SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-12G/A
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.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 98-0213257
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
9060 Ryan Avenue, Dorval, (QC), Canada H9P 2M8
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(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
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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
Lumenon Innovative Lightwave Technology, Inc. ("Lumenon" or the "Company") is a
development stage company that designs, develops, and has commenced the
manufacture of 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's DWDM components, integrated optics devices in the form of
compact hybrid glass circuits on silicon chips, allow providers such as AT&T to
greatly increase their information carrying capacity at a significantly lower
cost than conventional DWDM equipment.
Lumenon makes DWDM components in the form of an "optical chip" on silicon
through a proprietary sol-gel manufacturing process. The Company is perfecting
the materials and processes for its DWDM components in its new pilot facility in
preparation for its launch into commercial production, which is planned for
April 2000. To the knowledge of the Company, there are no other manufacturers of
DWDM components on silicon using a 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 it to provide low cost, high
volume manufacturing of high quality DWDM technology and devices that will be
preferred over other presently available industry DWDM technologies, such as
micro-optic thin film or fiber filters. The bases for the Company's belief are:
(i) lower capital investment in equipment for the sol-gel process, because there
is no need for vacuum thin film deposition and vacuum coating technology; (ii)
less manual labor (piece-work assembly) is required to make the DWDM chip; (iii)
fewer steps are required in the optical chip manufacturing process, which
reduces the likelihood of manufacturing defects; and (iv) as the optical chip's
channel count grows, the chip's cost does not increase proportionally.
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 includes long distance,
local, metropolitan, business call (enterprise) and access markets, where
bandwidth or information carrying capacity, is critical. The cost of
installation of DWDM technology is significantly lower than that of installation
of new fiber to add capacity, which latter installation includes costs
associated with construction, work and regulatory permits and weather delays.
Lumenon has acquired its rights to the sol-gel process under a license agreement
with Ecole Polytechnique and McGill University. (See - "Material Agreements -
Agreement with Polyvalor and McGill University.")
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 expressed in United States dollars.
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Industry Background
Survey data on the size of the global and North American DWDM markets vary
somewhat from source to source, though all surveys point to the fact that the
DWDM market is large and growing. The U.S. market for DWDM systems in 1995 stood
at approximately US$50 million. According to Laser Focus World, the North
American DWDM market reached US$1.3 billion and the global market for DWDM
systems grew to US$2.2 billion in 1998. Communications Industry Researchers,
Inc., an industry authority, reports that DWDM and related optical technologies
will grow to a market of US$7.6 billion by 2003. Manufacturers of DWDM systems
that use DWDM components include Lucent Technologies, Inc., Ciena Corp.,
Alcatel, Pirelli, Nortel Networks Corp., NEC and Fujitsu. Several of these
systems manufacturers (Lucent, Ciena, Alcatel, Pirelli and NEC) also manufacture
DWDM components. Other DWDM component suppliers include, but are not limited to,
JDS-Uniphase Corp., Photonic Integration Research Incorporated (PIRI), Gould,
E-Tek Dynamics, Inc., Instruments SA, Corning OCA, Ditech Communications Corp.,
DiCon, Sumimoto, and Bosch. Large companies like AT&T Corp. and MCI WorldCom
Inc. are part of the DWDM market. AT&T has used equipment supplied by Lucent
Technologies, while MCI has used DWDM equipment supplied by Pirelli, Hitachi
Ltd. and Nortel.
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.
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.
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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 (see diagram below) require twice the fiber capacity
of non-ring systems. These system designs therefore place greater bandwidth
demand on existing fiber networks.
[Graphic omitted. Depiction of ring architecture of fiber
optic system illustrating redundant pathways.]
Other capacity constraints on fiber optic networks include technologies such as
digital subscriber lines (DSL), which promise higher optical network access
speeds to businesses and residences. When speeds in excess of a megabit are more
widely accessible, they will impose additional strain (demand for bandwidth) on
the optical network backbone. According to W. Carter, an industry analyst, such
constraints 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. To date, the solution to resolve capacity constraint has been to add
or lay additional fiber and to use circuits that have been etched into chips and
to use one of three kinds of DWDM devices, circuits that have been etched into
chips, dielectric filters or fiber Bragg gratings. DWDM technology allows the
existing fiber capacity to be increased at less cost and at greater speed.
Lumenon, through its proprietary manufacturing process called PHASIC(TM),
expects to 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 array waveguide grading ("AWG") 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" (a glass-polymer solution) for making its AWG and a simplified
manufacturing process for creating its optical circuits on silicon. The hybrid
glass can be used to print (through light) circuits on chips without the costly
vacuum etching process and the use of manual labor for assembly of micro-optic
components. The Company expects to be the first to introduce hybrid glasses for
use in integrated optics.
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 channels 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 in the AWG. 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
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(demultiplexing). This technology simplifies the process while providing a
product and technology that can be adapted to the industry's changing needs.
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.
Currently, optical chips in the so-called AWG format are used in DWDM
technology. These optical chips are made by a high temperature vacuum deposition
process called "flame hydrolysis deposition" (FHD). The method produces a silica
soot on the surface of a silicon (or glass) substrate. The soot is melted and
consolidated at high temperature (greater than 1000 degrees Celsius). A series
of coating and vacuum etching steps are then used to create the DWDM device. In
some cases, a thin section of polymer is inserted into the array waveguide
section to desensitize the device to the polarization state of the light. The
DWDM components produced by Lumenon differ in that they are made of different
materials (hybrid sol-gel glass); they are made at temperatures about 1,000
degrees Celsius lower than those used in FHD; they are created by
photolithography directly in the hybrid sol-gel glass; they avoid vacuum film
deposition; and they have optical properties that can be changed over a broader
range than those provided by commercial forms of FHD. The latter difference
allows Lumenon to make smaller DWDM components than those produced by FHD.
Smaller components permit manufacturers of DWDM systems to make more compact
products. The Company believes, at present, that no other manufacturer utilizes
the sol-gel method in the commercial production of optic devices for use in the
DWDM market. (See - "Technology and Products.") Additionally, another method of
producing DWDM technology, Chemical Vapor Deposition (CVD), is being explored by
another company, Lightwave Microsystems.
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 4, 8, 16, 32 and 64-channel DWDM products. In
addition, the Company intends to offer services based on the Company's
capability to design new DWDM devices according to specific client needs. These
needs may include, among others, channel count, channel spacing, central
wavelength and optical loss characteristics. Services may include product
troubleshooting, product repair, product improvement and adaptation to client
needs. The Company's DWDM technology can be subjected to a variety of
reliability tests of performance. DWDM products may be "feature-packed" in
reference to size, reliability, performance, additional optical functionality
(like Bragg gratings) combined with cost effectiveness. Because the DWDM is
created on a silicon substrate, there is the potential for product enhancement
by combining other features e.g., lasers, on the same silicon substrate. Lumenon
intends to provide 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.
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For example, the Company is presently targeting an existing DWDM market that has
for the most part, very specific needs, but because the Company manufactures its
DWDM components from a Platform Technology it can use similar materials and
processes to produce devices related to the DWDM industry and optical
internetworking in general. Examples include optical chips for selectively
adding or dropping wavelengths (channels) and optical cross-connects. Because
the technology is a Platform, the Company can expand from its DWDM chip,
building into new kinds of optical chip products beyond DWDM. The Company
believes that customers may favorably view the idea of having optical components
that are all related to one another through a common (generic) technology.
Because photonics is a nascent industry, the Company believes that it will be
necessary to work with customers closely to meet their specific needs.
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 (AWG). According to a recent report in Laser Focus World
Supplement, "WDM Solutions," in 1998, Thin Filters held a 26% share of the DWDM
market. AWG captured market share from Thin Filters in 1998, representing 47% of
the DWDM market. Bragg Gratings are the most expensive technology and had the
smallest 1998 market share, 19%.
The DWDM components produced by Lumenon differ from other waveguide DWDM
components in several ways. The Company's AWG are made from different materials
(hybrid sol-gel glass), which start out as fluids. This gives the Company the
advantage of being able to use spin-coating and dip-coating methods to cover
silicon wafers, rather than vacuum deposition techniques. The Company's glasses
are made at temperatures about 1,000 degrees Celsius lower than those used in
FHD chip production. This has the advantage of energy savings and much greater
choice in the range of substrates e.g., glass, plastic, that might be used in
the future to support DWDM devices. Lumenon's DWDM optical chips are created by
photolithography directly in the hybrid sol-gel glass. This avoids complex
post-processing sequences in which chemical resists and masks must be used in
conjunction with vacuum reactive ion etching methods to create the AWG for the
DWDM. The properties of the hybrid glass materials can be altered so that the
glasses have properties that are more like those of plastics or inorganic
glasses or properties that are intermediate between plastics and glasses. This
permits hybrid glasses to be adapted into more commercially usable and compact
forms than those produced by FHD. Smaller DWDM components also permit
manufacturers of DWDM systems to make more compact products.
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 Waveguide
technology, will enjoy an advantage in each case.
Manufacturing Cost Per Channel. In Waveguide 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. The differences in the two technologies results in
a lower manufacturing cost per channel.
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Size of Optical Components. Planar waveguide technology products are
significantly smaller than those produced by 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, customer demand and
competition will drive down the price of chips. The Company's low temperature
manufacturing process, which distinguishes it even from other producers
utilizing the waveguide 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. (See - "Material Agreements -
Agreements with Molex"). Under the Teaming Agreement, the Company and Molex
agreed to jointly develop 8, 16 and 32-channel DWDM products for sale to Molex
and distribution and marketing by Molex to other customers. Subject to testing
of the Lumenon technology and proof of Lumenon manufacturing capability, Molex
is committed to purchase a maximum of 400 units per month of Lumenon's 8, 16 and
32-channel DWDM production for the first 12 months, at gross cost to Lumenon
plus 25%. The average revenue per unpackaged chip sold for the first year of
production is currently estimated by the Company at approximately US $1,000
(CDN$1,470). After the first 12-month period, Molex has the option to purchase
all of Lumenon's 8, 16 and 32-channel DWDM production at fair market value for
the succeeding three-year periods. This arrangement will provide a firm customer
base for the Company's early production. The Company is presently testing its
8-channel devices and will complete testing of its 16 and 32 channel devices in
the first half of calendar 2000. 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. The
Company has chosen to target these market segments for DWDM technology because
combined, they are anticipated by Pioneer Consulting, an industry authority, to
account for market growth from US $200 million in 1998 to approximately US$1
billion in 2003.
