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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 2000
REGISTRATION NO. 333-45548
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 3220 98-0213257
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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8851 TRANS-CANADA HIGHWAY
VILLE SAINT-LAURENT, (QC) CANADA H4S 1Z6
(514) 331-3738
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
DR. S. IRAJ NAJAFI
CHIEF EXECUTIVE OFFICER
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
8851 TRANS-CANADA HIGHWAY
VILLE SAINT-LAURENT, (QC) CANADA H4S 1Z6
(514) 331-3738
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
JOHN A. BURGESS, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109
TELEPHONE: (617) 526-6000
TELECOPY: (617) 526-5000
AND
DAVID J. ADLER, ESQ.
OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 753-7200
TELECOPY: (212) 935-1787
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION,
PRELIMINARY PROSPECTUS DATED DECEMBER 21, 2000
PROSPECTUS
LUMENON INNOVATIVE
LIGHTWAVE TECHNOLOGY, INC.
10,800,000 SHARES
OF COMMON STOCK
The selling stockholders listed in this prospectus are offering and
selling up to 10,800,000 shares of our common stock. We will not receive any
proceeds from the sale of these shares. We could receive proceeds of up to
US$50,008,000, if warrants are exercised at their minimum exercise price, and
proceeds of up to US$150,024,000, if warrants are exercised at their maximum
exercise price, from the exercise of warrants issued to the selling stockholders
as part of the financing described under "Business-Material Agreements --
Convertible Note Financing."
Our common stock is traded on The Nasdaq National Market under the symbol
"LUMM." The last reported sale price for our common stock on The Nasdaq National
Market on December 18, 2000 was US$5.59 per share. The selling stockholders may
offer their shares of common stock from time to time, in the open market, on The
Nasdaq National Market, in privately negotiated transactions, in an underwritten
offering, or a combination of methods, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. The selling stockholders may engage brokers or dealers who may receive
commissions or discounts from the selling stockholders. Any broker-dealer
acquiring the common stock from the selling stockholders may sell these
securities in normal market making activities, through other brokers on a
principal or agency basis, in negotiated transactions, to its customers or
through a combination of methods. See "Plan of Distribution." We will bear all
of the expenses and fees incurred in registering the shares offered by this
prospectus. The selling stockholders will pay any brokerage commissions and
discounts attributable to the sale of the shares.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE SEE
"RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH
OUR BUSINESS.
Neither the Securities and Exchange Commission or any other regulatory
body has approved or disproved of these securities or passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
Commissions received by the selling stockholders or any broker-dealers,
agents or underwriters that help distribute the shares and any profit on the
resale of the shares purchased by them may be considered underwriting
commissions or discounts under the Securities Act of 1933.
The date of this prospectus is , 2000
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 17
Dividend Policy............................................. 18
Market Price of the Registrant's Common Equity and Related
Stockholder Matters....................................... 18
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 25
Management.................................................. 43
Security Ownership of Certain Beneficial Owners and
Management................................................ 49
Certain Relationships and Related Transactions.............. 51
Selling Stockholders........................................ 51
Description of Capital Stock................................ 53
Indemnification of Directors and Officers................... 55
Where You Can Find More Information......................... 56
Quantitative and Qualitative Disclosures About Market
Risk...................................................... 56
Plan of Distribution........................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
Index to Financial Statements and Exhibits.................. F-1
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PROSPECTUS SUMMARY
As used in this prospectus, unless the context otherwise requires, the
terms "Lumenon," "we" or "us" mean Lumenon Innovative Lightwave Technology, Inc.
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully.
LUMENON
We are a development stage company. We design and develop products
related to the Dense Wavelength Division Multiplexing (DWDM) market and other
optical or photonic segments of the telecommunications market. DWDM is a
technology that permits a user to send multiple sources of information and data
to be sent at the same time over a single optic fiber. DWDM allows network
operators to remove an entire class of equipment in their networks. We are
developing and manufacturing devices for use in the DWDM market under a teaming
agreement with Molex Incorporated. We do not expect to generate product revenues
until 2001. We had accumulated net losses of CDN$252,118,000 (US$167,298,000) as
of September 30, 2000.
Our plan of operations for fiscal year 2001 is to finalize the
development of our DWDM devices and to bring them to market. We will focus
product development on four aspects:
-- perfecting manufacturing steps for DWDM devices;
-- readying automation equipment in our new manufacturing facility;
-- setting quality control criteria for our operations; and
-- expanding our packaging and pigtailing capability for our
optical chips.
We have begun producing and testing a limited number of product devices
and intend to market 4, 8, 16, 32 and 40 channel DWDM chips. In addition, we
intend to offer services based on our capability to design new customized DWDM
devices according to specific client needs.
Service providers like AT&T and MCI WorldCom are creating fiber optic
networks to transmit large quantities of data at high speeds. They must meet
demand for uses such as the Internet, e-mail, and electronic commerce. Service
providers desire to increase the capacity of their networks without installing
new fiber optic cable. DWDM products are designed to allow them to greatly
increase their information carrying capacity on existing fiber. Although the
number of service providers operating in the market is relatively small, based
upon our experience in the industry, we believe that there is a substantial
market for our devices in DWDM systems.
We make our devices in the form of an "optical chip" on silicon through a
patented sol-gel process. To our knowledge, there are no other manufacturers of
DWDM devices on silicon using a sol-gel manufacturing process. The advantages of
our process include:
-- lower capital investment;
-- less manual labor required in the assembly process;
-- fewer process steps, reducing the likelihood of manufacturing
defects; and
-- the cost of manufacturing an optical chip does not increase
proportionally with the number of channels that are placed on
the chip.
We acquired our initial rights to our patented manufacturing process
under a license agreement with Polyvalor and McGill University. Specifically,
Polyvalor and McGill University hold patents and know-how relating to the
materials and process used to produce integrated optical
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circuits on silicon microchips. Polyvalor and McGill University have also
licensed that technology to QPS Technology, Inc. Through our research and
development, we believe that, based on our experience in the industry, we have
improved the process. Accordingly, we have filed two patent applications
relating to this process. Our only material obligation to the licensors is to
pay a royalty of 5% on our gross sales, subject to a cumulative maximum of
CDN$3,500,000 (US$2,367,104). See "Business -- Material Agreements -- Agreement
with Polyvalor and McGill University."
We have entered into an agreement with Polaroid Corporation for the
license of patents held by Polaroid in connection with array wave-guide gratings
(AWG). We agreed to pay to Polaroid an initial licensing fee of CDN$584,047
(US$395,000). In addition, we will pay royalties on the net selling price of our
products, at an annual rate of 5% for aggregate net selling prices of
US$5,000,000, 3.5% for aggregate net selling prices over five and up to
US$40,000,000, and 1.75% for aggregate net selling prices over US$40,000,000,
for each year of the agreement. See "Business -- Material
Agreements -- Agreement with Polaroid."
We have entered into agreements with Molex that contain restrictions on
our ability to sell our products. Under a teaming agreement, we agreed with
Molex to jointly develop DWDM products. Subject to our testing and proving our
technology and our ability to manufacture and deliver the devices, Molex is
committed to purchase our entire DWDM production for the first 12 months of
production, up to 400 units per month. Molex also has the option to buy 50% of
our remaining chip production. After the first 12-month period, Molex will have
the option to purchase 50% of our DWDM production for the succeeding three-year
period. Any product sold by us to Molex will be priced at our gross cost. In
addition, Molex will pay to us 30% of the profits obtained on final products
built from the chips supplied, 50% of the profits from sales of functionally
unmodified packaged products and 30% of the profits from sales of other final
products. We are free to package and sell any remaining products, with all
profits going to us. However, we cannot sell unpackaged chips for
telecommunications applications, except for special order or exploratory
purposes, without written agreement from Molex. If we are unable to supply Molex
on a timely basis with a commercially reasonable quantity of the devices or in
the event we experience a change of control, Molex has the non-exclusive right
to manufacture all components of the devices in return for a royalty equal to
50% of the profits from sales of functionally unmodified packaged products and
30% of the profits from sales of other final products. See "Material
Agreements -- Agreements with Molex" for a detailed description of our
agreements with Molex.
We are incorporated under the laws of the State of Delaware. Our
principal executive offices are located at 8851 Trans-Canada Highway, Ville
Saint-Laurent, (QC) Canada H4S 1Z6, and our telephone number at that address is
(514) 331-3738.
THE OFFERING
Common stock offered by the selling
stockholders..................... 10,800,000 shares, of which 2,616,414
have been issued and 8,183,586 are
issuable upon exercise of outstanding
warrants and conversion of outstanding
convertible notes.(1)
Common stock outstanding........... 36,069,153 shares(2)
Common stock to be outstanding
after the offering................. 44,252,739(2)
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Use of proceeds.................... We will not receive any proceeds from the
sale of the shares of common stock by the
selling stockholders. We could receive
proceeds of up to US$50,008,000, if
warrants held by the selling stockholders
were exercised at their minimum exercise
price, and proceeds of up to
US$150,024,000 if warrants held by the
selling stockholders were exercised at
their maximum exercise price. Given the
uncertainty as to any exercise, the
timing of any exercise and the amount
that we would receive, we have not
established any specific use for these
proceeds. They will be used for working
capital and general corporate purposes.
Risk factors....................... An investment in the common stock offered
by the selling stockholders involves a
high degree of risk. See "Risk Factors"
beginning on page 9.
Nasdaq National Market symbol...... LUMM
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(1) Represents approximately 18.49% of the outstanding shares of our common
stock assuming the issuance of the 8,183,586 shares to be issued. On
July 25, 2000, we sold CDN$51,243,000 (US$35,000,000) aggregate
principal amount of convertible notes due July 25, 2005 to two
institutional investors. The notes bear interest at rate of 7.5% per
year, which is payable upon the earlier to occur of the repayment or
conversion of the notes. The notes are convertible into shares of common
stock at a price equal to the average of the closing bid prices of our
common stock for the five consecutive trading days ending immediately
prior to conversion, but in no event less than US$7.00 nor more than
US$25.00 per share (unless a default under the notes has occurred). For
example, if the notes had converted on December 18, 2000, the conversion
price would have been US$7.00, which would have resulted in an aggregate
of 4,000,000 shares of common stock being issued upon the conversion of
the notes. To date, CDN$30,893,500 (US$20,500,000) of these notes have
been converted into 2,600,000 shares of common stock.
In connection with the financing, we issued to the investors five year
warrants to purchase an aggregate of 5,000,800 shares of our common
stock. These warrants are exercisable beginning 18 months after
issuance, at an exercise price determined as follows:
-- If the volume weighted average price, which is determined by
adding up all of the dollars traded on every transaction on a
given day (price times number of shares purchased) and
dividing that number by the shares traded during the day, of
our common stock during the five consecutive trading days
prior to the date the warrants became exercisable is equal to
or less than US$30.00, then the exercise price of the warrants
will be US$10.00;
-- If the volume weighted average price of our common stock
during the five consecutive trading days prior to the date the
warrants became exercisable is greater than US$30.00, but less
than US$70.00, then the exercise price of the warrants will be
the sum of US$10.00, plus one-half of the excess over
US$30.00; and
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-- If the volume weighted average price of our common stock
during the five consecutive trading days prior to the date the
warrants became exercisable is more than US$70.00, then the
exercise price of the warrants will be US$30.00.
The number of shares of common stock issuable upon exercise of the
warrants and the exercise price of the warrants are subject to
adjustment upon the occurrence of the issuance of convertible
securities at a conversion/exercise price that is less than the then
current market price, stock splits, stock dividends and other
recapitalizations. In addition, upon a consolidation, merger or sale in
which we are not the surviving entity, we must require that our
successor assume our obligations under the warrants. If we declare or
make any distribution of assets or rights to acquire shares to our
stockholders, the holders of the warrants, upon the exercise of those
warrants, will be entitled to receive the amount of those assets or
rights as if those holders had been holders of common stock on the date
of that distribution. In the event of a default under the notes or in
others of our obligations to the purchasers, vesting of the warrants
may be accelerated. See the Risk Factor entitled "We have a significant
number of outstanding convertible notes, warrants and options, the
exercise or conversion of which could adversely affect the price of our
common stock and could result in increased dilution in the book value
of our stock" on page 15 and the Selling Stockholder table on page 52.
(2) Does not include:
-- 5,112,650 shares of common stock reserved for issuance upon
exercise of options granted or to be granted under our stock
option incentive plan, under which options to purchase
3,590,150 shares of common stock are outstanding;
-- 5,757,811 shares of common stock reserved for issuance upon
exercise of outstanding common stock purchase warrants; or
-- 4,383,586 shares of common stock reserved for issuance upon
conversion of outstanding convertible notes.
Except as otherwise indicated, all references in this prospectus to the
number of shares of common stock outstanding do not include the foregoing
shares.
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SUMMARY FINANCIAL INFORMATION
The following summary financial information is taken from our financial
statements included elsewhere in this prospectus. The summary financial
statements should be read in conjunction with the financial statements and
related notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Our financial statements as of and for the fiscal
years ended June 30, 2000, June 30, 1999 and December 31, 1998 have been audited
by KPMG LLP, Montreal, Canada, independent chartered accountants. Our financial
statements as of and for the three months ended September 30, 1999 and September
30, 2000 are derived form our unaudited financial statements also appearing
elsewhere in this document, and which, in the opinion of our management, include
all adjustments, consisting of only normal recurring adjustments necessary to
present fairly our unaudited results of operations and financial condition for
those periods and at that date. The financial results below for the three months
ended September 30, 1999 and 2000 are not necessarily indicative of the results
to be expected for any future period. Unless otherwise indicated, all dollar
amounts in this prospectus are expressed in United States dollars. We changed
our fiscal year end to June 30, effective in 1999. The amounts reported below
for fiscal year 1999 are for the six-month period ended June 30, 1999.
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DECEMBER 31, 1998 JUNE 30, 1999 JUNE 30, 2000
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(IN THOUSANDS OF CANADIAN DOLLARS)
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Current Assets..................... $553 $2,045 $ 6,059
Capital Assets..................... -- 1,492 4,603
Total Assets....................... 553 3,547 12,200
Liabilities........................ 119 1,003 1,886
Stockholders' Equity............... $434 $2,544 $10,314
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SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 2000(3)
------------------ ------------------ ---------------------
(IN THOUSANDS OF (IN THOUSANDS OF
CANADIAN DOLLARS) US DOLLARS)
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Current Assets.................... $4,442 $49,371 $32,761
Capital Assets.................... 1,937 19,016 12,618
Total Assets...................... 6,389 70,255 46,619
Liabilities....................... 624 29,644 19,671
Stockholders' Equity.............. $5,765 $40,611 $26,948
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SIX MONTHS FISCAL YEAR
FROM INCEPTION TO ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1999 JUNE 30, 2000
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(IN THOUSANDS OF CANADIAN DOLLARS)
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Research and Development
Expenditures(1)................. $ 12 $ 162 $218,968
General and Administrative........ 290 570 4,020
Depreciation...................... 894
Other Expenses (Income)........... 15 18 (320)
Net Loss.......................... 288 750 223,562
Loss Per Share(2)................. $0.02 $ 0.04 $ 8.80
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THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 2000(3)
------------------ ------------------ ---------------------
(IN THOUSANDS OF (IN THOUSANDS OF
CANADIAN DOLLARS) US DOLLARS)
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Research and Development
Expenditures(1)................ $2,034 $ 1,344 $ 891
General and Administrative....... 487 3,639 2,415
Depreciation..................... 91 548 364
Other Expenses................... 52 21,988 14,591
Net Loss......................... 2,664 27,519 18,261
Loss Per Share(2)................ $ 0.13 $ 0.80 $ 0.53
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(1) Amounts shown are net of tax credits and grants and include non-cash
expenses resulting from the issuance of common stock upon exercise of
the Molex services warrant.
(2) For the periods ended December 31, 1998, June 30, 1999, September 30,
1999, June 30, 2000 and September 30, 2000, the weighted average number
of shares outstanding were 14,972,188, 17,480,967, 21,116,992,
25,415,601 and 34,511,352 respectively. We have never paid dividends on
our common stock.
(3) Translated solely for the convenience of the reader at the noon buying
rate on September 29, 2000 of US$1.00 to CDN$1.507.
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RISK FACTORS
An investment in our common stock is highly speculative and involves a
high degree of risk. You should only consider investing in our common stock if
you are able to afford to lose your entire investment. In evaluating our
business, you should carefully consider the following risk factors in addition
to the other information included in this prospectus
WE ARE A DEVELOPMENT STAGE COMPANY WITH NO EXPERIENCE IN MANUFACTURING AND
MARKETING OUR PRODUCTS, MAKING IT DIFFICULT TO EVALUATE OUR BUSINESS AND YOUR
INVESTMENT.
We have no history in manufacturing and marketing our products. We are a
development stage company and, to date, have not had any revenues from sales of
our products. Our operating history provides no basis for evaluating us and our
prospects. We must successfully develop and commercialize our products, meet
competition, attract, retain and motivate qualified employees, expand our
operations and market and sell products using our licensed proprietary
technology in volume to have significant revenues and to be profitable.
Our future will depend on our ability to develop, manufacture and
commercialize products based upon our licensed proprietary technologies. Our
first product, the DWDM optical chip, has only recently entered production in
limited quantities and we expect to make only limited shipments of prototype
chips in 2000. See "Business -- Plan of Operations" beginning on page 28.
Potential customers may not accept our products, they may be difficult to
produce in large volumes at an acceptable cost, fail to perform as expected,
cost too much or be barred from production by the proprietary rights of others.
If we are unsuccessful at developing, manufacturing and marketing our products,
we will never become profitable.
WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING CONVERTIBLE NOTES, WARRANTS AND
OPTIONS, THE EXERCISE OR CONVERSION OF WHICH COULD DECREASE THE PRICE OF OUR
COMMON STOCK, WHICH WOULD LEAD TO ADDITIONAL SHARES BECOMING ISSUABLE UPON THE
CONVERSION OF ANY REMAINING OUTSTANDING NOTES.
To date, we have issued numerous warrants, options and notes, which are
exercisable or convertible into shares of our common stock. See "Prospectus
Summary -- The Offering" beginning on page 4. If you purchase shares of stock
offered under this prospectus, you could experience substantial dilution upon
the conversion or exercise of outstanding convertible notes, warrants or
options.
No holder may convert any portion of the July 2000 notes or exercise any
portion of the July 2000 warrants to the extent that the conversion or exercise
would result in that holder or any of its affiliates beneficially owning more
than 4.99% of our outstanding common stock. Therefore, a holder may have to sell
shares of common stock in order to be able to convert notes or exercise
warrants. The notes are convertible into shares of common stock at a price equal
to the average of the closing bid prices of our common stock for the five
trading days ending immediately prior to conversion; however, the minimum
conversion price is fixed US$7.00 and the maximum conversion price is fixed at
US$25.00. In the event, however, that we issue any securities which are
convertible or exchangeable into common stock on more favorable terms than the
minimum conversion price of $US7.00, the holders of the July 2000 notes shall be
entitled to convert the notes at the more favorable price. Moreover, if any
market activity occurs which could depress the price of our common stock,
including the taking of a significant short position against our stock, the
number of shares issuable upon the conversion of the notes could increase. The
following table sets forth the number of shares of common stock that would be
issuable upon the conversion of outstanding notes
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and exercise of outstanding warrants at assumed conversion prices, as well as
the percentage of our outstanding share capital that those shares will
represent:
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% OF
OUTSTANDING
NUMBER NUMBER OF SHARES SHARE CAPITAL
OF SHARES ISSUABLE UPON BENEFICIALLY
ISSUABLE UPON CONVERSION OF OWNED AFTER
CONVERSION CONVERSION THE NOTES AND CONVERSION
PRICE OF THE NOTES EXERCISE OF THE WARRANTS AND EXERCISE
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US$25.00 1,120,000 6,120,800 16.97%
US$20.00 1,400,000 6,400,800 17.75%
US$15.00 1,866,667 6,867,467 19.04%
US$10.00 2,800,000 7,800,800 21.63%
US$ 7.00 4,000,000 9,000,800 24.93%
US$ 6.00 4,666,667 9,667,467 26.80%
US$ 5.00 5,600,000 10,600,800 29.39%
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The exercise of outstanding options and warrants and the conversion of
outstanding notes will dilute the then current stockholders' ownership of common
stock. Sales in the public market of common stock acquired upon exercise of
options and warrants and conversion of notes could depress the price of our
common stock. This may adversely affect our ability to sell additional shares of
common stock.
WE HAVE A HISTORY OF LOSSES, AND EXPECT FUTURE LOSSES AND OUR FUTURE
PROFITABILITY IS UNCERTAIN.
We have incurred operating losses since our inception, and as of
September 30, 2000, had an accumulated deficit of approximately CDN$252,118,000
(US$167,298,000). We expect to spend substantial funds to continue research and
product development, to establish sales, marketing, quality control and for
other general corporate purposes. As a result, we expect to incur increasing
losses over the next several years.
We may never become profitable. If we do become profitable, we may not
remain profitable on a continuing basis. If we fail to become and remain
profitable, then the market price of our common stock will decline.
SEVERAL OF OUR AGREEMENTS WILL REDUCE THE AMOUNT OF REVENUE THAT WE WILL RECEIVE
UPON THE SALE OF OUR PRODUCTS WHICH MAKES IT LESS LIKELY THAT WE WILL BECOME
PROFITABLE IN THE NEAR FUTURE.
We will not have revenues from product sales before 2001. Our agreement
with Polyvalor and McGill University requires that we pay a royalty based upon
our gross sales. Our agreement with Molex provides that we will share in
30% - 50% of the gross profits of those sales. Furthermore, our agreement with
Polaroid requires us to pay a percentage of net selling prices. In the event
that we do generate revenues, those agreements require us to allocate a
percentage of our revenues to our strategic partners and may ultimately lower
our gross profit margin.
WE MAY BE UNABLE TO OBTAIN FUNDING TO MEET OUR FUTURE CAPITAL NEEDS, WHICH COULD
CAUSE US TO DELAY OR ABANDON SOME OR ALL OF OUR ANTICIPATED SPENDING, CUT BACK
OUR OPERATIONS, SELL ASSETS OR LICENSE OUR TECHNOLOGIES TO THIRD PARTIES.
We will require substantial additional funding over the next several
years to develop our technology, to broaden and commercialize our products and
to expand assembly capacity. Additional funding could be unavailable on
favorable terms, or at all. We may then have to delay or abandon some or all of
our anticipated spending, cut back our operations significantly, sell assets, or
10
<PAGE> 12
license to third parties potentially valuable technologies that we currently
plan to commercialize ourselves.
To date, we have received approximately CDN$74,683,000 (US$50,500,000)
from third parties through various debt and equity financings. If we borrow
additional funds, we may become subject to restrictive financial covenants and
our interest obligations will increase. If we issue more stock, our present
stockholders may experience substantial dilution. In addition, we currently have
outstanding convertible notes whose conversion price, and ultimately the number
of shares issuable upon conversion, fluctuates based upon the price of our
common stock. Consequently, as our stock price increases, the number of shares
of common stock issuable under those notes decreases, and as our stock price
decreases, the number of shares issuable upon conversion increases. As a result,
you could experience substantial dilution if the notes are converted into common
stock. We may need to raise additional capital by issuing additional securities,
including additional floating-price convertible securities, which could result
in additional dilution to our existing stockholders.
