set forth on Schedule 2.10
attached hereto, which contains a list and summary description of all pending
and, to the Knowledge of the Company or the Subsidiary, threatened Claims, there
are no Claims pending or, to the Knowledge of the Company or the Subsidiary,
threatened before any Governmental Authority or before any arbitrator of any
nature, brought by or against the Company, the Subsidiary, or any of their
respective officers, directors, employees or agents involving, affecting or
relating to the business, assets, operations or securities of the Company or the
Subsidiary, or the transactions contemplated by this Agreement or the Additional
Agreements, nor is there any basis for any such Claim. None of the Company or
the Subsidiary or any of their respective businesses, assets or properties is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Authority or arbitrator. No present or former employee of the
Company or the Subsidiary has made or is entitled to assert any Claim against
the Company or the Subsidiary by virtue of any patent or latent
employment-related health defect.
Section 2.13. Liens and Encumbrances. The Company and the Subsidiary
hold and own full, unconditional, good and marketable title to all of the assets
used in their respective businesses, in each case free and clear of all Liens
except for Liens on assets leased or licensed by the Company or the Subsidiary,
in which case the Company or the Subsidiary holds a leasehold or licensed
interest free and clear of all other Liens except for the lessor's or licensor's
interest therein. All of the assets of the Company and the Subsidiary are owned
or leased by the Company or the Subsidiary and are in good operating condition
in accordance with industry practice (subject to normal wear and tear).
Section 2.14. Contracts. Each of the contracts, mortgages, notes,
security agreements, trust indentures, arrangements, leases, licenses,
commitments and other agreements and instruments (collectively, "Contracts") to
which the Company or the Subsidiary is a party which relates to or affects the
capital stock, business, assets, properties or operations of the Company or the
Subsidiary or to which the Company or the Subsidiary or their respective
businesses, assets, properties or operations may be bound or subject can be
performed in the ordinary course of business. Each of the Contracts is valid and
binding and in full force and effect and is enforceable against the parties
thereto in accordance with its terms, and there are no existing defaults or
events of default which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default by the
Company or the Subsidiary thereunder. The consummation of the transactions
contemplated hereby, without notice to or consent or approval of any party, will
not constitute a default under or a breach of any provisions of any Contracts
and the Company and the Subsidiary will have and may enjoy and enforce all
rights and benefits under each such Contract. There is no Lien on the Company's
or the Subsidiary's interests under any of the Contracts.
Section 2.15. Employee Benefit Plans.
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(a) The Lumenon Innovative Lightwave Technology, Inc. Stock Option Incentive
Plan (the "Lumenon Stock Option Plan") is the only Plan of the Company, the
Subsidiary or any ERISA Affiliate. Except for the obligations of the Company to
issue shares of Common Stock pursuant to the outstanding options listed on
Schedule 2.5 hereof under the Lumenon Stock Option Plan, none of the Company,
the Subsidiary or any ERISA Affiliate has any Liabilities with respect to any
Plan of the Company, the Subsidiary or any ERISA Affiliate.
Section 2.16. Environmental Matters.
(a) The Company and the Subsidiary are, and at all times have been, in
compliance with all applicable Environmental Laws, which compliance includes the
possession by the Company and the Subsidiary of all permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof. The Company and the Subsidiary
have not received any communication (written or oral), whether from a
Governmental Authority, Person, citizens group or otherwise, that alleges that
the Company or the Subsidiary is not or was not in compliance with any
Environmental Law, and there are no circumstances that may prevent or interfere
with such compliance in the future. Schedule 2.16 sets forth all environmental
audits and similar reports with respect to each parcel of Real Estate (as
defined below) and each parcel of real property which the Company or the
Subsidiary previously owned, used, leased or subleased. The Company and the
Subsidiary have provided Purchaser with accurate and complete copies of such
environmental audits and similar reports.
(b) There is no Environmental Claim pending or, to the Knowledge of the Company
or the Subsidiary, threatened against the Company or the Subsidiary or against
any Person whose Liability for any Environmental Claim that the Company or the
Subsidiary has or may have retained or assumed either contractually or by
operation of law.
(c) There are no past or present actions, activities, circumstances, conditions,
events or incidents, including the release, emission, discharge, presence or
disposal of any Materials of Environmental Concern, or exposures of employees or
other Persons to Materials of Environmental Concern that could form the basis of
any Environmental Claim against the Company or the Subsidiary or against any
Person whose Liability for any Environmental Claim the Company or the Subsidiary
has or may have retained or assumed either contractually or by operation of law.
(d) Without in any way limiting the generality of the foregoing, (i) all on-site
and off-site locations where the Company or the Subsidiary has stored or has
disposed or arranged for the disposal of, Materials of Environmental Concern,
are identified in Schedule 2.16, (ii) all underground storage tanks previously
or presently located on property owned or leased by the Company or the
Subsidiary are identified in Schedule 2.16, along with a description of the
capacity and contents of such tanks, any removal or closure activities
associated with such tanks and the compliance of such tanks with underground
storage tank requirements and (iii) except as set forth in Schedule 2.16, there
is no asbestos contained in or forming part of any building, building component,
equipment, structure or office space owned or leased by the Company or the
Subsidiary.
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Section 2.17. Taxes. The Company and the Subsidiary have timely
filed or caused to be filed all U.S. federal, Canadian, state, provincial, local
and foreign Tax and information returns required to be filed by each of them and
have paid or caused to be paid, or have made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to be paid in
respect of the periods for which returns are due, and have established an
adequate accrual or reserve for the payment of all Taxes payable in respect of
the period, including portions thereof, subsequent to the last of said periods
required to be so accrued or reserved up to and including the date hereof.
Neither the Company nor the Subsidiary is delinquent in the payment of any Tax,
and no deficiencies for any Tax, assessment or governmental charge have been
claimed, proposed, assessed or, to the Knowledge of the Company or any
Stockholder, threatened. There are no Liens on the assets of the Company or any
of its Subsidiaries for unpaid Taxes. No waiver or extension of time to assess
any Taxes has been given or requested. No claim has been made by any taxing
authority in any jurisdiction where the Company or the Subsidiary does not file
Tax Returns that the Company or the Subsidiary is or may be subject to taxation
by that jurisdiction. The Company's and the Subsidiary's Tax Returns have never
been audited by the Internal Revenue Service or comparable state, local or
foreign agencies.
Except for the Affiliated Group of which the Company is the common
parent, neither the Company nor the Subsidiary has been a member of an
Affiliated Group or been included in a combined, consolidated or unitary Tax
Return. Neither the Company nor the Subsidiary is a party to or bound by any Tax
allocation or Tax sharing agreement or has any current or potential obligation
to indemnify any other Person with respect to Taxes. Neither the Company nor the
Subsidiary has been a United States real property holding corporation within the
meaning of Code Section 897(c)(2) during the applicable periods specified in
Code Section 897(c)(1)(a)(ii). Neither the Company nor the Subsidiary is
required to make any adjustments under Section 481(a) of the Code by reason of a
change in accounting method which affects any taxable year ending after the
Closings, or has any application pending to effect such a change of accounting
method. Neither the Company nor the Subsidiary is obligated to make any
payments, or is a party to an agreement or Plan that could make it obligated to
make payments, which will not be deductible under Section 280G of the Code.
Section 2.18. Compliance with Applicable Law.
(a) Each of the licenses, permits, franchises, authorizations, registrations and
approvals (the "Licenses") issued or granted to the Company or the Subsidiary by
any Governmental Authority has been duly obtained, is valid and in full force
and effect and is not subject to any pending or, to the Knowledge of the Company
or the Subsidiary, threatened administrative or judicial proceeding to revoke,
cancel or declare such License invalid in any respect. No default or breach
exists with respect to any of the Licenses and no event or condition exists
which but for the lapse of time or notice or both would constitute a default or
breach with respect to any of the Licenses. Consummation of the transactions
contemplated hereby will not affect the validity of any License or give rise to
any administrative or judicial proceeding which may modify, revoke, cancel or
declare such License invalid in any respect. Each of the Company and the
Subsidiary holds, and at all times has held, all Licenses necessary for the
lawful conduct of its business under and pursuant to, and the business of each
of the Company and the Subsidiary is not being and has not been conducted in
violation of, any Rule of any Governmental Authority applicable to the Company,
the Subsidiary or any of their respective properties, assets or operations.
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(b) The Company and the Subsidiary have complied with the Rules, and neither the
Company nor the Subsidiary has received any notification of any asserted present
or past failure by the Company or the Subsidiary to comply with the Rules.
Neither the Company, the Subsidiary nor any of their respective directors,
officers, agents or employees nor has any distributor, licensee or any other
Person acting on behalf of the Company or the Subsidiary (i) made any unlawful
political contributions, (ii) made any payment or provided services which were
not legal to make or provide or which the Company or the Subsidiary or any
directors, such officers, employees or other Persons should have Known were not
legal for the payee or the recipient of such services to receive, (iii) received
any payments, services or gratuities which were not legal to receive or which
the Company or the Subsidiary or such Persons should have Known were not legal
for the payor or the provider to make or provide, (iv) had any transactions or
payments which are not recorded in its accounting books and records or disclosed
in its financial statements, (v) has had any off-book bank or cash accounts or
"slush funds", (vi) made any payments to governmental officials in their
individual capacities for the purpose of affecting their action or the action of
the government they represent to obtain special concessions, or (vii) made
illegal payments to obtain or retain business.
Section 2.19. Brokers' Fees and Commissions. Neither the Company,
the Subsidiary or any Stockholder nor any of their respective directors,
officers, employees or agents has employed any investment banker, broker, finder
or intermediary in connection with the transactions contemplated hereby.
Section 2.20. Proprietary Rights. Except as set forth on Schedule
2.20 hereto, the Company or the Subsidiary owns, on an exclusive basis free and
clear of all Liens, or has the exclusive right to use, all of its Proprietary
Rights without any limitations or restrictions of any kind and without Known
conflict or asserted conflict with intellectual property rights of others, and
such Proprietary Rights constitute all the Proprietary Rights that are used in
or necessary for the conduct of the Company and the Subsidiary's businesses as
presently being conducted and as contemplated to be conducted in the foreseeable
future. Except as set forth on Schedule 2.20 hereto, neither the Company nor the
Subsidiary pays to or receives any royalty from anyone under any of the
Proprietary Rights or has licensed anyone to use any of them. Except as set
forth on Schedule 2.20 hereto, neither the Company nor the Subsidiary is a party
to any license or agreement relating to any Know-how and the Company and the
Subsidiary owns or is legally entitled to exploit its Know-how without
restrictions and free of any claim or claim of infringement. All rights of the
Company and the Subsidiary in and to the Proprietary Rights will be unaffected
by the transactions contemplated by this Agreement. Neither the Company nor the
Subsidiary has given or received any notice of any pending conflict with, or
infringement of, the rights of others with respect to any Proprietary Rights or
with respect to any license of Proprietary Rights under which the Company or the
Subsidiary is licensor or licensee or with respect to the trade dress or
packaging of any products bearing the Trademarks set forth on Schedule 2.20. No
Claim is pending, or, to the Knowledge of the Company or the Subsidiary,
threatened, which involves Proprietary Rights and there are no interference,
opposition or cancellation proceedings or infringement suits pending, or to the
Knowledge of the Company or the Subsidiary, threatened with respect to any
Proprietary Rights. Neither the Company nor the Subsidiary is subject to any
judgment, order, writ, injunction or decree of any Governmental Authority which
restricts or impairs the use of any such Proprietary Rights. Except as set forth
on Schedule 2.20 hereto, neither the Company nor the Subsidiary has entered into
or is a party to
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any contract which restricts or impairs the use of any such Proprietary Rights.
No Proprietary Rights owned, used or under development by the Company or the
Subsidiary, and no services or products sold by the Company or the Subsidiary,
conflict with or infringe upon any proprietary rights of any third party. To the
Knowledge of the Company or the Subsidiary, there exists no basis which would
render invalid the Proprietary Rights. Neither the Company nor the Subsidiary
has entered into any consent, indemnification, forbearance to sue or settlement
agreement with respect to Proprietary Rights and, no Claims have been asserted
by any Person with respect to the validity of, or the Company's or the
Subsidiary's ownership of or right to use, the Proprietary Rights and there is
no basis for any such Claim. The Proprietary Rights are valid and enforceable
and no application, patent or registration relating thereto has lapsed, expired
or been abandoned or canceled or is the subject of cancellation or other
adversarial proceeding, and all pending applications are in good standing. Each
of the Company and the Subsidiary is the owner of record of all copyrights,
trademarks, service marks, logos, slogans, and trade names for which
registrations have been issued to the Company or the Subsidiary by the United
States Patent and Trademark Office, the Patent Office, Trade-Mark Office,
Copyright Office or other body administered by the Canadian Intellectual
Property Office or any similar office of a foreign country. Each of the Company
and the Subsidiary has complied with its respective contractual obligations
relating to the protection of the Proprietary Rights used pursuant to licenses.
The Company and the Subsidiary have taken all commercially reasonable steps
necessary to maintain their respective rights in the Proprietary Rights. To the
Knowledge of the Company or the Subsidiary, no Person is infringing on or
violating the Proprietary Rights owned or used by the Company or the Subsidiary.