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, with a production
capability of 1,000 chips per day. The Company estimates the necessary funding
for such expansion to be approximately US$20 million (CDN$29 million) and is
actively investigating potential sources for such funding. The
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Company expects to produce chips at the rate of 20 per day in April 2000 and to
increase its capacity to 500 chips per day in 2001 and to 1,000 per day in 2002.
(See - "Plan of Operations.")
Plan of Operations
Lumenon's plan of operations for calendar year 2000 is focused on finalizing its
8, 16 and 32 channel DWDM products and bringing them to market. This will
include final product development, establishing a second plant that will be
capable of producing, in stages, up to 1,000 units a day, increasing the work
force to approximately 175 persons to fully staff this plant, and commencing
marketing activities for its DWDM products.
Research and Development
Research and development activities for the first three months of calendar year
2000 will be centered on finalizing the packaging of products and optimizing
their manufacture. Lumenon intends to unveil its initial products at the Optical
Fiber Conference (OFC) to be held in Baltimore in March 2000. After launch of
its product, Lumenon will apply its capabilities to product improvements.
Manufacturing
Lumenon has entered into final negotiations for leasing an approximately 35,000
square foot facility in Montreal, Canada that will house the Company's corporate
infrastructure and large scale production facilities for Lumenon's DWDM product
line. Once the lease has been finalized, Lumenon will commence construction of
the production facility, consisting of clean rooms and associated laboratories,
and install manufacturing equipment. (See - "Risk Factors - Substantial Future
Capital Needs; Uncertainty of Additional Funding.")
The Company's existing plant has a capacity of 20 units per day and will be used
for manufacturing until the second plant is operational. Once the second plant
is operational, it is Lumenon's intention to reconfigure the existing plant as
an R&D facility with an ancillary production capability.
Employee Growth
Lumenon currently has 23 employees spanning Corporate, R&D and Operations. Over
the next 12 months, Lumenon intends to increase the corporate team by an
additional two to three persons to a final strength of eight. The existing R&D
team of 10 meets current requirements and will be increased at a measured pace
as new requirements are identified. The majority of Lumenon's personnel growth
will be within the operations team, which will be required to increase its
manufacturing component to approximately 70 persons to meet a production rate of
500 units a day, and to 135 persons to reach a production rate of 1,000 units a
day. The initial growth to a 70-person manufacturing component is planned over
fiscal year 2000 with the additional growth to 135 people in 2001. Most of the
employees that Lumenon will hire will be technicians trained for a few months
prior to full production. The remainder of the operations staff is intended to
increase to 20 persons, including marketing and sale persons, a human resources
staff and additional accounting and administrative staff.
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Technology and Products
Lumenon has begun making 8, 16 and 32-channel waveguide DWDM components in the
form of a miniature optical chip. The suite of phased array waveguide DWDM
components are referred to as 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
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. 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
than vacuum coating. 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 AWG that comprises the DWDM technology. A pattern of the AWG 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. DWDM
devices may be required to meet certain performance standards established by
regulatory groups. Lumenon's DWDM technology can be adapted to meet such
performance standards. 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 photolithographic manufacturing methods long accepted by
the semiconductor and microelectronics industries adapted by the Company to
produce hybrid silica glass integrated optics devices. The materials used to
formulate the hybrid glasses are readily available "off-the-shelf" products
supplied by well known manufacturers like Dow Corning, Aldrich Chemical and Ciba
Specialty Chemicals Ltd. Because the quantity of material used to make a device
is very small (the films are less than 20 microns thick), the cost of the
materials is less than 5% of the total cost of the DWDM product, making the
material cost-competitive with silica or polymers. Additionally, the methodology
used to manufacture such products avoids complex and costly processing and
etching sequences, thereby reducing production costs. 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 a variety of 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
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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 presently consists of 16 persons performing the
following functions: materials and formulation (formulating and purifying
chemical processing), microfabrication (making the devices), theory and design,
testing and packaging. 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 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. Whether or
not other companies have developed software design tools of quality competitive
with that of Lumenon has no impact on the business of the Company, which uses
its software in a manner uniquely adapted to the optical materials and processes
it has developed. 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
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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 staff a full scale production facility. The
Company anticipates increasing its manufacturing capacity from 20 chips per day
in its current facility to 500 chips per day in 2001 and 1,000 per day in 2002
in the new facility it proposes to construct and equip. The Company estimates
the cost of such an initiative at US$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. (See - "Risk Factors -
Manufacturing and Assembly Risks; Yield Risks, Substantial Future Capital Funds;
Uncertainty of Additional Financing.")
The Company is producing 8-channel large and small format optical chip DWDMs
with 200 GHz and 100 GHz channel spacing. Collectively, these devices belong to
Lumenon's [lambda]-PLEXTM-TC-N family of DWDM chips. The entire first year
production of 8, 16 and 32-channel DWDMs has been reserved for Molex, which has
agreed to purchase the Company's production of up to 400 units per month. (See -
"Material Agreements - Agreements with Molex"). The current generation of 8-
channel devices is undergoing testing, with 16 and 32-channel models to follow
by the end of June 2000. The Company has also entered development and test
phases for pigtailing optical fiber to its DWDM devices, and for housing its
optical chips in hermetic, semi-hermetic and non-hermetic packages.
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 is
the licensee of three patent applications registered in the name of Ecole
Polytechnique and McGill University. (See - "Material Agreements - Agreement
with Polyvalor and McGill University".) The three patents are:
1. Title: "Solvent-assisted lithographic process using
photosensitive sol-gel derived glass for depositing
ridge AWG on silicon"
Country: United States, Canada
Status: Allowed Pending
Comment: Patent accepted and shall be issued upon submission of
fee
2. Title: "On-substrate cleaving of sol-gel waveguide"
Country: United States
Status: Pending
Comment: Filed in early July 1999 and awaiting review and
comment. The priority date for the patent application
in other countries is July 1, 2000.
3. Title: "Self-processing of diffractive optical components in
hybrid sol-gel glasses"
Country: United States
Status: Pending Provisional
Comment: The priority date for filing the completed patent
application in the United States and for extending the
patent application in other countries is October 26,
2000. The Company is presently in the process of
finalizing the application.
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
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advantages to the Company. There can be no assurance that any patents issued to
the Company will be 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. (See - "Risk Factors -
Weakness in Intellectual Property Protection; Possible Infringement.")
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 8, 16
and 32-channel DWDM products related to the DWDM market and other photonics
markets. Subject to Lumenon testing and proving its technology and its ability
to manufacture and deliver certain devices, Molex is committed to purchase the
entire 8, 16 and 32-channel DWDM production of Lumenon at gross cost plus 25%
for the first 12 months of production, up to a maximum number of 400 units per
month. In the event Lumenon is unable to supply Molex on a timely basis with a
commercially reasonable quantity of the devices or in the event there is a
change of control of Lumenon, Molex has the non-exclusive right to manufacture
all components of the
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devices in return for a royalty of 25% of Molex's gross cost. After the first
12-month period, Molex will have the option to purchase all of Lumenon's 8, 16
and 32-channel DWDM production at fair market value for the succeeding
three-year period. (See - "Risk Factors Dependence on Strategic Relationships;
Customer Concentration.")
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 US$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 US$0.90 per
share, which was exercised on November 15, 1999.
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 (comprising one common
share and a warrant for the purchase of one common share at a price of not less
than US$0.90 per share) at a price not less than US$0.50 per unit to raise
capital within the 24-month period ending in June 2001. 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.
On December 3, 1999, Lumenon entered into an agreement with Molex for the
investment of an additional US$3 million in the Company's Common Stock at a
price of US$23.19 per share. Molex will also receive one half of a common share
purchase warrant per share purchased. Each of these warrants can be exercised to
acquire one share of Common Stock at a price of US$29.00 per share before
December 3, 2000. Closing of this private placement is expected to occur in
January 2000. The proceeds will be used to finance in part Lumenon's new
manufacturing facility. (See - "Plan Of Operations").
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 are 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
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are defined in the License Agreement, of the Licensor. These patents and
know-how are based on the work of Dr. Iraj Najafi at Ecole Polytechnique and Dr.
Mark Andrews at McGill University and their respective team of collaborators.
Lumenon will pay a royalty of 5% on gross sales, up to a maximum cumulative
amount of $2,377,717 (CDN$3,500,000) to the Licensor until October 2017.
Polyvalor is a company created by Ecole Polytechnique for the purpose of
commercializing the technology in which Polytechnique has an interest.
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. 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. Manufacturers of DWDM systems that use DWDM components include Lucent
Technologies, Ciena, Alcatel, Pirelli, Nortel, NEC and Fujitsu. Several of these
systems manufacturers (Lucent, Ciena, Alcatel, Pirelli and NEC) also manufacture
DWDM components. Other DWDM component suppliers include, but are not limited to,
JDS-Uniphase, Photonic Integration Research Incorporated (PIRI), Gould, E-Tek
Dynamics, Instruments SA, Corning OCA, Ditech, DiCon, Sumimoto, and Bosch.
Examples of emerging companies are Kymata Ltd., Lightwave Microsystems Corp.
(LMC), and Bookham Technology Limited. 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 (PIRI) uses the more
complicated method, "Flame Hydrolysis Deposition" (FHD) which, requires very
high temperature processing (greater than 1000 degrees Celcius) 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. Other DWDM components, like Bragg filters or Thin Filters, must be
cascaded (linked together) to achieve higher channel counts to multiplex more
information. Depending on the channel count, this method of cascading can give
rise to DWDM components housed in environments that for comparison may be half
the size of a refrigerator. The optical chip approach adopted by Lumenon offers
the advantage of compactness at the larger channel counts since there is no need
to cascade. Lumenon's compact components will allow manufacturers of DWDM
systems more flexibility with the design of more compact products. 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. This broader range of products may
include optical chips that can be used for interconnection, power division and
combination in personal computers, where price sensitivity is an issue. 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.
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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.
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
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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 to 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 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 December 22, 1999, the Company's research and development staff consisted
of 15 employees, all of whom are located in Dorval, Quebec and most of whom hold
science, engineering or other advanced technical degrees. The Company's research
and development expenditures from inception to June 30, 1999 and during the
quarter ended September 30, 1999 were US$141,900 (CDN$208,879) and US$252,750
(CDN$370,819) respectively. The research and development expenses, net of
research tax credits, during the period from inception to June 30, 1999 were
partially offset by government tax incentives in the aggregate amount of
US$23,244 (CDN$34,218) and of US$23,988 (CDN$35,193) during the quarter ended
for the period from inception to September 30, 1999. 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 March 1998 by
Professor S. Iraj Najafi of the Ecole Polytechnique,
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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.
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 to
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.
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
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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 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.
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, thus the Company may not produce design
wins and such design wins may not result in significant future revenues due to
the related expenditure.