THE MARKET FOR OUR PRODUCTS IS CHARACTERIZED BY SHORT PRODUCT LIFECYCLES,
SIGNIFICANT COMPETITION AND DECLINING AVERAGE SELLING PRICES WHICH MAKES IT
DIFFICULT TO PREDICT OUR FUTURE REVENUES.
Our target markets are subject to continuous, rapid technological change,
including changing industry standards, frequent introduction of new products,
anticipated and unanticipated decreases in average selling prices and fierce
price competition. This means that:
-- our product may have short life cycles;
-- we must introduce new products on a timely basis; and
-- we must spend a great deal to develop new products.
In addition, competing technologies may force us to sell our products at
lower prices than we expect. Thus, we will need to introduce new products in
order to remain competitive and to maintain our current selling prices. This
need for additional product introduction may require us to expend greater
resources on product research and development than we presently anticipate which
could result in an increase in our future expenses.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH THE MANUFACTURE OF OUR PRODUCTS, AND
ACCORDINGLY WE MAY NOT BE ABLE TO MANUFACTURE OUR PRODUCTS SUCCESSFULLY OR
GENERATE ANY PRODUCT REVENUES.
We have never assembled large amounts of products. The manufacture of our
chips is a complex, sophisticated process, requiring a clean room and precision
assembly equipment. Very small amounts of contaminants in assembly, defects in
components, difficulties in the assembly process or other factors can cause a
significant number of chips to be nonfunctional or to have unacceptable defects.
This could significantly reduce yields and increase the cost of our products.
Many of these problems are difficult to find and require much time and expense
to fix.
We must effectively transfer production information from our research and
development department to our new manufacturing facility and rapidly achieve
volume production. If we fail to effectively manage this process or if we
experience delays, disruptions or quality control problems in our manufacturing
operations, our shipments of products to our customers could be delayed.
Unforeseen additional capital expenditures could be required to remedy these
problems. See "Business -- Plan of Operations" on page 28.
Changes in our manufacturing processes or the inadvertent use of
defective materials could significantly reduce our manufacturing yields and
product reliability. Because most of our manufacturing costs are relatively
fixed, manufacturing yields are critical to our results of operations. Lower
11
<PAGE> 13
than expected production yields could delay product shipments and reduce our
gross margins. We may not obtain acceptable yields.
OUR BUSINESS IS EXPANDING, AND OUR FAILURE TO MANAGE THIS EXPANSION EFFECTIVELY,
AS WELL AS THE STRAIN ON OUR RESOURCES WHICH EXPANSION MAY CREATE, COULD IMPAIR
OUR ABILITY TO OPERATE PROFITABLY.
Our success will depend on the expansion of our operations and the
effective management of growth, which will place a significant strain on our
management, operations and financial resources. In particular, once we begin
volume assembly of our products, our operations are anticipated to expand
substantially. We must hire and train additional engineering, manufacturing,
marketing, sales, administrative and management personnel, and buy additional
equipment, facilities, information technology and other infrastructure. We must
also continue to develop our management, operational and financial systems,
procedures and controls. Because we have had no history with the assembly,
marketing or sale of our products in large quantities, we do not know if we will
be able to expand our business rapidly enough or adequately manage this growth.
If we do not accurately predict demand for our products, we may have too much or
too little production capacity. If we overestimate demand, we may incur fixed
production expenses that are excessive which would increase our net loss and if
we underestimate demand we may lose customers which would decrease our revenues.
CREATING INTERNATIONAL SALES AND MANAGING INTERNATIONAL OPERATIONS WILL BE
DIFFICULT, AND OUR FAILURE TO DO SO SUCCESSFULLY COULD AFFECT OUR ABILITY TO
BECOME PROFITABLE OVER THE LONG TERM.
In order to achieve our long-term business goals we will have to create
sales in international markets. This may require us to establish international
operations and hire additional personnel. Our failure to do so in a timely and
effective manner could have a material adverse effect on our business,
prospects, financial condition and operating results. Our plans to expand
internationally may be affected by a number of risks including:
-- changes in foreign currency exchange rates;
-- challenges inherent in managing geographically dispersed
operations;
-- multiple, conflicting and changing governmental laws and
regulations;
-- political and economic instability or conflicts;
-- changes in tariffs, taxes and other trade barriers; and
-- the need to develop local distribution channels through third
parties.
THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE AND SUBJECT TO RAPID
TECHNOLOGICAL CHANGE; WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IF WE ARE
UNABLE TO ADAPT TO NEW TECHNOLOGIES AND SUCCESSFULLY DEVELOP NEW AND EVOLVING
PRODUCTS WHICH MAY LEAD TO REDUCED SALES OF OUR PRODUCTS, REDUCED REVENUES AND
REDUCED MARKET SHARE.
We must become a key supplier of components to the photonics industry to
be successful. The photonic market is highly competitive and marked by rapidly
changing technology. We may be unable to adapt to rapid technological change and
to continue new product development which may lead to reduced sales of our
products, reduced revenues and reduced market share.
We must:
-- anticipate what our clients and their end-users will need and
demand in the manufacture of products, both for general industry
use and specific custom-made usage;
-- incorporate those anticipated features and functions into our
products;
-- meet specific and exacting design requirements;
12
<PAGE> 14
-- price our products competitively; and
-- introduce our products at the right time to meet market demand.
The life cycle of a product we make may be short. We must introduce new
products on a timely basis and we must spend a great deal to develop new
products. We could experience delays in introducing new products, because they
are complex. The success of our new products will depend on many factors,
including:
-- proper product definition;
-- timely completion and introduction of designs;
-- ability of our customers to incorporate our product into theirs;
-- quality and performance of our products;
-- differentiation of our products from those of our competitors;
and
-- acceptance of our products and those of our customers.
If we are unable to introduce new products on a timely and cost efficient
basis we could lose sales, resulting in reduced revenues.
OUR AGREEMENTS WITH MOLEX CONTAIN SIGNIFICANT RESTRICTIONS ON OUR ABILITY TO
SELL OUR PRODUCTS, WHICH COULD REDUCE THE AMOUNT OF REVENUE THAT WE COULD
OTHERWISE GENERATE FROM THE SALE OF THOSE PRODUCTS.
We have entered into agreements with Molex that contain restrictions on
our ability to sell our products and grant to Molex preferential rights to
acquire up to 50% of our production at favorable prices which could be lower
than the prices we would receive in the open market. As a result, we may not
receive the maximum revenue achievable on any particular sale. In the event we
are unable to supply Molex on a timely basis with a commercially reasonable
quantity of the devices or in the event we experience a change of control, Molex
has the non-exclusive right to manufacture all components of the devices in
return for a royalty equal to 50% of the profits from sales of functionally
unmodified packaged products and 30% of the profits from sales of other final
products. These restrictions could result in lower than expected revenues and
impair our ability to become profitable. See "Business -- Material
Agreements -- Agreements with Molex" on page 35 for a detailed description of
our agreements with Molex.
THE SMALL NUMBER OF POTENTIAL CUSTOMERS FOR OUR PRODUCTS WILL GIVE THEM
CONSIDERABLE LEVERAGE OVER US WHICH COULD LEAD TO LOWER SALES PRICES.
For the foreseeable future, we intend to market our products to only a
limited number of leading original equipment manufacturer customers. We will
rely on these customers to develop their own systems, creating demand for our
products. Our customers may be expected to exert considerable leverage in
negotiating purchases from us which could lead to lower sales prices.
OUR COMPETITION MAY BE ABLE TO MORE EFFECTIVELY DEVELOP AND MARKET THEIR
PRODUCTS, MAKING OURS OBSOLETE.
Our 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 we do. Our competitors include both companies already
manufacturing large volumes of products based on established technologies, as
well as companies selling emerging technological solutions. Potential
competitors could also include our own customers, which may decide to
manufacture products competitive with ours, rather than purchasing our products.
13
<PAGE> 15
WE ARE DEPENDENT ON KEY PERSONNEL; WE MAY NOT BE ABLE TO ATTRACT, TRAIN AND
RETAIN SUFFICIENTLY QUALIFIED PERSONNEL WHICH COULD LIMIT OUR ABILITY TO GROW
OUR BUSINESS.
Our success will depend to a significant degree upon the continued
services of key management, technical, and scientific personnel, including Dr.
S. Iraj Najafi, our President and Chief Executive Officer, Dr. Mark Andrews, our
Chief Technology Officer, and Dr. Chia-Yen Li, our Chief Operating Officer. We
do not currently maintain key-man life insurance on any of our personnel.
Our success will also depend on our ability to attract, train and retain
additional management and other highly skilled personnel. Currently, we are
seeking to hire skilled engineers for our assembly process. Our competitors for
qualified personnel are often long-established, highly profitable companies and
the process of hiring qualified personnel is often lengthy. Our management and
other employees may voluntarily leave us at any time. We may not be able to meet
our sales forecasts if we cannot attract, train and retain sufficient qualified
personnel.
Our future profitability will also depend on our ability to develop an
effective sales force. Competition for employees with sales and marketing
experience is intense. We may be unable to attract and retain qualified
salespeople or build an effective sales and marketing organization. We require
sales people with a good technical understanding of our products and of the
industry.
IF WE BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER PROCEEDINGS TO
ENFORCE OUR PATENT RIGHTS, WE COULD INCUR SUBSTANTIAL COSTS AND EXPENSES OR
SUBSTANTIAL LIABILITY FOR DAMAGES OR BE REQUIRED TO STOP OUR PRODUCT DEVELOPMENT
AND COMMERCIALIZATION EFFORTS
In order to protect or enforce our patent rights, we may have to initiate
legal proceedings against third parties, such as infringement suits or
interference proceedings. By initiating legal proceedings to enforce our
intellectual property rights, we may also provoke these third parties to assert
claims against us. Intellectual property litigation is costly, and, even if we
prevail, could divert management attention and resources away from our business.
If we do not prevail in any litigation, in addition to any damages we
might have to pay, any patents we may obtain could be narrowed, invalidated or
rendered unenforceable by a court. We could also be required to obtain a
license. Any required license may not be available to us on acceptable terms, or
at all. In addition, some licenses may be nonexclusive, and therefore, our
competitors may have access to the same technology licensed to us. If we fail to
obtain a required license or are unable to design around a patent, we may be
unable to sell some of our products, which would make it more difficult for us
to achieve profitability.
WE ARE DEPENDENT ON EQUIPMENT SUPPLIERS AND CONTRACT MANUFACTURERS WHO COULD
DISRUPT OUR BUSINESS IF THEY STOPPED, DECREASED OR DELAYED SHIPMENTS TO US.
We rely on outside suppliers to provide some of the equipment we use in
our manufacturing process. We do not maintain long-term agreements with any of
these suppliers, and, therefore, they could stop supplying equipment to us at
any time. If the equipment which any particular supplier supplies to us were to
malfunction, we would, at a minimum, experience delays in the shipment of our
products and could require us to find another equipment manufacturer. Delays in
shipments could result in the loss of customers and reductions in our revenues.
14
<PAGE> 16
In addition, we may rely on third party manufacturers to produce some of
the components used in our products. Our potential dependence upon third party
manufacturing relationship could lead to:
-- reduced control over equipment delivery schedules;
-- lack of quality assurance over the components produced by third
parties; and
-- the delivery of poor quality components which could lead to poor
manufacturing yields of our products and ultimately higher
product costs.
Any supply deficiencies relating to the quality or quantity of equipment
or components we use to manufacture our products could affect our ability to
fulfill customer orders and ultimately reduce our revenues and profitability.
OUR BUSINESS INVOLVES THE USE OF SOME HAZARDOUS MATERIALS, AND ENVIRONMENTAL
LAWS AND REGULATIONS MAY EXPOSE US TO LIABILITY AND INCREASE OUR COSTS.
We handle small amounts of hazardous materials as part of our
manufacturing activities. As a result, our operations and assembly processes are
subject to certain federal, provincial and local environmental protection laws
and regulations. These relate to our 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.
Compliance with these regulations requires us to spend significant amounts to
establish compliance procedures and safety programs. If environmental laws or
regulations were to change, our manufacturing costs or product sales could be
adversely affected by forcing us to production processes or use more costly
materials. We may be required to incur additional costs to comply with current
or future environmental laws. In addition, if we fail to comply with either
present or future environmental regulations, we may be subject to fines and
production halts. As with other companies engaged in manufacturing activities
that involve hazardous materials, a risk of environmental liability is inherent
in our manufacturing activities. The costs associated with environmental
compliance or remediation efforts or other environmental liabilities could
adversely affect our business.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH THE PROTECTION OF OUR INTELLECTUAL
PROPERTY AND WE COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL
PROPERTY FROM INFRINGEMENT OR A CLAIM OF INFRINGEMENT.
Problems associated with the protection of our intellectual property or
potential infringement of the intellectual property of others could have a
significant negative impact on our business and our financial condition.
We may not obtain meaningful protection for our technology and products
with the patents and patent applications that we own or license relating to our
technology. In particular, the patented technology that we license from
Polyvalor and McGill University has also been licensed to QPS Technology Inc. To
the extent that QPS Technology Inc. is able to design products competitive with
ours without infringing on our intellectual property rights, we may find it more
difficult to achieve market penetration with our products and, consequently,
could reduce our potential revenue stream.
The patent positions of technology companies, including ours, are
uncertain and involve complex legal and factual questions. The coverage claimed
in a patent application can be significantly reduced before a patent is issued.
Our patent applications may not result in patents being issued. Patents issued
to us may not provide protection against competing technologies and may not be
held valid if challenged. Others may independently develop products similar to
ours or design around or otherwise avoid patents issued to us.
15
<PAGE> 17
We also rely on trade secret and copyright law and employee and
third-party nondisclosure agreements to protect our intellectual property
rights. We may be unable to secure meaningful protection of our trade secrets,
copyrights, know-how or other proprietary information in the event of
infringement by others and others may independently develop similar
technologies.
WE ARE CONTROLLED BY INSIDERS, WHICH MAY PREVENT A CHANGE OF CONTROL OR OTHER
CORPORATE TRANSACTIONS.
As of the date hereof, our management, Molex, Polyvalor and McGill
University collectively own in excess of 50% of our outstanding common stock.
Together, they 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 preventing a change in control
that may be favorable to other stockholders or causing a change of control that
may not be favorable to other stockholders.
Under the agreements with Molex, Molex will acquire the non-exclusive
right to manufacture and sell jointly developed optical chip products in the
event we experience a change of control. Molex also has rights of first refusal
with respect to most sales of stock by members of our management. Their rights
may have the effect of preventing a change of control that may be favorable to
other stockholders.
PROVISIONS OF OUR CORPORATE DOCUMENTS AND APPLICABLE LAW MAY PREVENT OR HINDER A
CHANGE OF CONTROL.
Provisions of our certificate of incorporation and by-laws and of
applicable law could make it more difficult for another party to acquire us or
discourage another party from attempting to acquire us. This may reduce the
value of our common stock. For example, we could issue preferred stock with
rights senior to the common stock without any further vote or action by
stockholders. The issuance of preferred stock as part of a future financing
could have the effect of preventing a change of control and could make it more
difficult for holders of our common stock to take certain corporate actions,
including the replacement of incumbent directors. Additionally, preferred stock
may have preference over and harm the rights of the holders of common stock.
16
<PAGE> 18
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words "believe," "anticipate," "estimate," "expect" or
words of similar import identify these forward-looking statements. These
forward-looking statements are contained principally under the headings
"Summary," Risk Factors," "Management's Discussion and Analysis to Financial
Condition and Results of Operations" and "Business." Although we have based
these forward-looking statements on reasonable assumptions, these may not prove
to be correct. Because these forward-looking statements are subject to risks and
uncertainties, actual results may differ materially from the expectations
expressed by these forward-looking statements. Important factors that may cause
actual results to differ materially from the expectations reflected in the
forward-looking statements include those set forth below, as well as:
-- general economic, business and market conditions;
-- customer acceptance of new products; and
-- the occurrence or nonoccurrence of circumstances beyond our
control.
All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements. We
caution readers not to place undue reliance on these forward-looking statements,
which speak only as of their dates. We undertake no obligations to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale
of the shares of common stock offered by this prospectus. We will not receive
any of the proceeds from the sale of the shares of the common stock by the
selling stockholders.
We could receive proceeds of up to US$50,008,000 if warrants were
exercised at their minimum exercise price, and proceeds of up to US$150,024,000,
if warrants were exercised at their maximum exercise price, from the exercise of
warrants to purchase an aggregate of 5,000,800 shares of common stock issued as
part of the convertible notes financing described under "Business -- Material
Agreements -- Convertible Note Financing." These warrants can be exercised at
the option of their holder after January 25, 2002 (or earlier upon an event of a
default under the notes or our other obligations to the purchasers) and before
July 25, 2005. Given the uncertainty as to any exercise the timing of any
exercise and the amount that we would receive, management has not established
any specific use for these proceeds. They will be used for working capital and
general corporate purposes.
17
<PAGE> 19
DIVIDEND POLICY
We have not paid and do not intend to pay cash dividends on our common
stock. We currently intend to reinvest earnings, if any, in the development and
expansion of our business. The declaration of dividends in the future will be at
the election of our board of directors and will depend upon our earnings,
capital requirements and financial position, general economic conditions and
other relevant factors.
MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock has been traded on The Nasdaq National Market under the
symbol "LUMM" since April 13, 2000. From July 27, 1998 (the day on which trading
in the common stock commenced) through January 19, 2000, the common stock was
quoted on the OTC Bulletin Board. From January 20, 2000 to March 9, 2000,
pending the effectiveness of our registration statement on Form 10, trading in
our common stock was reported by the National Quotation Bureau in the pink
sheets. From March 10, 2000 through April 12, 2000, our common stock was quoted
on the OTC Bulletin Board. The following table sets out in US dollars the high
and low bid prices of the common stock during the periods indicated based on a
calendar year presentation. Prices through April 12, 2000 reflect inter-dealer
prices, without retail mark-up, markdown or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1998 HIGH LOW
---- -------- --------
<S> <C> <C>
Third Quarter (from July 27th).............................. US$ 4.00 US$ 0.63
Fourth Quarter.............................................. US$ 1.50 US$ 0.25
1999
----
First Quarter............................................... US$ 1.56 US$ 0.25
Second Quarter.............................................. US$ 3.50 US$ 0.44
Third Quarter............................................... US$14.25 US$ 1.63
Fourth Quarter.............................................. US$49.00 US$ 3.50
2000
----
First Quarter............................................... US$51.00 US$14.16
Second Quarter.............................................. US$28.00 US$ 9.13
Third Quarter............................................... US$28.50 US$14.50
Fourth Quarter (through December 1, 2000)................... US$15.93 US$ 4.78
</TABLE>
On December 1, 2000, the last reported sale price of the common stock on
The Nasdaq National Market was US$7.00 per share.
On December 1, 2000, there were 104 holders of record of our common
stock.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data are taken from our financial
statements included elsewhere in this prospectus and are qualified by reference
to and should be read in conjunction with such financial statements, including
the notes, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. Our financial
statements as of and for the fiscal year ended June 30, 2000, June 30, 1999 and
December 31, 1998 have been audited by KPMG LLP, Montreal, Canada, independent
certified public accountants. Our financial statements as of and for the three
months ended September 30, 1999 and September 30, 2000 are derived from our
unaudited financial statements also appearing elsewhere in this document, and
which, in the opinion of our management, include all adjustments, consisting of
only normal recurring adjustments necessary to present fairly our unaudited
results of operations and financial condition for those periods and at that
date. The financial results set forth below for the three months ended September
30, 1999 and September 30, 2000 are not necessarily indicative of the results to
be expected for any future period. We changed our fiscal year end to June 30,
effective in 1999. The amounts reported below for fiscal year 1999 are for the
six-month period ended June 30, 1999.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999 JUNE 30, 2000
----------------- ------------- -------------
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
Current Assets............ $553 $2,045 $ 6,059
Capital Assets............ -- 1,492 4,603
Total Assets.............. 553 3,547 12,200
Liabilities............... 119 1,003 1,886
Stockholders' Equity...... $434 $2,544 $10,314
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 2000(3)
------------------ ------------------ ---------------------
(IN THOUSANDS OF (IN THOUSANDS OF
CANADIAN DOLLARS) US DOLLARS)
<S> <C> <C> <C>
Current Assets................ $4,442 $49,371 $32,761
Capital Assets................ 1,937 19,016 12,618
Total Assets.................. 6,389 70,255 46,619
Liabilities................... 624 29,644 19,671
Stockholders' Equity.......... $5,765 $40,611 $26,948
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR
FROM INCEPTION TO ENDED ENDED
DECEMBER 31,1998 JUNE 30, 1999 JUNE 30, 2000
----------------- ------------- -------------
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
Research and Development
Expenditures(1)......... $ 12 $ 162 $218,968
General and
Administrative.......... 290 570 4,020
Depreciation.............. 894
Other Expenses (Income)... 15 18 (320)
Net Loss.................. 288 750 223,562
Loss Per Share(2)......... $0.02 $0.04 $ 8.80
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 2000(3)
------------------ ------------------ ---------------------
(IN THOUSANDS OF (IN THOUSANDS OF
CANADIAN DOLLARS) US DOLLARS)
<S> <C> <C> <C>
Research and Development
Expenditures(1)............. $2,034 $ 1,344 $ 891
General and Administrative.... 487 3,639 2,415
Depreciation.................. 91 548 364
Other Expenses................ 52 21,988 14,591
Net Loss...................... 2,664 27,519 18,261
Loss Per Share(2)............. $ 0.13 $ 0.80 $ 0.53
</TABLE>
---------------
(1) Amounts shown are net of tax credits and grants and include non-cash
expenses resulting from the issuance of common stock upon exercise of
the Molex services warrant.
(2) For the periods ended December 31, 1998, June 30, 1999, June 30, 2000
and September 30, 2000, the weighted average number of shares
outstanding were 14,972,188, 17,480,767, 25,415,601 and 34,511,352,
respectively. We have never paid dividends on our common stock.
(3) Translated solely for the convenience of the reader at the noon buying
rate on September 29, 2000 of US$1.00 to CDN$1.507.
At June 30, 2000, the exchange rate between the Canadian dollar and the
U.S. dollar was CDN$1.4786 to US$1.00, respectively, based on the rate as of
each date issued by the Bank of Canada.
CURRENCY EXCHANGE RATES
The following table sets forth, for the dates indicated, the rates at the
specific periods and dates for the Canadian dollar per one U.S. dollar, each
expressed in Canadian dollars and based on the noon buying rate in New York City
for cable transfers in Canadian dollars as certified for customs purposes by the
Federal Reserve Bank of New York. The information under the caption "Period
Average" represents the average of the noon buying rates in the last business
day of each full calendar month during the relevant period. No representation is
made to the Canadian or United States Dollar amounts referred to below could be
or could have been converted into United States or Canadian dollars of any
particular rate at all.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 2000
-----------------
<S> <C>
Rate at end of period....................................... 1.4798
Average rate during the period.............................. 1.4732
High of the period.......................................... 1.5079
Low for the period.......................................... 1.4350
</TABLE>
On November 10, 2000, the noon buying rate in the New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York was CDN$1.5460 = US$1.00.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
From inception on March 2, 1998 to December 31, 1998, our activities were
mainly oriented to our organization. In 1999, we changed our fiscal year end to
June 30, so information for the year ended June 30, 1999 reflects a six-month
period. During that period, highlights of the activities are represented by
financial arrangements entered into in connection with the construction of the
pilot plant and the acquisition of related capital assets. This management's
discussion and analysis focuses on the fiscal year ended June 30, 2000 compared
to the period from inception to June 30, 1999 and on the three month period
ended September 30, 2000 to the three month period ended September 30, 1999.
THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS ENDED SEPTEMBER 30,
1999
RESULTS OF OPERATIONS
We are a development stage company that has not yet realized any revenues
from operations.
Research and development expenses for the three-month period ended
September 30, 2000, net of tax credits and grants, were CDN$1,344,000
(US$891,000) compared to CDN$2,034,000 during the same period in 1999. The
decrease of CDN$690,000 in research and development expenses is due to a
CDN$1,892,000 non-cash expense resulting from the issuance of our common stock
in consideration of certain services rendered by Molex Incorporated under the
terms of a teaming agreement during the 1999 period. The exclusion of these
charges of CDN$1,892,000 from research and development expenses in the quarter
ended September 30, 1999 would result in an effective increase of CDN$1,202,000
for that period when compared to the 2000 period. This effective increase is due
to the fact that we increased our research and development headcount by six to
meet demands of increased work volume as the research and development team
focused its efforts on the introduction of new designs, on the refinement of its
microfabrication processes, and on the transfer of process technology to
manufacturing.
General and administrative expenses were CDN$4,187,000 (US$2,779,000)
during the period ended September 30, 2000 compared to CDN$578,000 for the same
period in 1999, an increase of CDN$3,609,000. The increase is mainly
attributable to the fact that we hired 93 employees during the last twelve
months. In addition to the increased number of employees, we also moved our
headquarters to a new building and continued to develop our infrastructure.
Other expenses, net of interest income and gain on foreign exchange,
amounted to CDN$21,988,000 (US$14,591,000) during the quarter ended September
30, 2000 compared to CDN$52,000 during the same period in 1999, an increase of
CDN$21,936,000. The increase is mainly due to the CDN$51,243,000 (US$35,000,000)
convertible notes that we issued on July 25, 2000. The interest expense portion
of the other expenses are mainly made of the fact that this convertible notes
bear interest at 7.5% per year. The financing charge, an expense not involving
cash and totaling CDN$22,763,000 (US$15,105,000) is explained below under the
section entitled Financial Condition Liquidity and Capital Resources. Interest
income during this quarter amounted to CDN$793,000 (US$526,000), compared to
CDN$16,000 in the same period in 1999, an increase of CDN$777,000. This increase
is due to the fact that we had more cash and term deposits during this quarter
as a result of capital raised through the exercise of warrants and options and
the issuance of the convertible notes.
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As a result of the above expenses, our net loss for the three-month
period ended September 30, 2000 was CDN$27,519,000 (US$18,261,000) or CDN$0.80
(US$0.53) per share, compared to CDN$2,664,000 or CDN$0.13 per share for the
same period in 1999.
YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
Research and development expenses in 2000, net of tax credits and grants,
were CDN$218,968,358 (US$148,091,681). Of these costs, CDN$217,358,739
(US$147,003,070) are non-cash expenses resulting from the issuance of 5,800,000
shares of common stock in consideration of services rendered by Molex under a
teaming agreement. These expenses were recorded at the average monthly market
price of the shares issued during the period in which the services were
rendered.
Research and development expenditures, other than those recorded under
the Molex agreement, net of tax credits and grants, were CDN$1,609,619
(US$1,088,611) during the twelve-month period ended June 30, 2000, compared to
CDN$174,661 for the period from inception to June 30, 1999, an increase of
CDN$1,434,958. From inception to June 30, 1999, we incurred little research and
development expenses because we were not yet engaged in full operations. At June
30, 2000, we had an existing operation consisting of a sizeable research and
development group, a facility and an expansion project underway. During the year
ended June 30, 2000, we designed new DWDM and WWDM products, developed materials
and processes and produced prototype devices.
General and administrative expenses were CDN$4,019,959 (US$2,718,761) in
2000, compared to CDN$859,942 for the period from inception to June 30, 1999, an
increase of CDN$3,160,017. The charges for the period from inception to June 30,
1999 consist mainly of salaries as a result of the increased number of
administrative personnel and related expenses to manage our expansion project
and the increase in activities . During 2000, we built a corporate structure
consisting of teams in corporate finance, research and development,
manufacturing, business development and corporate development.
Other income, net of interest expense, consisting of interest on cash and
term deposits and gain on foreign exchange, earned during the year ended June
30, 2000 amounted to CDN$319,823 (US$216,301) compared to a loss of CDN$2,457
for the period from inception to June 30, 1999, an increase of CDN$322,280. The
increase is due to the fact that we had more cash on hand during fiscal 2000
than in the preceding period as a result of capital raised through private
placements and the exercise of warrants and options and because of a favorable
variation in the exchange rate between the Canadian and the US dollar.
As a result of the above, our overall loss for the year ended June 30,
2000 amounted to CDN$223,562,114 (US$151,198,510) or CDN$8.80 (US$5.95) per
share, compared to CDN$1,037,060 for the period from inception to June 30, 1999.
Our activities are being ramped-up to our planned production levels. The
increased activities will require us to have additional employees, equipment and
resources to manage the organization. This should increase our monthly burn rate
by approximately CDN$1,000,000 by the end of Fiscal 2001.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
From our inception to June 30, 1999, we had been engaged in capital
raising, developmental and organizational activities and construction of our
pilot plant. During the year ended June 30,
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<PAGE> 24
2000, we made significant investments in staffing and equipment. These
investments and costs have been financed mainly through proceeds of private
placements and the exercise of warrants and options. In 2000, we realized net
proceeds of CDN$13,623,333 (US$9,213,670) from these sources.
On July 25, 2000, we sold CDN$51,243,000 (US$35,000,000) aggregate
principal amount of five-year convertible notes due July 25, 2005 to two
institutional investors. The notes bear interest at a rate of 7.5% per year and
are convertible at any time into common stock at a conversion price based on the
closing bid price of the common stock at the time of conversion, with a minimum
conversion price of US$7.00 per share and a maximum conversion price of US$25.00
per share. On October 16, 2000, notes in the aggregate principal amount of
CDN$10,549,000 (US$7,000,000), together with accrued interest, were converted
into 616,414 shares of common stock at a price equal to US$11.55 per share.
In connection with the financing, the investors also received five-year
warrants to purchase an aggregate of 5,000,800 shares of common stock. The
warrants are exercisable on or after January 25, 2002. The exercise price of the
warrants is based on a formula which provides that the price may vary from
US$10.00 per share to US$30.00 per share. Based on the formula, the exercise
price of the warrants will be lower than the fair market value of the common
stock at the time that the warrants vest unless the fair market value of the
common stock is equal to or lower than US$10.00 per share.
We apply APB-014 ("Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants") and EITF 98-5 ("Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios") to determine the accounting treatment of the notes and the warrants.
These bulletins require that we allocate the proceeds from the notes among the
notes and the warrants. As a result, the notes were discounted and the
beneficial conversion feature of notes was recorded as financing charges.
Because the notes are convertible at any time, financing charges of
CDN$21,581,000 (US$14,321,000) were recorded as expenses at the date of the
transaction. In addition, amortization of debt discount for the period ended
September 30, 2000 amounting to CDN$1,182,000 (US$784,000) was also recorded as
financing charges. However, these additional charges are non-cash transactions
and accordingly will have no effect on our cash flows.
If the notes and unpaid interest calculated at the rate of 7.5% per year
are not converted into common stock, we will be required to pay an aggregate of
CDN$41,694,000 (US$28,000,000) plus accrued interest to the investors upon
maturity.
Options to acquire a total of 742,850 shares were exercised during the
twelve-month period ended June 30, 2000 for total proceeds of US$742,850.
Additionally, warrants to acquire a total of 2,747,667 shares (including
1,666,667 shares issued to Molex upon exercise of its warrants) were exercised
in the twelve-month period ended June 30, 2000 for total proceeds of
US$3,348,000.
During the quarter ended September 30, 2000, we actively acquired
equipment in order to open our plant on October 6, 2000. Accordingly we
disbursed CDN$8,953,000 (US$5,941,000) in equipment as well as CDN$327,000
(US$217,000) in related deposits and infused CDN$3,336,000 (US$2,215,000) in our
operating activities. Finally, we raised CDN$5,893,000 (US$3,911,000) through
the issuance of shares from the conversion of warrants and the exercise of stock
options.
As of September 30, 2000, as a result of the above activities, we had
cash, cash equivalents and term deposits of CDN$46,973,000 (US$31,170,000).
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The above balances in cash and term deposits, along with proceeds from a
financing of CDN$51,243,000 (US$35,000,000) of five-year convertible notes on
July 25, 2000 should, in management's estimation, be sufficient to meet our
financial needs until at least December 31, 2001, excluding unforeseen
significant capital expenditures. We had no financial obligations of
significance at September 30, 2000 other than operating lease commitments for
our existing premises and equipment and employment agreements. Minimum lease
payments under capital and operating lease agreements for premises and equipment
for the next twelve months amount to CDN$1,416,086 (US$939,672).
We do not believe that inflation has had a significant impact on our
results of operations.
SUBSEQUENT EVENT
On October 16, 2000, CDN$10,549,000 (US$7,000,000) of the principal
amount of the convertible notes, plus interest, were converted into 616,414
shares of our common stock.
FUNCTIONAL CURRENCY
Because the Canadian dollar is primary in the economic environment in
which we operate, the Canadian dollar is our functional currency. Accordingly,
amounts presented in U.S. dollars are provided for convenience of reference only
and are based on the closing exchange rate at September 29, 2000, which was
CDN$1.507 per U.S. dollar. The rate stated is from the Bank of Canada for that
date.
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<PAGE> 26
BUSINESS
OVERVIEW
We are a development stage company. We design and develop products
related to the Dense Wavelength Division Multiplexing (DWDM) market and other
optical or photonic segments of the telecommunications market. DWDM is a
technology that permits a user to send multiple sources of information and data
at the same time over a single optic fiber. DWDM allows network operators to
remove an entire class of equipment in their networks.
We plan to manufacture DWDM devices in the form of optical chips using
our patented PHASIC(TM) process. We acquired our initial rights to that
manufacturing process under a license agreement with Polyvalor and McGill
University. See "Business - Material Agreements - Agreement with Polyvalor and
McGill University." Our PHASIC(TM) process allows us to manufacture DWDM chips
in high volume.
Our plan of operations for fiscal year 2001 is to finalize the
development of our DWDM devices and to bring them to market. We will focus
product development on four aspects:
-- perfecting manufacturing steps for DWDM devices;
-- readying automation equipment in our new manufacturing facility;
-- setting quality control criteria for our operations; and
-- expanding our packaging and pigtailing capability for our
optical chips.
We plan to finalize the installation of the clean room in our new
manufacturing facility. We expect to have the capacity of producing up to 500
devices per day in 2001. We expect to increase our work force to approximately
175 persons to fully staff this facility. As a development stage company, we
have not generated product revenues to date. We do not anticipate generating
product revenues until 2001.
DWDM
Service providers like AT&T and MCI WorldCom are creating fiber optic
networks to transmit large quantities of information at high speeds. Based upon
our experience, we believe that they must meet demand for uses such as the
Internet, e-mail and electronic commerce. Service providers desire to increase
the capacity of their networks without installing new fiber optic cable. DWDM
products are designed to allow them to greatly increase their information
carrying capacity on existing fiber. Existing DWDM products use primarily the
following technologies:
-- thin film filters;
-- fiber Bragg gratings; or
-- array waveguides (AWG).
DWDM is a technology that allows multiple wavelengths of light to be
transported on a single fiber optical strand. This increases the carrying
capacity of optical fiber to transmit information at the speed of light. The
multiplexing component of the DWDM allows different wavelengths to be added to
the optical fiber. This means more channels can be added for simultaneous
transport. To date, the solution to resolve capacity constraint has been to add
or lay additional fiber in the ground or to use one of three kinds of DWDM
devices presently available. The devices can be circuits that have been etched
into chips (AWG), thin film filters or Bragg
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<PAGE> 27
gratings. Using DWDM technologies to add capacity to existing fiber networks
should be less costly than installing new fiber in the ground. By not having to
install new fiber networks, operators are able to avoid costs associated with
construction, purchases of rights of way, work and regulatory permits, and
weather delays.
We make DWDM products in the form of an AWG "optical chip" on silicon
through a patented sol-gel manufacturing process. We call this process PHASICTM.
We acquired the initial rights to the process under our license agreement with
Polyvalor and McGill University. Through our research and development, we have
evolved the process. We now have two patent applications pending relating to the
process. To our knowledge, there are no other manufacturers of DWDM products on
silicon using a sol-gel manufacturing process. We have chosen an optical chip
form for our product development because we believe that our PHASIC(TM) process
will allow us to address market demand that cannot be fully served with
competing technologies.
We believe this because:
-- the PHASIC(TM) process requires a lower capital investment in
equipment, because there is no need for vacuum thin film
deposition and vacuum coating technology;
-- making the AWG chip requires less manual labor;
-- our process requires fewer steps, reducing the likelihood of
manufacturing defects; and
-- as the optical chip's channel count grows, cost does not
increase proportionally.
We have focused on developing and producing DWDM devices and products
because we believe that DWDM technology offers a bandwidth solution to the
telecommunications market. The telecommunications market includes long distance,
metropolitan, and access. Bandwidth or information carrying capacity is critical
in each segment. DWDM is in a nascent stage for the metropolitan and access
markets.
INDUSTRY BACKGROUND
Manufacturers of systems that use DWDM devices include: Lucent
Technologies, Inc., Ciena Corp., Alcatel, Cisco, Nortel Networks Corp., NEC and
Fujitsu. Several of these systems manufacturers also manufacture DWDM products.
Other suppliers include: JDS-Uniphase Corp., Gould, Instruments, Corning OCA,
Ditech Communications Corp., DiCon, Sumitomo 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 equipment supplied by Hitachi Ltd. and Nortel.
Growth of Information Traffic
Computers increasingly process and send more information across networks
at greater speed. Voice-centered networks were not designed to handle data
efficiently. New data communications equipments have been designed and created
to route and switch data transmission at very high speeds.
The popularity of the Internet and new applications are putting pressure
on the networks of service providers. They are continually in need of
improvements to stay competitive. They are looking for ways to optimize their
existing networks and to increase capacity at a low cost. Optical fiber networks
are widely deployed for domestic and international carriage. Recent increases in
traffic, growing competition and increased demand for reliability at lower cost
have required carriers
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to enhance the service they provide. Part of the solution has been the
deployment of DWDM systems.
The flow of traffic has also increased by the growing capacity and
processing speed of data communications equipment. According to Ryan, Hankin &
Kent, a leading market researcher, Internet traffic will increase from 568,000
tera bytes per month at the end of 2000 to over 1.1 billion tera bytes per month
in 2004.
Competition
Widespread telecommunications industry deregulation in the United States
has resulted in increased competition among service providers. As carriers seek
to differentiate themselves from competitors, they have emphasized high capacity
technology to sell their services.
Reliability
Consumers and generators of information are becoming more dependent on
network reliability. End users are less and less tolerant of service
interruptions. Network carriers have responded by introducing fiber optic
networks that can overcome 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 caused by a
fiber optic cable cut or other equipment failure. Ring architectures require
twice the fiber capacity of non-ring systems. These system designs therefore
place greater bandwidth demand on existing fiber networks.
Other Capacity Drivers
Other capacity drivers on fiber optic networks include technologies such
as digital subscriber lines (DSL). DSL promises higher access speeds to
residences and businesses. With potential speeds in excess of a megabit, this is
expected to continue to increase demand for bandwidth and impose additional
strain on the optical network backbone.
PHASICTM PROCESS
Our patented manufacturing process for optical chips is called
PHASIC(TM). We acquired the initial rights to the PHASIC(TM) process under our
license agreement with Polyvalor and McGill University. Through our research and
development, we have evolved the process. We now have two patent applications
pending relating to our process. PHASIC(TM) stands for Photonic Hybrid Active
Silica Integrated Circuit. This refers to the materials and processes we use to
produce our devices 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 gratings (AWG) that have been arranged
to combine, or multiplex, or separate, or demultiplex, light at the
telecommunications wavelengths. More specifically, we use hybrid glasses for
making our AWG and a simplified manufacturing process for creating our optical
circuits on silicon. The "hybrid glass" is a glass-polymer solution. It can be
used to print circuits on chips through light. We can do so without the costly
vacuum etching process or the use of manual labor for assembly of micro-optic
devices. We expect to be the first to commercialize hybrid glasses for use in
integrated optics.
The optical chip contains an optical circuit analogous to the
micro-electronic circuits used in computers. DWDM optical circuits can be made
with 4, 8, 16, 32, 40, 64 and more channels to transport different optical
signals 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
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in the AWG. These path differences translate into optical phase differences.
Multiplexing means that light of a given wavelength can be combined with others
for input into an optical fiber. Demultiplexing means that with the same device,
light can also be separated for output to individual optical fibers. This
technology simplifies the process while adapting to the industry's changing
needs.
PLAN OF OPERATIONS
Our plan of operations for fiscal year 2001 is to get our plant and
volume production up and running in order to produce 8, 16, 32 and 40 channel
DWDM devices and bring them to market. Volume production will be realized by
-- completing the installation of our large scale manufacturing
infrastructures;
-- defining processing sequences and conditions that distinguish
fabrication of devices;
-- increasing staffing and investing in the training of our
employees;
-- implementing a framework for quality control and reliability
testing;
-- expanding our DWDM packaging and pigtailing capability;
-- broadening our product portfolio; and
-- securing our supply chain.
Research and Development
Since our inception, we have spent approximately CDN$217 million for
research and development conducted by Molex. Research and development activities
for fiscal year 2001 will be centered on finalizing the packaging of our DWDM
products and optimizing our manufacturing processes. We will also focus on
developing new products that we judge to be of value to the photonics market.
Manufacturing
At the end of June 2000, we moved our headquarters to a new site located
in Ville St-Laurent, a suburb of Montreal, Canada. The 53,427 square foot
headquarters has a 34,400 square foot manufacturing facility that features
materials preparation, fabrication, packaging, optical test and quality control
facilities for our DWDM products. We are currently completing the installation
of the production facility, including cleanrooms and associated laboratories.
Our existing R&D facility, located in Dorval, Quebec, will be used for
prototyping once the Ville St-Laurent facility is operational.
Employee Growth
We currently have 100 employees. Over the past 12 months, we have
increased our corporate division to 30 persons. The existing R&D division of 27
meets current requirements and will be increased at a measured pace as we
identify new requirements. Most of our personnel growth will be within the
operations division, which must increase its manufacturing component to
approximately 75 hourly employees and 25 specialists/technicians in order to
meet the current production forecasts for fiscal 2001 and first quarter of
fiscal 2002. Headcount growth thereafter will depend on volume requirements and
will primarily focus on hourly employees. Most of the manufacturing employees
whom we will hire will be fully trained in a few months. Combined with the
employees remaining at the Dorval pilot facility, the total employee count is
anticipated to be in the range of 225 employees by the end of 2001.
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BUSINESS STRATEGY
We believe that there is a substantial market for our devices. This
market may be best supplied using AWG, which provides high channel counts in a
single compact device.
Optical chips in AWG format are currently used in DWDM systems. Companies
that produce the AWG format are PIRI (a subsidiary of JDS Uniphase), Kymata and
Siemens. These AWG devices perform in a similar way. However, DWDM devices can
differ both in composition and method of fabrication depending on how they are
processed. Devices made by PIRI, Kymata and Siemens use a high temperature
vacuum deposition process called "flame hydrolysis deposition" (FHD). This
process uses a repetition of steps to achieve final composition of a device.
The devices that we produce differ in composition and method of
fabrication. Our AWG devices are made of hybrid sol-gel glass. They are made at
temperatures about 1,000!C lower than those used in FHD. The devices are created
by photolithography directly in the hybrid glass, avoiding vacuum film
deposition. They have optical properties that can be tuned over a broader range
than those provided by commercial forms of FHD. This allows us to make smaller
devices than those produced by FHD. Smaller devices permit manufacturers to
deploy their systems in locations where space is limited, providing greater
design flexibility. The materials and method of fabrication that we use also
allow us to make AWG devices faster and in larger quantities. We believe, at
present, that no other manufacturer utilizes the sol-gel method in the
commercial production of optic devices for use in the DWDM market.
Our goal is to provide high quality, cost effective and high volume DWDM
devices. We developed our PHASIC(TM) process because we believe that high volume
manufacturing methods similar to those used by the microelectronics
manufacturing industry are necessary to meet telecommunications customer demands
for high volume and reliability. We believe that our process gives us a
technological edge that will allow us to improve yield in optical chip
production.
We have begun producing and testing a limited number of devices with the
intention to market 4, 8, 16, 32 and 40 channel DWDM products. In addition, we
intend to offer services based on our capability to design new customized DWDM
devices according to specific client needs. For example, we are presently
targeting an existing DWDM market that has for the most part, very specific
needs. Because we manufacture our DWDM devices from a platform technology, we
can use similar materials and processes to produce customized devices. Examples
include optical chips for selectively adding or dropping channels and optical
cross-connects.
The platform technology allows us to expand from our DWDM chip into new
kinds of optical chip products. We believe that customers may favorably view the
idea of having optical devices that are all related to one another through a
common technology. Photonics is a nascent industry and we believe that it will
be necessary to work with customers closely to meet their specific needs. In
this competitive industry, we face many risks, including market acceptance of
our products and our ability to adapt our products to technological change.
To implement our strategy, we intend to:
a) Establish Technology Leadership
There are three primary multiplexer component technologies currently used
in DWDMs: thin film filters, fiber Bragg gratings and array waveguides (AWG).
According to a report in Laser Focus World Supplement, "WDM Solutions," in 1998,
thin filters held a 26% share of the DWDM market, AWG had a 47% share of the
DWDM market and Bragg gratings had a 19% market share.
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Within the industry, AWG technology currently provides the least costly
manufacturing alternative to expanding existing capacity.
In existing AWG technology, a "flame hydrolysis deposition" (FHD) method
is used to manufacture DWDM components and devices. This method burns the
desired combinations of gases to produce a glass soot on the surface of a
silicon substrate. The soot is melted and consolidated at temperatures greater
than 1,000 degreesC in a lengthy thermal process. The procedure is repeated at
least three times to achieve the final composition. The second coating step is
usually followed by a series of coating and vacuum etching steps. 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.
Thin film filter glass windows are five millimeters in size. They are
coated with multi-layers of metal oxide. This layered structure is used to pass
through some wavelengths of light and reflect others in transferring information
or data. These windows act as an optical filter when many are assembled together
with lenses and appropriate input and output filters. Then, together they can
selectively separate wavelengths of light for transmission of information. In
this way, the thin film filter device acts as a mutliplexer device.