The Company and the Subsidiary have never operated under any name other than
Lumenon Innovative Lightwave Technology, Inc., WWV Development, Inc. or Lumenon
Innovative Lightwave Technology Lilt, Inc.
Section 2.21. Labor Matters.
(a) The Company has no present or former employees. The Subsidiary has no
present or former employees in the United States. Schedule 2.21 sets our truly
and correctly the names of all employees of the Subsidiary, their annual salary
or remuneration, seniority, vacation entitlement and benefits (including any
bonus, RRSP contribution, general expense or travel expense account and date of
hire by the Subsidiary, together with an indication of whether any of such
persons benefit from a written contract. True and complete copies of any such
contracts, or in the case of verbal commitments, written summaries of the terms
thereof have been provided to Purchaser. All reports and returns filed with any
regulatory agency within the past five (5) years in respect of any of the
foregoing, have also been made available to Purchaser. No present or former
employee or independent contractor performing services for the Subsidiary has a
Claim pending or, to the Knowledge of the Company or the Subsidiary, has
threatened to make a Claim of any kind against the Company or the Subsidiary
(under any Rule of any Governmental Authority or otherwise). There are no
administrative charges, arbitration or mediation proceedings or court complaints
pending or, to the Knowledge of the Company or the Subsidiary, threatened
against the Company or the Subsidiary before the U.S. Equal Employment
Opportunity Commission, the Quebec Labour Standards Commission, the Quebec Human
Rights Commission or any other state, provincial or federal board, tribunal
commission of Governmental Authority or any court or agency or any other entity
concerning alleged employment discrimination, contract violation or any other
matters relating to the employment of labor. There is no unfair labor practice
charge or complaint pending or, to the Knowledge of the
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Company or the Subsidiary, threatened against the Company or the Subsidiary
before the National Labor Relations Board, the Quebec labour commission, the
Quebec labour court or any other state, provincial or federal board, tribunal or
other Governmental Authority having jurisdiction in labour matters or any
similar body.
(b) The Subsidiary is and has been in compliance with all applicable Rules
relating to the employment of labor, including employment and employment
practices, terms and conditions of employment, wages and hours, equal
opportunity, occupational health and safety, severance, termination or
discharge, the trade unions, collective bargaining and the payment of employee
welfare and retirement and other taxes, immigration and training, including
without limitation the Worker Adjustment Retraining and Notification Act and the
Immigration Reform and Control Act of 1986, each as amended, and are not engaged
in any unfair labor practice or any violation of any other law, rule or
regulation concerning employment or retention of independent contractors.
(c) The Subsidiary is not a signatory or party to, or otherwise bound by, a
collective bargaining agreement (or any other agreement with any labor
organization) which covers employees of the Subsidiary, and there is no activity
or proceeding of any labor organization (or representative thereof) to organize
any unorganized employees of the Subsidiary. The Subsidiary has not experienced
any material work stoppage, and there is not pending or threatened against the
Subsidiary any labor dispute, grievance, slowdown, lockout, strike, work
stoppage or other collective labor action in effect, pending or threatened
against or affecting the business of the Company or the Subsidiary. To the
Knowledge of the Company or the Subsidiary, no executive, key employee or group
of employees of the Company or the Subsidiary has any plan to terminate
employment with the Subsidiary.
Section 2.22. Non-Compete Agreements. No oral or written Contract,
license or permit restricts the ability of the Company or the Subsidiary to own,
possess or use its assets or conduct its business or operations in any
geographic area or restricts in any way the full participation of any of the
Stockholders or, to the Knowledge of the Company or the Subsidiary, any
employees of the Subsidiary in the operation of such business.
Section 2.23. Inventory. Neither the Company nor the Subsidiary has
or has had any Inventory. Neither the Company nor the Subsidiary has
manufactured, processed, serviced, distributed, shipped or sold any product or
entered into an agreement for such activities. Neither the Company nor the
Subsidiary has provided or sold any of its services or entered into an agreement
to sell or provide services other than as contemplated by the Teaming Agreement.
Section 2.24. Accounts Receivable. Neither the Company nor the
Subsidiary has or has had any outstanding accounts, notes or receivables.
Section 2.25. Insurance. All binders, policies of insurance, self
insurance programs or fidelity bonds maintained by the Company or the Subsidiary
or in which the Company or the Subsidiary is a named insured are described on
Schedule 2.25 ("Insurance") and have been issued by financially sound insurance
companies under valid and enforceable policies or binders for the benefit of the
Company and the Subsidiary, and all such policies or binders are in full force
and effect. There are and have been no inaccuracies in any application for
Insurance policies, nor
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any failure to pay premiums thereon when due or otherwise comply with the terms
thereof. The Company and the Subsidiary have not received any notice from any of
their insurance carriers that any insurance premiums will be increased in the
future or that any Insurance will not be available to the Company and the
Subsidiary in the future on substantially the same terms as now in effect. There
are no pending or asserted claims against any Insurance as to which any insurer
has denied liability, and there are no claims under any Insurance that have been
disallowed or improperly filed. The Company and the Subsidiary will have no
liability for any healthcare, medical, disability, death benefit or similar
expenses of any director or employee of the Company or the Subsidiary or any
other Person which are the result of injuries or illnesses which occurred prior
to the date of this Agreement (regardless of when such expenses are incurred).
Section 2.26. Real Estate.
(a) Neither the Company nor any Subsidiary owns any real property.
(b) The Company or the Subsidiary, as applicable, has been in peaceable
possession of each parcel of real property leased or subleased by the Company or
the Subsidiary (collectively, the "Real Estate") since the commencement of the
original term of the lease, sublease or other agreement relating to such parcel
of Real Estate (collectively, the "Real Estate Leases"), and has performed all
obligations required to be performed by it to date under the Real Estate Leases.
Neither the Real Estate Leases nor the leasehold interest of the Company or the
Subsidiary with respect to the Real Estate is subject to any Liens; and none of
such Real Estate is subject to any easements, rights of way, licenses, grants,
building or use restrictions, exceptions, reservations, limitations or other
impediments which adversely affect the value of the leasehold interest therein
or which interfere with or impair the present and continued use thereof in the
usual and normal conduct of the business of the Company and the Subsidiary.
Neither the Company, the Subsidiary nor, to the Knowledge of the Company or the
Subsidiary, any other party to the Real Estate Leases is in default under any of
the Real Estate Leases.
(c) No real property other than the Real Estate is used in the business of the
Company and the Subsidiary. No Real Estate is located within a flood or
waterfront erosion hazard area, and the buildings, structures and improvements
situated thereon and appurtenances thereto and are in good condition (subject to
normal wear and tear), and as such will be, when completed, adequate to conduct
the business of the Company and the Subsidiary as the Company and the Subsidiary
intend in conducting their business. Neither the whole nor any portion of any
Real Estate has been condemned, requisitioned or otherwise taken by any public
authority, and no such condemnation, requisition or taking is threatened or
contemplated.
(d) The Real Estate is in compliance with, includes all rights necessary to
assure compliance with, and all buildings, structures, other improvements and
fixtures on such Real Estate and the operations therein conducted conform in all
respects to, all applicable health, fire, water, environmental, safety, zoning,
building, use or similar Rules and all applicable Rules adopted by national and
local associations and boards of insurance underwriters. The zoning of each
parcel of Real Estate permits the existing improvements and the continuation
following consummation of the transactions contemplated hereby of the business
of the Company and the Subsidiary as presently conducted thereon. The Company
and the Subsidiary have all licenses, certificates of occupancy, permits and
authorizations required to operate their businesses and utilize the Real
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Estate. The Company and the Subsidiary have all easements and rights necessary
or appropriate to conduct their operations, including easements for all
utilities, services, roadway, railway and other means of ingress and egress and
each parcel of Real Estate has direct access to public roadways.
Section 2.27. Products and Warranty Liability. Except as set forth
on Schedule 2.27 attached hereto, there is no Claim by or before any
Governmental Authority pending or, to the Knowledge of the Company or the
Subsidiary, threatened against or involving the Company or the Subsidiary
relating to any product alleged to have been processed, manufactured, serviced
or sold by the Company or the Subsidiary and alleged to have been defective, or
improperly processed, manufactured or serviced, nor is there any valid basis for
any such action, proceeding or investigation.
Section 2.28. Transactions with Related Parties. Since the Company's
inception, there have not been nor are there now any transactions between the
Company or the Subsidiary and (i) any director, officer, employee, stockholder
or Affiliate of the Company, or (ii) any relative or spouse (or relative of such
spouse) of any such director, officer, employee, stockholder or Affiliate (such
Persons in (i) and (ii) being referred to herein as a "Related Party" or
collectively as the "Related Parties"). Since the Company's inception, no
Related Party has been a director or officer of, or has had any direct or
indirect interest in, any firm, corporation, association or business enterprise
which during such period has been a supplier, customer, sales agent, licensor,
licensee, lessor or lessee of the Company or the Subsidiary, or has competed
with or been engaged in any business of the kind being conducted by the Company
or the Subsidiary. No Related Party has an interest in or owns, directly or
indirectly, in whole or in part, any tangible or intangible property of the
Company or the Subsidiary, or that the Company or the Subsidiary uses in the
conduct of its business. No Related Party has any cause of action or other claim
whatsoever against or owes any money or other amounts to, nor is any Related
Party owed any money or other amounts by, the Company or the Subsidiary other
than amounts owed for compensation, employee benefits or travel expenses
incurred in the ordinary course of business. No Related Party is a party to any
contract, lease, agreement, arrangement or commitment used in the operations of
the Company or the Subsidiary. The Company and the Subsidiary have not directly
or indirectly (i) created, incurred or assumed any indebtedness for borrowed
money or otherwise created any Liability to any Related Party, or (ii) made any
loans, payments or transfers of Company or Subsidiary assets to any Related
Party other than for salaries paid for services actually performed in amounts in
keeping with the ordinary course of business.
Section 2.29. Customers and Vendors. Neither the Company nor the
Subsidiary has any material vendors or customers.
Section 2.30. Business Plan. The business plan delivered by the
Company to Purchaser (the "Business Plan") was prepared by the Company in good
faith and in a manner consistent with reasonable forecasting practices, and the
Company and the Subsidiary believe that the assumptions upon which the Business
Plan is based are reasonable.
Section 2.31. Year 2000 Compliance. All computer, network or other
data processing hardware, software, systems and technology, and all computer
controlled facility components (defined as software driven technology and
embedded microchip technology, including programmable
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thermostats, HVAC controllers, auxiliary elevator controllers, utility
monitoring and control systems, fire detection and suppression systems, alarms,
security systems, and any other facilities control systems utilizing
microcomputer, minicomputer, or programmable logic controllers) (collectively
the "Computer Systems") owned or used by the Company or the Subsidiary are fully
Year 2000 Compliant (as defined below). The Company and the Subsidiary have not
suffered, and the Company and the Subsidiary reasonably expect that the Company
and the Subsidiary will not at any time hereafter suffer any interruption of, or
interference with, its business operations or activities by reason of the
failure of any Computer Systems owned or used by the Company, the Subsidiary or
any of its suppliers or customers to be Year 2000 Compliant. For such purposes,
"Year 2000 Compliant" means, with respect to any Computer Systems owned or used
by any Person, that such Computer Systems (a) will correctly store, represent,
and process (including sort) all dates (including single and multi-century
formulas and leap year calculations), such that errors will not occur when the
date being used is in the Year 2000, or in a year preceding or following the
Year 2000; and (b) will operate and will not cause or result in an abnormal
termination or ending.
Section 2.32. Securities Exchange Act. Neither the Company nor the
Subsidiary is now or ever has been subject to the Securities Exchange Act of
1934, as amended. The Subsidiary is a "closed company" as this term is defined
in the Securities Act (Quebec), neither the Company nor the Subsidiary is a
"reporting issuer" and neither of them has made a "distribution" of securities
to the public under the Securities Act of Quebec.
Section 2.33. Disclosure. The documents, agreements and other papers
and materials delivered by or on behalf of the Company and the Subsidiary which
are listed on Schedule 2.33 were true, complete and accurate as of the date
delivered and, except as indicated on Schedule 2.33, are true, complete and
accurate as of the date of this Agreement. None of the representations,
warranties or statements of the Company or the Subsidiary contained in this
Agreement, in the Schedules or Exhibits hereto, or in any Additional Agreement
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the representations,
warranties or statements made, in the context in which made, not false or
misleading. There is no fact that the Company or the Subsidiary has not
disclosed to Purchaser in writing that causes an Adverse Effect or could result
in an Adverse Effect. The Company and the Subsidiary acknowledge that the
statements contained in this Section shall not be deemed to limit or qualify any
of the other representations or warranties contained in this Agreement, in the
Schedules or Exhibits hereto or in any agreement or document delivered in
connection herewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser hereby represents and warrants to the Company and the
Subsidiary that:
Section 3.1. Organization and Qualification. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
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Section 3.2. Authorization. Purchaser has full corporate power and
authority to execute and deliver this Agreement and the Additional Agreements to
which it is a party and to perform and observe fully its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. Purchaser has taken all corporate action required to authorize the
execution, delivery and performance by it of this Agreement and the Additional
Agreements to which it is a party and the consummation by it of the transactions
contemplated hereby and thereby. This Agreement and the Additional Agreements to
which Purchaser is a party have been duly and validly executed and delivered by
Purchaser, and, assuming due authorization, execution and delivery by the
Company, the Subsidiary and the Primary Stockholders, will constitute a valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms.