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. 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 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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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.
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 large
companies and has undergone considerable consolidation. Continued consolidation
would further reduce the number of potential customers in that industry.
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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. (See Item 1. "Business Competition.")
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. Chia-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. 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. (See Item. 5. "Directors and Executive Officers".)
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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 US$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 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.
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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 subject the Company to significant litigation expenses, compliance expenses
or fines, or production suspensions.
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Continued Control by Insiders
As of the date hereof, the Company's management, Molex, Polyvalor and McGill
University collectively own approximately 60.6% 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 that may be favorable to other
stockholders or causing a change of control of the Company that may not be
favored by other stockholders.
Under the Molex Agreements, Molex will acquire the non exclusive right to
manufacture and sell all of the components of the 8, 16 and 32 channel
multiplexers and demultiplexers, including the sol-gel waveguide portion thereof
in the event of a change in the control of Lumenon. In addition, under the Stock
Restriction Agreement with Molex, Molex has rights of first refusal with respect
to any sale of stock by certain stockholders of the Company. Such rights of
Molex may have the effect of delaying or preventing a change in control of the
Company that may be favorable to stockholders other than Molex. (See Item 1.
"Business - Material Agreements - Agreements with Molex.")
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 in
respect of voting and dividend rights and rights upon liquidation 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.
Additionally, any such issuance of preferred stock may have preference over and
harm the rights of the holders of Common Stock. Furthermore, the board of
directors is divided into three classes, only one of which is elected each year.
Outstanding Options and Warrants
As of December 27, 1999, the Company had outstanding options to purchase an
aggregate of 2,407,500 shares of Common Stock at a weighted average exercise
price of US$3.87 per share and outstanding warrants to purchase an aggregate of
3,424,200 shares of Common Stock at a weighted average exercise price of US$1.64
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.
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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 both a significant increases
and significant decreases 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 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, and in particular the share of high technology
companies, 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. The selected financial data for the three months
ended September 30, 1999 and for the period from inception through September 30,
1988 presented below were derived from unaudited financial statements of the
Company, which in the opinion of management of the Company, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of results for interim periods. Operating results for interim
periods are not necessarily indicative of results to be expected for the full
fiscal year. 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").
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SELECTED FINANCIAL DATA
December 31, June 30, December 31, June 30,
1998 1999 1998 1999
(in U.S. dollars) (in Canadian dollars)
Current Assets $360,673 $1,388,885 $552,912 $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' 282,979 1,728,477 433,806 2,544,498
Equity
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
(Unaudited) (Unaudited)
(in U.S. dollars) (in Canadian dollars)
Current Assets $471,878 $3,028,006 $720,086 $4,442,496
Capital Assets - 1,319,980 - 1,936,591
Total Assets 471,878 4,354,804 720,086 6,389,088
Liabilities 16,035 425,232 24,469 623,871
Stockholders' 455,843 3,929,572 695,617 5,765,217
Equity
From Inception
to December Six Months From Inception Six Months
31, Ended to December 31, Ended
1998 June 30, 1999 1998 June 30, 1999
--------------- -------------- -------------- -------------
(in U.S. dollars) (in Canadian dollars)
Revenues - $ 5,133 $ 796 $7,869 $ 1,172
Interest
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
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Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
(Unaudited) (Unaudited)
(in U.S. dollars) (in Canadian dollars)
Revenues - $ - $ 11,066 $ - $ 16,235
Interests
Research and
Development
Expenditures (1) - 228,762 335,626
Net Loss 38,346 658,464 58,516 966,058
Loss Per Share (2) $ 0.002 $ 0.031 $ 0.004 $ 0.046
- -----------------------------
(1) Amounts shown are net of investment tax credits.
(2) As of September 30, 1998, December 31, 1998, June 30, 1999 and
September 30, 1999, the Company had 16,455,000, 16,455,000,
20,215,000 and 22,274,253 issued and outstanding shares
respectively. The Company has never paid dividends on its Common
Stock.
At September 30, 1998, December 31, 1998, June 30, 1999 and September 30, 1999,
the exchange rate between the Canadian dollar and the US dollar were CDN$1.526,
CDN$1.533, CDN$1.472 and CDN$1.467 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
Forward-looking statements in this Form 10 are not based on historical
information but relate to future operations, strategies, financial results or
other developments. Forward-looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond the Company's control and many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company. Such uncertainties 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
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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.
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. Interest income earned during the six-month period ending June 30,
1999 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 US$509,171 (CDN$749,551) or US$0.03 (CDN$0.04) per share,
compared to US$187,547 (CDN$287,509), or $US0.02 (CDN$0.03) per share for the
year ended December 31, 1998. The increase in the loss for the six-month period
ended June 30, 1999 is mainly due to the fact that the Company has established
its activities in its current location, including the incurrence of costs
associated with hiring some of its workforce, payment of rent charges and has
incurred costs associated with raising funds, including the payment of
professional fees and commissions. The Company expects to start generating
operating revenues in the third quarter of its fiscal year 2000.
For the three months ended September 30, 1999, the Company's overall loss was
US$658,464 (CDN$966,058) or US$0.031 (CDN$0.046) per share, compared to
US$38,346 (CDN$58,516), or US$0.002 (CDN$0.004) per share for the three-month
period ended September 30, 1998. The increase in the loss is due to the fact
that as of September 30, 1998, the Company was not yet engaged in operations
(its activities being limited to financing activities), as opposed to the
quarter ending September 30, 1999 where the Company had an existing operation
consisting of a team of 15 employees, a plant, a teaming agreement with Molex.
For the period from inception to September 30, 1999, the Company's overall loss
was US$1,365,452 (CDN$2,003,118).
Costs and Expenses
Research and development expenditures, net of research tax credits, have been
US$118,656 (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.
During the three-month period ended September 30, 1999, research and development
expenses, net of research tax credits, have been US$228,762 (CDN$335,626),
including US$132,810 (CDN$194,852) as per the Teaming Agreement. During this
period, the Company has developed a new DWDM design and has adapted materials
and processes accordingly.
From its inception (in 1998), the Company has been engaged in capital raising,
developmental and organizational activities. During the six-month period ending
June 30, 1999 as well as during the quarter ended September 30, 1999, the
Company has made a significant investment in staffing and equipment. These
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<PAGE>
investments and costs are being financed mainly through proceeds of private
placements completed during the six-month period ending June 30, 1999 (gross
proceeds of US$2,180,409 (CDN$3,209,837)). From July to December 1999, the
Company raised an additional US$5,676,000 (CDN$8,396,574) through private
placements.
General and administrative expenses were US$1,034,838 (CDN$1,518,107) from
inception of the Company to September 30, 1999. From inception of the Company to
December 31, 1998, general and administrative expenses amounted to US$184,662
(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 US$399,668
(CDN$588,353). The charges for this period mainly consist of the salaries to an
increased number administrative, personnel and related expenses to manage the
increased activities of the Company. 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 (US$24,169 (CDN$35,579)) and office charges
(US$22,346 (CDN$32,896)).
During the quarter ending September 30, 1999, general and administrative
expenses were US$440,768 (CDN$646,667) and consisted mainly of salaries of the
technical and administrative employees of the Company and the costs of raising
funds, including related professional fees and commissions. General and
administrative expenses in the quarter ending September 30, 1999 are greater
than those of the quarter ending September 30, 1998 (US$38,346 (CDN$58,516)).
Liquidity and Capital Resources
During the six-month period ended June 30, 1999, Lumenon issued 2,260,000 units
at a price of US$0.50 (CDN$0.74) per unit (excluding Molex shares). Each unit
comprised one share of its Common Stock and one warrant for the purchase of one
additional share at a price of US$0.90 (CDN$1.32) per share, of which warrants
to purchase 1,050,000 shares expire on August 23, 2001 (550,000 of these
1,050,000 warrants were exercised in November 1999) and warrants to purchase
1,210,000 shares expire on August 23, 2000.
In March 1999, the Company issued US$200,000 (CDN$294,400) principal amount of
its 10% Convertible Notes (the "Notes"). Each US$1,000 (CDN$1,472) principal
amount of the Notes was initially convertible into Common Stock at US$0.50
(CDN$0.74) per share. Upon conversion of the Notes, the holder thereof was
entitled to receive for each US$1,000 (CDN$1,472) principal amount thereof
warrants to purchase 1,000 additional shares of Common Stock at US$0.90
(CDN$1.32) per share before September 30, 2001. These notes were converted in
accordance with their term in September 1999.
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
US$750,000 (CDN$1,104,000). Each cash common stock purchase warrant entitled
Molex to acquire one share of Common Stock at a price of US$0.90 (CDN$1.32) on
or before August 1, 2001. These warrants were exercised on November 15, 1999.
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 - Material Agreements - 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 US$1.50
(CDN$2.21) per share before June 2001.
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In September 1999, Lumenon issued 407,000 additional units at a price of US$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 US$6.00
(CDN$8.83) per share before September 2000. Of these warrants, 125,000 were
exercised in October 1999.
In September 1999, Lumenon issued 400,000 additional units of its capital stock
to holders of the convertible notes issued in March 1999 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 US$0.90 (CDN
$1.32) per share before September 30, 2001. Lumenon issued an additional 30,000
units for US$15,000 to the underwriter who had placed the securities upon
conversion of the notes into units. The warrants included in the units issued to
the underwriter were exercised in December 1999 for proceeds of US$27,000.
In November 1999, Lumenon issued 21,500 units at a price of US$7.00 (CDN$10.27)
per unit. Each unit comprised one share of Common Stock and one warrant for the
purchase of one additional share at a price of US$9.00 (CDN$13.20) per share
before September 30, 2000.
In November 1999, Lumenon issued 10,000 additional units at a price of US$10.50
(CDN$15.40) per unit. Each unit comprised one share of Common Stock and one
warrant for the purchase of one additional share at a price of US$15.50
(CDN$22.74) per share before October 31, 2000.
In November 1999, Molex exercised its warrants to acquire 1,666,667 shares at a
price of US$0.90 per share for total proceeds of US$1,500,000. In addition,
warrants to acquire a total of 725,000 shares were exercised in the three-month
period ended December 31, 1999 for total proceeds of US$1,295,000.
On December 3, 1999 Lumenon entered into an agreement with Molex for the
investment of an additional US$3 million in the Company's Common Stock at a
price of US$23.19 per share. Molex will also receive one half of a common share
purchase warrant per share purchased. Each of these warrants can be exercised to
acquire one half share of Common Stock at a price of US$29.00 per share before
December 3, 2000.