Bragg gratings act as micro optical filters. The grating spacing is
selected in a way that allows some wavelengths of light to pass through the
filter and reflects other wavelengths of light. When several Bragg gratings are
created in optical fiber and assembled together in a structure like an
interferometer, the Bragg gratings assembly acts as a multiplexer device.
We believe that the following three variables, discussed in detail below,
will determine the relative successes of the three competing technologies:
-- chip manufacturing cost per channel;
-- size of the optical component; and
-- suitability to high volume manufacture.
We believe that our products, which use AWG format, will enjoy an
advantage in each case.
Chip Manufacturing Cost Per Channel. In AWG technology, cost does not
scale with an increase in the number of channels per chip because all channels
are created simultaneously or in parallel. There is little increase in the cost
of manufacturing an 8-channel, 16-channel or other channel AWG DWDM chip because
the circuits and optical channels are all created in the same step. In contrast,
in thin filter and Bragg gratings technologies, additional channels must be
added one at a time, increasing the complexity of the task and adding time and
cost to the process. Thus, the current manufacturing cost per channel is lower
for AWG technology.
The cost of making an AWG DWDM component will depend on the method and
materials used. Our products are distinguishable from those of our AWG
competitors in their composition and method of fabrication. We believe that our
simple PHASICTM manufacturing process should be cost effective and suitable for
high volume and high yield manufacturing.
Size of Optical Components. AWG technology products are smaller by a
factor of three than those produced by competing technologies. This is an
advantage where space is at a premium.
Suitability to High Volume Manufacture. Our manufacturing process is
simpler, because the complexity of the process does not increase linearly with
an increase in the number of channels per chip, as is the case with competing
technologies. We anticipate that as optical chip technology
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<PAGE> 32
matures, customer demand and competition will drive down the price of chips. Our
low temperature manufacturing process should permit lower cost production and
higher product yield.
Our devices differ from other DWDM devices in composition and method of
fabrication. The use of hybrid glass and the sol-gel processing gives us the
advantage of being able to use spin-coating and dip-coating manufacturing
methods to cover silicon wafers rather than vacuum deposition techniques. Our
hybrid glasses are made at temperatures about 1,000 degreesC lower than those
used in FHD chip production. This gives us an energy saving advantage and
provides a greater choice in the range of substrates e.g., glass, plastic, that
might be used in the future to support DWDM devices. Our DWDM optical chips are
created by photolithography directly in the hybrid glass. This avoids complex
post-processing sequences in which chemical resists and masks must be used in
conjunction with vacuum reactive ion etching methods. The properties of the
hybrid glass materials can be tuned to be like those of plastics or inorganic
glasses. This permits hybrid glasses to be adapted into more commercially usable
and compact forms. Smaller DWDM devices also permit manufacturers of systems to
make more compact products.
b) Leverage Existing Customer Relationship and Develop New
Relationships
In May 1999, we entered into a teaming agreement with Molex, a global
manufacturer of electronic, electrical and fiber optic interconnection products
and systems. The teaming agreement was amended in March 2000. Under the teaming
agreement, we agreed with Molex to jointly develop DWDM products for sale to
Molex and distribution and marketing by Molex to other customers. Subject to
testing of our technology and proof of our manufacturing capability, Molex is
committed to purchase 400 units per month for the first 12 months, and has the
option to purchase 50% of our DWDM production. See "Material
Agreements -- Agreements with Molex." This arrangement should provide a firm
customer base for our early production. We also propose to establish
relationships with telecommunications equipment manufacturers and with
manufacturers in other industries with potential applications for its devices.
c) Target Long Distance, Metropolitan Area and Access Markets
Our products are designed to meet the requirements of long distance
telecommunication and metropolitan markets. We believe that much of the
potential expansion of the market for our products will occur in metropolitan
areas. This is a result of technological advances and the potential to reduce
manufacturing costs.
d) Expand Manufacturing Capability
Our prospective customers are expected to require high volumes of
products manufactured to high quality standards at gradually decreasing prices.
We are currently expanding beyond our existing Research and Development facility
in Dorval to a full scale manufacturing facility in Ville Saint-Laurent, with a
production capability of 500 devices per day. We are finalizing the completion
of the 34,400 square foot manufacturing facility in order to begin production in
2001.
TECHNOLOGY AND PRODUCTS
We use a liquid sol-gel process to produce our DWDM devices. Sol-gel
processing converts molecules of silicon-containing compounds into a network of
glasses. Based on our experience in developing the process, and our intellectual
property rights governing it, we believe we have a significant lead time as the
only producer of compact AWG DWDM devices using a low temperature sol-gel hybrid
glass process. We use conventional photolithography, which is a method to
"print" optical circuits and devices directly into its hybrid glasses. A pattern
of the AWG is made by projecting an image of the pattern with ultra-violet light
that passes through the patterned
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openings of the mask and "writes" or "projects" the AWG image directly into
hybrid glass film. The procedure is similar to the way photographs are printed
in a darkroom.
Platform Material Technology
We use manufacturing methods that have been long accepted by the
semiconductor and microelectronics industries. We have adapted these methods to
produce hybrid silica glass integrated optics devices. The materials used to
formulate the hybrid glasses are custom designed and readily available from
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
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, our
methodology reduces costs by avoiding complex and costly processing and etching
sequences. Through the use of our process, we should, in the future, be able to
supply a variety of valuable customized products. We believe that the relative
simplicity of our PHASICTM process, using hybrid glasses, will enable us to
fabricate optical chips across the broadest range of photonic market
opportunities in high volume.
Technological Leadership
We have assembled a team with broad expertise in materials formulation,
photonic device design, hybrid glass integrated optics circuit fabrication,
product definition and industrial process engineering. This team has pioneered
the development of "photonic chips on silicon" based on proprietary formulations
of hybrid glasses and the creation of software design tools. Our technical
structure comprises software development/optical circuit design, materials
formulation and process engineering. This should allow us to evolve as a
significant provider of integrated optics products to the photonic industry.
We have also created a technical advisory board to advise us on photonic
market trends and technology and to assist in the development of an optical
information technology "roadmap" for our benefit. This board consists of three
external scientists with extensive experience and expertise in the industry.
Advanced Software Design Tools
We use both proprietary and industry standard design tools to create our
DWDM devices. We have developed in-house theories and software algorithms for
creating product designs. We are unaware of any commercially available design
packages that compete with our software capability. Whether or not other
entities have developed software design tools of quality competitive with ours
should have no impact on our business, which uses our software in a manner
uniquely adapted to the photonic materials and processes we have developed. We
have 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, like couplers and splitters.
MANUFACTURING
We have commenced the manufacture of our prototype devices in our
custom-designed pilot microfabrication facility located at Dorval, Quebec. The
capacity of this facility is 20 DWDM chips per day. As of October 2000, we have
not sold a finished product in the open market. The current generation of chips
is being used for development and test phases. This includes the development of
solutions for pigtailing optical fiber to the DWDM chips, and for hermetic,
semi-hermetic and non-hermetic packaging.
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We have been aggressively pursuing a photonic device packaging research
program, which has resulted in a high quality packaging solution for passive
photonics devices. Currently, our packaging technology allows for the production
of mechanically robust environmentally resistant packages. Key technologies
which have been addressed, solved and continually improved include, but are not
limited to:
-- Chip Preparation: It is extremely important to ensure that the
chip-level devices produced are consistently identical. One of
the key developments achieved by us within the package program
is the ability to continually produce devices of exactly the
same dimensions every single time and at an extremely high rate.
This facilitates the mass production of chip-level devices.
-- Device Pigtailing: This technology is concerned with bonding
multiple fibers to the photonic devices with submicron accuracy.
The purpose of pigtailing devices is to facilitate external
communication with the functional device contained inside the
package.
-- Thermal Management: Concerned with ensuring that the end-user
has the capability of accurately controlling the temperature of
the environment within the package to ensure that the product
conforms best to their requirements.
-- Environmental Protection: We have developed a packaging strategy
which produces packages which are highly resistant to mechanical
and thermal stress and shock cycles. The package also exhibits
excellent resistance to moisture and humidity.
Finally, we understand that, due to the immature nature of photonics
packaging expertise worldwide, there is a need to have an extremely active
packaging research program which can respond rapidly to developments in
technology and in the marketplace and also to ensure continual optimization and
improvement of our packaging process and strategy.
We rely largely on our own processes for the manufacture of our products.
In order to meet the projected demand for high volume, low cost photonic chip
production, are in the process of equipping and staffing a full scale production
facility. We anticipate developing our manufacturing capacity to 500 packaged
chips per day in 2001 and 1,000 per day in 2002.
PROPRIETARY RIGHTS
Our future success and ability to compete are dependent, in part, upon
our licensed and owned technology. We rely in part on patent, trade secret,
trademark and copyright law to protect our intellectual property. We are the
licensee of three patent applications under the terms of a license agreement
with Polyvalor and McGill University, which expires in October 2017. These three
patent applications are:
1. Title: "Solvent-assisted lithographic process using photosensitive
sol-gel derived glass for depositing ridge waveguides on silicon"
Use: Intellectual property relating to our sol-gel process used to
make our optical circuit devices on a broad range of substrates,
including silicon through simplified photolithographic processes
and wet etching techniques, which is fundamental to the success of
our manufacturing process.
Country: United States
Assignee: McGill University
Status: Allowed and issued as patent No. 6,054,253 on April 25,
2000.
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2. Title: "Solvent-assisted lithographic process using photosensitive
sol-gel derived glass for depositing ridge waveguides on silicon"
Use: Intellectual property relating to our sol-gel process used to
make our optical circuit devices on a broad range of substrates,
including silicon through simplified photolithographic processes
and wet etching techniques, which is fundamental to the success of
our manufacturing process. Country: Canada
Assignee: None
Status: Pending. The next step in this patent application is to
file the request for examination.
3. Title: "Self-processing of diffractive optical components in
hybrid sol-gel glasses"
Use: Intellectual property used to make diffraction gratings in
hybrid glass without the need for device development steps, which
is not material to our present manufacture of products, but is
relevant and being sought for later generation products planned
for production.
Country: Initially filed on October 26, 1999 as a provisional
United States patent application, this case is presently continued
through an International patent application filed October 26, 2000
and designating all the countries forming part of the Patent
Cooperation Treaty, including the United States and Canada. The
priority date of October 26, 1999 was claimed in the International
patent application.
Assignee: None Applicants: This patent application has been filed
in the name of McGill University, Polyvalor, CNRS, LILT, and the
inventors. Assignments will be required during the prosecution of
the subsequent national phases to confirm the assignee(s).
Status: Pending: we are presently in the process of preparing the
International Search Report from the European Patent Office.
We have has also filed the following patent applications:
4. Title: "On-substrate cleaving of sol-gel waveguide"
Use: Intellectual property used to make optical coupling between
glass fiber and optical circuit device waveguides, which is not
material to our present production of products, but is relevant
and being sought for later generation products planned for
production.
Country: United States
Owner: Co-ownership between Lumenon and Paul Coudray
Status: Pending: the patent was filed on July 1, 1999. We recently
received a first examination report stating that the invention is
patentable and that the application needs amendment for formal
matters only. The priority date for filing of the patent
application in other countries was July 1, 2000 and the
application was not extended to other countries.
5. Title: "Sol gel film coating process using chilled solution"
Use: Intellectual property used to make a sol gel film where the
thickness and roughness of resulting film are improved by
dispensing a chilled sol gel solution instead of conventionally
dispensing such a sol gel at room temperature. We presently use
this technology in our manufacturing process.
Country: Canada
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Status: Pending Informal: the patent application is pending but is
informal and the priority date for filing the complete patent
application in Canada and for extending the patent application in
other countries is July 28, 2001.
6. Title: "Flattening the response of a planar wavelength division
multiplexer using a Y-junction"
Use: Intellectual property used to flatten the response of a
planar wavelength division multiplexer through a Y-junction. We
presently use this technology in our manufacturing process.
Country: Canada
Status: Pending Informal: the patent application is pending but is
informal and the priority date for filing the complete patent
application in Canada and for extending the patent application in
other countries is August 4, 2001.
These patents may or may not be issued to us. If issued, they may be
invalidated, circumvented, challenged or licensed to others, all of which is not
under our control. Any patents issued to us may not be adequate to safeguard and
maintain our proprietary rights, to deter misappropriation or to prevent an
unauthorized third party from copying our technology, designing around the
patents owned by us or otherwise obtaining and using our products, designs or
other information. In addition, our competitors may develop similar or superior
technologies.
We also rely on confidentiality agreements to protect our proprietary
rights. It is our policy to require employees and consultants and, when
possible, suppliers, to execute confidentiality agreements upon the commencement
of their relationships with us. Litigation may be necessary to enforce our
intellectual property rights and to protect our trade secrets, and there can be
no assurance that our efforts will be successful. Our inability to protect
proprietary rights effectively could have a material adverse effect on our
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 we are not aware of any claim of
infringement or misappropriation against us, there can be no assurance that
third parties will not assert claims in the future with respect to our products.
Responding to claims , regardless of merit, could cause product shipment delays
or require us to enter into royalty or licensing arrangements. Claims could also
lead to costly litigation that would require significant expenditures of time,
capital and other resources by us and management. Moreover, no assurance can be
given that any necessary royalty or licensing agreement can be obtained on
commercially reasonable terms.
MATERIAL AGREEMENTS
Agreements with Molex
On May 19 and June 21, 1999, we entered into several 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. The Molex
agreements include a teaming agreement, a stock purchase agreement, a stock
restriction agreement and a registration rights agreement. The teaming agreement
was amended on March 3, 2000.
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Under the teaming agreement, we agreed with Molex to jointly develop DWDM
products. Subject to our testing and proving our technology and our ability to
manufacture and deliver the devices, Molex is committed to purchase our entire
DWDM production for the first 12 months of production, up to 400 units per
month. Molex also has the option to buy 50% of our remaining chip production.
After the first 12-month period, Molex will have the option to purchase 50% of
our DWDM production for the succeeding three-year period. Any product sold by us
to Molex will be priced at our gross cost. In addition, Molex will pay to us 30%
of the profits obtained on final products built from the chips supplied, 50% of
the profits from sales of functionally unmodified packaged products and 30% of
the profits from sales of other final products.
We are free to package and sell any remaining products, with all profits
going to us. However, we cannot sell unpackaged chips for telecommunication
applications, except for special order or exploratory purposes, without written
agreement from Molex.
In the event we are unable to supply Molex on a timely basis with a
commercially reasonable quantity of the devices or in the event we have a change
of control, Molex has the non-exclusive right to manufacture all components of
the devices in return for a royalty equal to 50% of the profits from sales of
functionally unmodified packaged products and 30% of the profits from sales of
other final products.
Under the stock purchase agreement, Molex purchased 3,000,000 shares of
our common stock at a price of US$0.50 per share in two stages. We 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, we issued Molex a services common stock purchase warrant
(the services warrant) to receive 5,800,000 additional shares of common stock in
exchange for services to be rendered by Molex as part of the development of our
technology. These shares were issued in 2000 as Molex performed services. The
exercise price of the services warrant was set at US$0.2155 per share.
Under the stock restriction agreement, Najafi Holdings Inc. and Andrewma
Holdings Inc., have agreed not to sell their shares of our common stock to a
competitor of Molex without Molex's prior consent. This agreement also includes
a right of first refusal and preemptive rights in favor of Molex, except that we
can, without Molex's consent, issue up to 6,000,000 units (comprising one share
of common stock and a warrant) at a price not less than US$0.50 per unit to
raise capital within the period ending in June 2001. The stock restriction
agreement also requires the consent of Molex for extraordinary actions relating
to our governance and our operations, including amending our organizational
documents, issuing or selling securities to a Molex competitor, declaring
dividends, replacing our chief executive officer, merging or acquiring the
material assets of another company, or transferring or licensing any of our
intellectual property. Upon completion of a public sale or a public offering,
the preemptive rights in favor of Molex will terminate. The stock restriction
agreement will also terminate if the teaming agreement is terminated.
The net proceeds of the issuances of stock to Molex were used in part to
accelerate the commercialization of our DWDM products.
Agreement with Polyvalor and McGill University
We entered into a license agreement with Polyvalor, a Canadian limited
partnership, and McGill University (together, Polyvalor and McGill University
are referred to as the Licensor) pursuant to which we acquired the right to
produce, sell, distribute and promote products derived
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from patents and know-how of the licensor, subject only to a license granted to
QPS Technology Inc. in May 1998. To date, QPS Technology Inc. has not
demonstrated any desire or capability to utilize its license for production of
any related technology or products. Moreover, we do not believe that QPS
Technology Inc.'s license presents a risk to our business because that license
extends only to Polyvalor's original patent and does not cover any of the
know-how and the proprietary technological development generated by us. 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. We will pay a royalty of 5% on gross sales, up to a
maximum cumulative amount of CDN$3,500,000 (US$2,367,104) to the licensor until
October 2017, at which time the license agreement will expire. We do not believe
that the rights granted to us under the license agreement will be of significant
value after that date. If this is not the case, we would seek to extend the term
of the license agreement. Polyvalor is a company created by Ecole Polytechnique
for the purpose of commercializing the technology in which Polytechnique has an
interest.
In connection with the license agreement, we issued to each of McGill
University and Polyvalor 750,000 shares of our common stock and granted them
jointly the right to nominate one director to our board of directors.
Agreement with Polaroid
We entered into an agreement dated July 21, 2000 with Polaroid
Corporation for the irrevocable non-exclusive license of patents held by
Polaroid in connection with AWG. We agreed to pay to Polaroid an initial
licensing fee of CDN$584,047 (US$395,000). In addition, we will pay royalties on
the net selling price of our products, at an annual rate of 5% for aggregate net
selling prices of US$5 million, 3.5% for aggregate net selling prices over five
and up to US$40 million, and 1.75% for aggregate net selling prices over US$40
million, for each year of the agreement.
Convertible Note Financing
On July 25, 2000, we sold CDN$51,243,000 (US$35,000,000) aggregate
principal amount of convertible notes due July 25, 2005 to two institutional
investors. The notes bear interest at a rate of 7.5% per year, which is payable
upon the earlier to occur of the repayment or conversion of the notes. The notes
are convertible into shares of common stock at a price equal to the average of
the closing bid prices of our common stock for the five consecutive trading days
ending immediately prior to conversion, but in no event less than US$7.00 nor
more than US$25.00 per share (unless a default under the notes has occurred).
On October 16, 2000, notes for an aggregate principal amount of
CDN$10,549,000 (US$7,000,000), together with accrued interest, were converted
into 616,414 shares of common stock at a price of US$11.55 per share.
Commencing 30 months after the issuance of the notes, we may require
their conversion if all of the following conditions are met:
-- the volume weighted average price as reported by Bloomberg
Financial Markets for our common stock for any 40 consecutive
trading days equals or exceeds US$50.00;
-- the average trading volume of our common stock during these 40
consecutive trading days equals or exceeds 120,000 shares per
day;
-- the shares of common stock issuable upon conversion of the notes
are authorized and reserved for issuance, registered for resale
and eligible to be traded on the New York Stock Exchange, the
American Stock Exchange or The Nasdaq National Market; and
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-- there is not an uncured event of default under the notes.
The notes provide for various events of default, which would entitle
their holders to require their immediate repayment together with an additional
default amount. The amount payable upon an event of default would be equal to
the greater of:
(a) 115% of the principal amount of the notes plus accrued
interest; and
(b) the quotient obtained when (c) is divided by (d) where:
(c) is the principal amount of the notes plus accrued interest;
and
(d) is the conversion price on the date we receive notice of the
default multiplied by the highest closing bid price of our
common stock during the period beginning on the date we
receive notice of the default and ending the date preceding
the payment of the default amount.
Events of default include:
-- our failure to pay the principal amount of the notes or accrued
interest on the notes for five trading days after the due date;
-- our failure to make any payment with respect to any indebtedness
greater than US$100,000 to a third party;
-- our default under any agreement that would materially adversely
effect us;
-- the suspension of our common stock from trading for 10 trading
days in any nine month period;
-- the failure to have this registration statement declared
effective by April 21, 2001;
-- the suspension of effectiveness for more than 30 days;
-- our failure to remove restrictive legends from the certificates
for the common stock;
-- our indication that we do not intend to issue shares of common
stock upon conversion of the notes;
-- our breach of any material term of the notes or the other
agreements entered into in connection with the notes; and
-- the institution of bankruptcy proceedings.
The holders of the notes may also require repayment, together with an
additional redemption amount, calculated as for an event of default, upon
extraordinary events, including:
-- the sale or disposition of substantially all of our assets;
-- a merger or consolidation where we are not the surviving entity;
and
-- the acquisition of at least 50% of the voting power of our
common stock by one person, entity or group, other than our
current majority holders.
The proceeds of sale of the notes are being used in part to complete the
buildout of our new manufacturing facility in Ville Saint-Laurent. These
proceeds will also be used to pursue our overall growth strategy and to finance
our research and development program.
In connection with the financing, we issued to the purchasers five year
warrants vesting in January 2002. These warrants entitle their holders to
purchase 5,000,800 shares of our common
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stock. The exercise price fluctuates subject from a minimum of US$10.00 and a
maximum of US$30.00. If the volume weighted average price of our common stock
during the five consecutive trading days preceding vesting is equal to or less
than US$30.00, then the exercise price will be US$10.00. If the average price is
greater than US$30.00, but less than US$70.00, then the exercise price will be
the sum of US$10.00, plus one-half of the excess over US$30.00. If this average
price is more than US$70.00, then the exercise price will be US$30.00. The
number of shares of common stock issuable upon exercise of the warrants and the
exercise price of the warrants are subject to adjustment upon the issuance of
convertible securities at a conversion/exercise price that is less than the then
current market price, stock splits, stock dividends and other recapitalizations.
In addition, upon a consolidation, merger or sale in which we are not the
surviving entity, we must require that our successor assume our obligations
under the warrants. If we declare or make any distribution of assets or rights
to acquire shares to our stockholders, the holders of the warrants who exercise
them will be entitled to receive equivalent assets or rights as if they had been
a holder of common stock on the date of the distribution. In the event of a
default under the notes or in other of our obligations to the purchasers,
vesting of the warrants may be accelerated.
We also agreed with the purchasers to register for resale under the
Securities Act of 1933, as amended, 8,800,000 shares of common stock issuable
upon conversion of the notes and exercise of the warrants. The registration of
these shares is covered by this registration statement.
CUSTOMER RELATIONS
In addition to the relationship created under the Molex agreements, we
will need to work in close association with DWDM system manufacturers. Examples
of these manufacturers are Nortel Networks, Cisco, Alcatel, Lucent Technologies,
and Ciena. We have had discussions with purchasers and designers of
manufacturers to evaluate their requirements. We believe that it will be
important to our success to work directly with customers the design of our DWDM
devices. This will allow us to foster a strong commitment to service and to gain
insights into our customers' future plans.
COMPETITION
There are several competitors producing DWDM products in the market.
Manufacturers of DWDM systems that may use AWG devices include Lucent
Technologies, Ciena, Alcatel, Cisco, Nortel, NEC and Fujitsu. Several of these
systems manufacturers also manufacture DWDM products. Other DWDM component
suppliers include JDS-Uniphase, Gould, Instruments SA, Corning OCA, Ditech,
DiCon, Sumitomo, Bosch Kymata Ltd., Lightwave Microsystems Corp. (LMC) and
Bookham Technology Limited.