ARTICLE IV
COVENANTS
Section 4.1. Use of Proceeds. The Company shall use the proceeds of
the Purchase Price for general working capital purposes; provided however that
none of the proceeds of the Purchase Price shall be used for Capital
Expenditures.
Section 4.2. Further Assurances. If at any time after the date
hereof any further action is necessary or desirable to carry out the purposes of
this Agreement or the Additional Agreements, including the execution of
additional instruments, each party to this Agreement or the Additional
Agreements, as applicable, shall take all such necessary action.
Section 4.3. Public Announcements. The Company and the Subsidiary
shall submit to the Purchaser all advertising, written sales promotions, press
releases and other publicity matters relating to this Agreement or the
Additional Agreements or any of the transactions contemplated by this Agreement
or the Additional Agreements and shall not publish or use such advertising,
written sales promotion, press releases or other publicity matters without the
prior written consent of the Purchaser which shall not be unreasonably withheld.
Notwithstanding the foregoing sentence, in the event that either the Company or
the Subsidiary is required to issue a press release or make any filing relating
to this Agreement or the Additional Agreements or any of the transactions
contemplated by this Agreement or the Additional Agreements by the laws or
regulations of any Governmental Authority, such party shall (a) give notice and
a copy of the proposed press release or filing to the Purchaser as far in
advance as reasonably possible (but in any event not less than one business day
prior to the publication or filing, as applicable) and (b) make any changes to
such press release reasonably requested by the Purchaser.
ARTICLE V
SURVIVAL AND INDEMNIFICATION
Section 5.1. Survival and Remedies. All representations and
warranties of each of the parties hereto contained in this Agreement or the
Additional Agreements, including all statements contained in any certificate,
schedule, document or other writing delivered pursuant hereto or in connection
with the transactions contemplated hereby, shall be deemed to be representations
and warranties within the meaning of this Section 5.1, and to have been relied
upon by Purchaser or the
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Company and the Subsidiary, as the case may be, and shall survive the Closings
until the date which is two years after the Closing, except in the case of
representations and warranties set forth in Sections 2.1, 2.3, 2.5, 2.6, 2.10,
2.13, 2.15, 2.16, 2.17, 2.18, 2.27, 3.1 and 3.2, as to which claims may be made
at any time (regardless of whether the facts giving rise to such claim are also
the subject of any expired representation or warranty). Notwithstanding anything
to the contrary in the previous sentence, any claim for indemnification relating
to a breach of any such representation or warranty asserted in writing on or
before the expiration of the relevant time period shall survive, and the
representations and warranties referenced in such claim shall survive for
purposes of such claim, until resolved or judicially determined. All of the
covenants and agreements of each of the parties hereto contained in this
Agreement or in any document delivered pursuant to this Agreement shall survive
the Closings, and claims for indemnification relating to a breach of any such
covenant or agreement may be made at any time. In the event of a breach of any
of such representations, warranties, covenants and agreements, the party to whom
such representation, warranty, covenant or agreement has been made shall have
all rights and remedies for such breach available to it under the provisions of
this Agreement, or otherwise, whether of law or in equity, regardless of any
disclosure to, or investigation made by or on behalf of such party on or before
the Closings. The rights and remedies of any party based upon, arising out of or
otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement or any Additional
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement or any Additional
Agreement as to which there is no inaccuracy or breach.
Section 5.2. Indemnification of Purchaser. The Company and the
Subsidiary shall jointly and severally indemnify, defend and hold harmless,
Purchaser and its past, present and future directors, officers, employees,
agents, subsidiaries and Affiliates (the "Purchaser Indemnified Parties") for
any and all loss, damage, expense (including court costs, amounts paid in
settlement, judgments, attorneys' fees and other expenses for investigating and
defending), suit, action, claim, deficiency, Liability or obligation related to,
resulting from, caused by or arising from (a) any breach of any representation
or warranty made by the Company or the Subsidiary herein, in the Additional
Agreements or in any other agreement, instrument or document delivered by the
Company and the Subsidiary, or any of their respective Affiliates pursuant
hereto and any and all claims made in good faith based upon facts alleged that,
if true, would have constituted any such inaccuracy or breach, (b) any failure
to perform or breach of any covenant or agreement made by the Company, or the
Subsidiary herein or in the Additional Agreements or in any other agreement,
instrument or document delivered by the Company or any of their respective
Affiliates pursuant hereto and any and all claims made in good faith based upon
facts alleged that, if true, would have constituted any such breach or failure,
(c) any claims made by the Stockholders or other Persons who claim any direct or
indirect, past or present, right in or to any capital stock of or equity
interest in the Company or the Subsidiary relating to the validity, fairness or
enforceability of the terms of the transactions contemplated hereby or by the
Additional Agreements, and (d) the Service Agreement dated December 15, 1997 by
and among LaCorporation du Centre D'Incubation D'Enterprises du Quebec Inc. and
Dr. S. Iraj Najafi and Dr. Mark Paul Andrews, and Newco (collectively, the
"Damages").
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Section 5.3. Indemnification by Purchaser. Purchaser shall
indemnify, defend and hold harmless each of the Company and its past, present
and future directors, officers, employees, agents, subsidiaries and Affiliates
(the "Seller Indemnified Parties") for any and all loss, damage, expense
(including court costs, amounts paid in settlement, judgments, attorneys' fees
and other expenses for investigating and defending), suit, action, claim,
deficiency, liability or obligation related to, caused by or arising from any
inaccuracy or breach of any representation or warranty, any failure to perform
or breach of any covenant or agreement made by the Purchaser herein or in any
other agreement, instrument or document delivered by Purchaser pursuant hereto,
and any and all claims made in good faith based upon facts alleged that, if
true, would have constituted any such misrepresentation, breach or failure.
Section 5.4. Treatment of Indemnification Payments. Amounts paid to
an Indemnified Party as indemnification hereunder shall be treated as
adjustments to the Purchase Price, as applicable. If any Tax authority asserts
that an indemnification payment is not such an adjustment, the Indemnifying
Party shall indemnify the Indemnified Party for any Tax imposed upon the
Indemnified Party in connection with its receipt of such indemnification
payment, including any Tax imposed on any payment pursuant to this Section 5.4.
Section 5.5. Rights of Recoupment and Set-Off. Each Purchaser
Indemnified Party shall have the right, but not the obligation, to recoup and
set off any Damages resulting from any claims of any Purchaser Indemnified Party
for indemnification hereunder against any and all amounts due or to become due
to the Company or any of their Affiliates from Purchaser or any Affiliate of
Purchaser under this Agreement or any Additional Agreement. The Company and the
Subsidiary expressly agree that the Purchaser Indemnified Parties shall be
entitled, but are not required, to aggregate their debts to and claims against
the Company and the Subsidiary and their Affiliates pursuant to this Agreement
and the Additional Agreements for purposes of recoupment and set off, regardless
to which of them the debt is owed or against whom the claim is. The parties
acknowledge and agree that the rights of recoupment and set off set forth in
this Section 5.5 are a condition to Purchaser agreeing to enter into and perform
this Agreement and the Additional Agreements and that the rights of the Company,
the Subsidiary, the Primary Stockholders and their Affiliates under this
Agreement or the Additional Agreements are subject to such rights.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Amendment and Modification. This Agreement may be
amended only pursuant to a written instrument signed on behalf of the Company
and the Purchaser.
Section 6.2. Waiver of Compliance; Consents. Any failure of
Purchaser, on the one hand or the Company or Subsidiary, on the other hand, to
comply with any obligation, covenant, agreement or condition contained herein
may be waived by the Purchaser, the Company or the Subsidiary, respectively, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any other failure. No waiver of any provision of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
The failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such
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provision, nor in any way to affect the validity of this Agreement or any part
hereof or the right of any party to enforce any such provision.
Section 6.3. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
Section 6.4. Expenses and Obligations. All costs and expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement by Purchaser shall be paid by Purchaser, all costs and expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement by the Company shall be paid by the Company and all costs and
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement by the Subsidiary shall be paid by the
Subsidiary.
Section 6.5. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and, nothing in this
Agreement except as set forth in Article V hereof, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 6.6. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or on the second next business
day after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with request of
assurance of receipt in a manner customary for communication of such type) as
follows:
(s) If to Purchaser to:
Molex Incorporated
2222 Wellington Court
Lisle, Illinois 60532
Attn: Louis Hecht, Corporate Secretary and General Counsel
Thomas Lee, Vice President, New Ventures & Acquisitions
Telecopy: (630) 969-1352
with a copy to:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
Attn: Michael M. Froy, Esq.
Telecopy: (312) 876-7934
(t) if to the Company or the Subsidiary, to:
Lumenon Innovative Lightwave Technology, Inc.
9060 Ryan Avenue
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<PAGE>
Dorval, Quebec H9P 2M8, Canada
Attn: Iraj Najafi
Telecopy: (514) 631-0053
with a copy to:
De Grandepre Chaurette Levesque
2000 McGill College Avenue
Suite 1600
Montreal, Quebec H3A 3H3, Canada
Attn: Pierre Barnard
Telecopy: (514) 499-0469
Sectopm 6.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the conflicts-of-laws rules thereof.
Section 6.8. Jurisdiction and Venue. Each party hereto hereby agrees
that any proceeding relating to this Agreement or any of the Additional
Agreements shall be brought exclusively in a state court of Illinois or a
federal court located in Illinois. Each party hereto hereby consents to personal
jurisdiction in any such action brought in any such Illinois or federal court,
consents to service of process by registered mail made upon such party and such
party's agent and waives any objection to venue in any such Illinois or federal
court and any claim that any such Illinois or federal court is an inconvenient
forum.