On December 7, 1999 Lumenon entered into an agreement with a private investor
for the investment of an additional US$2 million in the Company's Common Stock
at a price of US$23.25 per share. This investor will also receive one half of a
common share purchase warrant per share purchased. Each of these warrants can be
exercised to acquire one half share of Common Stock at a price of US$30.00 per
share before December 7, 2000. Closing of these private placements is expected
to occur in January 2000 upon completion of the legal documentation. These two
private placements are collectively referred to hereinafter as the "December
Private Placements".
The Company has made significant investments in property and equipment during
the six-month period ending June 30, 1999. The Company invested US$1,013,852
(CDN$1,492,495) in additional capital assets, consisting of investments in
laboratory equipment (US$844,250) (CDN$1,242,820), leasehold improvement
(US$130,295) (CDN$191,807), computer equipment and software (US$27,342)
(CDN$40,250) and office equipment and fixtures (US$11,968) (CDN$17,618). During
the three month period ended September 30, 1999, the Company invested US$534,960
(CDN$364,647) in additional capital assets. Depreciation of US $61,930
(CDN$90,864) has been charged to expenses.
As of June 30 and September 30 1999, the Company's cash and cash equivalents
were US$1,170,346 (CDN $1,722,871) and US$805,596 (CDN$1,182,177) respectively.
As of September 30, 1999, the
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Company also had US$1,900,000 (CDN$2,787,300) of term deposits. 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, excluding
significant capital expenditures such as increasing production capacity. The
Company plans to seek additional capital in order to increase its production
capacity (See - "Future Developments" below.) The Company has no financial
obligations of significance as at June 30, 1999 other than operating lease
commitments for its existing premises of US$3,912 (CDN$5,758) per month and
employment agreements.
The Company does not believe that inflation has had a significant impact on its
results of operations.
Future developments
In September 1999, the Company initiated the planning of the expansion of its
eventual manufacturing capacity to 500 chips per day in 2001 from the existing
capacity of 20 chips per day. (See Item 1.
"Business - Plan of Operation.")
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 on the Company's operations. The Company has
asked its third party suppliers for assurances and/or compliance statements in
regard to the products and services supplied. The Company has, to the extent
possible, 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 Company has not validated the accuracy of
such assurances.
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. However, given the
Company's stage of development and the fact that all of its equipment has been
recently acquired and has been guaranteed as Year 2000 compliant, the Company
feels that risks associated with Year 2000 issues are minimal. The Company has
successfully completed a review of both IT and non-IT systems to
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determine that they were Year 2000 compliant. The Company has not tracked the
individual year 2000 costs to date, as any costs would most likely be
attributable to a third party supplier and not the Company. The Company's
historical and estimated costs of remediation directly related to fixing Year
2000 issues are not material, nor are the costs of replacement of non-compliant
systems. Because the Company's Year 2000 project costs were not material, they
have not been segregated. There has been no deferment of projects due to the
Company's Year 2000 efforts. Given the current state of the Company's
development, the only risk that can be reasonably related to Year 2000 issues
would be problems with potential clients, namely Molex. The Company has
requested assurances from Molex that its systems are Year 2000 compliant and
have been successfully tested. The Company has received such assurance from
Molex. In these circumstances, the Company does not believe that it would be
appropriate to create a contingency plan and has no intention of doing so.
In the worst case scenario, the Company would experience supply problems from
its third party suppliers, and thereafter, upon seeking alternate suppliers find
them to be unavailable. However, the Company has no essential supplier that
cannot easily be replaced. At worst, the Company would experience a short delay.
The Company presently has no revenues and does not expect to generate any until
the second half of 2000, thus such delay would not have a material impact on the
Company.
Foreign Currency Transactions
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 September 30, 1998, December 31, 1998, June 30,
1999 and September 30, 1999, which were CDN $1.526, CDN$1.533, CDN$1.472 and
US$1.467 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 US$3.12 (CDN$$4.59) net per square foot,
or US$22,305 (CDN$32,814) in the aggregate. Taxes and expenses are estimated at
US$1.27 (CDN$1.87) per square foot per year, US$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. As of June 30, 1999, the Company had spent US$130,304
(CDN$191,807) on leasehold improvements to construct and equip these premises.
The Company believes that this facility is adequate for its business in its
present stage of development.
31
<PAGE>
Lumenon has entered into final negotiations for leasing an approximately 35,000
square foot facility in Montreal, Canada that will house the Company's corporate
headquarters and large scale production facilities for Lumenon's DWDM product
line. Once the lease has been finalized, Lumenon can commence construction of
the production facility, including the clean rooms and associated laboratories
and install the manufacturing equipment. It is anticipated that the facility
should be operational at the rate of 500 units per day in 2001. Additional
equipment and staff should bring the plant to its full capacity of 1,000 units
per day by 2002.
The existing plant has a capacity of 20 units per day which will be used to
manufacture products until the second plant is operational. Once the second
plant is operational, it is Lumenon's intention to reconfigure the existing
plant as an R&D facility with an ancillary production capability.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The voting securities of the Company outstanding as of December 20, 1999
consisted of 24,465,167 shares of Common Stock. The following table sets forth
information concerning ownership of Common Stock as of December 20, 1999 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.
Number of Shares
Directors, Nominees, Executive of Common Stock Beneficially
Officers and 5% Stockholders Owned (1) Percentage
------------------------------ ---------- ----------
Dr. S. Iraj Najafi ...................... 5,237,500(2) 21.2%
Najafi Holding Inc. ..................... 5,037,500 20.6%
Dr. Mark P. Andrews ..................... 4,887,500(3) 19.8%
Andrewma Holding Inc. ................... 4,687,500 19.2%
Anthony L. Moretti(4)(5) ................ 3,166,667(4) 12.9%
Molex Incorporated(5) ................... 3,166,667(6) 12.9%
Denis N. Beaudry(7) ..................... 1,500,000(7) 6.1%
Dr. Chia-Yen Li ......................... 25,000(8) (9)
Vincent Belanger ........................ 1,000(10) (9)
Reginald J.N. Ross ...................... -(11) --
All Directors and Executive Officers as a 14,817,667(12) 59.6%
Group....................................
- -----------------------------------------
32
<PAGE>
(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after December 20, 1999
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 December 20, 1999
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 shares owned by Najafi
Holdings Inc., of which Dr. Najafi is the sole shareholder.
(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) Anthony L. Moretti is the representative of Molex on the Company's Board
of Directors. The shares reflected in the table above represent 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. Moretti.
(5) The address of Molex and Mr. Moretti is 2222 Wellington Court, Lisle,
Illinois 60532.
(6) 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 on the second closing
contemplated under the Molex Agreements.
(7) 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.
(8) Represents 25,000 shares of Common Stock issuable upon exercise of
options held by Dr. Li. Does not include 225,000 shares issuable upon
exercise of such options.
(9) Less than 1%.
(10) Does not include 300,000 shares of Common Stock issuable upon exercise
of options held by Mr. Belanger.
(11) Does not include 300,000 shares of Common Stock issuable upon exercise
of options held by Mr. Ross.
(12) Includes an aggregate of 425,000 shares of Common Stock issuable upon
exercise of options.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The directors and executive officers of Lumenon and their positions with the
Company are:
33
<PAGE>
Name Age Position
- ---- --- --------
Dr. S. Iraj Najafi 46 Director, Chief Executive Officer and President
Dr. Mark P. Andrews 48 Director, Vice President, Chief Technical Officer
and Secretary
Anthony L. Moretti 48 Director
Denis N. Beaudry 56 Director
Dr. Chia-Yen Li 37 Chief Operating Officer
Vincent Belanger 33 Chief Financial Officer and Treasurer
Reginald J.N. Ross 39 Vice President of Corporate Development
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 in 1998, with Dr. Mark Andrews. Dr. Najafi received
his Ph.D. in Physics from the Ecole Centrale in Paris. Dr. Najafi has been with
the Department of Electrical Engineering at the Ecole Polytechnique in Montreal
since 1986, as a researcher and subsequently as professor, 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. Najafi is currently
on leave from Ecole Polytechnique.
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.
Anthony L. Moretti became a Director in December 1999. Mr. Moretti has been
employed in various executive capacities with Molex Fiber Optics Inc., Chicago,
Illinois, since 1997. He is currently Director Optoelectronic Development Molex
Fiber Optics Inc, a subsidiary of Molex. Prior to working at Molex, Mr. Moretti
worked as an independent consultant for high tech companies from 1994 to 1997
and prior thereto was the Technical Director of Amoco Corporation's research
laboratory, which designed and developed optical AWG devices.
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
34
<PAGE>
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 de
Procedes, and the firms Sinlab Inc., Biosyntech Inc., Phytobiotech Inc.,
Polyplan Inc., Odotech Inc. and COESI Inc.
Mr. Pierre-Paul Allard became a Director in December 1999. Mr. Allard is General
Manager of Cisco Systems, Canada, a subsidiary of Cisco Systems Inc. Mr. Allard
has been employed in various executive capacities with Cisco since 1993.
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. Reginald Ross, joined the company in November 1999 as the Vice President
Corporate of Development and Chief of Strategic Operations. Mr. Ross has a B.
Eng (Electrical) from Royal Military College of Canada and is both a
Professional Engineer (Ontario) and a Certified Project Management Professional.
Mr. Ross has long history in information technology project and program
management both within the industry and the Department of National Defense. From
September 1999 through December 1999, Mr. Ross was an independent consultant
assisting companies in the information technology industry focusing on optics
and photonics. From June 1999 to September 1999, he was Chief Executive Officer
and President of Fiberview Technologies Limited. From August 1998 to May 1999,
Mr. Ross was Program Manager for SpaceBridge Networks Corporation. Prior to
August of 1998, Mr. Ross was a communications officer in the Department of
National Defense retiring at the rank of Major. Through his recent experience as
a consultant and executive, Mr. Ross also brings considerable expertise in
strategic analysis, planning and executive management within the high-tech
start-up environment. (Provide occupation for the last five years)
Mr. Moretti is the nominee of Molex which, under the Molex Agreements, 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 License Agreement.
There are no family relationships among directors and executive officers.
Commencing with the 1999 annual meeting of stockholders (held on December 7,
1999), directors were divided into three classes, with the initial term of
office of (i) Class I to expire at the 2000 annual meeting
35
<PAGE>
of stockholders, (ii) Class II to expire at the 2001 annual meeting of
stockholders, and (iii) Class III 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 then expire will be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election. At the 1999 annual meeting of stockholders, Dr. Najafi and
Mr. Allard were elected as Class I directors, Mr. Beaudry was elected as a Class
II director and Dr. Andrews and Mr. Moretti were elected as Class III directors.