We expect competition to increase in the future from existing competitors
and from companies that may enter our markets, with solutions that may be less
costly or provide better performance or features. To be successful, we must
continue to respond promptly and effectively to changing customer performance,
feature and pricing requirements, technological change and competitors'
innovations.
Many of our potential customers have substantial technological
capabilities and financial resources. These customers may currently be
developing, or may in the future decide to develop or acquire, products or
technologies that are similar to or may be substituted for our products, which
may diminish purchases of our products. A number of our 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 us. As a result, they may be
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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.
We believe that our ability to compete successfully depends on a number
of factors, both within and outside of our control. These factors include:
-- the price, performance and quality of our and our competitors'
products;
-- the timing and success of new product and feature introductions
by us, our customers and our 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 our customers design our products into their
products, the number and nature of our competitors in a given
market;
-- the assertion of intellectual property rights; and
-- general market and economic conditions.
SALES, MARKETING AND TECHNICAL SUPPORT
We are party to an agreement with Molex that reserves some of our first
year of production for Molex. See "Business -- Material Agreements." The
agreement provides us with access to Molex's global distribution network. This
reliance on Molex poses an operating risk to us. In the event that this
relationship changes, we could be forced to sell all of our products directly.
We expect to product 500 packaged chips per day starting in 2001 and 1,000 per
day starting in 2002. Molex is committed to purchase 400 packaged chips per
month for the first 12 months and has the option to purchase 50% of our
production.
We presently promote our developing product line in trade journals to
generate advance interest. Over the next 12 months, we will hire additional
internal marketing and sales personnel to assist with our efforts. We plan to
develop an international network that would include offices in North America,
Europe and Asia-Pacific.
We believe that providing our clients with comprehensive product service
and support is critical to maintaining a competitive position in the optical
communications market. Our practice will be to work closely with our customers
to monitor the performance of our product designs and to provide application
design support. We will also provide a valuable technical resource for
consulting on photonic component trends and implementations. Local field support
will be provided in person or by telephone.
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We intend to provide support at crucial stages of product development. We
may provide software simulation models of components to allow customers to
simulate the performance of our products in their system. In the future, we may
also offer modules to enable customers to evaluate our devices without
significant development effort on their part, which we anticipate will
facilitate rapid time-to-market. We believe that close contact with customers
will allow us to tailor our products to the market. Understanding our customers'
particular problem will enable us to design and develop solutions in our next
generation of products.
HISTORY OF LUMENON
Our principal place of business is located in the Montreal suburb of
Ville Saint Laurent. We were incorporated in the State of Delaware in February
1996 under the name of WWV Development, Inc. In July 1998, under an acquisition
plan, we acquired all of the issued and outstanding shares of LILT Canada, Inc.,
a Canadian corporation ("LILT") founded in March 1998 by Professor S. Iraj
Najafi of the Ecole Polytechnique, Montreal (an engineering school), and
Professor Mark P. Andrews of McGill University, Montreal. Upon consummation of
the acquisition plan, we changed our name from WWV Development, Inc. to Lumenon
Innovative Lightwave Technology, Inc. As consideration for the acquisition, we
issued 12,200,000 shares of common stock to the shareholders of LILT, which
resulted in a change in control. Under applicable accounting rules and policies,
LILT is deemed the acquiring corporation and the financial information contained
in this prospectus is that of LILT, as consolidated with Lumenon.
PROPERTIES
Our corporate and technical headquarters are located in a facility of
approximately 53,000 square feet. Approximately 64% of the space is occupied by
our cleanroom and manufacturing areas and the remainder by our offices.
The lease for our Ville St. Laurent facility is for a period of twelve
years ending in July 31, 2012 with annual rent in the amount of CDN$10.50 net
per square foot, or CDN$561,103 in the aggregate for each of the first six
years. After the first six years, the annual rent will increase to CDN$630,789.
We pay the operating expenses for the facility, which are estimated to be
CDN$4.20 per square foot for the first year or CDN$224,396 in the aggregate. We
have 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. The
construction of the building was completed in July 2000. We are currently
completing the internal construction of the production facility, including the
clean rooms and associated laboratories and installing manufacturing equipment.
We anticipate that the production facility should be operational at the rate of
500 packaged chips per day in 2001. We expect to add additional equipment and
staff to this facility to bring this facility to its full capacity of 1,000
units per day by 2002. As of September 30, 2000 we had spent CDN$11,336,201
(US$7,522,363) on equipment and leasehold improvements relating to the
construction of the Saint Laurent facility.
Our Dorval facility has an existing capacity of 20 units per day and will
be used to manufacture products until the Ville Saint-Laurent facility is
operational. Once the Ville Saint-Laurent facility is operational, we intend to
reconfigure the Dorval facility as an R&D facility with an ancillary production
capability. The lease for the Dorval facility is for a period of five years
ending in January 2004, with annual rent in the amount of CDN$4.59 net per
square foot, or CDN$32,814 in the aggregate. We pay the operating expenses which
we estimate to be CDN$1.87 per square foot per year and CDN$13,369 in the
aggregate. We have the option to renew the lease for an additional
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period of five years at a rate equal to the then current market price for
comparable space in the same building. As of September 30, 2000, we had spent
CDN$7,652,053 (US$5,077,673) on equipment and leasehold improvements relating to
the construction of the Dorval facility.
We believe that the Ville Saint-Laurent and Dorval facilities will be
adequate for our business as proposed to be conducted until at least the spring
of 2002.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings. From
time to time, however, we may be subject to claims and lawsuits arising in the
normal course of business.
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MANAGEMENT
Our directors and executive officers and their positions with us are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. S. Iraj Najafi..................... 46 Director, Chief Executive Officer and
President
Dr. Mark P. Andrews.................... 48 Director, Vice President, Chief Technology
Officer and Secretary
Dr. Anthony L. Moretti................. 48 Director
Denis N. Beaudry....................... 56 Director
Pierre-Paul Allard..................... 40 Director
Guy Brunet............................. 48 Director
Gilles Marcotte........................ 61 Director
Pierre-Andre Roy....................... 59 Director
Dr. Chia-Yen Li........................ 38 Chief Operating Officer
Vincent Belanger....................... 34 Vice President Finance, Chief Financial
Officer and Treasurer
Reginald J.N. Ross..................... 40 Vice President of Corporate Development and
Chief of Strategic Operations
Felice Philip Meffe.................... 46 Vice President of Business Development and
Marketing
</TABLE>
Dr. Iraj Najafi joined us in July 1998 as Director, President and Chief
Executive Officer. He was a co-founder of LILT Canada Inc., a wholly-owned
subsidiary of Lumenon in 1998, with Dr. Mark Andrews. Dr. Najafi received B.Sc
and M.Sc. Degrees in physics from Shiraz University and a Ph.D. in Physics from
the Ecole Centrale in Paris. After two years of postdoctoral research at the
University of Florida, Gainesville, Dr. Najafi joined the Department of
Electrical Engineering at the Ecole Polytechnique in Montreal in 1986, as a
researcher and subsequently as professor, where he developed an international
reputation as a pioneer in glass integrated optics. He also founded the
Photonics Research Group at the Ecole Polytechnique. Dr. Najafi has co-authored
more than 300 articles, patents, book chapters and books and taken a leadership
role in over 25 international conferences. He has been a guest editor for
Applied Optics and associate editor of Optical Engineering. Dr. Najafi is a
member of the International Society for Optical Engineering (SPIE) and has been
elected a Fellow of the SPIE. Dr. Najafi is on leave from Ecole Polytechnique
until January 2001. He may extend his leave for an additional two years.
Dr. Mark P. Andrews joined us in July 1998 as Director, Vice President,
Chief Technology Officer and Secretary. He was a co-founder of LILT Canada Inc.
Dr. Andrews received his Ph.D. in physical inorganic 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 in the
Materials Research Division 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 developed new photonic
glasses and polymers. Dr. Andrews has been an Assistant Professor and currently
is an Associate Professor at McGill University, from which he took a leave of
absence from commencing February 1, 2000 in order to devote all of his time to
the growth of Lumenon. He is a member of the Materials Research Society and the
International Society for Optical Engineers (SPIE).
43
<PAGE> 45
Dr. Anthony L. Moretti became a Director in December 1999. Dr. 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, Dr. 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.
Mr. 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 its intellectual
property. 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 consists of enhancing the value of research results
for commercial use by means of start-up of high-tech companies in which
Polyvalor holds a participation or interest. Mr. Beaudry was President of the
Quebec Association of University Research Directors in 1992, and is at present a
member of the Board of Directors of the Centre des Technologies Textiles, the
College Rosemont, the Corporation de Financement de l'Institut de Cardiologie de
Montreal, the Centre de Technologies du Gaz Naturel, the Corporation Commerciale
de Materiaux Composites, the Centre de Developpement Rapide de Produits et de
Procedes, and the firms Sinlab Inc., BioSyntech Inc., a biopharmaceutical
company, 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., an
Internet infrastructure firm. Mr. Allard has been employed in various executive
capacities with Cisco since 1993.
Dr. Chia-Yen Li joined us 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 us, 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.
Mr. Vincent Belanger joined us in June 1999 as Chief Financial Officer
and Treasurer. He was elected to the additional office of Vice President Finance
in August 2000. Mr. Belanger is a chartered accountant. From 1989 until
September 1998, Mr. Belanger was employed in the corporate finance department of
KPMG LLP, one of the world's leading professional advisory firms, in Montreal.
From September 1998 until joining Lumenon, 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 J.N. Ross joined us in November 1999 as the Vice President
of Corporate 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
44
<PAGE> 46
Management Professional. Mr. Ross has a history of over 20 years in information
technology project and program management both within the industry and the
Department of National Defense of Canada. 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, a company producing optical systems devices;
from August 1998 to May 1999, Mr. Ross was Program Manager for SpaceBridge
Networks Corporation, a company providing broadband satellite communications
systems; and prior to August 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.
Mr. Pierre-Andre Roy became a Director in May 2000. Mr. Roy studied
Administration and Accounting at Laval University (Quebec City) and at Ecole des
Hautes Etudes Commerciales (Montreal). Mr. Roy joined Bombardier Inc. in 1980 as
Vice President of Finance and Administration in its Mass Transit Division. In
1987, he became Controller for Bombardier's Transportation Equipment Group and
then became Controller for Bombardier Inc. In 1989, Mr. Roy joined Bombardier's
Aerospace Group as Vice President of Finance where he was also responsible for
Information Technologies and Sales Financing activities. In 1992, he was
promoted to President and General Manager of the Aerospace Group's Amphibious
Aircraft Division. In 1993, Mr. Roy assumed the role of President and COO for
Bombardier Capital. From 1995 to 1996, he served in a dual role as President of
Bombardier Capital and Treasurer of the holding corporation, Bombardier Inc. Mr.
Roy relinquished his position as Treasurer in May 1996 to focus on developing
Bombardier Capital business interests. He retired in February 2000.
Mr. Guy Brunet became a Director in March 2000. Mr. Brunet has been an
Investment Advisor for RBC Dominion Securities Wood Gundy and Richardson
Greenshields, investment banking firms, for over twenty years.
Mr. Gilles Marcotte became a Director in March 2000. He has a MSc. degree
in Commerce at the University of Sherbrooke and is a Fellow Chartered
Accountant. He was a partner at KPMG and its predecessor firms since 1979 and
retired in 1998 at the age of 58. Prior to retirement, he was Partner-in-charge
of KPMG's Quebec City office and has been on the Board of Directors of KPMG
Canada. Mr. Marcotte sits on the Board of Directors of a number of companies and
is President of the Quebec Symphony Orchestra and Caisse Populaire Desjardins of
Charlesbourg. Mr. Marcotte also chairs Lumenon's Audit Committee.
Dr. 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.
Mr. Felice Philip Meffe joined us in May 2000 as Vice President of
Business Development and Marketing. He has B.Com and MBA degrees from McGill
University and 20 years experience in international sales and marketing,
strategic planning, business development, operation analysis, financial analysis
and organization effectiveness. Mr. Meffe worked 18 years in Nortel Networks in
different capacities where he was International Accounts Director from 1996 to
1999. In 1998, Mr. Meffe was awarded the President Award of Nortel Networks for
Sales and Marketing. From 1999 to 2000, Mr. Meffe was Head of Strategic Planning
and Business Development in Astec, a subsidiary of Emerson Electric Co.
45
<PAGE> 47
Commencing with the 1999 annual meeting of stockholders, directors were
divided into three classes, with the initial term of office of:
-- Class I to expire at the 2000 annual meeting of stockholders;
-- Class II to expire at the 2001 annual meeting of stockholders;
and
-- Class III to expire at the 2002 annual meeting of stockholders.
Commencing with the 2000 annual meeting of stockholders, directors 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 Dr. Moretti were
elected as Class III directors. Messrs. Roy, Brunet and Marcotte, each of whom
was elected by the Board of Directors subsequent to the 1999 Annual Meeting of
stockholders, were designated as a Class I director, a Class II director and a
Class III director, respectively.
SUMMARY COMPENSATION TABLE
The following table sets forth, for the periods indicated, all
compensation awarded to, earned by or paid to our Chief Executive Officer. None
of the other executive officers received compensation in excess of US$100,000 in
2000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NAME AND PRINCIPAL POSITION YEAR(1) SALARY(2) BONUS # OF OPTIONS
--------------------------- ------- ---------- ----- ------------
<S> <C> <C> <C> <C>
Dr. S. Iraj Najafi..................... 2000 US$121,736 -- --
Chief Executive Officer and President 1999(3) US$ 36,798 -- 200,000
1998 US$ 31,311 -- --
</TABLE>
---------------
(1) We commenced operations in 1998.
(2) Our executive officers routinely receive other benefits, the amounts of
which are customary in our industry. We have concluded, after reasonable
inquiry, that the aggregate amounts of these benefits during each of the
periods reflected in the table above did not exceed the lesser of
US$50,000 or 10% of the compensation set forth above in respect of the
period.
(3) Represents solely the six-month period ended June 30, 1999.
COMPENSATION OF DIRECTORS
No remuneration or directors fees were paid to our directors during the
year ended June 30, 2000, with the exception of reimbursement of expenses.
During the fiscal year ended June 30, 2000, non-employee directors were granted
the following options to purchase common stock:
Guy Brunet was granted an option to acquire 50,000 shares at a price of
US$28.00 per share vesting over two years in equal tranches of 25,000,
exercisable for a period of two years after their vesting dates of March
28, 2001 and March 28, 2002, respectively.
Gilles Marcotte was granted an option to acquire 50,000 shares at a price
of US$28.00 per share vesting over two years in equal tranches of 25,000,
exercisable for a period of two years after their vesting dates of March
28, 2001 and March 28, 2002, respectively.
The board of directors will determine the remuneration of the directors
and officers during the current and subsequent fiscal years.
46
<PAGE> 48
EMPLOYMENT AGREEMENTS
Dr. Mark P. Andrews is employed by us as Vice President and Chief
Technology Officer pursuant to an employment agreement entered into July 7, 2000
and effective January 1, 1999 for a term of three years. The agreement provides
for an initial base salary of CDN$125,000 (US$84,539) annually. On July 21,
2000, Dr. Andrews' base annual salary was increased to CDN$300,000 (US$202,893).
We also granted Dr. Andrews an option to acquire up to 200,000 shares of common
stock. Throughout the employment period and for a period of three years
thereafter, the agreement restricts Dr. Andrews' ability to engage in activities
competitive with those of ours. In addition, throughout the employment period
and for a period of two years thereafter, Dr. Andrews has agreed that he will
not solicit any person employed by us to leave our employ, or employ or solicit
for employment any person who is employed by us. The agreement may be terminated
by us (i) in the event of the bankruptcy, liquidation, or dissolution of
Lumenon, (ii) if he commits certain acts constituting cause or (iii) if he is in
material breach of the agreement. Dr. Andrews may terminate the employment
agreement upon three months' prior written notice to us.
Dr. Chia-Yen Li is employed by us as Chief Operating Officer pursuant to
an employment agreement effective August 1, 1999 for a term of five years. The
agreement provides for an initial base salary of CDN$125,000 (US$84,539)
annually. On October 1, 2000, Dr. Li's base salary was increased to CDN$150,000
(US$101,447). We 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 ours. 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 us to leave our employ, or
employ or solicit for employment any person who is employed by us. The agreement
may be terminated by us (i) in the event of the bankruptcy, liquidation, or
dissolution of Lumenon, (ii) if Dr. Li commits certain acts constituting cause
or (iii) if he is in material breach of the agreement. Dr. Li may terminate the
employment agreement upon three months' prior written notice to us.
Vincent Belanger, CA is employed by us as Vice-President Finance, Chief
Financial Officer and Treasurer pursuant to an employment agreement effective
June 14, 1999 for a term of five years. The agreement provides for a base salary
of CDN$125,000 (US$84,539) annually. On July 27, 2000, Mr. Belanger's annual
base salary was increased to CDN$150,000 (US$101,447). We 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 ours. 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 us to leave our employ, or employ or solicit for employment any
person who is employed by us. The agreement may be terminated by us (i) in the
event of the bankruptcy, liquidation, or dissolution of Lumenon, (ii) if Mr.
Belanger commits certain acts constituting cause or (iii) if he is in material
breach of the agreement. Mr. Belanger may terminate the employment agreement
upon one month's prior written notice to us.
Reginald J.N. Ross is employed by us as the Vice President of Corporate
Development and Chief of Strategic Operations pursuant to an employment
agreement effective December 1, 1999 for a term of five years. The agreement
provides for an initial base salary of CDN$125,000 (US$84,539) annually. On
October 1, 2000, Mr. Ross' base salary was increased to CDN$150,000
(US$101,447). We 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 ours. In addition, throughout the
employment period and for a period of two years thereafter, Mr. Ross has agreed
47
<PAGE> 49
that he will not solicit any person employed by us to leave our employ, or
employ or solicit for employment any person who is employed by us. The agreement
may be terminated by us (i) in the event of the bankruptcy, liquidation, or
dissolution of Lumenon, (ii) if he commits certain acts constituting cause or
(iii) if he is in material breach of the agreement. Mr. Ross may terminate the
employment agreement upon one month's prior written notice to us.
Felice Philip Meffe is employed by us as Vice President Marketing and
Business Development pursuant to an employment agreement effective June 9, 2000
for an indeterminate term. The agreement provides for an initial base salary of
CDN$125,000 (US$84,539) annually. On October 1, 2000, Mr. Meffe's base salary
was increased to CDN$150,000 (US$101,447). We also granted Mr. Meffe an option
to acquire up to 250,000 shares of common stock. Throughout the employment
period and for a period of one year thereafter, the agreement restricts Mr.
Meffe's ability to engage in activities competitive with those of ours. In
addition, throughout the employment period and for a period of one year
thereafter, Mr. Meffe has agreed that he will not solicit any person employed by
us to leave our employ, or employ or solicit for employment any person who is
employed by us. The agreement may be terminated by us (i) in the event of the
bankruptcy, liquidation, or dissolution of Lumenon, (ii) if Mr. Meffe commits
certain acts constituting cause or (iii) if he is in material breach of the
agreement. Mr. Meffe may terminate the employment agreement upon one month prior
written notice to us.
STOCK OPTIONS
We have created a stock option plan for our key employees, directors ,
officers and consultants. The plan is administered by our board of directors.
The board may from time to time designate individuals to whom options may be
granted and the number of shares optioned to each. The number of shares optioned
to any one individual may not exceed 5% of the total of our outstanding shares.
The option price is fixed by the board when the 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 may not exceed 10 years from the
date the option is granted. Options may not be transferred and expire within a
fixed period from the termination of employment or death of the beneficiary. In
the event of basic changes in Lumenon, including a reorganization, merger tender
offer , in the discretion of the board, each option may become fully and
immediately exercisable. Options enabling their beneficiaries to acquire a total
of 3,590,150 shares of common stock, at a weighted average exercise price of
US$15.20 per share, were outstanding under the plan as of October 31, 2001. The
number of shares of common stock as to which options may be granted under the
plan has been increased from 2,500,000 to 6,000,000, subject to approval by
stockholders at the 2000 annual meeting of stockholders.
We have never granted any stock appreciation rights. No stock options
were granted to our chief executive officer during the fiscal year ended June
30, 2000.
OPTION EXERCISED AND OPTION VALUES
The following table provides information related to options exercised by
our chief executive officer and the number of and value of options held by him
on June 30, 2000.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SECURITIES UNEXERCISED OPTIONS AT IN THE MONEY OPTIONS
ACQUIRED AGGREGATE VALUE JUNE 30, 2000 (#) AT JUNE 30, 2000 ($)
ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. S. Iraj Najafi... 200,000 US$5,100,000 -- -- -- --
</TABLE>
OTHER COMPENSATION PLANS
We have no pension plan or other compensation plans for our executive
officers or directors.
48
<PAGE> 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Our voting securities outstanding as of November 8, 2000 consisted of
36,069,153 shares of common stock. The following table sets forth information
concerning ownership of common stock as of November 8, 2000 by
-- each director;
-- each executive officer;
-- all directors and executive officers as a group; and
-- each person who, to our the knowledge, owned beneficially more
than 5% of the common stock.
Unless otherwise indicated, the address of each holder is in care of
Lumenon, 8851 Transcanada Highway, Ville Saint-Laurent, Quebec, Canada H4S 1Z6.
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 our records.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
DIRECTORS, EXECUTIVE BENEFICIALLY
OFFICERS AND 5% STOCKHOLDERS OWNED(1) PERCENTAGE
---------------------------- ---------------- ----------
<S> <C> <C>
Dr. S. Iraj Najafi....................................... 5,037,500(2) 14.1%
Najafi Holding Inc. ..................................... 5,037,500(2) 14.1%
Dr. Mark P. Andrews...................................... 4,735,100(3) 13.2%
Andrewma Holding Inc. ................................... 4,687,500(3) 13.1%
Dr. Anthony L. Moretti(4)................................ 25,000(5) (6)
Molex Incorporated(4).................................... 9,932,167(7) 27.5%
Denis N. Beaudry(8)...................................... 50,000(8) (6)
Dr. Chia-Yen Li.......................................... 50,000(9) (6)
Vincent Belanger......................................... 23,650(10) (6)
Reginald J.N. Ross....................................... 100,000(11) (6)
Guy Brunet............................................... --(12) --
Gilles Marcotte.......................................... 5,000(12)(13) (6)
Pierre-Paul Allard....................................... 25,000(14) (6)
Pierre-Andre Roy......................................... --(12) --
Felice Philip Meffe...................................... --(15) --
All directors and executive officers as a group.......... 10,051,250(16) 27.9%
</TABLE>
---------------
(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after November 8, 2000
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 November 8, 2000
have been exercised or converted.
(2) Represents 5,037,500 shares owned by Najafi Holding Inc., of which Dr.
Najafi is the sole stockholder.
49
<PAGE> 51
(3) Includes 4,687,500 shares owned by Andrewma Holdings Inc., of which Dr.
Andrews is the sole stockholder.
(4) The address of Molex and Dr. Moretti is 2222 Wellington Court, Lisle,
Illinois 60532.