Section 6.10. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 6.11. Headings. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
Certain Definitions. For purposes of this Agreement, the term:
(a) "Additional Agreements" shall mean (i) the Teaming Agreement, (ii) the
Services Common Stock Purchase Warrant in substantially the form attached hereto
as Exhibit 6.11(ii), (iii) the Cash Common Stock Purchase Warrant in
substantially the form attached hereto as Exhibit 6.11(iii), (iv) a Stock
Restriction Agreement among the Company, Purchaser and certain Stockholders in
substantially the form attached hereto as Exhibit 6.11(iv), (v) a Registration
Rights Agreement among the Company, Purchaser and certain Stockholders in
substantially the form attached hereto as Exhibit 6.11(v) and (vi) all other
agreements and documents accompanying the foregoing;
(b) "Affiliate" shall mean (i) a Person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, another Person and (ii) any parent, spouse, lineal descendant or adopted
child of a Person specified in clause (i), any spouse or adopted child of any
such descendant or any child of such spouse, the executors, administrators,
conservators or personal representatives of any Person referred to in this
clause
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<PAGE>
(ii) and any Person which, directly or indirectly, is owned or controlled by one
or more of the Persons referred to in this clause (ii);
(c) "Affiliated Group" means any affiliated group as defined in Section 1504 of
the Code (or any analogous combined, consolidated or unitary group under state,
local or foreign income Tax law) of which the Company or any of its Affiliates
is or has been a member;
(d) "Capital Expenditures" shall mean with respect to any Person, for any
period, the aggregate of all expenditures, whether paid in cash or accrued as
liabilities during that period and including that portion of Capital Leases that
is capitalized on the balance sheet of such Person during such period that, in
conformity with GAAP, are required to be included in or reflected by the
property, plant or equipment or similar fixed asset accounts reflected in the
combined and consolidated balance sheet of such Person (including equipment
which is purchased simultaneously with the trade-in of existing equipment owned
by such Person to the extent of the gross amount of such purchase price less the
book value of the equipment being traded in at such time), but excluding
expenditures made in connection with the replacement or restoration of assets,
to the extent reimbursed or financed from insurance proceeds paid on account of
the loss of or damage to the assets being replaced or restored, or from awards
of compensation arising from the taking by condemnation of eminent domain of
such assets being replaced;
(e) "Capital Lease" shall mean, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of such Person;
(f) "Claims" shall mean all pending and threatened claims, actions, causes of
action, demands, orders, notices, suits, grievances, proceedings, disputes,
arbitrations, inquiries and investigations;
(g) "Environmental Claim" shall mean any Claim (written or oral) by any Person
or any Governmental Authority alleging potential Liability or obligations
(including potential Liability or obligations for or requirement to incur
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (i) the presence, release or threatened
release into the environment, of any Materials of Environmental Concern at any
location, whether or not owned or operated by the Company or the Subsidiary, or
(ii) circumstances forming the basis of any violation, potential violation or
alleged violation, or Liability, potential Liability or alleged Liability, under
any Environmental Law;
(h) "Environmental Laws" shall mean all Rules and permit conditions relating to
pollution or protection of human health or the environment (including ambient
air, indoor air, surface water, ground water, land surface or subsurface
strata), including Rules relating to emissions, discharges, releases or
threatened releases of Materials of Environmental Concern, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern;
(i) "ERISA Affiliate" shall mean any corporation or other Person which is a
member of the same controlled group (within the meaning of Section 414(b) of the
Code) of corporations or
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<PAGE>
other Persons as the Company or the Subsidiary, or which is under common control
(within the meaning of Section 414(c) of the Code) with the Company or the
Subsidiary, or any corporation or other Person which is a member of an
affiliated service group (within the meaning of Section 414(m) of the Code) with
the Company or the Subsidiary, or any corporation or other Person which is
required to be aggregated with the Company or the Subsidiary pursuant to Section
414(o) of the Code or the regulations promulgated under Sections 414(b), (c),
(m) or (o) of the Code;
(j) "Governmental Authority" shall mean any court (whether of the federal
government of the United States or of the Commonwealth of Canada, or any state
or province or any local or foreign court or otherwise), any arbitration or
other alternative dispute mechanism, any government or governmental department,
agency, board, commission, bureau or instrumentality of the United States, the
Commonwealth of Canada, any state or province, any local or foreign entity and
any other regulatory authority;
(k) "Knowledge" (or any form of such term, such as "Knows" or "Known") as used
in this Agreement with respect to a party's awareness of the presence or absence
of a fact, event or condition shall mean (i) the actual knowledge of such Person
after due inquiry, and in the case of any Person other than an individual, any
director, officer, shareholder (beneficial or of record), managing director,
partner, trustee or similar individual of such Person plus (ii) the knowledge
that should be obtained by a party conducting itself reasonably and with sound
discretion in the management of its own affairs;
(l) "Know-how" shall mean laboratory journals, specialized knowledge (including
product knowledge and use and application knowledge), trade secrets, formulae,
product formulations, recipes, processes, product designs, specifications,
quality control, procedures, manufacturing, engineering and other drawings,
computer data bases and software, technology, other intangibles, technical
information, safety information, engineering data and design and engineering
specifications, research records, market surveys and all promotional literature,
customer and supplier lists and similar data;
(m) "Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes;
(n) "Liens" shall mean all title defects, charges, claims, restrictions, liens,
pledges, security interests, hypotheces, privileges, priorities, mortgages,
tenancies and other possessory interests, conditional sale or other title
retention agreements, assessments, easements, rights of way, covenants,
restrictions, rights of first refusal, encroachments and other burdens, options,
restrictions or encumbrances of any kind;
(o) "Materials of Environmental Concern" shall mean chemicals or other
substances subject to regulation pursuant to Environmental Laws, including
pollutants, contaminants, wastes, by products, toxic substances, radionuclides,
polychlorinated biphenyls, asbestos, petroleum (including crude oil or any
fraction thereof) and petroleum products;
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<PAGE>
(p) "Patents" shall mean patents (including all reissues, reexaminations,
divisions, continuations, continuations in part and extensions thereof), utility
models, patent applications and patent disclosures docketed;
(q) "Person" shall mean an individual, corporation, limited liability company,
partnership, joint venture, association, trust, unincorporated organization or,
as applicable, any other entity;
(r) "Plan" shall mean each bonus, pension, retirement, savings, stock option,
stock purchase, stock bonus, benefit, welfare, profit sharing, retirement,
disability, vacation, severance, hospitalization, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, funds, programs
or arrangements, all employment contracts or executive compensation agreements,
and all collective bargaining agreements whether written or oral and whether
formal or informal and each other "employee benefit plan" (within the meaning of
Section 3(3) of ERISA);
(s) "Primary Stockholders" means Najafi Holding, Inc. and Andrewma Holding,
Inc.;
(t) "Proprietary Rights" shall mean (i) Patents, (ii) Trademarks, (iii) Trade
Names, (iv) Know-how, (v) rights in trade dress and packaging and (vi) shop
rights, copyrights, inventions, trade secrets, service marks and all other
intellectual property rights, in each case whether registered or not and in each
case wherever such rights exist throughout the world, and including the right to
recover for any past infringement;
(u) "Rules" shall mean any statute, law, code, ordinance, rule, regulation,
judgment, writ, decree, injunction, order, concession, grant, franchise, permit
or license or other governmental or regulatory authorization or approval of the
United States, the Commonwealth of Canada, any state or province, or any local
or foreign entity applicable to the Company, the Subsidiary or any of the
Stockholders or any of their respective assets, properties or operations or any
Plan;
(v) "Tax" or "Taxes" shall mean any United States federal, Canadian, state,
province, local or foreign income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer, real property gains,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, customs, duties, real property, personal
property, capital stock, social security, unemployment, disability, payroll,
license, employee or other withholding, or other tax, of any kind whatsoever,
including any interest, penalties or additions to tax or additional amounts in
respect of the foregoing; the foregoing shall include any transferee or
secondary liability for a Tax and any liability assumed by agreement or arising
as a result of being (or ceasing to be) a member of any Affiliated Group (or
being included (or required to be included) in any Tax Return relating thereto);
(w) "Tax Return" shall mean any return, declaration, report, claim for refund,
information return or other document (including any related or supporting
schedule, statement or information) filed or required to be filed in connection
with the determination, assessment or collection of any Tax of any party or the
administration of any laws, regulations or administrative requirements relating
to any Tax;
(x) "Stockholder" shall mean any Person owning Common Stock;
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<PAGE>
(y) "Trademarks" shall mean trademarks, service marks, brand marks,
registrations thereof, pending applications for registration thereof, and such
unregistered rights which are used in the business of the Company or the
Subsidiary; and
(z) "Trade Names" shall mean (i) trade names and other identifying names, (ii)
brand names, and (iii) logos and all other names and slogans used in the
business of the Company or the Subsidiary.
Sectoin 6.12. Entire Agreement. This Agreement (including all
Exhibits and Schedules attached hereto and incorporated by reference herein) and
the documents and instruments referred to herein, and the other agreements
included in or contemplated by the exhibits hereto (the "Other Agreements")
embody the entire agreement and understanding of the parties hereto with respect
to the subject matter contained herein or therein. This Agreement (including all
Exhibits and Schedules attached hereto and incorporated by reference herein) and
the Other Agreements supersede all prior agreements and understandings between
the parties with respect to such subject matter.
Section 6.13. Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that it may be assigned by Purchaser to
one or more of its Affiliates who agree in writing to be bound by the provisions
hereof; provided, that Purchaser remains obligated under this Agreement. Subject
to the foregoing, this Agreement will be binding upon and inure to the benefit
of and be enforceable by the parties and their respective successors and
permitted assigns.
Secton 6.14. No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any Person.
Section 6.15. WAIVERS OF TRIAL BY JURY. EACH OF THE COMPANY, THE
STOCKHOLDERS AND PURCHASER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE ADDITIONAL AGREEMENTS, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the day and year first above written.
LUMENON INNOVATIVE LIGHTWAVE LILT CANADA INC.
INC.
By: /S/ S. Iraj Najafi
-----------------------------------------------------------------------------
Name: S. Iraj Najafi
---------------------------------------------------------------------------
Title: President
--------------------------------------------------------------------------
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MOLEX INCORPORATED
By: /s/ Thomas S. Lee
-------------------------------------
Name: Thomas S. Lee
-----------------------------------
Title: V.P. New Ventures & Acquisitions
----------------------------------
STOCK RESTRICTION AGREEMENT
---------------------------
THIS STOCK RESTRICTION AGREEMENT (this "Agreement") is made as of
June 21, 1999, by and among Molex Incorporated, a Delaware corporation
("Molex"), Lumenon Innovative Lightwave Technology, Inc., a Delaware corporation
(the "Company"), Lilt Canada Inc., a Canadian company (the "Subsidiary")
Andrewma Holding, Inc., a Delaware corporation and Najafi Holding Inc., a
Delaware corporation (collectively, the "Primary Stockholders").
RECITALS
--------
A. The Company as of the date hereof, is authorized by its
Certificate of Incorporation to issue capital stock consisting of 100,000,000
shares of a single class of Common Stock of par value $0.001 (the "Common
Stock").
B. The Company, the Subsidiary and Molex are parties to that certain
Stock Purchase Agreement dated as of the date hereof pursuant to which the
Company agreed to issue and Molex agreed to acquire shares of the Company's
Common Stock (the "Stock Purchase Agreement"). Capitalized terms used but not
defined herein shall have the meanings set forth in the Stock Purchase
Agreement.
C. The parties hereto desire to enter into this Agreement to
establish Molex's right to designate a member of the Board of Directors of the
Company and the Subsidiary (the "Boards"), to designate an observer to the
Boards, to restrict the sale, assignment, transfer, encumbrance or other
disposition of the Common Stock and to provide for certain rights and
obligations in respect thereto as hereinafter provided.
NOW, THEREFORE, the parties to this Agreement hereby agree as
follows:
1. Voting Agreement.
(a) From and after the date of this Agreement
and until the provisions of this paragraph 1 cease to be effective, as in effect
on the date hereof, each holder of Stockholder Shares shall vote all of his
Stockholder Shares and shall take all other necessary or desirable actions
within his control (whether in his capacity as a stockholder, director, member
of a board committee or officer of the Company or the Subsidiary or otherwise,
and including, without limitation, attendance at meetings in person or by proxy
for purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company and the Subsidiary shall take all necessary and
desirable actions within their control (including, without limitation, calling
special board and stockholder meetings), so that:
(i) Molex shall have the right in any election for
directors to the Boards to select one representative to each of the
Boards (the "Molex Director") and to designate
<PAGE>
one person on each of the Boards as an observer (the "Molex
Observer"), subject to the Molex Observer signing a confidentiality
agreement reasonably acceptable to counsel to the Company;
(ii) the removal from the Boards (with or without cause)
of the Molex Director and the Molex Observer shall be at Molex's
written request, but only upon such written request and under no
other circumstances;
(b) the Company and the Subsidiary shall pay the
reasonable out-of-pocket expenses incurred by the Molex Director and the Molex
Observer in connection with attending the meetings of the Boards and any
committee thereof;
(c) Molex shall permit the Molex Observer to attend all
meetings of the Boards (other than such meetings or portion of meetings where
the presence of such Observer would be contrary to law or standard corporate
governance procedures regarding protection of confidential information of a
company) and shall provide such Molex Observer with copies of all communications
with members of the Boards in the same manner and at the same time as the
Company provides such communications to the members of the Boards; and
(d) the provisions of this paragraph 1 shall terminate
automatically and be of no further force and effect upon the occurrence of a
Qualified Public Offering.
2. Restrictions on Transfer of Stockholder Shares.
(a) Transfer of Stockholder Shares. No holder of
Stockholder Shares shall sell, transfer, assign, pledge or permit to exist any
Lien with respect to such Stockholder Shares or otherwise directly or indirectly
dispose of (a "Transfer") any interest in any Stockholder Shares except
Transfers pursuant to and in accordance with paragraphs 2(b), 2(c), 2(d) and 3
below. In no event shall any Primary Stockholder sell any Stockholder Shares to
any Molex Competitor without the prior written consent of Molex.
(b) Right of First Refusal. Except in the case of a
Transfer permitted by paragraph 2(d), at least 30 days prior to making any
Transfer of any Stockholder Shares the transferring stockholder (the
"Transferring Stockholder") shall deliver a written notice (the "First Offer
Notice") to the Company, Molex and the other Primary Stockholders (such other
Primary Stockholders referred to collectively as the "Other Stockholders"). The
First Offer Notice shall disclose in reasonable detail the proposed number of
Stockholder Shares to be transferred, the identity of the transferee and the
proposed terms and conditions (including price) of the Transfer. The delivery of
the First Offer Notice shall constitute an irrevocable offer of the Transferring
Stockholder to sell to the Company, Molex and the Other Stockholders the
Stockholder Shares set forth therein (the "Offered Shares"). First, the Company
may elect to purchase all (but not less than all) of the Offered Shares at the
price and on the terms specified therein by delivering written notice of such
election to the Transferring Stockholder, Molex and the Other Stockholders as
soon as practical but in any event within ten days after the delivery of the
First
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Offer Notice. If the Company has not elected to purchase all of the
Offered Shares within such ten-day period, Molex may elect to purchase all (but
not less than all) of the Offered Shares for the price specified in the First
Offer Notice by delivering written notice of such election to the Transferring
Stockholder, the Other Stockholders and the Company as soon as practical but in
any event within 30 days after delivery of the First Offer Notice (the "First
Election Period"). If Molex has not elected to purchase all of the Offered
Shares, the Transferring Stockholder shall provide written notice to each of the
Other Stockholders within five days after the expiration of the First Election
Period (the "Second Offer Notice"). Such Other Stockholders may elect to
purchase all (but not less than all) of the Offered Shares (which number, if
necessary, shall be reduced based upon the pro rata share of Stockholder Shares
held by the Other Stockholders electing to purchase pursuant to the Second Offer
Notice) for the price specified in the Second Offer Notice by delivering written
notice to Molex, the Other Stockholders and the Company within 15 days of the
Second Offer Notice (the "Second Election Period"). If the Molex or Other
Stockholders have elected to purchase the Offered Shares, the transfer of such
shares shall be consummated within 15 days after the expiration of the
applicable Election Period. To the extent that Molex or the Other Stockholders
have not elected to purchase all of the Offered Shares, the Transferring
Stockholder may, within 90 days after the expiration of the Second Election
Period, transfer all the Offered Shares to the party or parties identified in
the First Offer Notice and the Second Offer Notice at a price no less than 100%
of the price and on other terms no more favorable to the transferees than
offered to the Company and Molex and the Other Stockholders in the Offer Notice.