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 three 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 US$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.
Anthony L. Moretti was granted an option to acquire 50,000
shares at a price of US$24.25 (CDN$35.65) per share vesting
over two years in equal tranches of 25,000, exercisable for a
period of two years after their vesting dates of December 7,
2001 and December 7, 2002, respectively.
Pierre-Paul Allard was granted an option to acquire 50,000
shares at a price of US$24.25 (CDN$35.65) per share vesting
over two years in equal tranches of 25,000, exercisable for a
period of two years after their vesting dates of December 7,
2001 and December 7, 2002, 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.)
36
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Name and Principal Position Year(1) Salary(2) Bonus # of Options
- --------------------------- ---- ------ ----- ------------
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
- ---------------------
(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 US$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
US$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
(i) in the event of the bankruptcy, liquidation, or dissolution of the Company,
(ii) if Dr. Li disposes of his shares of Common Stock, (iii) if he commits
certain acts constituting cause or (iv) 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.
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 US$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 (i) in
the event of the bankruptcy, liquidation, or dissolution of the Company, (ii) if
Mr. Belanger disposes of his shares of Common Stock, (iii) if he commits certain
acts constituting cause or (iv) 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.
37
<PAGE>
Reginald J.N. Ross is employed by the Company as the Vice President Corporate
Development and Chief of Strategic Operations pursuant to an employment
agreement effective for a term of five years. The agreement provides for an
initial base salary of US$84,918.48 (CDN$125,000) annually. The Company also
granted Mr. Ross 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. Ross' 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. Ross 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 (i) in the event of the bankruptcy, liquidation, or
dissolution of the Company, (ii) if Mr. Ross disposes of his shares of Common
Stock, (iii) if Mr. Ross commits certain acts constituting cause or (vi) if Mr.
Ross is in material breach of the agreement. Mr. Ross 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 2,407,500 shares of the Company's common
stock have been granted and were outstanding under the Plan as of December 27,
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.
38
<PAGE>
Option Grants During and Subsequent to the Transition Period
<TABLE>
<CAPTION>
Individual Grants
----------------- Potential-realizable
value at assumed
annual rates of stock
price appreciation for
% of Total option term
Number of Options -----------------------
Securities Granted to Exercise
Underlying Employees of Base
Option in-Fiscal Price 5% 10%
Name Granted (#) Year ($/share) Expiration Date ($) ($)
- ----------------- ------------- ---------- --------- ------------------- ------- -------
<S> <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
Reginald J.N. 50,000 (17) $13.00 December 1, 2001 52,500 55,126
Ross 50,000 (18) December 1, 2002 52,500 55,126
50,000 (19) December 1, 2003 52,500 55,126
50,000 (20) December 1, 2004 52,500 55,126
50,000 (21) December 1, 2005 52,500 55,126
50,000 (22) December 1, 2006 52,500 55,126
</TABLE>
- ---------------------
(1) These options vested on May 21, 1999
(2) These options vest on May 21, 2000
(3) These options vest on May 21, 2001
(4) These options vest on May 21, 2002
(5) These options vest on May 21, 2003
(6) These options vest on May 21, 2004
(7) These options vest on January 21, 2000
(8) These options vest on July 21, 2000
39
<PAGE>
(9) These options vest on January 21, 2001
(10) These options vest on July 21, 2001
(11) These options vest on January 21, 2002
(12) These options vest on July 21, 2002
(13) These options vest on January 21, 2003
(14) These options vest on July 21, 2003
(15) These options vest on January 21, 2004
(16) These options vest on July 21, 2004
(17) These options vest on December 1, 1999 and may be exercised
(18) These options vest on December 1, 2000
(19) These options vest on December 1, 2001
(20) These options vest on December 1, 2002
(21) These options vest on December 1, 2003
(22) These options vest on December 1, 2004
Option Exercises and Option Values
The following table provides information related to options exercised by the
Named Executive Officers and the number of and value of options held by the
Named Executive Officers on December 20, 1999.
<TABLE>
<CAPTION>
Securities Aggregate
Acquired Value Value of Unexercised in the
on Realized Unexercised Options as at money options as at
Name Exercise ($) December 20, 1999 (#) December 20, 1999 ($)
------ --------- ----- ------------------------- -----------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
S. Iraj Najafi, -- -- 200,000 -- $4,900,000 --
Mark Andrews -- -- 200,000 -- 4,900,000
Vincent -- -- -- 300,000 -- $7,350,000
Belanger
Chia-Yen Li, -- -- 25,000 225,000 $612,500 $5,512,500
Reginald J.N -- -- -- 300,000 -- 3,450,000
Ross
</TABLE>
Other compensation plans
The company has no pension plan or other compensation plans for its executive
officers or directors.
40
<PAGE>
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 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 US$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
US$0.90 (CDN$1.32) per share, which was exercised in November 1999. 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. Moretti, an officer of Molex Fiber
Optics Inc., is a director of the Company.
On December 3, 1999 Lumenon entered into an agreement with Molex for the
investment of an additional US$3 million in the Company's Common Stock at a
price of US$23.19 per share. Molex will also receive one half of a common share
purchase warrant per share purchased. Each of these warrants can be exercised to
acquire one share of Common Stock at a price of US$29.00 per share before
December 3, 2000. The closing of this private placement is expected to occur in
January 2000 upon completion of the legal documentation.
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
US$2,377,000 (CDN$3,500,000) over the term of the License Agreement.
Additionally, the Company issued 750,000 shares of Common Stock to each of
Polyvalor and McGill University.
41
<PAGE>
ITEM 8. LEGAL PROCEEDINGS.
There is no action, suit, proceeding, or investigation pending or to the
Company's knowledge threatened against the Company, including any investigation
of any governmental authority or body.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS.
The Common Stock of the Company has been quoted on the Over The Counter Bulletin
Board (OTCBB) since July 27, 1998. The following table sets out the high and low
bid prices of the Common Stock during the periods indicated. Such prices reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions.
High ($) 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 December 23rd) $ 49.00 $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 December
23, 1999 was US$26.375.
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 to the six former shareholders of LILT, Najafi Holding,
Inc., Andrewma Holding, Inc., Touam Holding, Inc., SurfaceTech, Polyvalor and
McGill University in reliance upon the exemption provided in Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), were deemed by the
Company to be "restricted securities" within the meaning of Rule 144 under the
Securities Act and were appropriately legended and restricted as to subsequent
transfer. The shares issued in connection with the acquisition of Dequet were
issued to the former stockholders of Dequet
42
<PAGE>
under the exemption provided in Rule 504 of Regulation D under the Securities
Act for a total consideration of $540,000. No underwriter was involved in either
such transaction.
During the six-month period ended June 30, 1999, Lumenon issued an aggregate of
2,260,000 Units at a price of US$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 US$1.00 per share, of which warrants to purchase 1,050,000
shares expire on August 23, 2001 (550,000 of these 1,050,000 warrants have been
exercised) and warrants to purchase 1,210,000 shares expire on August 23, 2000.
The securities were offered and sold to (i) four entities and persons, no one of
which was a "U.S. Person," within the meaning of Rule 902 under the Securities
Act in "offshore transactions" within the meaning of Rule 902, and (ii) one
individual who was at that time a director of the Company, in reliance upon the
exemption provided by Section 4(2) of the Act. All such securities were deemed
by the Company to be restricted securities and were appropriately legended and
restricted as to subsequent transfer. No underwriter was involved in any such
transaction.
In March 1999, the Company issued US$200,000 principal amount of its 10%
Convertible Notes (the "Notes"). Each US$1,000 principal amount of the Notes was
initially convertible into common stock at US$0.50 per share. Upon conversion of
the Notes, the holder thereof is entitled to receive for each US$1,000 principal
amount thereof warrants to purchase 1,000 additional shares of Common Stock at
US$0.90 per share with a term of 30 months. The securities were offered and sold
entirely to one non-U.S. person in an offshore transaction. All of the Notes
were deemed by the Company to be restricted securities and were appropriately
legended and restricted as to subsequent transfer. Groome Capital, Inc. acted as
underwriter in connection with such placement. The notes were converted in
September 1999 in accordance with their terms.
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
US$750,000. Each cash common stock purchase warrant entitles Molex to acquire
one share of Common Stock at a price of US$0.90 on or before August 1, 2001.
These 1,666,667 cash common stock purchase warrants were exercised in November
1999. 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 - Material Agreements - 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 Securities Act. No underwriter was
involved in such transaction.
In July 1999, the Company issued 960,000 units at a price of US$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 US$1.50 per share before
June 2001. The securities were offered and sold solely to five non-U.S. Persons
in offshore transactions. All such securities were deemed by the Company to be
restricted securities and were appropriately legended and restricted as to
subsequent transfer. No underwriter was involved in such transactions.
In September 1999, the Company issued 407,000 additional units at a price of
US$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 US$6.00
per share before September 2000. The securities were offered and sold solely to
five or fewer non-U.S. Persons. All such securities were deemed by the Company
to be restricted securities and were
43
<PAGE>
appropriately legended and restricted as to subsequent transfer. Groome
Capital.com Inc. ("Groome") acted as underwriter in connection with such
placement. 125,000 of the warrants were exercised in October 1999.
In September 1999, the Company issued 400,000 additional units to holders of the
Notes 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 US$0.90 per share before September 30, 2001. The securities
were offered and sold solely to one non-U.S. Person in an offshore transaction.
All such securities were deemed by the Company to be restricted securities and
were appropriately legended and restricted as to subsequent transfer. 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 US$15,000 and exercised the 30,000
warrants included in the Units for US$27,000 in December 1999.
In November 1999, Lumenon issued 21,500 units at a price of US$7.00 (CDN$10.27)
per unit. Each unit comprised one share of Common Stock and one warrant for the
purchase of one additional share at a price of US$9.00 (CDN$13.20) per share
before September 30, 2000. The securities were offered and sold solely to one
non-U.S. Person in an offshore transaction. All such securities were deemed by
the Company to be restricted securities and were appropriately legended and
restricted as to subsequent transfer. No underwriter was involved in such
transaction.
In November 1999, Lumenon issued 10,000 additional units at a price of US$10.50
(CDN$15.40) per unit. Each unit comprised one share of Common Stock and one
warrant for the purchase of one additional share at a price of US$15.50
(CDN$22.74) per share before October 31, 2000. The securities were offered and
sold solely to one non-U.S. Person in an offshore transaction. All such
securities were deemed by the Company to be restricted securities and were
appropriately legended and restricted as to subsequent transfer. No underwriter
was involved in such transaction.