(5) Dr. Moretti is the representative of Molex Incorporated on our Board of
Directors. The shares reflected in the table above do not include the
shares beneficially owned by Molex, as to which Dr. Moretti disclaims
beneficial ownership. The shares reflected in such table represent
25,000 shares of common stock issuable upon exercise of an option held
by Dr. Moretti. Please see "Certain Relationships and Related
Transactions" for a description of the agreements under which Molex is
entitled to designate a member of our board of directors.
(6) Less than 1%.
(7) Excludes 298,000 shares held by Molex Foundation, a private Foundation
of which certain executive officers and directors of Molex Incorporated
act as trustees. Molex Incorporated disclaims beneficial ownership of
the shares held by the Molex Foundation.
(8) Mr. Beaudry is the representative of Polyvalor and McGill University on
our board of directors. The shares reflected in the table above do not
include the shares beneficially owned by Polyvalor and McGill, as to
which Mr. Beaudry disclaims beneficial ownership. The shares reflected
in such table represent 50,000 shares of common stock issuable upon
exercise of options held by Mr. Beaudry. The address of Mr. Beaudry is
Polyvalor Inc., 3744 Jean-Brillant Street, Suite 6332, Montreal,
Quebec, H3T 1P1. Please see "Certain Relationships and Related
Transactions" for a description of the agreements under which Polyvalor
is entitled to designate a member of our board of directors.
(9) Includes 25,000 shares of common stock issuable upon exercise of
options held by Dr. Li. Does not include 200,000 shares issuable upon
exercise of additional options that are not currently exercisable or
exercisable within 60 days after November 8, 2000.
(10) Represents 23,650 shares of common stock issuable upon exercise of
options held by Mr. Belanger. Does not include 240,000 shares issuable
upon exercise of additional options that are not currently exercisable
or exercisable within 60 days after November 8, 2000.
(11) Includes 50,000 shares of common stock issuable upon exercise of
options held by Mr. Ross. Does not include 200,000 shares issuable upon
exercise of additional options that are not currently exercisable or
exercisable within 60 days after November 8, 2000.
(12) Does not include 50,000 shares of common stock issuable upon exercise
of options held by each of Messrs. Brunet, Marcotte and Roy that are
not currently exercisable or exercisable within 60 days after November
8, 2000. The address of Mr. Brunet is Canaccord Capital Corp., 1010
Sherbrooke Street West, 10th Floor, Montreal, Quebec, H3A 2R7. The
address of Mr. Marcotte is 500 de Chantelle Street, Charlesbourg,
Quebec, G1G 2Z2.
(13) Includes 2,000 shares of common stock owned by Mr. Marcotte's wife and
2,000 shares of common stock owned by Gem Len Inc., a company which Mr.
Marcotte controls.
(14) Does not include 25,000 shares of common stock issuable upon exercise
of options held by Mr. Allard that are not currently exercisable or
exercisable within 60 days after November 8, 2000. The address of Mr.
Allard is Cisco Systems Canada Co., Bay Wellington Tower, BCE Place,
181 Baystreet, Suite 3440, Toronto, Ontario M5J 2T3.
(15 Does not include 200,000 shares issuable upon exercise of additional
options that are not currently exercisable or exercisable within 60 days
after November 8, 2000.
(16) Includes an aggregate of 173,650 shares of Common Stock issuable upon
exercise of options.
50
<PAGE> 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 19 and June 21, 1999, we entered into several agreements with
Molex. The Molex agreements include a teaming agreement, a stock purchase
agreement, a stock restriction agreement and a registration rights agreement.
The teaming agreement was amended in March 2000. Under the teaming agreement, as
amended, we agreed with Molex to jointly develop DWDM products related to the
DWDM market and other photonics markets. Under the stock purchase agreement,
Molex purchased 3,000,000 shares of common stock at a price of US$0.50 per share
in two stages. We 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 in November 1999. In addition, we issued the services warrant, which
was exercised in full during the past fiscal year . Under the stock restriction
agreement, (a) the consent of Molex is required for extraordinary actions
relating to our governance and our operations and (b) Najafi Holdings Inc. and
Andrewma Holdings Inc. have agreed not to sell their respective shares of common
stock to a competitor of Molex without Molex's prior consent. Dr. Moretti, an
officer of Molex Fiber Optics Inc., is a director of Lumenon. We had no
affiliation with Molex before the Molex agreements.
We have has entered into a license agreement with Polyvalor, a limited
partnership, Polyvalor Inc. and McGill University (together, Polyvalor and
McGill University are referred to as the licensor) pursuant to which we acquired
the right through October 2017 to produce, sell, distribute and promote products
derived from using patents and know-how of the licensor. Using a licensed
sol-gel process of the licensor, we are designing developing integrated optical
devices for DWDM and plastic optical fiber devices for the telecommunications
and data communications markets. We will pay a royalty of 5% on our gross sales,
up to a maximum of CDN$3,500,000 (US$2,367,104) over the term of the license
agreement. Additionally, we issued 750,000 shares of common stock to each of
Polyvalor and McGill University. Mr. Beaudry, an officer of Polyvalor, is a
director of Lumenon. We had no affiliation with the licensor prior to the
license agreement.
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders, the
number of shares of common stock beneficially owned by each selling stockholder
as of the date of this prospectus, the number of shares of common stock to be
sold by each of them pursuant to this prospectus and the percentage of the
outstanding common stock to be held by each of them after this offering.
Pursuant to a registration rights agreement between us and Capital Ventures
International ("CVI") and Castle Creek Technology Partners LLC ("Castle Creek"),
we have agreed initially to register 8,800,000 shares of common stock issuable
upon conversion of the outstanding notes and exercise of the outstanding
warrants we issued to them in July 2000. Accordingly, the 8,800,000 number
reflects the aggregate number of shares being offered by CVI and Castle Creek
pursuant to this prospectus. Because the number of shares issuable upon
conversion of the notes will depend upon the price of the common stock in the
future, the actual number of shares issued may be more or less than 8,800,000.
In addition, the number of shares owned by CVI and Castle Creek is based upon a
determination of beneficial ownership under Section 13(d) of the Securities
Exchange Act, which results in a number of shares lower than the total number we
have agreed to register. Beneficial ownership includes shares of outstanding
common stock and shares of common stock that a person has a right to acquire
within 60 days after the date of this prospectus. The percentage of common stock
outstanding after this offering is based on 36,069,153 shares of common stock
issued and outstanding as of November 8, 2000. None of the selling stockholders
is obligated to sell all or any portion of the shares covered by this
prospectus, or to sell any of the shares immediately under this prospectus.
Because the selling stockholders may sell all or part of their shares, no
estimate can be
51
<PAGE> 53
given as to the number of shares that will be held by any selling stockholder
upon termination of this offering.
<TABLE>
<CAPTION>
PRIOR TO AFTER
OFFERING OFFERING
------------ ------------
NUMBER OF NUMBER OF
SHARES NUMBER OF SHARES
BENEFICIALLY SHARES BENEFICIALLY PERCENTAGE
NAME OF SELLING STOCKHOLDER OWNED OFFERED OWNED(1) OF CLASS
--------------------------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Molex Incorporated(2) 9,932,167(6) 2,000,000 7,932,167(6) 22%
Capital Ventures International(3) 1,779,850(4) 5,858,286(5) 0 *
Castle Creek Technology Partners LLC(3) 1,720,941(4) 2,941,714(5) 0 *
</TABLE>
---------------
* Less than 1%.
(1) Assumes the sale of all shares owned by the selling stockholders covered
by this prospectus. Based upon the current market price of the common
stock and the number of shares that CVI and Castle Creek beneficially
own, Castle Creek and CVI would not own any shares after completion of
this offering. However, the actual number of shares issuable upon
conversion of their notes will increase if the price of the common stock
declines and therefore the actual number cannot be determined at this
time. Consequently, it is possible that CVI and Castle Creek could
beneficially own additional shares after this offering.
(2) Under the Molex agreements, Molex has the right to designate one member
to our board of directors.
(3) Neither CVI nor Castle Creek has, or within the past three years has
had, any position, office or other material relationship with Lumenon.
Heights Capital Management, Inc., as CVI's authorized agent, has
discretionary authority to vote and dispose of the shares held by CVI
and may be deemed to be the beneficial owner of those shares. Andrew
Frost, in his capacity as President of Heights Capital Management, Inc.
may also be deemed to have investment discretion and voting power over
the shares held by CVI. Mr. Frost disclaims any beneficial ownership of
the shares. Castle Creek Partners LLC, an Illinois limited liability
company, has investment discretion and voting power over the securities
held by Castle Creek Technology Partners LLC pursuant to an investment
management agreement. Daniel Asher, as a member of Castle Creek
Partners, may also be deemed to have investment discretion and voting
power over those securities. Mr. Asher disclaims any beneficial
ownership of the securities.
(4) Consists of shares of common stock issuable upon conversion of
outstanding convertible notes. The actual number of shares of common
stock issuable upon conversion of the notes will equal the aggregate
principal amount of the notes being converted, plus accrued interest,
divided by the lower of US$25.00 (subject to adjustment) and the average
closing bid prices of the common stock for the five consecutive trading
days preceding conversion, but not less than US$7.00 except in limited
circumstances. The amounts listed in the table assume a conversion price
of US$7.00 for purposes of beneficial ownership, which is the minimum
conversion price applicable to the notes because the average of the
closing bid prices of the common stock for the five consecutive trading
days preceding December 18, 2000 was less than $7.00 per share. To date,
CDN$30,893,500 (US$20,500,000) of these notes have been converted into
2,600,000 shares of common stock. Does not include shares issuable upon
exercise of outstanding warrants. Because the warrants will not become
exercisable until January 2002, the shares issuable upon their exercise
are not beneficially owned by the selling stockholders as of the date of
this prospectus. For a complete description of terms of the notes and
the warrants, see the form of note and the form of warrant included as
Exhibits 4.4 and 4.5, respectively, to this registration statement.
52
<PAGE> 54
Except under limited circumstances, no holder of the notes or the
warrants is entitled to convert any portion of the notes into, or
exercise any portion of the warrants for, shares of common stock or to
dispose of any portion of the notes or warrants to the extent that the
right to effect the conversion, exercise or disposition would result in
the holder or any or its affiliates beneficially owning more than 4.99%
of the outstanding shares of common stock. Therefore, the number of
shares that CVI or Castle Creek may sell pursuant to this prospectus may
exceed the number of shares of common stock either of them would
otherwise beneficially own as determined pursuant to Section 13(d) of
the Securities Exchange Act.
(5) Represents the pro rata allocation between CVI and Castle Creek of
8,800,000 shares of common stock, which we are registering pursuant to
the registration rights agreement included as Exhibit 10.7 to the
registration statement of which this prospectus forms a part. Because
the shares offered by this prospectus include the shares issuable upon
exercise of the warrants (which are not exercisable until January 2002
or earlier upon an event of default under the notes or other of our
obligations to the purchasers), as well as additional shares that may be
issued upon conversion of the notes, the number of offered shares
exceeds the number of shares beneficially owned, which, as noted above,
consists of outstanding shares and shares that may be acquired within 60
days.
Pursuant to Rule 416 of the Securities Act, the registration statement
is also deemed to cover common stock issued with respect to the notes
and warrants as a result of stock splits, stock dividends and
anti-dilution provisions.
(6) Excludes 298,000 shares held by Molex Foundation, a private Foundation
of which certain executive officers and directors of Molex Incorporated
act as trustees. Molex Incorporated disclaims beneficial ownership of
the shares held by the Molex Foundation.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material rights of our stockholders and
the material provisions of our certificate of incorporation and the bylaws, each
of which is referenced as an exhibit to this registration statement of which
this prospectus is a part.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
We have authorized capital stock consisting of 100,000,000 shares of
common stock, US$.001 par value, of which 36,069,153 shares were issued and
outstanding as of November 8, 2000, and 5,000,000 shares of preferred stock,
US$.001 par value, of which no shares have been issued.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. The shares of common stock have no
preemptive or conversion rights, no redemption or sinking fund provisions and
are not liable for further call or assessment. The outstanding shares of common
stock are fully paid and non-assessable. Subject to the rights of the holders of
preferred stock from time to time outstanding, the holders of common stock are
entitled to receive ratably the dividends, if any, declared from time to time by
our board of directors. Dividends may be paid in cash, property, or shares of
common stock. We have never declared or paid any dividends on our common stock
and presently anticipate that all future earnings, if any, will be retained for
the development of our business. The payment of future dividends will be at the
discretion of our board of directors and will depend upon, among other things,
our future earnings, capital requirements, the financial condition, and general
business conditions.
53
<PAGE> 55
PREFERRED STOCK
Our board of directors is expressly authorized to provide for the
issuance of shares of our preferred stock, in one or more series, and to fix for
each series, voting powers, designations, preferences, special rights and
qualifications, limitations or restrictions permitted by Law. Except as provided
in the Molex agreements, no vote of the shareholders will be required in
connection with the designation or the issuance of preferred stock. No shares of
preferred stock are currently outstanding. However, any future issuance of
preferred stock could adversely affect the rights of the holders of common
stock, and therefore reduce the value of our common stock. In particular,
specific rights granted to future holders of preferred stock could be used to
restrict our ability to merge with or sell our assets to a third-party. Those
restrictions may allow our present owners to preserve control over us.
WARRANTS AND OPTIONS
As of November 8, 2000, there were warrants outstanding to purchase
5,757,811 shares of our common stock. Of these warrants, 700,000 can be
exercised at a price of US$1.50, 43,011 can be exercised at a price of US$30.00
and 14,000 can be exercised at a price of US$25.00. The weighted average
exercise price of those warrants to purchase an aggregate 757,011 shares is
US$3.55 per share. The remaining 5,000,800 will become exercisable in January
2002 at a price to be determined at that time.
A total of 5,112,650 shares of common stock are currently authorized for
grant under our stock option plan. As of November 8, 2000, there were options
outstanding pursuant to the stock option plan to purchase an aggregate of
3,590,150 shares of common stock at exercise prices ranging from US$1.00 to
US$28.00 per share or a weighted average exercise price of US$15.20 per share. A
total of 1,433,000 shares of common stock remained available for future grant.
CONTRACTUAL RIGHTS
We have entered into several agreements with Molex pursuant to which
Molex has preemptive rights with respect to any sale of additional shares of our
capital stock which could prevent a third party from effecting a change in
control. Specifically, Molex's preemptive rights provide that, prior to any
issuance of shares of capital stock or other securities by us, we are required
to offer a portion of those shares or securities equal to the quotient of (A)
the total number of shares held by Molex and (B) the total number of shares then
outstanding. Moreover, Molex shall be entitled to purchase any stock or
securities that we may issue at the most favorable price and on the most
favorable terms as the stock or securities are to be offered. We may, however,
issue up to 6,000,000 units (comprising one share of common stock and a warrant)
at a price not less than US$0.50 per unit to raise capital within a period
ending June 2001 without Molex's consent. We have also entered into agreements
with purchasers of the July 2000 notes and warrants pursuant to which we agreed
that we would not, without their prior consent, obtain additional equity or
equity-linked financing prior to January 25, 2001 and that for a further period
of 180 days, should we propose to engage in any equity or equity-linked
financing, we would offer them the opportunity to provide this financing upon
the terms and conditions proposed. This agreement is not applicable to business
combinations or firm commitment public offerings.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, N.Y. 10005.
54
<PAGE> 56
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by law, our certificate of incorporation limits the personal
liability of a director for monetary damages for breach of fiduciary duty of
care as a director. Liability is not eliminated for:
-- any breach of the director's duty of loyalty to us or our
stockholders;
-- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
-- unlawful payment of dividends or stock purchases or redemptions;
or
-- any transaction from which the director derived an improper
personal benefit.
Our certificate of incorporation and by-laws provide that we shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed proceeding by reason of the fact that he
is or was a director, officer, employee or an agent of Lumenon or is or was
serving at our request as a director, officer, employee or agent of another
entity, against all outlays incurred by him in connection with these
proceedings.
We propose to enter into indemnity agreements with our directors and
executive officers. The indemnity agreements will provide that we shall
indemnify them from and against liabilities and outlays in connection with any
threatened, pending or completed proceeding in which they are a party (other
than a proceeding by or in the right of Lumenon to procure a judgment in its
favor), unless it is determined that they did not act in good faith and for a
purpose which they reasonably believed to be in the best interests of Lumenon
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 we shall indemnify them if they are a party to or threatened
to be made a party to any proceeding by or in the right of Lumenon 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 Lumenon, not opposed to, the best interests
of Lumenon, except that no indemnification for losses shall be made in respect
of (a) any claim, issue or matter as to which they shall have been adjudged to
be liable to us or (b) 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 this action or
proceeding was brought determines upon application that they are fairly and
reasonably entitled to indemnity for these expenses. This indemnification will
be in addition to any other rights to which these officers or directors may be
entitled under any law, charter provision, by-law, agreement, vote of
shareholders or otherwise.
We maintain a CDN$5,000,000 directors and officers liability insurance
policy.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC this indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against these liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person of us in
the successful defense of an action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, we 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 this
55
<PAGE> 57
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of the issue.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at the following location:
Main Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
You may obtain information on the operation of the SEC's public reference
rooms by calling the SEC at (800) SEC-0330.
We are required to file these documents with the SEC electronically. You
can access the electronic versions of these filings on the Internet at the
SEC's web site, located at http://www.sec.gov.
We have included this prospectus in our registration statement that we
filed with the SEC. The registration statement provides additional information
that we are not required to include in the prospectus. You can receive a copy of
the entire registration statement as described above. Although this prospectus
describes the material terms of certain contracts, agreements and other
documents filed as exhibits to the registration statement, you should read the
exhibits for a more complete description of the document or matter involved.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to immaterial levels of market risks with respect to
changes in foreign currency exchange rates and interest rates. Market risk is
the potential loss arising from adverse changes in market rates and prices, like
foreign currency exchange and interest rates. To the extent that we consummate
financings outside of Canada, we receive proceed in currency other than the
Canadian dollar. Most of our operating expenses are incurred in Canadian
dollars. Thus, our results of operations will tend to be adversely affected if
there is a strong Canadian dollar. We do not enter into derivatives or other
financial instruments for trading or speculative purposes, nor do we enter into
financial instruments to manage and reduce the impact of changes in foreign
currency exchange rates.
PLAN OF DISTRIBUTION
This prospectus covers 10,800,000 shares of our common stock. All of the
shares offered are being sold by the selling stockholders. We will not realize
any proceeds from the sale of the shares by the selling stockholders. Each of
CVI and Castle Creek purchased its shares in the ordinary course of business. At
the time of issuance of the warrants, neither CVI or Castle Creek had any
agreements or understandings, directly or indirectly, with any person to
distribute the securities underlying the warrants. Molex makes equity
investments, from time to time, in its suppliers, including Lumenon, as part of
its strategic plans.
The shares may be sold or distributed from time to time by the selling
stockholders, or by pledgees, donees or transferees of, or other successors in
interest to, the selling stockholders, directly
56
<PAGE> 58
to one or more purchasers (including pledgees) or through brokers, dealers or
underwriters who may act solely as agents or may acquire shares as principals,
at the market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices or at fixed prices, which may be
changed. The shares may be sold in one or more of the following methods:
-- ordinary brokers' transactions, which may include long sales or
short sales effected after the effective date of the
registration statement of which this prospectus is a part;
-- transactions involving cross or block trades or otherwise on The
Nasdaq National Market;
-- purchases by brokers, dealers or underwriters as principal and
resale by the purchasers for their own accounts pursuant to this
prospectus;
-- "at the market" to or through market makers or into an existing
market for the shares;
-- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
-- through transactions in options, swaps or other derivatives
(whether exchange-listed or otherwise); or
-- any combination of the foregoing, or by any other legally
available means.
The selling stockholders or their successors in interest may also enter
into option or other transactions with broker-dealers that require the delivery
by these broker-dealers of the shares, which shares may be resold thereafter
pursuant to this prospectus. In addition, from time to time, a selling
stockholder may pledge its shares to broker-dealers or other financial
institutions. Upon a default by a selling stockholder, the broker-dealer or
financial institution may offer and sell the pledged shares from time to time.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares as agents may receive compensation in the form of
discounts, commissions or concessions from the selling stockholders and/or
purchasers of the shares for whom they may act as agent, or to whom they may
sell as principal, or both. The selling stockholders and any broker-dealers who
act in connection with the sale of shares of our common stock offered by this
prospectus may be deemed to be "underwriters" within the meaning of the
Securities Act, and any discounts, commissions or concessions they receive and
proceeds of any sale of shares may be deemed to be underwriting discounts and
commissions under the Securities Act. Neither we nor any selling stockholders
can presently estimate the amount of this compensation. We know of no existing
arrangements between any selling stockholder, any other stockholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the shares.
Moreover, a selling stockholder may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares
against some liabilities, including liabilities arising under the Securities
Act.
Furthermore, in the event of a "distribution" of shares by a selling
stockholder, the selling stockholder, any selling broker or dealer and any
"affiliated purchasers" may be subject to Regulation M under the Securities
Exchange Act which would generally prohibit these persons from bidding for or
purchasing any security that is the subject of the distribution until his or her
participation in that distribution is completed. In addition, Regulation M
generally prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of common stock in
connection with this offering.
57
<PAGE> 59
We will pay substantially all of the expenses incident to the
registration, offering and sale of the shares to the public other than the
commissions or discounts of brokers, dealers, underwriters or agents. We have
also agreed to indemnify the selling stockholders and related persons against
liabilities under the Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in certain jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by us and the selling
stockholders.
The selling stockholders are not restricted as to the price or prices at
which they may sell their shares. Sales of these shares may have an adverse
effect on the market price of the common stock. Moreover, the selling
stockholders are not restricted as to the number of shares that may be sold at
any time and it is possible that a significant number of shares could be sold at
the same time which may also have an adverse effect on the market price of the
common stock.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by
this prospectus is being passed upon for us by Olshan Grundman Frome Rosenzweig
& Wolosky LLP, New York, New York.
EXPERTS
Our consolidated financial statements as of June 30, 2000 and June 30,
1999, and for the year ended December 31, 1998, appearing in this prospectus
have been audited by KPMG LLP, independent auditors, as set forth in their
reports appearing elsewhere in this prospectus, and are included in reliance
upon the reports given on this authority as experts in accounting and auditing.