No Transfer pursuant to this Section 2(b) shall be effective until the
transferee shall have agreed in writing to be bound by all the terms and
conditions of this Agreement. The purchase price specified in any First Offer
Notice or Second Offer Notice shall be payable solely in cash at the closing of
the transaction, and no Stockholder Shares may be pledged.
(c) Participation Right. (i) Except in the case of a
Transfer permitted by paragraphs 2(d), at least 30 days prior to any Transfer of
Stockholder Shares the Transferring Stockholder will deliver a written notice
(the "Sale Notice") to the Company, Molex and the Other Stockholders, specifying
in reasonable detail the identity of the prospective transferee(s) and the terms
and conditions (including price) of the Transfer. Molex and the Other
Stockholders may elect to participate in the contemplated Transfer by delivering
written notice to the Transferring Stockholder within 30 days after delivery of
the Sale Notice. If Molex or any Other Stockholders have not elected to
participate in such Transfer, then Molex or each such Other Stockholder will be
entitled to sell in the contemplated Transfer, at the same price and on the same
terms, a number of Stockholder Shares equal to the product of (A) the quotient
determined by dividing the number of Stockholder Shares owned by such person by
the aggregate number of Stockholder Shares owned by the Transferring Stockholder
and the Other Stockholders or Molex participating in such sale and (B) the
number of Stockholder Shares to be sold in the contemplated Transfer.
(ii) The Transferring Stockholder will use reasonable
efforts to obtain the agreement of the prospective transferee(s) to
the participation of Molex or the Other Stockholders in any
contemplated Transfer, and the Transferring Stockholder will not
Transfer any of its Stockholder Shares to the prospective
transferee(s) unless (A)
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simultaneously with such Transfer, the prospective transferee or
transferees purchase from Molex or the Other Stockholders the
Stockholder Shares which Molex or the Other Stockholders are
entitled to sell to such prospective transferee(s) pursuant to
paragraph 2(c)(i) above or (B) simultaneously with such Transfer,
the Transferring Stockholder purchases the number of Stockholder
Shares from Molex or the Other Stockholders which Molex or the Other
Stockholders would have been entitled to sell pursuant to the last
sentence of paragraph 2(c)(i) above.
(d) Permitted Transfers. The restrictions contained in
this paragraph 2 shall not apply to (i) any Transfer of Stockholder Shares by
any Primary Stockholder or Molex among its Affiliates, (ii) a Public Sale, (iii)
an Approved Sale or (iv) a Transfer of Stockholder Shares by any Primary
Stockholder pursuant to the laws of descent and distribution or among such
Stockholder's Family Group, provided that the restrictions contained in this
Agreement will continue to be applicable to the Stockholder Shares after any
Transfer pursuant to clauses (i) and (iv) of this Section 2(d) and the
transferees of such Stockholder Shares shall agree in writing to be bound by the
provisions of this Agreement. Upon the Transfer of Stockholder Shares pursuant
to this Section 2(d), the transferor will deliver a written notice to the
Company, which notice will disclose in reasonable detail the identity of such
transferee.
(e) Termination of Restrictions. The restrictions set
forth in this paragraph 2 shall continue with respect to each Stockholder Share
until the earlier of (i) the date on which such Stockholder Share has been
transferred in a Public Sale, (ii) the consummation of an Approved Sale or (iii)
the consummation of a Qualified Public Offering.
(f) Special Restriction on Non-Stockholder Shares. The
Primary Stockholders shall not sell any Non-Stockholder Shares to Molex
Competitors.
3. Sale of the Company.
(a) If the Board and Molex approve a sale of all or
substantially all of the Company's assets determined on a consolidated basis or
a sale of all or substantially all of the Company's outstanding capital stock
(whether by merger, recapitalization, consolidation, reorganization, combination
or otherwise) to any Independent Third Party or group of Independent Third
Parties (collectively an "Approved Sale"), each holder of Stockholder Shares
will consent to and raise no objections against such Approved Sale. The Company
shall not consummate any Approved Sale with a Molex Competitor. If the Approved
Sale is structured as (i) a merger or consolidation, each holder of Stockholder
Shares will waive any dissenter's rights, appraisal rights or similar rights in
connection with such merger or consolidation or (ii) sale of stock, each holder
of Stockholder Shares will agree to sell all of his Stockholder Shares and
rights to acquire Stockholder Shares on the terms and conditions approved by the
Board and Molex. Each holder of Stockholder Shares will take all necessary or
reasonably desirable actions in connection with the consummation of the Approved
Sale as requested by the Company.
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(b) The obligations of the holders of Stockholder Shares
with respect to an Approved Sale are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of Stockholder Shares will receive the same form of consideration and the
same portion of the aggregate consideration that such holders of Stockholder
Shares would have received if such aggregate consideration had been distributed
by the Company in complete liquidation pursuant to the rights and preferences
set forth in the Company's Certificate of Incorporation as in effect immediately
prior to such Approved Sale; (ii) if any holders of Stockholder Shares are given
an option as to the form and amount of consideration to be received, each holder
of Stockholder Shares will be given the same option; and (iii) Molex or the
Primary Stockholders holding currently exercisable rights to acquire shares of
Common Stock will be given an opportunity to exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as holders of
Common Stock.
(c) If the Company or the holders of the Company's
securities enter into any negotiation or transaction for which Rule 506 (or any
similar rule then in effect) promulgated by the Securities Exchange Commission
may be available with respect to such negotiation or transaction (including a
merger, consolidation or other reorganization), the holders of Stockholder
Shares will, at the request of the Company, appoint a purchaser representative
(as such term is defined in Rule 501 promulgated by the Securities and Exchange
Commission) reasonably acceptable to the Company. If any holder of Stockholder
Shares appoints a purchaser representative designated by the Company, the
Company will pay the fees and expenses of such purchaser representative, but if
any holder of Stockholder Shares declines to appoint the purchaser
representative designated by the Company such holder will appoint another
purchaser representative, and such holder will be responsible for the fees and
expenses of the purchaser representative so appointed.
(d) Holders of Stockholder Shares will bear their pro
rata share (based upon the number of shares sold) of the costs of any sale of
Stockholder Shares pursuant to an Approved Sale to the extent such costs are
incurred for the benefit of all holders of Common Stock and are not otherwise
paid by the Company or the acquiring party. Costs incurred by holders of
Stockholder Shares on their own behalf will not be considered costs of the
transaction hereunder.
(e) The provisions of this paragraph 3 will terminate
upon completion of a Qualified Public Offering.
4. Preemptive Rights.
(a) If the Company is permitted under this Agreement to
authorize or to sell, and so authorizes the issuance or sale of any of its stock
or securities (other than as a dividend on the outstanding Common Stock), the
Company shall first offer to sell to Molex and the Primary Stockholders a
portion of such stock or securities equal to the quotient determined by dividing
(A) the number of Stockholder Shares held by Molex or such Primary Stockholder
by (B) the total number of shares of outstanding Stockholder Shares. Molex and
each Primary Stockholder
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shall be entitled to purchase such stock or securities at the most favorable
price and on the most favorable terms as such stock or securities are to be
offered. The purchase price for all stock and securities offered to Molex or
such Primary Stockholder shall be payable in cash by wire transfer of
immediately available funds. Notwithstanding the foregoing, the Company shall be
permitted, without permitting Molex or the Primary Stockholders to purchase
shares of Common Stock pursuant to the above formula, to sell 6,000,000 Common
Stock Units (which Common Stock Units shall include one share of Common Stock
and a warrant to acquire one share of Common Stock at an exercise price of not
less than $.90) at a price of not less than $.50 per Common Stock Unit within 24
months of the date hereof to raise capital for the construction and set-up of
its pilot plant (the "Pilot Plant Shares") or for other corporate purposes.
(b) In order to exercise its purchase rights hereunder,
Molex or the applicable Primary Stockholder must within 30 days after receipt of
written notice from the Company describing in reasonable detail the stock or
securities being offered, the purchase price thereof, the payment terms and such
holder's percentage allotment deliver a written notice to the Company describing
its election hereunder.
(c) Upon the expiration of the offering periods
described above, the Company shall be entitled to sell such stock or
securities which Molex and the Primary Stockholders have not elected to purchase
during the 90 days following such expiration on terms and conditions no more
favorable to the purchasers thereof than those offered to Molex and the Primary
Stockholders. Any stock or securities offered or sold by the Company after such
90-day period must be reoffered to Molex and the Primary Stockholders pursuant
to the terms of this paragraph.
(d) The rights under this paragraph 4 will terminate
upon completion of a Public Offering.
5. Public Offering. In the event that the Board, Molex and
the holders of a majority of the shares of Common Stock then outstanding approve
a Public Offering, the holders of Stockholder Shares will use reasonable efforts
to take all necessary actions in connection with the consummation of the Public
Offering. In the event that such Public Offering is an underwritten offering and
the managing underwriters advise the Company in writing that in their opinion
the Common Stock structure will adversely affect the marketability of the
offering, each holder of Stockholder Shares will consent to and vote for a
recapitalization, reorganization and/or exchange of the Common Stock into
securities that the managing underwriters, the Board, Molex and holders of a
majority of the shares of Common Stock then outstanding find acceptable and will
take all necessary or desirable actions in connection with the consummation of
the recapitalization, reorganization and/or exchange.
6. Legend. Each certificate evidencing Stockholder Shares
and each certificate issued in exchange for or upon the Transfer of any
Stockholder Shares (if such shares remain Stockholder Shares as defined herein
after such Transfer) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN TRANSFER AND VOTING RESTRICTIONS PURSUANT TO A STOCK
RESTRICTION AGREEMENT DATED AS OF JUNE 21, 1999, AMONG THE ISSUER OF
SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S
STOCKHOLDERS. A COPY OF SUCH STOCK RESTRICTION AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof. The legend set forth above shall be
removed from the certificates evidencing any shares which cease to be
Stockholder Shares in accordance with paragraph 5 hereof.
7. Transfer. Prior to transferring any Stockholder Shares
(other than in a Public Sale or in an Approved Sale) to any Person, the
transferring Stockholder shall cause the prospective transferee to execute and
deliver to the Company and the Other Stockholders a counterpart of this
Agreement.
8. Special Molex Approval Rights. Except as set forth on
Schedule 8, neither the Company nor the Subsidiary shall, except as contemplated
by this Agreement or as consented to by Molex in writing which consent shall not
be unreasonably withheld, take the following actions:
(a) amend its organizational documents;
(b) except for the issuance of the Pilot Plant Shares and the
issuance of the 2,500,000 shares of Common Stock currently issuable under the
Lumenon Lightwave Technology Inc. Stock Option Incentive Plan, issue, grant,
sell or pledge or agree or propose to issue, grant, sell or pledge any shares
of, or rights or securities of any kind to acquire any shares of, its capital
stock for a period of two (2) years from the date hereof; provided however, that
should Molex exercise its right to purchase all the Common Stock issuable under
the Cash Common Stock Purchase Warrant, such period of non-issuance shall be
extended for a period of one (1) year, or in the event of a partial exercise
under the Cash Common Stock Purchase Warrant, the pro-rata portion (based on the
ratio between the number of shares of Common Stock purchased through such
exercise to the total number of shares of Common Stock issuable thereunder) of
one (1) year;
(c) issue, grant, sell or pledge or agree or propose to issue,
grant, sell or pledge any shares of or rights or securities of any kind to
acquire any shares of, its capital stock to a Molex Competitor;
(d) declare, set aside or pay any dividend or other distribution or
payment in cash, securities or property;
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(e) make any direct or indirect redemption, retirement, purchase or
other acquisition of any of its capital stock;
(f) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber substantially all of its assets, or any
interests therein;
(g) during any period during which the Company and the Subsidiary
shall have a consolidated debt-to-equity ratio of 50% or greater, incur any
obligations or liability for long-term interest bearing indebtedness or, except
in the ordinary course of the Company's business, incur any obligation or
Liability with respect to such business;
(h) enter into any new leases with respect to real property outside
of the ordinary course of business;
(i) otherwise than pursuant to policies or agreements of the Company
and the Subsidiary in effect on the date hereof (including without limitation
the Company's Stock Option Incentive Plan), take any action with respect to the
grant of any bonus, severance or termination pay or with respect to any increase
of benefits payable under its severance or termination pay policies or
agreements in effect on the date hereof or increase in any manner the
compensation or fringe benefits of any employee or pay any benefits; provided,
however, that the Company and the Subsidiary (i) shall be permitted to pay cash
compensation to their employees, officers, directors and consultants on terms
similar to those typically found in start-up companies in the telecommunications
industry for personnel of comparable skill and experience and (ii) shall be
permitted to grant bonuses and alter the compensation of its employees that are
not officers and directors of the Company and the Subsidiary;
(j) hire or replace the chief executive officer of the Company;
(k) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(l) enter into, renew, modify or revise any agreement or transaction
with the Stockholders or any of their affiliates which is likely to have a
material adverse effect on the Company or the Subsidiary or Molex's interest in
the Company;
(m) fail to maintain its assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with the
Company's past practice inoperable, worn-out or obsolete or destroyed assets; or
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(n) transfer, license or otherwise convey any interest in its
Intellectual Property (as defined in the Teaming Agreement).