In November 1999, Molex exercised its warrants to acquire 1,666,667 shares at a
price of US$0.90 per share for total proceeds of US$1,500,000. In addition
warrants to acquire a total of 755,000 shares were exercised in the three-month
period ended December 31, 1999 for total proceeds of US$1,295,000.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The capital stock being registered is Common Stock, US$.001 par value.
Authorized and Outstanding Capital Stock
The Company's authorized capital stock consists of 100,000,000 shares of Common
Stock, US$.001 par value, of which 24,465,167 were issued and outstanding as of
December 20, 1999, and 5,000,000 shares of Preferred Stock, US$.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
44
<PAGE>
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 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 December 27, 1999, there are warrants outstanding to purchase 3,424,200
shares of the Company's Common Stock. Of these warrants, 2,110,000 can be
exercised at a price of US$0.90, 960,000 can be exercised at a price of US$1.50,
322,700 can be exercised at a price of US$6.00, 21,500 can be exercised at a
price of US$9.00, and 10,000 can be exercised at a price of US$15.50. In
addition the company is committed to issue 108,228 warrants which can be
exercised at a price of US$30.00 under the December Private Placements.
A total of 2,500,000 shares of Common Stock are currently authorized for grant
under the Company's Stock Option Plan. As of December 27, 1999, there were
options outstanding pursuant to the Stock Option Plan to purchase an aggregate
of 2,407,500 shares of Common Stock at exercise prices ranging from US$1.00 to
US$23.00 per share. A total of 92,500 shares of Common Stock remained available
for future grant. No options have been exercised under the Stock Option Plan as
of December 27, 1999.
Under the Molex Agreement, the Company is committed to issue 1,500,000 shares of
Common Stock at US$0.50 per share to Molex and 5,800,000 additional shares upon
the exercise of the service common stock purchase warrants. (See Item 1.
"Business - Material Agreements - The Molex Agreements.")
45
<PAGE>
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. (See Item 1. "Business - Material Agreements -
The Molex Agreements.")
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.
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
46
<PAGE>
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 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 SUPPLEMENTARY 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.
Consolidated Financial Statements (Unaudited) of Lumenon Innovative
Lightwave Technology, Inc. (a Development Stage Enterprise) -
three-month period ended September 30, 1999 and 1998 and period from
inception (March 2, 1998) to September 30, 1999.
47
<PAGE>
(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.
*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).
- -----------------
* Previously filed.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to the 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
-------------------------------
December 29, 1999 S. Iraj Najafi, President and Chief Executive Officer
49
<PAGE>
Consolidated Financial Statements of
(Unaudited)
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Three-month period ended September 30, 1999 and 1998 and
period from inception (March 2, 1998) to September 30,
1999
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Financial Statements
(Unaudited)
Three-month period ended September 30, 1999 and 1998 and
period from inception (March 2, 1998) to September 30, 1999
Financial Statements
Consolidated Balance Sheets.......................................... 1
Consolidated Statements of Operations................................ 2
Consolidated Statements of Cash Flows................................ 3
Notes to Consolidated Financial Statements........................... 4
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
September 30, September 30, June 30,
1999 1999 1999
- ---------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$)
(note 5)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 805,596 $ 1,182,177 $ 1,722,871
Term deposit 1,900,000 2,787,300 --
Sales tax receivable 254,938 374,029 237,539
Research tax credits receivable 49,164 72,130 34,218
Prepaid expenses 18,308 26,860 49,956
- ---------------------------------------------------------------------------------------
3,028,006 4,442,496 2,044,584
Property and equipment 1,319,980 1,936,591 1,492,495
Other assets 6,818 10,001 10,001
- ---------------------------------------------------------------------------------------
$ 4,354,804 $ 6,389,088 $ 3,547,080
=======================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 323,546 $ 474,699 $ 523,550
Accrued liabilities 101,686 149,172 180,312
Convertible promissory notes -- -- 298,720
- ---------------------------------------------------------------------------------------
425,232 623,871 1,002,582
Stockholders' equity:
Share capital 22,754 33,383 30,330
Additional paid-in capital 5,272,143 7,734,952 3,404,408
Deposit on subscription of shares -- -- 146,820
Accumulated deficit (1,365,325) (2,003,118) (1,037,060)
- ---------------------------------------------------------------------------------------
3,929,572 5,765,217 2,544,498
Subsequent events (note 4)
- ---------------------------------------------------------------------------------------
$ 4,354,804 $ 6,389,088 $ 3,547,080
=======================================================================================
</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
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three months Three months Three months From
ended ended ended inception to
September 30, September 30, September 30, September 30,
- -----------------------------------------------------------------------------------------------------------
1999 1999 1998 1999
- -----------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$) (CAN$)
(note 5)
<S> <C> <C> <C> <C>
Revenues - interest $ 11,066 $ 16,235 $ -- $ 25,276
Expenses:
Research and development 252,750 370,819 -- 579,698
Research tax credits (23,988) (35,193) -- (69,411)
- ------------------------------------------------------------------------------------------------------
228,762 335,626 -- 510,287
General and administrative
expenses 394,051 578,126 63,840 1,438,019
(Gain) loss on foreign
exchange 37,461 54,961 (5,373) 66,459
Interest expense 9,256 13,580 49 13,629
- ------------------------------------------------------------------------------------------------------
669,530 982,293 58,516 2,028,394
- ------------------------------------------------------------------------------------------------------
Net loss $ 658,464 $ 966,058 $ 58,516 $ 2,003,118
======================================================================================================
Net loss per share $ 0.031 $ 0.046 $ 0.004 $ --
======================================================================================================
Weighted average number
of shares outstanding 21,116,992 21,116,992 15,398,478 --
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three months Three months Three months From
ended ended ended inception to
September 30, September 30, September 30, September 30,
1999 1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$) (CAN$)
(note 5)
<S> <C> <C> <C> <C>
Cash flows from:
Operations:
Net loss $ (658,464) $ (966,058) $ (58,516) $(2,003,118)
Adjustment for items not
involving cash:
Depreciation 61,930 90,864 -- 90,864
Compensation cost -- -- -- 241,058
Warrants issued for services 132,805 194,852 -- 194,852
Change in operating assets
and liabilities:
Sales tax receivable (93,028) (136,490) -- (374,029)
Research tax credits
receivable (25,840) (37,912) (9,791) (72,130)
Prepaid expenses 15,742 23,096 (21,235) (26,860)
Accounts payable and
accrued liabilities (54,519) (79,991) 24,469 623,871
Advance to shareholder -- -- (24,500) --
- -------------------------------------------------------------------------------------------------------------------
(621,374) (911,639) (89,573) (1,325,492)
Financing:
Proceeds from issuance of
common shares 2,716,250 3,985,282 372 6,896,771
Purchase of term deposit (1,900,000) (2,787,300) -- (2,787,300)
Cash from the acquisition of a
subsidiary -- -- 814,322 814,322
Share issue expenses (199,071) (292,077) (60,561) (677,388)
Proceeds from issuance of
convertible promissory notes -- -- -- 298,720
- -------------------------------------------------------------------------------------------------------------------
617,179 905,905 754,133 4,545,125
Investments:
Additions to property
and equipment (364,647) (534,960) -- (2,027,455)
Additions to other assets -- -- -- (10,001)
- -------------------------------------------------------------------------------------------------------------------
(364,647) (534,960) -- (2,037,456)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (368,662) (540,694) 664,560 1,182,177
Cash and cash equivalents,
beginning of period 1,174,258 1,722,871 -- --
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 805,596 $ 1,182,177 $ 664,560 $ 1,182,177
===================================================================================================================
</TABLE>
-3-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements
Three-month periods ended September 30, 1999 and 1998 and period from inception
(March 2, 1998) to September 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.
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 2 and 4).
2. The Molex agreements:
(a) Under the terms of a Stock Purchase Agreement:
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.
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.
-4-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Three-month periods ended September 30, 1999 and 1998 and period from inception
(March 2, 1998) to September 30, 1999
(in Canadian dollars)
- --------------------------------------------------------------------------------
2. The Molex agreements (continued):
(a) Under the terms of a Stock Purchase Agreement (continued):
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 was exercised in November 1999.
(b) Under the terms of a Stock Restriction Agreement:
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 from the date of the agreement.
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.
(c) Under the terms of a Teaming Agreement:
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 provide 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 September 30, 1999, an amount of $194,852 was
recorded under research and development expenses (see note 3 (v)).
-5-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Three-month periods ended September 30, 1999 and 1998 and period from inception
(March 2, 1998) to September 30, 1999
(in Canadian dollars)
- --------------------------------------------------------------------------------
3. Share capital:
- --------------------------------------------------------------------------------
September 30, June 30,
1999 1999
- --------------------------------------------------------------------------------
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:
22,274,253 common shares
(June 30, 1999 - 20,215,000) $ 33,383 $ 30,330
- --------------------------------------------------------------------------------
During the three-month period ended September 30, 1999, the Corporation
concluded the following share capital transactions:
(a) Issue of shares:
(i) The Corporation issued 960,000 common shares for a cash
consideration of $1,420,674 (US$960,000). For each common
share issued, the Corporation issued one warrant for the
purchase of one additional share at a price of $2.21 (US$1.50)
per share before June 2001. Of the US$1,420,674, US$146,820
was received prior to June 30, 1999;
(ii) The Corporation issued 407,000 common shares for a cash
consideration of $2,388,927 (US$1,628,000). For each common
share issued, the Corporation issued one warrant for the
purchase of one additional share at a price of $8.80 (US$6.00)
per share before September 2000;
(iii) The Corporation issued 30,000 common shares for a cash
consideration of $22,500 (US$15,000) pursuant to the exercise
of options;
(iv) The Corporation converted its promissory notes into 400,000
common shares with a value of $300,000 (US$200,000) upon
conversion. The Corporation issued 400,000 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;
-6-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Three-month periods ended September 30, 1999 and 1998 and period from inception
(March 2, 1998) to September 30, 1999
(in Canadian dollars)
- --------------------------------------------------------------------------------
3. Share capital (continued):
(a) Issue of shares (continued):
(v) Under the terms of a stock purchase agreement, the Corporation
granted a Services Common Stock Purchase Warrant to receive
5,800,000 common shares. At September 30, 1999, costs incurred
per this agreement an amount of $194,854 (US$131,925) was
recorded under research and development in exchange of 262,253
common shares at a price of $0.74 (US$0.50) per share.
(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 September 30, 1999, 800,000 outstanding options are
exercisable and 1,195,000 outstanding options vest over a period of
two to five years.