58
<PAGE> 60
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Statements
Independent Accountant's Report........................... F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Cash Flows..................... F-5
Consolidated Statements of Stockholders' Equity........... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 61
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Lumenon Innovative
Lightwave Technology, Inc. (the "Corporation") as at June 30, 2000 and June 30,
1999 and the consolidated statements of operations, cash flows and stockholders'
equity for the year ended June 30, 2000, the six-month period ended June 30,
1999 and for the periods from inception (March 2, 1998) to December 31, 1998 and
to June 30, 2000. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the consolidated financial position of the Corporation
as at June 30, 2000 and June 30, 1999 and the consolidated results of its
operations and cash flows for the year ended June 30, 2000 and for the six-
month period ended June 30, 1999 and for the periods from inception (March 2,
1998) to December 31, 1998 and to June 30, 2000, in accordance with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Chartered Accountants
Montreal, Canada
July 21, 2000, except as to note 11(b)
which is as of July 25, 2000
F-2
<PAGE> 62
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
2000 2000 1999
------------- ------------- -----------
(US$) (CAN$)
(NOTE 2(a)) (CAN$)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................. $ 761,113 $ 1,125,382 $ 1,722,871
Term deposits........................ 2,907,891 4,299,608 --
Interest and sales tax receivable.... 247,487 365,934 237,539
Research tax credits receivable...... 128,990 190,724 34,218
Prepaid expenses..................... 52,264 77,281 49,956
------------- ------------- -----------
4,097,745 6,058,929 2,044,584
Deposits (note 7)...................... 1,031,495 1,525,168 --
Property and equipment (note 4)........ 3,112,865 4,602,682 1,492,495
Other assets........................... 8,873 13,119 10,001
------------- ------------- -----------
$ 8,250,978 $ 12,199,898 $ 3,547,080
============= ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 708,157 $ 1,047,082 $ 523,550
Accrued liabilities.................. 150,615 222,700 172,812
Accrued vacation..................... 68,918 101,902 7,500
Obligations under capital leases
(note 5).......................... 158,955 235,031 --
Convertible promissory notes......... -- -- 298,720
------------- ------------- -----------
1,086,645 1,606,715 1,002,582
Obligations under capital leases (note
5)................................... 188,480 278,686 --
Stockholders' equity:
Share capital (note 6)............... 33,239 49,147 30,330
Additional paid-in capital (notes 3
and 6(a))......................... 158,842,502 234,864,524 3,404,408
Deposit on subscription of shares.... -- -- 146,820
Accumulated deficit during the
development stage................. (151,899,888) (224,599,174) (1,037,060)
------------- ------------- -----------
6,975,853 10,314,497 2,544,498
Commitments (note 7)...................
Subsequent events (note 11)............
------------- ------------- -----------
$ 8,250,978 $ 12,199,898 $ 3,547,080
============= ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 63
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTH FROM FROM
YEAR ENDED YEAR ENDED PERIOD ENDED INCEPTION TO INCEPTION TO
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30,
2000 2000 1999 1998 2000
------------ ------------ ------------ ------------ ------------
(US$) (CAN$) (CAN$) (CAN$) (CAN$)
(NOTE 2(a))
<S> <C> <C> <C> <C> <C>
Expenses:
Research and development:
External research
(note 3)........... $147,019,020 $217,382,323 $ 25,000 $ -- $217,407,323
Internal research..... 1,270,292 1,878,253 169,439 14,440 2,062,132
Tax credits and
grants............. (197,631) (292,218) (32,069) (2,149) (326,436)
------------ ------------ ----------- ----------- ------------
148,091,681 218,968,358 162,370 12,291 219,143,019
General and
administrative........ 2,718,761 4,019,959 569,507 290,435 4,879,901
Depreciation............. 604,369 893,620 -- -- 893,620
------------ ------------ ----------- ----------- ------------
3,323,130 4,913,579 569,507 290,435 5,773,521
Other income (expenses):
Interest, net............ 160,257 236,956 1,172 7,869 245,997
Gain (loss) on foreign
exchange.............. 56,044 82,867 (18,846) 7,348 71,369
------------ ------------ ----------- ----------- ------------
216,301 319,823 (17,674) 15,217 317,366
------------ ------------ ----------- ----------- ------------
Net loss................... $151,198,510 $223,562,114 $ 749,551 $ 287,509 $224,599,174
============ ============ =========== =========== ============
Net loss per share:
Basic and diluted........ $ 5.95 $ 8.80 $ 0.04 $ 0.02
============ ============ =========== =========== ============
Weighted average number of
shares outstanding....... 25,415,601 25,415,601 17,480,967 14,972,188
============ ============ =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 64
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH FROM FROM
YEAR ENDED YEAR ENDED PERIOD ENDED INCEPTION TO INCEPTION TO
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30,
2000 2000 1999 1998 2000
------------- ------------- ------------ ------------ -------------
(US$) (CAN$) (CAN$) (CAN$) (CAN$)
(NOTE 2(a))
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM:
Operations:
Net loss........................... $(151,198,510) $(223,562,114) $ (749,551) $(287,509) $(224,599,174)
Adjustment for item not involving
cash:
Compensation cost (note
6(b)(ii))..................... 34,709 51,321 241,058 -- 292,379
Common shares issued for
services
(note 3)...................... 147,003,070 217,358,739 -- -- 217,358,739
Depreciation.................... 604,369 893,620 -- -- 893,620
Change in operating assets and
liabilities:
Interest and sales tax
receivable.................... (86,836) (128,395) (216,446) (21,093) (365,934)
Research tax credits
receivable.................... (105,847) (156,506) (32,069) (2,149) (190,724)
Prepaid expenses................ (18,480) (27,325) (49,956) -- (77,281)
Accounts payable and accrued
liabilities (note 9).......... 126,104 186,456 584,513 119,349 890,318
------------- ------------- ----------- --------- -------------
(3,641,421) (5,384,204) (222,451) (191,402) (5,798,057)
Financing:
Proceeds from issuance of common
shares.......................... 9,695,938 14,336,414 2,764,297 372 17,101,083
Cash from the acquisition of a
subsidiary...................... -- -- -- 814,322 814,322
Share issue expenses............... (482,268) (713,081) (291,932) (93,379) (1,098,392)
Principal repayments of capital
lease
obligations..................... (60,736) (89,805) -- -- (89,805)
Deposit on subscription of
shares.......................... -- -- 146,820 -- 146,820
Proceeds from issuance of
convertible promissory notes.... -- -- 298,720 -- 298,720
------------- ------------- ----------- --------- -------------
9,152,934 13,533,528 2,917,905 721,315 17,172,748
Investments:
Additions to property and equipment
(note 9)........................ (1,974,110) (2,918,919) (1,492,495) -- (4,411,414)
Additions to other assets.......... (2,109) (3,118) (9,758) (243) (13,119)
Deposits........................... (1,031,495) (1,525,168) -- -- (1,525,168)
Purchase of term deposits.......... (13,399,870) (19,813,048) -- -- (19,813,048)
Disposal of term deposits.......... 10,491,980 15,513,440 -- -- 15,513,440
------------- ------------- ----------- --------- -------------
(5,915,604) (8,746,813) (1,502,253) (243) (10,249,309)
------------- ------------- ----------- --------- -------------
(Decrease) increase in cash.......... (404,091) (597,489) 1,193,201 529,670 1,125,382
Cash, beginning of period............ 1,165,204 1,722,871 529,670 -- --
------------- ------------- ----------- --------- -------------
Cash, end of period.................. $ 761,113 $ 1,125,382 $ 1,722,871 $ 529,670 $ 1,125,382
============= ============= =========== ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 65
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PERIODS FROM INCEPTION (MARCH 2, 1998) TO JUNE 30, 2000
----------------------------------------------------------------------------------
ADDITIONAL DEPOSIT ON
PAR PAID-IN ACCUMULATED SUBSCRIPTION
SHARES VALUE CAPITAL DEFICIT OF SHARES TOTAL
---------- ------- ------------ ------------- ------------ -------------
(IN CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Issue of common shares
at inception.......... 255,000 $ 372 $ -- $ -- $ -- $ 372
Issue of common
shares................ 16,200,000 24,430 789,892 -- -- 814,322
Share issue expenses.... -- -- (93,379) -- -- (93,379)
Net loss for the
period................ -- -- -- (287,509) -- (287,509)
---------- ------- ------------ ------------- --------- -------------
Balance as at
December 31, 1998..... 16,455,000 24,802 696,513 (287,509) -- 433,806
Issue of common
shares................ 3,760,000 5,528 2,758,769 -- -- 2,764,297
Share issue expenses.... -- -- (291,932) -- -- (291,932)
Compensation cost
related to stock
options granted....... -- -- 241,058 -- -- 241,058
Net loss for the
period................ -- -- -- (749,551) -- (749,551)
Deposit on subscription
of shares............. -- -- -- -- 146,820 146,820
---------- ------- ------------ ------------- --------- -------------
Balance as at June 30,
1999.................. 20,215,000 30,330 3,404,408 (1,037,060) 146,820 2,544,498
Issue of common
shares................ 12,755,039 18,817 232,121,876 -- (146,820) 231,993,873
Share issue expenses.... -- -- (713,081) -- -- (713,081)
Compensation cost
related to stock
options granted....... -- -- 51,321 -- -- 51,321
Net loss for the
period................ -- -- -- (223,562,114) -- (223,562,114)
---------- ------- ------------ ------------- --------- -------------
Balance as at June 30,
2000.................. 32,970,039 $49,147 $234,864,524 $(224,599,174) $ -- $ 10,314,497
========== ======= ============ ============= ========= =============
Balance as at June 30,
2000 in US dollars
(note 2(a))........... 32,970,039 $33,239 $158,842,502 $(151,899,888) $ -- $ 6,975,853
========== ======= ============ ============= ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 66
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2000 AND SIX-MONTH PERIOD ENDED JUNE 30, 1999 AND PERIODS
FROM INCEPTION (MARCH 2, 1998) TO DECEMBER 31, 1998 AND TO JUNE 30, 2000
(IN CANADIAN DOLLARS)
1. ORGANIZATION AND BUSINESS ACTIVITIES:
Lumenon Innovative Lightwave Technology, Inc. ("Lumenon") was
incorporated in the State of Delaware in February 1996 under the name of WWV
Development Inc. as a shell company.
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 design, develop and
build integrated optic devices in the form of compact hybrid glass circuits on
silicon chips. Lumenon activities are performed through LILT, in Canada. In
1999, its year-end has been changed from December 31, to June 30.
The Corporation is subject to a number of risks, including successful
development and marketing of its technology and attracting and retaining key
personnel. In order to achieve its business plan, the Corporation anticipates
the need to raise additional capital (see notes 3 and 11).
2. SIGNIFICANT ACCOUNTING POLICIES:
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States. The
significant accounting principles are as follows:
(a) Consolidated financial statements and basis of presentation:
The consolidated financial statements include the accounts of
Lumenon and the accounts of LILT. All intercompany transactions and
balances have been eliminated.
US dollar amounts presented on the consolidated balance sheets,
consolidated statements of operations and cash flows are provided for
convenience of reference only and are based on the closing exchange rate
at June 30, 2000, which was $1.4786 Canadian dollar per US dollar.
The functional currency of the Corporation is the Canadian
dollar.
(b) Cash and cash equivalents:
The Corporation considers all investments that are highly liquid
with an original maturity of three months or less and readily convertible
into cash to be cash equivalents. As at June 30, 2000 and 1999, there
were no cash equivalents.
F-7
<PAGE> 67
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Property and equipment:
Equipment and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line method
and the following periods:
<TABLE>
<CAPTION>
ASSET PERIOD
----- -------------
<S> <C>
Computer equipment and software................. 3 years
Office equipment and fixtures................... 5 years
Leasehold improvements.......................... Term of lease
Laboratory and pilot plant equipment............ 3 years
</TABLE>
(d) Other assets:
Other assets, consisting of license and patent costs, are
recorded at cost when acquired and are being amortized on a straight-line
basis over their economic useful lives or their legal terms of existence,
ranging between 10 and 20 years. The capitalized amount with respect to
those assets does not necessarily reflect their present or future value
and the amount ultimately recoverable is dependent upon the successful
commercialization of the related products.
(e) Research and development costs:
Research and development costs and the cost of intangibles, that
are purchased from others for use in research and development activities
and that have no alternative future uses, are expensed as incurred.
Research tax credits on eligible research expenses incurred in Canada are
accounted for as a reduction of research and development expenses.
(f) Foreign exchange:
The Canadian dollar is the functional currency of the
Corporation. Foreign denominated monetary assets and liabilities are
translated at the rate of exchange prevailing at the balance sheet date.
Non-monetary assets and liabilities are translated at the rate of
exchange prevailing at the date of the transaction. Revenues and expenses
are translated at the monthly average exchange rate prevailing during the
period. Foreign exchange gains and losses are included in the
determination of net earnings.
(g) Income taxes:
The Corporation uses the asset and liability method of
accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. This method also requires the recognition of future tax benefits
such as net operating loss carryforwards, to the extent that realization
of such benefits is more likely than not. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in the statement
of operations in the period that includes the enactment date.
F-8
<PAGE> 68
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Comprehensive income:
Since its inception on March 2, 1998, the Corporation adopted
Statement of Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes new rules for the reporting and
display of comprehensive income and its components. The adoption of this
statement had no impact on the Corporation's net income or stockholders'
equity.
(i) Stock option plan:
The Corporation applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion no.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations
for stock options granted to employees. As such, compensation expense
would be recorded on the date of grant only if the then current market
price of the underlying stock exceeded the exercise price.
The Corporation applies FASB Statement 123, ACCOUNTING FOR STOCK-
BASED COMPENSATION ("SFAS 123") for stock options granted to
non-employees. As such, compensation expense is recorded at the date of
grant, based on the fair value as at that date using the Black-Scholes
option -- pricing model.
(j) Impairment of long-lived assets and long-lived assets to be
disposed of:
The Corporation accounts for long-lived assets in accordance with
the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(k) Net loss per share:
Net loss per share is computed using the weighted average number of
shares outstanding during the period. Under the accounting for the LILT
transaction described in note 1, the 12,200,000 shares have been
considered to be outstanding on a retroactive basis for all periods
presented.
(l) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-9
<PAGE> 69
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. THE MOLEX AGREEMENT:
Under the terms of a Teaming Agreement, Lumenon and Molex Incorporated
("Molex") agreed to jointly develop certain products related to the Dense
Wavelength Division Multiplexing market and other photonic devices. Under the
terms of the agreement, Molex is committed to provide services towards the
development of the products. In connection therewith, Lumenon granted to Molex a
warrant to receive 5,800,000 common shares issuable as Molex fulfills its
obligations pursuant to the Teaming Agreement. For the year ended June 30, 2000,
an amount of $217,358,739 (US$147,003,070) was recorded under research and
development expenses and shares pursuant to the warrant were issued (see note 6
(a) (vi)). Under the terms of this agreement amended during 2000, Molex is
committed to purchase a certain number of photonic devices of Lumenon for the
first twelve months. After the twelve-month period, Molex will have the option
to purchase up to 50% of the excess capacity of Lumenon and both Lumenon and
Molex will share Molex's profit upon resale of those devices. Under certain
circumstances, Molex may have the right to manufacture all components of the
devices in return of a royalty as defined in the agreement.
4. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Computer equipment and software... $ 407,294 $ 45,756 $ 361,538
Office equipment and fixtures..... 198,002 13,506 184,496
Leasehold improvements............ 1,051,538 78,582 972,956
Laboratory and pilot plant
equipment....................... 3,839,468 755,776 3,083,692
---------- -------- ----------
$5,496,302 $893,620 $4,602,682
========== ======== ==========
</TABLE>
Equipment held under capital leases for which the cost and net book value
amount to $603,522 (US$408,171) and $542,557 (US$366,940), respectively, are
included in laboratory and pilot plant equipment.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Computer equipment and software... $ 40,250 $-- $ 40,250
Office equipment and fixtures..... 17,618 -- 17,618
Leasehold improvements............ 191,807 -- 191,807
Laboratory and pilot plant
equipment....................... 1,242,820 -- 1,242,820
---------- --- ----------
$1,492,495 $-- $1,492,495
========== === ==========
</TABLE>
All property and equipment were purchased during the six-month period
ended June 30, 1999. No depreciation was recorded for the same period as the
installation was completed in July 1999.
F-10
<PAGE> 70
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OBLIGATIONS UNDER CAPITAL LEASES:
Future minimum lease payments under capital leases are as follows:
<TABLE>
<S> <C>
2001........................................................ $284,823
2002........................................................ 175,726
2003........................................................ 135,832
--------
Total minimum lease payments................................ 596,381
Less amount representing interest (at rates varying from
11.75% to 18.85%)......................................... 82,664
--------
Present value of net minimum capital lease payments......... 513,717
Current portion of obligations under capital leases......... 235,031
--------
Long-term portion of obligations under capital leases....... $278,686
========
</TABLE>
6. SHARE CAPITAL:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
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:
32,970,039 common shares (1999 -- 20,215,000)..... $49,147 $30,330
------- -------
</TABLE>
(a) Issue of shares:
As mentioned in note 1, Lumenon acquired LILT in 1998 under a
reorganization and acquisition plan by issuing 12,200,000 common shares
to the shareholders of that corporation. At the date of acquisition,
there were 255,000 outstanding common shares of Lumenon at an amount of
$372 (US$255). In addition, Lumenon issued 4,000,000 common shares to
the shareholders of Dequet Capital, Inc. Assets of the latter consisted
of cash in the amount of $814,322 (US$540,000).
1999
During the six-month period ended June 30, 1999, the Corporation entered
into a Stock Purchase Agreement with Molex who 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. In total, the
Corporation issued 3,760,000 common shares during the period for a cash
consideration of $2,764,297 (US$1,880,000) along with warrants for the purchase
of 3,926,667 common shares at a price of $1.32 (US$0.90) per share.
F-11
<PAGE> 71
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000
During the year ended June 30, 2000, the Corporation concluded the
following share capital transactions:
(i) 1,484,522 common shares were issued for a cash consideration
of $7,099,319 (US$4,843,500), of which $146,820 (US$99,297) was received
prior to June 30, 1999;
(ii) promissory notes were converted into 400,000 common shares
with a value of $298,720 (US$200,000);
(iii) in connection with the issuance of common shares referred
to in (i) and (ii), 1,912,211 warrants were issued to be exercised at
prices varying from $1.33 (US$0.90) to $44.36 (US$30.00) per share;
(iv) the second closing of the Stock Purchase Agreement with
Molex, which was subject to Lumenon proving out its technology and its
ability to manufacture and deliver certain devices, took place in March
2000 for an additional 1,500,000 common shares and related cash
consideration of $1,093,125 (US$750,000);
(v) 3,570,517 common shares were issued upon exercise of
warrants and options for cash consideration of $6,103,916 (US$4,171,350);
(vi) 5,800,000 common shares were issued for services received
from Molex in the amount of $217,358,739 (US$147,003,070). Value of the
shares issued has been recorded as Molex fulfilled its obligations
pursuant to the Teaming Agreement (see note 3). The transaction was
accounted for by using the average market price of the shares of the
Corporation during the periods the services were rendered by Molex.
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 certain rights of first refusal and preemptive rights except
that Lumenon can issue 6,000,000 units to raise capital within 24 months from
the date of the agreement, being June 21, 1999. One unit is comprised of one
common share and a warrant for the purchase of one common share. The common
share can be sold at a price not less than $0.74 (US$0.50) and the warrant can
be exercised at a price not less than $1.33 (US$0.90) per share.
Certain rights or restrictions terminate upon completion of a Public Sale
or a Public Offering as defined in the agreement.
(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 is determined by the Board of Directors. The
plan contemplates that a maximum of 4,000,000 common shares may be
optioned under the stock option plan. No optionee can hold options to
purchase more than 5% of the number of shares issued and outstanding at
any time. The subscription price for each share covered
F-12
<PAGE> 72
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by an option is established by the Board of Directors but such price
shall not be lower than the market value at the date of grant.
Options for the purchase of 3,190,000 common shares at a price
ranging from $1.47 (US$1.00) to $41.40 (US$28.00) per share have been
granted to June 30, 2000.
Options granted have to be exercised over a period not exceeding
seven years. At June 30, 2000, 1,031,650 outstanding options are
exercisable and 1,245,500 outstanding options vest over a period of one
to five years.
(i) Changes in outstanding options for the period were as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER PER SHARE
--------- -------------------
<S> <C> <C> <C>
Options outstanding, January 1,
1999............................. -- $ --
Granted............................ 1,940,000 1.44 (US$ 0.98)
--------- ------ ---------
Options outstanding, June 30,
1999............................. 1,940,000
Granted............................ 1,250,000 $25.41 (US$17.18)
Exercised.......................... (822,850) 1.40 (US$ 0.95)
Cancelled.......................... (90,000) 2.29 (US$ 1.56)
--------- ------ ---------
Options outstanding, June 30,
2000............................. 2,277,150
========= ====== =========
</TABLE>
(ii) The following table summarizes significant ranges of
outstanding options as at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
--------------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 1.47 -- $11.83 1,212,150 2.7 years $ 2.01 1,031,650 $1.47
$16.28 -- $29.57 680,000 5.0 years 24.63 -- --
$32.53 -- $41.40 385,000 3.6 years 36.41 -- --
</TABLE>
(iii) Stock-based compensation:
The Corporation applies APB Opinion 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, in accounting for its stock option plan. The
exercise price of all stock options is equal to the market price of
the stock at the date of grant and, accordingly, no compensation cost
has been recognized for stock options granted to employees in the
financial statements. 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
F-13
<PAGE> 73
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR STOCK-BASED COMPENSATION ("SFAS 123"), the Corporation's net loss
would have been adjusted to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR SIX-MONTH FROM FROM
ENDED ENDED INCEPTION TO INCEPTION TO
JUNE 30, JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1998 2000
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss
As reported........... $223,562,114 $ 749,551 $287,509 $224,599,174
Pro-forma............. 225,874,543 1,120,362 287,509 227,282,414
------------ ---------- -------- ------------
Pro-forma
compensation.......... $ 2,312,429 $ 370,811 $ -- $ 2,683,240
============ ========== ======== ============
</TABLE>
<TABLE>
<S> <C>
US dollars (note 2(a))
As reported.......................................... $151,198,510
Pro-forma............................................ 152,762,439
------------
$ 1,563,929
============
</TABLE>
<TABLE>
<CAPTION>
YEAR SIX-MONTH FROM
ENDED ENDED INCEPTION TO
JUNE 30, JUNE 30, DECEMBER 31,
2000 1999 1998
-------- --------- ------------
<S> <C> <C> <C>
Pro-forma net loss per share:
Basic and diluted......................... $8.89 $0.06 $0.02
U.S. dollars.............................. 6.01
===== ===== =====
</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 of approximately 5.8%, dividend yield of 0%,
expected volatility of 200% and expected life of 2 to 5 years (1999 -- risk-free
interest rate of approximately 5.5%, dividend yield of 0%, expected volatility
of 90%, and expected life of 3 years). The per share weighted average fair value
of stock options granted during 2000 and 1999 was $27.07 (US$18.31) and $0.87
(US$0.59), respectively.
Compensation costs of $51,321 (1999 -- $241,058) for stock options
granted to non-employees have been recognized in the financial statements.
F-14
<PAGE> 74
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Warrants:
The following warrants are outstanding at June 30, 2000:
<TABLE>
<CAPTION>
WARRANTS EXPIRY DATE EXERCISE PRICE PER SHARE*
--------- -------------- -------------------------
<S> <C> <C> <C>
1,060,000 August 2000 $ 1.33 (US$0.90)
296,700 September 2000 8.87 (US$6.00)
21,500 September 2000 13.12 (US$9.00)
10,000 October 2000 22.92 (US$15.50)
43,011 December 2000 34.00 (US$30.00)
760,000 June 2001 2.22 (US$1.50)
500,000 August 2001 1.33 (US$0.90)
400,000 October 2001 1.33 (US$0.90)
---------
3,091,211
=========
</TABLE>
---------------
* The warrants are exercisable in US$.