9. Insolvency of the Company. To the extent permitted by
the License Agreement between the Subsidiary and Polyvalor and McGil University,
in the event of an Insolvency of the Company, Molex may at its option purchase
up to 100% of the assets of the Company at their fair market value in accordance
with the procedures set forth below. At any time after Molex learns that the
Company is Insolvent, Molex may deliver a notice (the "Purchase Notice") to the
Company describing the assets it wishes to purchase (the "Assets"). Upon Molex's
delivery of the Purchase Notice, the Assets shall be deemed automatically
conveyed to Molex at the time of the delivery of the Purchase Notice and
thereafter the Company shall have no interest in such assets but shall only have
a right to be paid for their fair market value as determined by an independent
appraiser in accordance with paragraph (b) below. Molex may, at its option,
designate in the Purchase Notice or thereafter what it believes the fair market
value of the Assets to be and such price shall be deemed agreed by the Company
unless the Company notifies Molex within 10 days of receipt of such price that
it disputes Molex's determination of the fair market value.
(a) Appraisal Procedure. In the event that Molex elects
not to designate a fair market value in connection with exercising
its purchase option or in the event that the Company objects within
10 days of receiving the proposed fair market value purchase price
from Molex, that the fair market value shall be determined by an
mutually agreed appraiser. If Molex and the Company are unable to
agree upon the selection of an appraiser, then each shall select an
independent appraiser within 10 days of the delivery by Molex of the
Purchase Notice. Within 20 days of the appointment of the
appraiser(s), Molex, the Company and the appraiser(s) shall meet at
a location mutually agreed to by the parties, and in a proceeding
held in accordance with the rules of the Commercial American
Arbitration Association each of Molex and the Company shall submit
to the appraiser(s) its proposal for the fair market value of the
Assets, and shall be allowed to present such evidence and testimony
in support thereof as is allowed under the rules of the Commercial
American Arbitration Association. The appraiser(s) shall be
instructed that, within 7 days after the date on which Molex, the
Company and the appraiser(s) conclude such meeting, the appraiser(s)
shall provide to each of Molex and the Company a written statement
setting out the fair market value of the Assets and explaining in
detail the basis of the appraiser(s) calculation. If Molex and the
Company shall have selected a single appraiser, the fair market
value of the Assets shall be the amount determined by such
appraiser. If Molex and the Company shall have selected two
appraisers, and if the fair market value of the Assets determined by
the higher of the two appraisers is less than 120% of the fair
market value of the Assets determined by the lesser of the two
appraisers, then the fair market value of the Assets shall be the
average of the amount determined by the two appraisers. If the fair
market value of the Assets determined by the higher of the
appraisers is equal to or greater than 120% of the value determined
by the lesser of the two appraisers, then Molex and the Company
shall meet again and attempt to agree upon the fair market value of
the Assets. If Molex and the Company are not able to agree on the
fair market value of the Assets within 7 days of receipt of the
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second of the two appraisals, Molex shall instruct the two
appraisers to select a third appraiser. Within 7 days of the
appointment of the third appraiser, the appraisers shall meet, and
in a proceeding held in accordance with the rules of the Commercial
American Arbitration Association each of the first two appraisers
shall submit to the third appraiser its appraisal of the fair market
value of the Assets. The first two appraisers of Molex and the
Company shall provide to the third appraiser such information as the
third appraiser reasonably requests. The third appraiser shall be
instructed that within 7 days after the date on which the appraisers
conclude such meeting, the third appraiser shall provide to each of
Molex and the Company a written statement setting out the fair
market value of the Assets. In such case the fair market value of
the Assets shall be the average of the values determined by the two
closest appraisers. The fair market value of the Assets selected by
the appraiser(s) shall be binding upon Molex and the Company, and
shall be promptly communicated by Notice to each of Molex and the
Company. The cost of the Appraisal Procedure shall be an expense of
the Company. The Company agrees that it shall not dispose of any
material asset during the pendency of the procedure set forth above.
Molex shall pay the Company cash in the amount of the fair market
value of the Assets within 30 days of its determination in
accordance with this procedure. In the event that the Company does
not cooperate with this timetable, then all of the above referenced
deadlines shall run from the date which the Company begins to
cooperate within this procedure or is ordered to do so by a court of
competent jurisdiction.
(b) Qualifications of Appraisers. All appraisers
selected hereunder shall not be affiliated with Molex or the Company
and shall have at least 10 years of experience valuing businesses
which are similar in nature to the Company.
(c) Termination of Rights. In the event that Molex does
not purchase the shares of Common Stock at the Second Closing on the
terms set forth in the Stock Purchase Agreement, Molex's rights
under this Section 9 shall terminate.
10. Reporting Requirements. The Company will promptly
furnish to each of Molex and the Primary Stockholders (i) as soon as available,
but not later than 30 days after the end of each of the first three fiscal
quarters of the Company's fiscal year, a copy of the unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of such quarter
and the related consolidated statement of income for the period commencing on
the first day and ending on the last day of such quarter and certified by an
authorized officer of the Company that such consolidated financial statements
present fairly the financial position for the periods indicated in conformity
with Generally Accepted Accounting Principles applied on a consistent basis
("GAAP") and (ii) as soon as available, but not later than 60 days after the end
of each fiscal year, a copy of the audited consolidated balance sheet of the
Company and its subsidiaries as at the end of such year and the related
consolidated statements of income or operations, and sources and uses of cash
for such year, and accompanied by the opinion of a nationally-recognized
independent public accounting firm which report shall state that such
consolidated financial statements present fairly the financial position for the
periods indicated in conformity with GAAP.
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11. Certain Definitions. For purposes of this Agreement, the
terms specified below shall have the meaning indicated:
"Certificate of Incorporation" means the Company's certificate of
incorporation in effect at the time as of which any determination is being made.
"Change of Control" means with respect to any Person the acquisition
by any other Person, or group of Persons acting in concert, of Control of such
Person.
"Control" (including, with correlative meanings the terms
"Controlled by" or "under "common Control with") as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"Family Group" means a stockholder's spouse and descendants (whether
or not adopted) and any trust solely for the benefit of the Stockholder and/or
the Stockholder's spouse and/or descendants.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 10% of the Company's
Common Stock on a fully-diluted basis (a "10% Owner"), who is not controlling,
controlled by or under common control with any such 10% Owner and who is not the
spouse or descendant (by birth or adoption) of any such 10% Owner or a trust for
the benefit of such 10% Owner and/or such other Persons.
"Insolvency" means any Person which (i) ceases or fails to be
solvent, or fails to pay, or admits its inability to pay any material portion of
its debts as they become due, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct any material portion of its business in the
ordinary course; (iii) commences any Insolvency Proceeding with respect to
itself; (iv) as of any date the aggregate amount of all items set forth as
liabilities on a balance sheet of the financial statements prepared in
accordance with GAAP of such Person exceed the aggregate amounts of all items
set forth as assets in such financial statements or (v) takes any action to
effectuate or authorize any of the foregoing.
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding before any court or other governmental authority
relating to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors or (b) any general assignment for
the benefit of creditors, composition, marshalling of assets for creditors, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, undertaken under U.S., federal, state or
foreign law.
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"Molex Competitor" means any Person which Molex determines in its
reasonable discretion to be a competitor of Molex, including but not limited to
Amp Incorporated, Lucent Technologies, Hewlett Packard, Photonic Integrated
Research Incorporated and Photonics.
"Non-Stockholder Shares" has the meaning set forth in the definition
of "Stockholder Shares".
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Pilot Plant Shares" has the meaning set forth in Section 4.
"Public Offering" means a public offering and sale of the Company's
Common Stock pursuant to an effective registration statement under the
Securities Act not including any Common Stock to be traded over the OTC Bulletin
Board or a similar over-the-counter market.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Qualified Public Offering" means a Public Offering of shares of the
Company's Common Stock having an aggregate offering value, together with the
aggregate value of all other outstanding Common Stock previously issued in a
Public Offering, of at least $20 million (measured as of the time of issuance).
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Stockholder Shares" means (i) any Common Stock owned by Molex or
the Primary Stockholders on the date hereof, (ii) any shares of Common Stock
otherwise acquired by Molex or the Primary Stockholders and (iii) any equity
securities issued or issuable directly or indirectly with respect to the Common
Stock referred to in clauses (i) or (ii) by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization; provided, however, that 10% of the Shares
of Common Stock owned by Molex and each of the Primary Stockholders on the date
hereof shall not constitute Stockholder Shares (the "Non-Stockholder Shares").
As to any particular shares constituting Stockholder Shares, such shares will
cease to be Stockholder Shares when they have been (y) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them, or (z) sold to the public through a broker, dealer or
market maker pursuant to Rule 144 (or by similar provision then in force) under
the Securities Act. For purposes of this Agreement, a Person will be deemed to
be a holder of Stockholder Shares whenever such Person
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has the right to acquire directly or indirectly such Stockholder Shares (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
"Termination Event" shall mean the first to occur of (i) Molex's
failure to exercise fully its right to purchase Common Stock under the Cash
Common Stock Purchase Warrant within six months of the First Closing; or (ii)
the termination of the Exclusivity Period; or (iii) termination of the Teaming
Agreement.
12. Termination of Agreement. Except as provided in the following
sentence, this Agreement shall terminate upon the date of a Termination Event if
(i) not less than 30 days prior to the Termination Event, Molex is offered the
right to become a party to any stockholders' agreements related to the Company
or the Subsidiary to which any stockholder of the Company is a party on the most
favorable terms and conditions provided to any stockholder under any such
agreement, (ii) such agreements contain provisions similar to those provided in
Section 1 of this Agreement and (iii) the offer or offers pursuant to (i) of
this Section 12 provide that Molex becomes a party to the Stockholder Agreements
upon the date of the Termination Event. In the event that Teaming Agreement
terminates pursuant to the provisions of Section 9.3 of the Teaming Agreement,
this Agreement will terminate without regard to the preceding sentence.
13. Stockholders' Notices. Each holder of Stockholder Shares shall
be entitled to notice of all stockholder meetings in accordance with the
Company's bylaws and the General Corporation Law of the State of Delaware.
14. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Stockholder Shares as the owner
of such shares for any purpose.
15. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company, Molex and the holders
of at least a majority of the then outstanding Stockholder Shares. The failure
of any party to enforce any of the provisions of this Agreement shall in no way
be construed as a waiver of such provisions and shall not affect the right of
such party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
16. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not
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affect any other provision or the effectiveness or validity of any provision in
any other jurisdiction, and this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
17. Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement and the Stock Purchase Agreement embody the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
18. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Primary Stockholders and Molex
and any subsequent holders of Stockholder Shares and the respective successors
and assigns of each of them, so long as they hold Stockholder Shares. Molex
shall be permitted to assign this Agreement in its entirety to any of its
Affiliates; provided, that Molex remains obligated under this Agreement.
19. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
20. Remedies. The parties hereto acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company and any Stockholder shall have the right to
injunctive relief, in addition to all of its rights and remedies at law or in
equity, to enforce the provisions of this Agreement. Nothing contained in this
Agreement shall be construed to confer upon any Person who is not a signatory
hereto any rights or benefits, as a third party beneficiary or otherwise.
21. Jurisdiction and Venue. Each party hereto hereby agrees that any
proceeding relating to this Agreement or any of the Additional Agreements shall
be brought exclusively in a state court of Illinois or a federal court located
in Illinois. Each party hereto hereby consents to personal jurisdiction in any
such action brought in any such Illinois or federal court, consents to service
of process by registered mail made upon such party and such party's agent and
waives any objection to venue in any such Illinois or federal court and any
claim that any such Illinois or federal court is an inconvenient forum.
22. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or sent by certified mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the Company and to any other recipient at the addresses
indicated on the signature page of this Agreement, and to any subsequent holder
of Stockholder Shares subject to this Agreement at such address as indicated by
the Company's records, or at such address or to the attention of such other
person as the recipient party has
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<PAGE>
specified by prior written notice to the sending party. Notices will be deemed
to have been given hereunder when delivered personally, three days after deposit
in the U.S. mail and one day after deposit with a reputable overnight courier
service.
23. Governing Law. All issues concerning this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of the law of any jurisdiction other than the State of Delaware.
24. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Restriction Agreement on the day and year first above written.
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
By:
-----------------------
Name:
---------------------
Its:
----------------------
9060 Ryan Avenue
Dorval, Quebec H9P 2M8, Canada
Attention:
----------------
Fax No.: (514) 631-0053
LILT CANADA INC.