(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)
- -------------------------------------------------------------------------------------------------------------------------
1,940,000
Granted 85,000 2.94 (US$2.00)
Exercised (30,000) 1.47 (US$1.00)
- -------------------------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1999 1,995,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Three-month periods ended September 30, 1999 and 1998 and period from inception
(March 2, 1998) to September 30, 1999
(in Canadian dollars)
- --------------------------------------------------------------------------------
3. Share capital (continued):
(b) Stock option plan (continued):
(ii) Stock-based compensation:
The Corporation applies APB Opinion 25, Accounting for Stock
Issued to Employees, in accounting for its stock option plan.
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>
---------------------------------------------------------------------------------------------
Three months Three months From
ended ended inception to
September 30, September 30, September 30,
1999 1998 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss As reported $ 966,058 $ 58,516 $ 2,003,118
Pro-forma 1,003,110 58,516 2,410,981
----------------------------------------------------------------------------------------------
</TABLE>
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: risk-free interest
rate of 5.5%, dividend yield of 0%, expected volatility of
90%, and expected life of 3 to 5 years. The per share weighted
average fair value of stock options granted during the
three-month period was $0.91 (US$0.62).
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.
-8-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Three-month periods ended September 30, 1999 and 1998 and period from inception
(March 2, 1998) to September 30, 1999
(in Canadian dollars)
- --------------------------------------------------------------------------------
3. Share capital (continued):
(c) Warrants:
The following warrants are outstanding at September 30, 1999:
--------------------------------------------------------------------
Expiry date Exercise price per share
--------------------------------------------------------------------
1,210,000 warrants August 2000 $ 1.32 (US$0.90)
407,000 September 2000 8.80 (US$6.00)
40,700 September 2000 8.80 (US$6.00)
960,000 June 2001 2.20 (US$1.50)
2,716,667 August 2001 1.32 (US$0.90)
5,537,747 August 2001 0.74 (US$0.50)
400,000 October 2001 1.32 (US$0.90)
30,000 October 2001 1.32 (US$0.90)
--------------------------------------------------------------------
11,302,114
--------------------------------------------------------------------
Exercise price per share of the 5,537,747 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 2).
4. Subsequent events:
Following the three-month period ended September 30, 1999, the Corporation
concluded the following transactions:
(a) Issue of shares:
The Corporation issued 21, 500 units at a price of $10.27 (US$7.00)
per unit. Each unit was comprised of one share and one warrant for
the purchase of one additional share at a price of $13.20 (US$9.00)
per share before September 2000.
The Corporation issued 10,000 units at a price of $15,40 (US$10.50)
per unit. Each unit was comprised of one share and one warrant for
the purchase of one additional share at a price of $22.74 (US$15.50)
per share before October 2000.
-9-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Three-month periods ended September 30, 1999 and 1998 and period from inception
(March 2, 1998) to September 30, 1999
(in Canadian dollars)
- --------------------------------------------------------------------------------
4. Subsequent events (continued):
(b) Exercise of warrants:
In November 1999, 2,371,667 warrants were exercised in exchange for
2,371,667 common shares at a value of $4,066,524 (US$2,772,000).
(c) Options:
Under the terms of a stock option incentive plan, the Corporation
granted 412,500 options to purchase common shares to employees and
directors at prices varying from $11.74 (US$8,00) to $33.74
(US$23.00), vesting over a period of two to five years.
The Corporation granted 50,000 options to a consultant to purchase
common shares at a price of $33.74 (US$23.00) per share, vesting
over a period of two years.
(d) Agreements:
In December 1999, the Corporation entered into an agreement with
Molex in connection with the issuance of common shares at $34.00
(US$23.19) per share for an aggregate of $4,445,000 (US$3,000,000).
Molex will receive also one half common share purchase warrant per
share purchased to be exercised before December 2000 at a price of
$43.00 (US$29.00)
The Corporation also entered into an agreement with a private
investor in connection with the issuance of common shares at $34.45
(US$23.25) per share for an aggregate of $2,963,000 (US$2,000,000).
The private investor will receive also one half common share
purchase warrant per share also purchased to be exercised before
December 2000 at a price of $44.50 (US$30.00)
5. Functional currency and convenience translation:
The functional currency of the Corporation is the Canadian dollar.
US dollar amounts presented on the balance sheets, statements of
operations and cash flows are provided for convenience of reference only
and are based on the closing exchange rate at September 30, 1999, which
was $1.467 Canadian dollar per US dollar.
-10-
As Adopted on
October 29, 1999
----------------------------------
RESTATED AND AMENDED BY-LAWS
OF
LUMENON INNOVATIVE
LIGHTWAVE TECHNOLOGY, INC.
---------------------------------
ARTICLE I
STOCKHOLDERS
SECTION 1.1. Annual Meetings. An annual meeting of
stockholders to elect directors and transact such other business as may properly
be presented to the meeting shall be held at such place, within or without the
State of Delaware, as the Board of Directors may from time to time fix, if that
day shall be a legal holiday in the jurisdiction in which the meeting is to be
held, then on the next day not a legal holiday or as soon thereafter as may be
practical, determined by the Board of Directors.
SECTION 1.2. Special Meetings. A special meeting of
stockholders may be called at any time by two or more directors or the Chairman
of the Board or the President and shall be called by any of them or by the
Secretary upon receipt of a written request to do so specifying the matter or
matters, appropriate for action at such a meeting, proposed to be presented at
the meeting and signed by holders of record of a majority of the shares of stock
that would be entitled to be voted on such matter or matters if the meeting were
held on the day such request is received and the record date for such meeting
were the close of business on the preceding day. Any such meeting shall be held
at such time and at such place, within or without the State of Delaware, as
shall be determined by the body or person calling such meeting and as shall be
stated in the notice of such meeting.
SECTION 1.3. Notice of Meeting. For each meeting of
stockholders written notice shall be given stating the place, date and hour and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Except as otherwise provided by Delaware law, the written notice of
any meeting shall be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at such stockholder's address
as it appears on the records of the Corporation.
<PAGE>
SECTION 1.4. Quorum. Except as otherwise required by Delaware
law or the Certificate of Incorporation, the holders of record of a majority of
the shares of stock entitled to be voted present in person or represented by
proxy at a meeting shall constitute a quorum for the transaction of business at
the meeting, but in the absence of a quorum the holders of record present or
represented by proxy at such meeting may vote to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is obtained.
SECTION 1.5. Chairman and Secretary at Meeting. At each
meeting of stockholders the Chairman of the Board, or in such person's absence
the person designated in writing by the Chairman of the Board, or if no person
is so designated, then a person designated by the Board of Directors, shall
preside as Chairman of the meeting; if no person is so designated, then the
meeting shall choose a Chairman by plurality vote. The Secretary, or in such
person's absence a person designated by the Chairman of the meeting, shall act
as secretary of the meeting.
SECTION 1.6. Voting; Proxies. Except as otherwise provided by
Delaware law or the Certificate of Incorporation, and subject to the provisions
of Section 1.10:
(a) Each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock held by
such stockholder.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors,
properly presented to any meeting shall be decided by a majority of the votes
cast on the matter.
(e) Election of directors and the vote on any other
matter presented to a meeting shall be by written ballot only if so ordered by
the Chairman of the meeting or if so requested by any stockholder present or
represented by proxy at the meeting entitled to vote in such election or on such
matter, as the case may be.
SECTION 1.7. Adjourned Meetings. A meeting of stockholders may
be adjourned to another time or place as provided in Section 1.4. Unless the
Board of Directors fixes a new record date, stockholders of record for an
adjourned meeting shall be as originally determined for the meeting from which
the adjournment was taken. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote. At any adjourned meeting at which there shall be present or
represented the holders of record of the requisite number of shares, any
business may be transacted that might have been transacted at the meeting as
originally called.
-2-
<PAGE>
SECTION 1.8. Consent of Stockholders in Lieu of Meeting. Any
action that may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of such
action shall be given promptly to each stockholder that would have been entitled
to vote thereon at a meeting of stockholders and that did not consent thereto in
writing.
SECTION 1.9. List of Stockholders Entitled to Vote. At least
10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder, shall be prepared and shall be open to the
examination of any stockholder for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
at a place within the city where the meeting is to be held. Such list shall be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 1.10. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action. If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; and the record date for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE II
DIRECTORS
SECTION 2.1. Number; Term of Office; Qualifications;
Vacancies. The number of the directors constituting the entire Board of
Directors shall be the number, not less than three nor more than 15, fixed from
time to time by a majority of the total number of directors that the Corporation
would have, prior to any increase or decrease, if there were no vacancies;
provided, however, that no decrease shall shorten the term of an incumbent
director. Until otherwise fixed by
-3-
<PAGE>
the directors, the number of directors constituting the entire Board shall be
four. Commencing with the election of directors at the annual meeting of
stockholders in 1999, and subject to the rights of Molex Incorporated ("Molex")
under that certain Stock Restriction Agreement dated as of June 21, 1999, as
from time to time amended (the "Stock Restriction Agreement"), the Board shall
be divided into three classes as nearly equal in number as possible. The terms
of office of the directors initially classified shall be as follows: that of
Class I shall expire at the next annual meeting of stockholders in 2001, Class
II at the second succeeding annual meeting of stockholders in 2002 and Class III
at the third succeeding annual meeting of stockholders in 2003. Commencing with
the 2001 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. The foregoing notwithstanding, each director
shall serve until his successor shall have been duly elected and qualifies,
unless he shall resign, become disqualified, disabled or shall otherwise be
removed. Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and the directors so chosen shall hold office, subject to Sections 2.2
and 2.3, until the next annual meeting of stockholders and until their
respective successors are elected and qualify.
SECTION 2.2. Resignation. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein or, if no time be specified, upon receipt
thereof by the Board of Directors or the Secretary; and, unless specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. When one or more directors shall resign from the Board of Directors
effective at a future date, subject to the rights of Molex under the Stock
Restriction Agreement, a majority of the directors then in office, including
those who have so resigned, shall have power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations shall
become effective, and each director so chosen shall hold office as provided in
these By-Laws in the filling of other vacancies.
SECTION 2.3. Removal. Subject to the rights of Molex under the
Stock Restriction Agreement, any one or more directors may be removed with cause
by the vote or written consent of the holders of a majority of the shares
entitled to vote at an election of directors.
SECTION 2.4. Regular and Annual Meetings; Notice. Regular
meetings of the Board of Directors shall be held at such time and at such place,
within or without the State of Delaware, as the Board of Directors may from time
to time prescribe. No notice need be given of any regular meeting, and a notice,
if given, need not specify the purposes thereof. A meeting of the Board of
Directors may be held without notice immediately after an annual meeting of
stockholders at the same place as that at which such meeting was held.