By:
-----------------------
Name:
---------------------
Its:
----------------------
9060 Ryan Avenue
Dorval, Quebec H9P 2M8, Canada
Attention:
----------------
Fax No.: (514) 631-0053
NAJAFI HOLDING, INC.
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<PAGE>
By:
-----------------------
Name:
---------------------
Its:
----------------------
9060 Ryan Avenue
Dorval, Quebec H9P 2M8, Canada
Attention:
----------------
Fax No.: (514) 631-0053
ANDREWMA HOLDING, INC.
By:
-----------------------
Name:
---------------------
Its:
----------------------
9060 Ryan Avenue
Dorval, Quebec H9P 2M8, Canada
Attention:
----------------
Fax No.: (514) 631-0053
MOLEX INCORPORATED
By:
-----------------------
Name:
---------------------
Its:
----------------------
2222 Wellington Court
Lisle, IL 60532
Attention:
----------------
Fax No.: (630) 416-4962
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT, dated as of June 21, 1999
("Agreement"), by and among Lumenon Innovative Lightwave Technology, Inc., a
Delaware corporation (the "Company") and Molex Incorporated, a Delaware
corporation ("Molex").
RECITALS
--------
(A) Pursuant to that certain Stock Purchase Agreement, dated as of
May 19, 1999 (the "Stock Purchase Agreement"), the Company agreed to issue and
Molex agreed to acquire shares of the Company's Common Stock.
(B) As a condition to the consummation of the transactions
contemplated by the Stock Purchase Agreement, the Company and Molex have entered
into this Agreement to provide certain securities registration rights to Molex.
AGREEMENTS
----------
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement:
"Common Stock" means the Company's Common Stock, $.01 par value per
share, and any Stock into which such stock may hereafter be changed.
"Company" shall have the meaning set forth in the preamble hereto.
"Holders" means the Persons who shall, from time to time, own of
record any Molex Stock. The term "Holder" shall mean any one of the Holders.
"Molex Stock" shall mean at any time, the shares of the then
outstanding Common Stock owned by Molex or any subsequent Holder having rights
hereunder pursuant to Section 10 hereof and all shares of Common Stock owned by
any such Holder; provided, however, that Molex Stock shall not be deemed to
include any shares after such shares have been registered under the Securities
Act and sold pursuant to such registration or any shares sold without
registration under the Securities Act in compliance with Rule 144, or pursuant
to any other exemption from registration under the Securities Act to a Person
who is free to resell such shares without registration or restriction under the
Securities Act; and provided, further, that at any time subsequent to the
closing of a Qualified Public Offering, Molex Stock shall not include any
<PAGE>
shares which are eligible to be sold without registration under the Securities
Act in compliance with subsection (k) of Rule 144.
"Person" means an individual, a corporation, a partnership, a
limited liability Company, a trust, an unincorporated organization or a
governmental organization or any agency or political subdivision thereof.
"Prospectus" shall mean any prospectus which is a part of a
Registration Statement, together with all amendments or supplements thereto.
"Qualified Public Offering" shall mean the firm commitment
underwritten public offering of Common Stock by means of a Registration
Statement filed by the Company, which offering does not exclusively relate to
the securities under an employee stock option, bonus or other compensation plan,
and not including any securities traded over the OTC Bulletin Board or a similar
over-the counter market and yielding net proceeds to the Company of not less
than $20 million (net of underwriting discounts and other expenses and including
proceeds received by the Company upon exercise of any over-allotment option by
the underwriters).
"Registration Statement" shall mean any registration statement filed
with the Securities and Exchange Commission in accordance with the Securities
Act, together with all amendments or supplements thereto.
"Securities" shall mean any debt or equity securities of the
Company, whether now or hereafter authorized, and any instrument convertible
into or exchangeable for Securities or a Security. The term "Security" shall
mean any one of the Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended
prior to or after the date of this Agreement, or any federal statute or statutes
which shall be enacted to take the place of such Act, together with all rules
and regulations promulgated thereunder.
"Securities and Exchange Commission" shall mean the United States
Securities and Exchange Commission or any successor to the functions of such
agency.
"Seller" shall mean each Holder of Molex Stock as to which Molex
Stock the Company could be required to file a Registration Statement or which
could be registered under the Securities Act at the request of such Holder
pursuant to any of the provisions of this Agreement.
"Stock Purchase Agreement" shall have the meaning given such term in
the Recitals hereto.
"Stock Restriction Agreement" shall have the meaning given such term
in the Stock Purchase Agreements.
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<PAGE>
2. Required Registrations.
(A) Subject to Section 2(B) below, at any time after the first to
occur of (i) the 2nd anniversary of the date hereof or (ii) the closing of a
Qualified Public Offering, but not more than once in any period of 365
consecutive days, upon the written request to register shares of Molex Stock
having an aggregate fair market value of not less than 3 million (based upon the
reported closing bid price of Common Stock on the date for which such price is
reported last preceding the date of the request, or if there is no such reported
closing price, based upon a good faith estimate of fair market value received
from an investment banking firm selected by the requesting Holders) under the
Securities Act made by any Holder, the Company will use its best efforts to
effect the registration of Molex Stock under the Securities Act and the
registration or qualification thereof under all applicable state securities or
blue sky laws, but only to the extent provided for in the following provisions
of this Agreement. A request pursuant to this Section 2(A) shall state the
intended method of disposition of the Molex Stock sought to be registered. The
Company shall include in such registration all Molex Stock with respect to which
the Company receives written requests from the Holders thereof for inclusion
therein (stating the intended method of disposition of such Molex Stock); and
thereupon the Company will, as expeditiously as possible, use its best efforts
to effect the registration, under the Securities Act, of such Molex Stock which
the Company has been requested to register for disposition by such Holders in
accordance with the intended method of disposition described in the requests of
such Holders, all to the extent requisite to permit such sale or other
disposition by such Holders of the Molex Stock so registered.
(B) The foregoing registration rights of any Holder shall be deemed
satisfied by the Company when two Registration Statements shall have been filed
by the Company with and made effective by the Securities and Exchange Commission
under the Securities Act pursuant to requests made pursuant to Section 2(A) and
the offerings pursuant to each such Registration Statement shall have closed.
The Company shall have the right to select the investment banker or bankers who
shall serve as the manager and/or co-managers for the offering of Molex Stock
covered by such Registration Statement; provided, however, that such banker or
bankers shall be of nationally recognized standing, and shall be consented to in
writing by the Holders at least a majority of the Molex Stock included therein,
which consent may not be unreasonably withheld; provided, further, that in the
event that the Company fails to select a reasonably acceptable investment banker
or bankers of nationally recognized standing within 30 days of a request for
registration, the Holders of a majority of the Molex Stock included therein
shall have the right to select and have appointed such investment banker or
bankers.
(C) From and after the date, if any, that the Company is entitled to
register Common Stock for sale by the Holders thereof under the Securities Act
on Form S-3 or any form hereafter adopted by the Securities and Exchange
Commission to take the place of Form S-3, the Holder or Holders in existence at
such time having a fair market value of at least $1,000,000 (fair market
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<PAGE>
value per share to be equal to the reported closing bid price of the Common
Stock on the date for which such price is reported last preceding the date of
the request) shall be entitled to require the Company to register such Molex
Stock pursuant to the provisions of Section 2(A) hereof for an unlimited number
of times, and the Company shall comply with each such request in accordance with
the terms of Section 2(A) hereof.
(D) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a Registration Statement pursuant to this Section 2(D), a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Registration Statement
to be filed and it is therefore essential to defer the filing of such
Registration Statement, the Company shall have the right to defer such filing
for a period of not more than 180 days after receipt of the request of the
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve-month period.
3. Incidental Registration. If the Company at any time proposes or
is required to register any of its Securities under the Securities Act or any
applicable state securities or blue sky laws on a form which permits inclusion
of the Molex Stock, whether pursuant to Section 2 hereof or otherwise, (a
"Company Registration"), it will each such time give written notice to all
Holders, as appropriate, of its intention to do so. Upon the written request of
any such Holder given within 20 days after receipt of any such notice, the
Company will use its best efforts to cause all such Molex Stock which such
Holders shall have requested be registered to be registered under the Securities
Act and any applicable state securities or blue sky laws all to the extent
requisite to permit the sale or other disposition by such Holders of the Molex
Stock so registered. No registrations of Molex Stock under this Section 3 shall
relieve the Company of its obligation to effect registrations under Section 2
hereof, or shall constitute a registration request by any Holder under Section
2. The Company shall have the right to select the investment banker or bankers
who shall serve as the manager and/or co-managers for all registrations of
offerings of Securities under this Section 3; provided, however, that if the
registration in which Holders request to participate herein is the initial
registration under the Securities Act by the Company of an underwritten public
offering of Common Stock, then such investment banker or bankers shall be
selected for such registration and offering of Securities by the Company, but
only with the consent of the Holders of at least a majority of the Molex Stock
included therein.
4. Registration Procedures. Whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any Molex Stock under the Securities Act, the Company will, as expeditiously
as possible:
(A) prepare and file with the Securities and Exchange Commission a
Registration Statement with respect to such Molex Stock and use its best efforts
to cause such Registration Statement to become effective and remain effective
for a period of not less than 180 days, provided that before filing a
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company will furnish to counsel for the Holders included in such
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<PAGE>
Registration Statement copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel;
(B) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective for a period of not less than 180 days and to
comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Securities covered by such Registration Statement
during such period in accordance with the intended method or methods of
disposition by the Sellers thereof set forth in such Registration Statement;
(C) Notify each of the Sellers of any stop order issued or
threatened by the Securities and Exchange Commission and take all reasonable
actions to prevent the entry of such stop order or to remove it if entered;
(D) furnish to each Seller such number of copies of such
Registration Statement, each amendment and supplement thereto, the Prospectus
included in the Registration Statement (including each preliminary Prospectus),
and such other documents, as such Seller may reasonably request in order to
facilitate the public sale or other disposition of the Molex Stock owned by such
Seller;
(E) use every reasonable effort to register or qualify all the Molex
Stock covered by such Registration Statement under such other securities or blue
sky laws of such jurisdictions as each Seller shall reasonably request, and do
any and all other acts and things which may be necessary under such securities
or blue sky laws to enable such Seller to consummate the public sale or other
disposition in such jurisdiction of the Molex Stock owned by such Seller covered
by such Registration Statement; provided, however, that the Company shall not be
required to (i) qualify to do business as a foreign corporation in any
jurisdiction wherein it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction;
(F) notify each Seller at any time when a Prospectus relating to the
Molex Stock of such Seller covered by such Registration Statement is required to
be delivered under the Securities Act, of the happening of any event as a result
of which the Prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and at the request of any such Seller,
prepare a supplement or amendment to such Prospectus so that, as thereafter
delivered to the purchasers of the Molex Stock covered by such Registration
Statement, such Prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein not
misleading;
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<PAGE>
(G) cause all such Molex Stock covered by such Registration
Statement to be listed on each securities exchange on which Securities of the
same class are then listed provided that if the only trading mechanism on which
Securities are then listed is the OTC Bulletin Board, the Company shall use its
best efforts to have the Common Stock listed on the New York Stock Exchange, the
American Stock Exchange or NASDAQ;
(H) provide a transfer agent and registrar for Molex Stock not later
than the effective date of such Registration Statement;
(I) enter into such customary agreements (including an underwriting
agreement in customary form, including customary indemnification provisions) and
take all such other actions as the Holders of at least a majority of the Molex
Stock included in such Registration Statement pursuant to the provisions of this
Agreement or underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Molex Stock (including, without limitation,
effecting a stock split or a combination of shares);
(J) make available for inspection by any Seller, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by any such Seller who is the
Holder of at least 5% of the Molex Stock included in such registration pursuant
to the provisions of this Agreement or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such Seller, underwriter, attorney, accountant or
agent in connection with such Registration Statement;
(K) obtain a cold comfort letter from the Company's independent
public accountants and a legal opinion letter from the Company's counsel in
customary form and covering such matters of the type customarily covered by cold
comfort letters and legal opinion letters, as the case may be, as the
underwriters or the Holders of at least a majority of the Molex Stock included
in such Registration Statement pursuant to the provisions of this Agreement
reasonably request;
(L) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement relating to the Common
Stock at the earliest possible moment; and
(M) if requested by a Seller, cooperate with such Seller and the
underwriter, if any, to facilitate the timely preparation and delivery of
certificates representing Common Stock to be sold and not bearing any
restrictive legends.
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<PAGE>
5. Expenses. To the fullest extent allowable under applicable state
securities and blue sky laws, all expenses incurred in effecting the
registrations provided for in Section 2(A) hereof, and in effecting all of the
registrations provided for in Section 2(C) and Section 3 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, 50% of the fees and disbursements
of one law firm serving as counsel for the Sellers (who shall be selected by
Sellers holding at least a majority of the Common Stock being offered), all
underwriting expenses other than underwriting discounts and commissions, all
expenses of any audits incident to or required by any such registration and all
expenses of complying with the securities or blue sky laws of any jurisdictions
pursuant to Subsection (D) of Section 4 hereof, shall be borne and paid by the
Company; provided, however, that the Company shall not be required to pay any
such expenses incurred by the Sellers if the registration request is
subsequently withdrawn at the request of such Sellers unless such Sellers agree
to forfeit their right to demand one registration pursuant to Section 2(A).
6. Indemnification.
(A) In the event of any registration of any of its Securities under
the Securities Act pursuant to this Agreement, the Company, to the full extent
permitted by law, shall indemnify and hold harmless the Seller of such
Securities, each underwriter (as defined in the Securities Act), each other
Person who participates in the offering of such Securities, and each other
Person, if any, who controls (within the meaning of the Securities Act) such
Seller, its directors and officers, employees, general partners and limited
partners, underwriter or participating Person, against any losses, claims,
damages or liabilities, joint or several, to which such Seller, underwriter,
participating Person or controlling Person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (1) any alleged untrue statement of any material fact contained,
on the effective date thereof, in any Registration Statement under which such
Securities were registered under the Securities Act, any preliminary Prospectus
or final Prospectus contained therein, or any summary Prospectus issued in
connection with any Securities being registered, or any amendment or supplement
thereto, or (2) any alleged omission to state in any such document a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse each such Seller, or any such underwriter,
participating Person or controlling Person for any legal or other expenses,
including amounts paid in any settlement effected with the Company's consent
reasonably incurred by such Seller, underwriter, participating Person or
controlling Person in connection with investigating or defending any such loss,
damage, liability or action; provided, however, that the Company shall not be
liable to any Seller, or any such underwriter, participating Person, or
controlling Person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any alleged untrue statement
or alleged omission made in such Registration Statement, preliminary Prospectus,
summary Prospectus, Prospectus, or amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by such
Seller, specifically for use therein.
(B) Indemnification similar to that specified in Subsection (A) of
this Section 6 shall be given by the Company (with such modifications as shall
be appropriate) covering any
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<PAGE>
registration or other qualification of Securities under any federal or state
securities law or regulation other than the Securities Act with respect to any
such registration or other qualification effected pursuant to this Agreement.
(C) Any Person which proposes to assert the right to be indemnified
under Subsections (A) or (B) of this Section 6 shall, promptly after receipt of
notice of commencement of any action, suit or proceeding against such Person in
respect of which a claim is to be made against an indemnifying Person under such
Subsections (A) or (B), notify each such indemnifying Person of the commencement
of such action, suit or proceeding, enclosing a copy of all papers served,
provided, that the failure to give such notice shall not relieve the Company of
its obligations under this Section 6 except to the extent that the Company is
actually materially prejudiced by such failure to give notice. The indemnifying
Person shall have the right to investigate and defend any such loss, claim,
damage, liability or action and to employ separate counsel in any such action
and to control the defense thereof. The Person claiming indemnification shall
have the right to employ separate counsel in any such action and to control the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the Person against whom indemnification is sought; provided, however,
that notwithstanding the foregoing, in any case when indemnification is sought
against the Company and (i) the Person seeking indemnification has been advised
by counsel that its defenses may be different from those of the Company, or (ii)
the Company has not proceeded in a timely manner to effect such defense, then
the reasonable fees and expenses of counsel for such Person shall be paid by the
Company and the indemnified Person shall have the right to control the defense
of such action, suit or proceeding. In no event shall a Person against whom
indemnification is sought be obligated to indemnify any Person for any
settlement of any claim or action effected without the indemnifying Person's
consent.
(E) The indemnification provided for under this Section 6 will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of Securities.
7. Participation in Registrations.
(A) No Person may participate in any underwritten registration
hereunder unless such Person (i) agrees to sell such Person's Securities on the
basis provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
(B) The Company may require each Seller as to which any registration
is being effected to furnish to the Company such information regarding the
distribution of Molex Stock as is reasonably necessary to be included in the
Registration Statement with respect thereto and which the Company requests in
writing; provided, however, that no Holder shall be required to make any
representations or warranties or to provide information in the Registration
Statement
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<PAGE>
relating to such registration except, in either case, with respect to itself and
its intended method of disposition of Molex Stock. Each Seller who participates
in any disposition of Molex Stock pursuant to any Registration Statement
provided for hereunder shall be deemed to agree that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4(E) hereof, such Seller shall forthwith discontinue disposition of Molex Stock
pursuant to the Registration Statement covering such Molex Stock until such
Seller's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4(E) hereof, and, if so directed by the Company, such
Seller shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Seller's possession, of the prospectus
covering such Molex Stock current at the time of receipt of such notice.
8. Marketing Restrictions.
(A) If
(1) any Holder is entitled and wishes to register any
Molex Stock in a registration made pursuant to Section 2 hereof, and
(2) the offering proposed to be made by the Holder or
Holders for whom such registration is to be made is to be an
underwritten public offering, and
(3) the Company or one or more holders of Securities
other than Molex Stock wishes to register Securities in such
registration, and
(4) the managing underwriters of such public offering
furnish a written opinion that the total amount of Securities to be
included in such offering would exceed the maximum amount of
Securities (as specified in such opinion) which can be marketed at a
price reasonably related to the then current market value of such
Securities and without otherwise materially and adversely affecting
such offering,
then the relative rights to participate in such offering of the Holders, the
holders of other Securities having the right to include such Securities in such
registration, and the Company shall be in the following order of priority:
First: The Holders shall be entitled to participate in
accordance with the number of shares of Molex Stock which each such
Holder shall request to be registered, such participation to be pro
rata in accordance with the number of shares which each such Holder
shall request be registered if, pursuant to clause 4 of this
Subsection (A), the total amount of Securities to be included in the
offering will be less than the number of shares of Molex Stock that
all of such Holders shall request be registered (in which event only
such Holders will be entitled to include Securities in such
Registration Statement); and then
Second: The Company shall be entitled to participate;
and then
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Third: All holders of other Securities having the right
to include such Securities in such registration shall be entitled to
participate in accordance with the relative priorities, if any, as
shall exist among them;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
the Company or any Holder in a transaction which would require registration
under the Securities Act until the expiration of 180 days after the effective
date of the Registration Statement filed pursuant to Section 2 hereof, or such
earlier time consented to by the managing underwriters.
(B) If
(1) there is a Company Registration and any Holder
requests registration of Molex Stock under Section 3 hereof, and
(2) the offering proposed to be made is to be an
underwritten public offering, and
(3) the managing underwriters of such public offering
furnish a written opinion that the total amount of Securities to be
included in such offering would exceed the maximum amount of
Securities (as specified in such opinion) which can be marketed at a
price reasonably related to the then current market value of such
Securities and without materially and adversely affecting such
offering,
then the relative rights to participate in such offering of the Holders and the
holders of other Securities having the right to include such Securities in such
registration, and the Company shall be in the following order of priority:
First: The Person or Persons (including the Company in
the case of an offering initiated by the Company) requesting such
registration shall be entitled to participate in accordance with the
relative priorities, if any, as shall exist among them; and then
Second: The Holders shall be entitled to participate pro
rata among themselves in accordance with the number of shares of
Molex Stock which each such Holder shall have requested be
registered; and then
Third: If such registration shall have been requested by
a Person or Persons other than the Company, the Company shall be
entitled to include Securities in such registration; and then
Fourth: All other holders of other Securities having the
right to include such Securities in such registration shall be
entitled to participate with the relative priorities, if any, as
shall exist among them;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
the Company, any Holder in a transaction which would require registration under
the Securities Act until the expiration of 180 days after the effective date of
the Registration Statement in which Molex Stock was
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<PAGE>
included pursuant to Section 3 hereof, or such earlier time consented to by the
managing underwriters.
9. "Market Stand-Off" Agreement. Each of the Holders and the Company
hereby agree that, during the period of duration (up to, but not exceeding, 180
days) specified by the managing underwriter, following the effective date of a
Registration Statement of the Company filed under the Securities Act, it shall
not, to the extent requested by such managing underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any Common Stock at
any time during such period except Common Stock included in such Registration
Statement; provided, however, that:
(a) such agreement shall be applicable only
until the Company makes a Qualified Public Offering; and
(b) all officers and directors of the
Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Common Stock of each Holder (and
the shares of securities of every other person subject to the foregoing
restriction) until the end of such period, and each Holder agrees that, if so
requested, such Holder will execute an agreement in the form provided by the
underwriter containing terms which are essentially consistent with the
provisions of this Section 9.
Notwithstanding the foregoing, the obligations described in this
Section shall not apply to a registration solely with respect to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
10. Assignability of Registration Rights. The registration rights
set forth in this Agreement shall accrue to each Holder who consents in writing
to be bound by the terms and conditions of this Agreement. Molex shall be
permitted to assign this Agreement to any of its Affiliates; provided, that
Molex remains obligated under this Agreement. Subject to the foregoing, this
Agreement will be binding upon and inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
11. Grant of Subsequent Registration Rights. The Company may not
grant registration rights to subsequent investors in the Company unless such
rights are subordinate to the rights of the Holders or the grant of such rights
is consented to by the Holders of not less than a majority of the then
outstanding Molex Stock. Notwithstanding the foregoing, so long as any shares of
Molex Stock exist, the Company shall not grant to any holder of its Securities
other than Molex Stock the right to include such Securities in any Registration
Statement filed pursuant to Section
-11-
<PAGE>
2 hereof without the consent of the Holders of not less than a majority of the
then outstanding Molex Stock.
12. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
13. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
14. Notices. All communications provided for hereunder shall be in
writing and delivered by hand or by first-class or certified mail, postage
prepaid, to the following addresses, or such other addresses as shall be given
by notice delivered hereunder, and shall be deemed to have been received on the
day of personal delivery or within three business days after such mailing:
If to any Holders, addressed to such Holders at their
addresses as shown on the books of the Company or its transfer agent;
If to the Company, to:
Lumenon Innovative Lightwave Technology, Inc.
9060 Ryan Avenue
Dorval, Quebec H9P 2M8, Canada
Attention: Iraj Najafi
Fax No.: (514) 631-0053
or, any case, to such other persons or at such other addresses as shall be
furnished by any such party by like notice to the other parties.
15. Termination. All rights under this Agreement shall terminate as
to any Holder at such time as such Holder is free to sell all shares of Molex
Stock held by such Holder pursuant to Rule 144(k) under the Securities Act or a
comparable exemption from registration that enables the Holder to sell all
shares of Molex Stock and held by such Holder without registration under the
Securities Act and without restriction as to the manner of sale or otherwise.
This Agreement shall terminate as to all Holders at such time as no shares of
Molex Stock exist that are not freely transferable as set forth above.
-12-
<PAGE>
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
17. Entire Agreement. This Agreement constitutes the entire
agreement by and among the parties hereto with respect to the subject matter
hereof.
18. Amendments and Governing Law. This Agreement may be amended,
modified or supplemented only by a written instrument executed by the Company
and Holders of not less than a majority of the then existing shares of Molex
Stock. Any term, covenant, agreement or condition in this Agreement may be
waived (either generally or in particular instances and either retroactively or
prospectively) by written instruments signed by the Company and Holders of not
less than a majority of the existing shares of Molex Stock. Any such waiver
shall be limited to its express terms and shall not be termed a waiver of any
other term, covenant, agreement or condition. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in that state.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Registration Rights Agreement as of the day and year first written above:
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGIES, INC.
By:
----------------------
Name:
--------------------
Its:
---------------------
MOLEX INCORPORATED
By:
----------------------
Name:
--------------------
Its:
---------------------
-13-
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Lilt Canada, Inc.
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
Lumenon Innovative Lightwave Technology, Inc.
We consent to the use in the Registration Statement (Form 10) of Lumenon
Innovative Lightwave Technology, Inc. (the "Corporation") of our report,
incorporated herein, on our audits of the consolidated financial statements of
the Corporation as at June 30, 1999 and December 31, 1998 and for the six-month
period ended June 30, 1999 and the periods from inception (March 2, 1998) to
December 31, 1998 and to June 30, 1999. We also consent to the reference to our
firm under item 14 in such Registration Statement.
KPMG LLP
Chartered Accountants
Montreal, Canada
November , 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUMENON
INNOVATIVE LIGHTWAVE TECHNOLOGY INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF
JUNE 30, 1999 AND IS QUALIFIED ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CDN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.472
<CASH> 1,170,346
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 184,604
<PP&E> 1,013,852
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,409,531
<CURRENT-LIABILITIES> 681,054
<BONDS> 0
<COMMON> 20,603
0
0
<OTHER-SE> 1,707,874
<TOTAL-LIABILITY-AND-EQUITY> 2,409,531
<SALES> 0
<TOTAL-REVENUES> 796
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 509,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (509,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (509,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (509,171)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUMENON
INNOVATIVE LIGHTWAVE TECHNOLOGY INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1998 AND IS QUALIFIED ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CDN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.533
<CASH> 345,512
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 360,673
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 360,832
<CURRENT-LIABILITIES> 77,853
<BONDS> 0
<COMMON> 16,179
0
0
<OTHER-SE> 266,800
<TOTAL-LIABILITY-AND-EQUITY> 360,832
<SALES> 0
<TOTAL-REVENUES> 5,133
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 192,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (187,547)
<INCOME-TAX> 0
<INCOME-CONTINUING> (187,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187,547)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