SECTION 2.5. Special Meetings; Notice. A special meeting of
the Board of Directors may be called at any time by the Board of Directors, the
Chairman of the Board or the President and shall be called by any one of them or
by the Secretary upon receipt of a written request
-4-
<PAGE>
to do so specifying the matter or matters, appropriate for action at such a
meeting, proposed to be presented at the meeting and signed by at least two
directors. Any such meeting shall be held at such time and at such place, within
or without the State of Delaware, as shall be determined by the body or person
calling such meeting. Notice of such meeting stating the time and place thereof
shall be given (a) by deposit of the notice in the United States mail, first
class, postage prepaid, at least seven days before the day fixed for the meeting
addressed to each director at such person's address as it appears on the
Corporation's records or at such other address as the director may have
furnished the Corporation for that purpose, or (b) by delivery of the notice
similarly addressed for dispatch by facsimile or telegraph, or by delivery of
the notice by telephone or in person, in each case at least 24 hours before the
time fixed for the meeting.
SECTION 2.6. Presiding Officer and Secretary at Meetings. Each
meeting of the Board of Directors shall be presided over by the Chairman of the
Board or in such person's absence by such member of the Board of Directors as
shall be chosen at the meeting. The Secretary, or in such person's absence an
Assistant Secretary, shall act as secretary of the meeting, or if no such
officer is present, a secretary of the meeting shall be designated by the person
presiding over the meeting.
SECTION 2.7. Quorum. A majority of the directors then in
office shall constitute a quorum for the transaction of business, but in the
absence of a quorum a majority of those present (or if only one be present, then
that one) may adjourn the meeting, without notice other than announcement at the
meeting, until such time as a quorum is present. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 2.8. Meeting by Telephone. Members of the Board of
Directors or of any committee thereof may participate in meetings of the Board
of Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 2.9. Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the Board of Directors
or of such committee.
SECTION 2.10. Committees of the Board. The Board of Directors
may, by resolution passed by the Board of Directors, designate one or more other
committees, each such committee to consist of one or more directors as the Board
of Directors may from time to time determine, subject to the rights of Molex
under the Stock Restriction Agreement. Any such committee, to the extent
provided in such resolution or resolutions, shall have and may exercise the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, but no such committee shall have such power of
authority in reference to amending the
-5-
<PAGE>
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Each such committee shall have such name as may
be determined from time to time by the Board of Directors.
SECTION 2.11. Compensation. No director shall receive any
stated salary for such person's services as a director or as a member of a
committee but shall receive such sum, if any, as may from time to time be fixed
by the Board of Directors.
ARTICLE III
OFFICERS
SECTION 3.1. Election; Qualification. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall be selected by the
Board of Directors. The Board of Directors may elect a Controller, one or more
Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers and such other officers as it may from time to time determine. Two
or more offices may be held by the same person.
SECTION 3.2. Term of Office. Each officer shall hold office
from the time of such person's election and qualification to the time at which
such person's successor is elected and qualifies, unless he shall die or resign
or shall be removed pursuant to Section 3.4 at any time sooner.
SECTION 3.3. Resignation. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers; and, unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.4. Removal. Any officer may be removed at any time,
with or without cause, by the vote of the Board of Directors, subject to the
rights of Molex under the Stock Restriction Agreement.
SECTION 3.5. Vacancies. Any vacancy however caused in any
office of the Corporation may be filled by the Board of Directors, subject to
the rights of Molex under the Stock Restriction Agreement.
-6-
<PAGE>
SECTION 3.6. Compensation. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
SECTION 3.7. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the Board of Directors and of the shareholders,
and shall have such powers and duties as generally pertain to the office of
Chairman of the Board, subject to the direction of the Board of Directors.
SECTION 3.8. President. The President shall be the chief
executive officer of the Corporation and shall have general charge of the
business and affairs of the Corporation, subject however to the right of the
Board of Directors to confer specified powers on officers and subject generally
to the direction of the Board of Directors.
SECTION 3.9. Vice President. Each Vice President shall have
such powers and duties as generally pertain to the office of Vice President and
as the Board of Directors or the President may from time to time prescribe.
During the absence of the President or such President's inability to act, the
Vice President, or if there shall be more than one Vice President, then that one
designated by the Board of Directors, shall exercise the powers and shall
perform the duties of the President, subject to the direction of the Board of
Directors and the Executive Committee, if any.
SECTION 3.10. Secretary. The Secretary shall keep the minutes
of all meetings of stockholders and of the Board of Directors. The Secretary
shall be custodian of the corporate seal and shall affix it or cause it to be
affixed to such instruments as require such seal and attest the same and shall
exercise the powers and shall perform the duties incident to the office of
Secretary, subject to the direction of the Board of Directors and the Executive
Committee, if any.
SECTION 3.11. Other Officers. Each other officer of the
Corporation shall exercise the powers and shall perform the duties incident to
such person's office, subject to the direction of the Board of Directors and the
Executive Committee, if any.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1. Stock Certificates. The interest of each holder
of stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by, or in the name of, the Corporation by the
Chairman of the Board, the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary. Any of or all
the signatures appearing on such certificate or certificates may be a facsimile.
If any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued
-7-
<PAGE>
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
SECTION 4.2. Transfer of Stock. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable law and such
rules and regulations as the Board of Directors shall from time to time
prescribe.
SECTION 4.3. Holders of Record. Prior to due presentment for
registration of transfer the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
SECTION 4.4. Lost, Stolen, Destroyed or Mutilated
Certificates. The Corporation shall issue a new certificate of stock to replace
a certificate theretofore issued by it alleged to have been lost, destroyed or
wrongfully taken, if the owner or such owner's legal representative (i) requests
replacement, before the Corporation has notice that the stock certificate has
been acquired by a bona fide purchaser; (ii) files with the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
stock certificate or the issuance of any such new stock certificate; and (iii)
satisfies such other terms and conditions as the Board of Directors may from
time to time prescribe.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Indemnity. (a) The Corporation shall indemnify,
subject to the requirements of subsection (d) of this Section, any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
-8-
<PAGE>
(b) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of the State of Delaware or such other court shall deem
proper.
(c) To the extent that a present or former director
or officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsection (a) and (b)
of this section, or in defense of any claim, issue or matter therein, the
Corporation shall indemnify such person against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b)
of this section (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made with respect to a person who is a director or
officer at the time of such determination (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion or (4) by the stockholders.
(e) Expenses incurred by a director, officer,
employee or agent in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this section.
(f) The indemnification and advancement of expenses
provided by or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
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<PAGE>
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this section.
(h) The indemnification and advancement of expenses
provided by, or granted pursuant to this section shall, unless otherwise
provided when authorized or ratified, 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 a person.
(i) For the purposes of this section, references to
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this section with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
(j) This Section 5.1 shall be construed to give the
Corporation the broadest power permissible by the Delaware General Corporation
Law, as it now stands and as heretofore amended.
SECTION 5.2. Waiver of Notice. Whenever notice is required by
the Certificate of Incorporation, the By-Laws or any provision of the Delaware
General Corporation Law, a written waiver thereof, signed by the person entitled
to notice, whether before or after the time required for such notice, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 5.3. Fiscal Year. The fiscal year of the Corporation
shall start on such date as the Board of Directors shall from time to time
prescribe.
-10-
<PAGE>
SECTION 5.4. Corporate Seal. The corporate seal shall be in
such form as the Board of Directors may from time to time prescribe, and the
same may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
ARTICLE VI
AMENDMENT OF BY-LAWS
SECTION 6.1. Amendment. Subject to the rights of Molex under
the Stock Restriction Agreement, the By-Laws may be altered, amended or repealed
by the stockholders or by the Board of Directors by a majority vote.
ARTICLE VII
STOCKHOLDER PROPOSALS
SECTION 7.1. Stockholder proposals other than a nomination for
election of the Corporation's Board of Directors.
(a) Any stockholder wishing to submit a proposal for
consideration at an annual meeting of stockholders, other than a nomination for
election to the Board of Directors, shall give notice to the Corporation of such
proposal not less than 45 days prior to the first anniversary of the date of the
last annual meeting of stockholders. Such notice shall be in writing, delivered
or mailed by first class mail, postage prepaid, to the Secretary of the
Corporation, and shall be received by the Secretary in conformity with the
deadline referred to in the previous sentence.
(b) Each notice shall set forth (i) the name, age and address
of the stockholder who intends to make the proposal and a brief description of
the proposal itself; (ii) a representation that the stockholder is a holder of
record of the Corporation entitled to vote at the meeting and intends to appear
in person or by proxy at the meeting to present the proposal specified in the
notice; and (iii) such other information regarding the proposal as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had such proposal been made by
the Board of Directors of the Corporation.
(c) The Chairman of any meeting of stockholders may, if the
facts warrant, determine and declare to the meeting that a stockholder proposal
was not made in accordance with the foregoing procedure, and if he or she should
so determine, the Chairman shall so declare to the meeting and the defective
proposal shall be disregarded.
(d) At such time any class of the Corporation's securities is
registered under the Securities Exchange Act of 1934, as amended, stockholder
proposals shall conform to Rule 14a-8 thereunder.
-11-
<PAGE>
SECTION 7.2. Stockholder proposals for the nomination for
election to the Corporation's Board of Directors.
(a) Any stockholder wishing to submit a proposal for
consideration at the annual meeting of stockholders for the nomination for the
election to the Board of Directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class mail, postage pre-paid, to the
Secretary of the Corporation not less than 45 days prior to the first
anniversary of the date of the last meeting of stockholders of the Corporation
called for the election of directors.
(b) Each notice shall set forth (i) the name, age and address
of the stockholder who intends to make the nomination and of the person or
persons to be nominated; (ii) a representation that the stockholder is a holder
of record of the Corporation entitled to vote at the meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) the name, age, business address and, if known,
residence address of each nominee proposed in such notice; (iv) the principal
occupation or employment of each such nominee; (v) a description of all
arrangements or understandings between the stockholder and each such nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (vi) such other
information regarding each such nominee as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors of the corporation; and (vii) the
consent of each such nominee to serve as a director of the Corporation if so
elected.
(c) The Chairman of any meeting of stockholders may, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he or she should so
determine, the Chairman shall so declare to the meeting and the defective
nomination shall be disregarded.
(d) Except as required in the By-Laws no election need be by
written ballot.
(e) At such time any class of the Corporation's securities is
registered under the Securities Exchange Act of 1934, as amended, stockholder
proposals shall conform to Rule 14a-8 thereunder.
-12-
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.
/s/KPMG LLP
KPMG LLP
Chartered Accountants
Montreal, Canada
December 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10 FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-START> JUN-30-1999
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<OTHER-SE> 3,906,818
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