7. COMMITMENTS:
(a) Under the terms of a license agreement entered into in July
1998, Lumenon has the rights to produce, sell, distribute and promote
products derived from the know-how relating to integrated optical
components for Dense Wavelength Division Multiplexing and Plastic Optical
Fibre devices for telecommunications, data communications and sensor
applications. Lumenon is committed to pay a royalty of 5% on gross sales
up to a maximum amount of $3,500,000 (US$2,367,104) until October 2017.
(b) The Corporation leases premises under operating lease
agreements that expire in January 2004 and July 2012. The first lease
contains a renewal option for a period of five years at the end of the
initial term. Those leases require the Corporation to pay all executory
costs such as maintenance and insurance. Rental payments under the terms
of these leases are secured by a deposit of $750,000 (US$507,000), of
which $75,000 (US$50,700) is refundable per year.
In addition, the Corporation leases certain equipment under
operating leases. Minimum lease payments under operating lease agreements
for premises and equipment for the next five years and thereafter are as
follows:
<TABLE>
<S> <C>
2001............................................... $ 978,497
2002............................................... 902,828
2003............................................... 866,462
2004............................................... 839,728
2005............................................... 802,300
Thereafter......................................... 6,211,447
-----------
$10,601,262
===========
</TABLE>
F-15
<PAGE> 75
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) The Corporation is committed to purchase equipment in the
amount of $4,377,917 (US$2,960,853), for which $775,168 (US$524,258) was
disbursed as at June 30, 2000 and recorded under deposits.
In addition, the Corporation is committed to acquire equipment
through capital leases in the amount of $1,133,485 (US$766,593).
Estimated future repayments including interest are as follows:
<TABLE>
<S> <C>
2001................................................ $ 375,376
2002................................................ 462,780
2003................................................ 398,238
2004................................................ 55,133
----------
$1,291,527
==========
</TABLE>
(d) The following schedule shows the composition of total rental
expense for all operating leases:
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
YEAR ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
---------- ------------
<S> <C> <C>
Minimum rental payments................. $78,168 $26,735
======= =======
</TABLE>
There was no rental agreement before the six-month period ended June
30, 1999.
F-16
<PAGE> 76
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
Details of the components of income taxes are as follows:
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD FROM
YEAR ENDED ENDED INCEPTION TO
JUNE 30, JUNE 30, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net loss:
US operations................. $217,736,986 $241,058 $ --
Canadian operations........... 5,825,128 508,493 287,509
------------ -------- --------
223,562,114 749,551 287,509
Less:
Compensation cost not
deductible for tax
purposes................... 51,321 241,058 --
Expense related to the Teaming
Agreement no deductible for
tax purposes............... 210,510,490 -- --
============ ======== ========
8,000,303 508,493 287,509
------------ -------- --------
Basic income tax rate........... 38% 38% 38%
------------ -------- --------
3,040,115 193,227 109,253
Adjustment in income taxes
resulting from:
Loss carryforwards and
unclaimed deductions not
recognized................. 3,040,115 193,227 109,253
------------ -------- --------
$ -- $ -- $ --
============ ======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income and tax
planning strategies. Since the Corporation is a development stage corporation,
the generation of future taxable income is dependent on the successful
commercialization of its products and technologies.
At June 30, 2000, Lumenon and its subsidiary, LILT, the Canadian
Corporation, had accumulated scientific research and experimental development
expenditures and other unclaimed deductions which are available to reduce future
years' taxable income.
F-17
<PAGE> 77
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of the available deductions are as follows:
<TABLE>
<CAPTION>
LILT
--------------------------
LUMENON FEDERAL PROVINCIAL
---------- ----------- -----------
<S> <C> <C> <C>
Research and development
expenditures, without time
limitation.................... $ -- $ 7,963,000 $ 8,394,000
Excess of net book value of
property and equipment over
the undepreciated capital
cost.......................... -- (2,944,569) (3,154,954)
Losses carried forward:
Expiring -- 2006.............. -- 315,000 358,000
2007............ -- 1,494,000 1,725,000
2020............ 2,175,000 -- --
</TABLE>
In addition, research tax credits, not recorded in the accounts and
available to reduce future Federal income taxes payable, amount to $258,000 and
$654,000 and expire in 2009 and 2010, respectively.
In accordance with Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES, the income tax effect of temporary
differences that give rise to the net deferred tax assets is presented
below:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
----------- ---------
<S> <C> <C>
Scientific research and experimental
development.................................. $ 3,064,730 $ 79,420
Non-capital losses............................. 1,415,000 228,000
Excess of net book value of equipment over the
undepreciated capital cost................... (1,137,866) --
Investment tax credits......................... 912,000 280,000
Less valuation allowance....................... (4,253,864) (587,420)
----------- ---------
$ -- $ --
=========== =========
</TABLE>
9. SUPPLEMENTAL CASH FLOW DISCLOSURE:
Non-cash investing and financing activities:
Acquisition of property and equipment through capital leases amounts
to $603,522 (US$408,171) at June 30, 2000 (1999 -- nil).
Capital expenditures of $481,366 (US$325,555) are included in
accounts payable at June 30, 2000 (1999 -- nil).
F-18
<PAGE> 78
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. FINANCIAL INSTRUMENTS:
(a) Foreign currency risk management:
Options and warrants are exercisable in US dollars and payable in
such currency. Ultimate proceeds upon exercise of options and warrants
may vary due to fluctuations in the value of the Canadian dollar relative
to the US currency.
(b) Credit risk:
Financial instruments that potentially subject the Corporation to
significant concentrations of credit risk consist principally of
short-term investments and accounts receivable.
The Corporation has investment policies that require placement of
short-term investments in financial institutions evaluated as highly
creditworthy.
In the normal course of business, the Corporation evaluates the
financial condition of the parties with which it contracts on a
continuing basis and reviews the creditworthiness of all new parties. The
Corporation determines an allowance for doubtful accounts to reflect
specific risks.
(c) Fair values:
The following table presents the carrying amounts and estimated fair
values of the Corporation's financial instruments at June 30, 2000 and
1999. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. Fair value estimates are made as of a specific point in time
using available information about the financial instrument. These
estimates are subjective in nature and often cannot be determined with
precision.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash.................. $1,125,382 $1,125,382 $1,722,871 $1,722,871
Term deposits......... 4,299,608 4,299,608 -- --
Interest and sales tax
receivable......... 365,934 365,934 237,539 237,539
Financial liabilities:
Accounts payable...... 1,047,082 1,047,082 523,550 523,550
Accrued liabilities... 324,602 324,602 180,312 180,312
Convertible promissory
note............... -- -- 298,720 298,720
</TABLE>
The carrying amounts shown in the table are included in the
consolidated balance sheet under the indicated captions.
F-19
<PAGE> 79
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following method and assumption were used to estimate the fair
value of each class of financial instruments:
The carrying amounts approximate fair value because of the short
maturity of these instruments.
11. SUBSEQUENT EVENTS:
(a) On July 21, 2000, the Corporation entered into a non-exclusive
license agreement with a third party. The Corporation is committed to pay an
initial license fee of $584,047 (US$395,000) and royalties on sales of products
as defined in the agreement.
(b) On July 25, 2000, the Corporation closed a financing involving
the issuance of $51,751,000 (US$35 million) five-year convertible notes bearing
interest at 7.5% per annum. Interest is payable upon the earlier to occur of the
repayment or conversion of the notes. The notes are convertible into the
Corporation's common stock at a conversion price based on the closing bid price
of the common stock at the time of conversion with a floor as $10.35 (US$7) and
a ceiling of $36.96 (US$25) and a floor of $10.35 (US$7). The investors also
received five-year common stock purchase warrants entitling them to acquire a
total of 5,000,800 shares at a price to be established in 18 months; the
investors will have the right to purchase shares of Lumenon at a maximum price
of $44.36 (US$30) per share if Lumenon's shares are then traded at a value
exceeding $103.50 (US$70). If the stock price is between $44.36 (US$30) and
$103.50 (US$70), the price will be the then traded value of the shares minus
$44.36 (US$30), divided by two, plus $14.78 (US$10). If the stock price is under
$44.36 (US$30), the price will be $14.78 (US$10).
F-20
<PAGE> 80
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED FINANCIAL STATEMENTS OF
(UNAUDITED)
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 AND
PERIOD FROM INCEPTION (MARCH 2, 1998) TO SEPTEMBER 30, 2000
F-21
<PAGE> 81
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 AND
PERIOD FROM INCEPTION (MARCH 2, 1998) TO SEPTEMBER 30, 2000
<TABLE>
<S> <C>
Financial Statements
Consolidated Balance Sheets............................... F-23
Consolidated Statements of Operations..................... F-24
Consolidated Statements of Cash Flows..................... F-25
Notes to Consolidated Financial Statements................ F-26
</TABLE>
F-22
<PAGE> 82
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
2000 2000 2000
-------------- -------------- ---------
(US$) (CAN$)
(NOTE 6) (CAN$)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 304 $ 458 $ 1,125
Term deposits............................ 30,866 46,515 4,300
Interest and sales tax receivable........ 1,313 1,979 366
Research tax credits receivable.......... 201 303 191
Prepaid expenses......................... 77 116 77
--------- --------- ---------
32,761 49,371 6,059
Deposits (note 7).......................... 1,229 1,852 1,525
Property and equipment (note 3)............ 12,618 19,016 4,603
Other assets............................... 11 16 13
--------- --------- ---------
$ 46,619 $ 70,255 $ 12,200
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 4,293 $ 6,470 $ 1,047
Accrued liabilities...................... 387 583 325
Obligations under capital leases......... 357 538 235
--------- --------- ---------
5,037 7,591 1,607
Convertible notes (note 4)................. 14,120 21,278 -
Obligations under capital leases........... 514 775 279
Stockholders' equity:
Share capital (note 5)................... 35 53 49
Additional paid-in capital (note 5)...... 194,211 292,676 234,864
Accumulated deficit...................... (167,298) (252,118) (224,599)
--------- --------- ---------
26,948 40,611 10,314
Commitments (note 7).......................
Subsequent events (note 9).................
--------- --------- ---------
$ 46,619 $ 70,255 $ 12,200
========= ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
On behalf of the Board:
------------------ Director
------------------ Director
F-23
<PAGE> 83
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS FROM
ENDED ENDED ENDED INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2000 1999 2000
------------- ------------- ------------- -------------
(US$) (CAN$)
(NOTE 6) (CAN$) (CAN$)
<S> <C> <C> <C> <C>
Expenses:
Research and development......... $ 966 $ 1,457 $ 2,069 $220,926
Research tax credits............. (75) (113) (35) (439)
---------- ---------- ---------- --------
891 1,344 2,034 220,487
General and administrative
expenses...................... 2,415 3,639 487 8,519
Depreciation..................... 364 548 91 1,441
---------- ---------- ---------- --------
2,779 4,187 578 9,960
Other expenses (income):
Loss (gain) on foreign
exchange...................... (472) (711) 55 (782)
Interest expense................. 484 729 13 771
Interest income.................. (526) (793) (16) (1,081)
Financing charges (note 4)....... 15,105 22,763 - 22,763
---------- ---------- ---------- --------
14,591 21,988 52 21,671
---------- ---------- ---------- --------
Net loss........................... $ 18,261 $ 27,519 $ 2,664 $252,118
========== ========== ========== ========
Net loss per share................. $ 0.53 $ 0.80 $ 0.13
========== ========== ========== ========
Weighted average number of shares
outstanding...................... 34,511,352 34,511,352 21,116,992
========== ========== ========== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE> 84
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS FROM
ENDED ENDED ENDED INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2000 1999 2000
------------- ------------- ------------- -------------
(US$) (CAN$)
(NOTE 6) (CAN$) (CAN$)
<S> <C> <C> <C> <C>
CASH FLOWS FROM:
Operating activities:
Net loss............................... $(18,261) $(27,519) $(2,664) $(252,118)
Adjustment for items not involving
cash:
Depreciation...................... 364 548 91 1,441
Interest expense on convertible
notes.......................... 15,587 23,489 23,489
Compensation cost................. 469 707 - 999
Shares issuable for services...... - - 1,892 217,359
Unrealized loss on foreign
exchange....................... 431 650 - 650
Net change in operating assets and
liabilities (note 8)................ (805) (1,211) (231) (954)
-------- -------- ------- ---------
(2,215) (3,336) (912) (9,134)
Financing activities:
Proceeds from issuance of common
shares.............................. 3,911 5,893 3,985 23,141
Cash from the acquisition of a
subsidiary.......................... - - - 814
Share issue expenses................... (18) (27) (292) (1,125)
Principal repayments of capital
lease............................... (54) (81) - (171)
Proceeds from issuance of convertible
notes............................... 34,003 51,243 - 51,542
Debt issue costs....................... (1,898) (2,861) (2,861)
-------- -------- ------- ---------
35,944 54,167 3,693 71,340
Investing activities:
Additions to property and equipment.... (5,941) (8,953) (535) (13,365)
Deposits............................... (217) (327) - (1,852)
Purchases of term deposits............. (38,594) (58,162) (2,787) (77,975)
Disposals of term deposits............. 10,582 15,947 - 31,460
Additions to other assets.............. (2) (3) - (16)
-------- -------- ------- ---------
(34,172) (51,498) (3,322) (61,748)
-------- -------- ------- ---------
(Decrease) increase in cash and cash
equivalents............................ (443) (667) (541) 458
Cash and cash equivalents, beginning of
period................................. 747 1,125 1,723 -
-------- -------- ------- ---------
Cash and cash equivalents, end of
period................................. $ 304 $ 458 $ 1,182 $ 458
======== ======== ======= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE> 85
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 AND PERIOD FROM
INCEPTION (MARCH 2, 1998) TO SEPTEMBER 30, 2000
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
In the opinion of management, the accompanying unaudited interim
financial statements, prepared in accordance with US generally accepted
accounting principles, contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Corporation's financial position as at
September 30, 2000, June 30, 2000, its results of operations and cash flows for
the three months ended September 30, 2000 and 1999 and from inception to
September 30, 2000.
While management believes that the disclosures presented are adequate to
make the information not misleading, these consolidated financial statements and
notes should be read in conjunction with the Corporation's Consolidated
Financial Statements at June 30, 2000.
1. ORGANIZATION AND BUSINESS ACTIVITIES:
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. The Corporation has entered into the process of establishing its
production facilities during the three-month period ended September 30, 2000. In
order to achieve its business plan, the Corporation anticipates the need to
raise additional capital.
2. MOLEX AGREEMENTS:
(a) Stock Restriction Agreement:
As part of financing arrangements of 1999 with Molex Incorporated
("Molex"), the Corporation entered into a stock restriction agreement
whereby 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
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 or a Public Offering as defined in the agreement.
(b) Teaming Agreement:
Under the terms of a teaming agreement, Molex is committed to
purchase a certain number of photonic devices of Lumenon for the first
twelve months. After the twelve-month period, Molex will have the option
to purchase up to 50% of the excess capacity of Lumenon and both Lumenon
and Molex will share Molex's profit upon resale of those devices. Under
certain circumstances, Molex may have the right to manufacture all
components of the devices in return of a royalty as defined in the
agreement.
F-26
<PAGE> 86
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------------------
NET
ACCUMULATED BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Computer equipment and software................. $ 672 $ 91 $ 581
Office equipment and fixtures................... 782 57 725
Leasehold improvements.......................... 1,550 140 1,410
Pilot plant equipment and laboratory
installation.................................. 6,601 1,153 5,448
Production equipment and laboratory
installation.................................. 10,852 - 10,852
------- ------ -------
$20,457 $1,441 $19,016
======= ====== =======
</TABLE>
Cost and net book value of pilot plant and production equipment held
under capital leases amount to $1,528 and $1,395 respectively as at September
30, 2000.
The Corporation is in the process of establishing its production
facilities. No depreciation was recorded with respect to production equipment
and laboratory installation.
4. CONVERTIBLE NOTES:
On July 25, 2000, the Corporation closed a financing involving the
issuance of $51,243 (US$35,000) five-year convertible notes bearing interest at
7.5% per annum. Interest is payable upon the earlier to occur of the repayment
or conversion of the notes. The notes are convertible at any time into the
Corporation's common stock at a conversion price based on the closing bid price
of the common stock at the time of conversion with a floor of $10.35 (US$7) and
a ceiling of $36.96 (US$25).
The investors also received five-year common stock purchase warrants
entitling them to acquire a total of 5,000,800 shares exercisable on or after
January 25, 2002 and expiring on July 25, 2005. Exercise price of the warrants
is based on a formula whereby such price may vary from $15.07 (US$10) to $45.21
(US$30). In addition, the exercise price will be lower than the fair market
value except if the fair market value is equal or lower than $14.78 (US$10).
Related debt issue costs amounted to $2,861.
The Corporation applied APB-14 ("Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants") and EITF 98-5 ("Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios"). As a result, the convertible notes were discounted by
$32,524 and are presented net of the debt discount which is amortized over the
term of the notes. Interest expense with respect to the beneficial conversion
feature of convertible notes and amortization of debt discount was recorded in
the amount of $22,763. Additional paid-in capital was increased by $51,243 as a
result of the amount allocated to the stock purchase warrants and the beneficial
conversion feature of the notes.
F-27
<PAGE> 87
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
5. SHARE CAPITAL:
<TABLE>
<CAPTION>
SEPTEMBER JUNE
30, 30,
2000 2000
------------- --------
<S> <C> <C>
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:
35,452,739 common shares (June 30, 2000 -- 32,970,039).... $53 $49
=== ===
</TABLE>
During the three-month period ended September 30, 2000, the Corporation
concluded the following share capital transactions:
(a) Issue of shares:
2,482,700 common shares were issued for a cash consideration of
$5,893 upon exercise of options and warrants.
(b) Stock option plan:
Changes in outstanding options for the three-month period ended
September 30, 2000 were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE PER SHARE
--------- -------------------------
<S> <C> <C> <C>
Options outstanding, June 30,
2000............................. 2,277,150 $13.92 (US$9.24)
Granted............................ 1,105,000 $35.67 (US$23.67)
Exercised.......................... (144,500) $ 1.53 (US$1.03)
--------- ------ ---------
Options outstanding, September 30,
2000............................. 3,237,650 $21.90 (US$14.53)
========= ====== =========
</TABLE>
At September 30, 2000, 204,650 outstanding options are exercisable
and 3,033,000 outstanding options vest over a period of one to seven
years.
(c) Warrants:
The following warrants are outstanding at September 30, 2000:
<TABLE>
<CAPTION>
WARRANTS EXPIRY DATE EXERCISE PRICE PER SHARE
--------- -------------- -------------------------
<S> <C> <C> <C>
10,000 October 2000 $23.36 (US$15.50)
43,011 December 2000 $45.21 (US$30.00)
700,000 June 2001 $ 2.26 (US$1.50)
14,000 July 2003 $37.68 (US$25.00)
5,000,800 July 2005 *
---------
5,767,811
=========
</TABLE>
* The exercise price per share, to be established in 18 months, may vary from
$15.07 (US$10.00) to $45.21 (US$30.00) subject to the then traded value of the
stock (note 4).
F-28
<PAGE> 88
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
6. 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, 2000, which was $1.507
Canadian dollar per US dollar.
7. COMMITMENTS:
(a) Since July 1, 2000, the Corporation entered in new capital leases at
interest rate varying from 11.75% to 13.96%. Minimum lease payments under
capital lease agreements for the next four years are as follows:
<TABLE>
<S> <C>
2001........................................................ $277
2002........................................................ 279
2003........................................................ 236
2004........................................................ 3
----
$795
====
</TABLE>
(b) As at September 30, 2000, the Corporation is committed to purchase
equipment in the amount of $2,469 for which $1,852 was disbursed and recorded
under deposits.
(c) In addition, the Corporation is committed to acquire equipment
through capital leases in the amount of $1,464 repayable over a period of
approximately three years.
(d) On July 21, 2000, the Corporation entered into a non-exclusive
license agreement with a third party. Under the terms of this agreement, Lumenon
is committed to pay royalties on sales of products as defined in the agreement.
8. SUPPLEMENTAL CASH FLOW DISCLOSURE:
(a) Net change in operating assets and liabilities:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS FROM
ENDED ENDED ENDED INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2000 1999 2000
--------------- --------------- --------------- ---------------
(US$) (CAN$) (CAN$) (CAN$)
<S> <C> <C> <C> <C>
Interest and sales tax
receivable...................... $(1,071) $(1,613) $(136) $(1,979)
Research tax credits receivable... (75) (113) (38) (303)
Prepaid expenses.................. (26) (39) 23 (116)
Accounts payable and accrued
liabilities..................... 367 554 (80) 1,444
------- ------- ----- -------
$ (805) $(1,211) $(231) $ (954)
======= ======= ===== =======
</TABLE>
F-29
<PAGE> 89
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
(b) Non-cash investing and financing activities:
Acquisition of property and equipment through capital leases
amounts to $880 for the three- month period ended September 30, 2000.
Capital expenditures of $5,127 are included in accounts payable at
September 30, 2000.
9. SUBSEQUENT EVENTS:
(a) On October 16, 2000, $10,549 (US$7,000) of the principal amount
of the convertible notes plus interest were converted into 616,414 common
shares.
(b) In October 2000, the Corporation granted under its stock option
incentive plan 352,500 options to certain employees for the purchase of 352,500
common shares at price varying from $23.92 (US$15.87) to $41.50 (US$27.54).
F-30
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee...... US$ 61,657.20
Accountants' fees and expenses..................... US$ 20,000.00
Legal fees and expenses............................ US$120,000.00
Miscellaneous...................................... US$ 3,342.80
-------------
Total...................................... $ 205,000.00
</TABLE>
The foregoing costs and expenses will be paid by Lumenon. Other than the
Securities and Exchange Commission filing fee, all fees and expenses are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by law, our certificate of incorporation limits the personal
liability of a director for monetary damages for breach of fiduciary duty of
care as a director. Liability is not eliminated for:
-- any breach of the director's duty of loyalty to us or our
stockholders;
-- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
-- unlawful payment of dividends or stock purchases or redemptions;
or
-- any transaction from which the director derived an improper
personal benefit.
Our certificate of incorporation and by-laws provide that we shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed proceeding by reason of the fact that he
is or was a director, officer, employee or an agent of Lumenon or is or was
serving at our request as a director, officer, employee or agent of another
entity, against all outlays incurred by him in connection with these
proceedings.
We propose to enter into indemnity agreements with our directors and
executive officers. The indemnity agreements will provide that we shall
indemnify them from and against liabilities and outlays in connection with any
threatened, pending or completed proceeding in which they are a party (other
than a proceeding by or in the right of Lumenon to procure a judgment in its
favor), unless it is determined that they did not act in good faith and for a
purpose which they reasonably believed to be in the best interests of Lumenon
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 we shall indemnify them if they are a party to or threatened
to be made a party to any proceeding by or in the right of Lumenon 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 Lumenon, not opposed to, the best interests
of Lumenon, except that no indemnification for losses shall be made in respect
of (a) any claim, issue or matter as to which they shall have been adjudged to
be liable to us or (b) 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 this action or
proceeding was brought determines upon application that they are fairly and
reasonably entitled to
II-1
<PAGE> 91
indemnity for these expenses. This indemnification will be in addition to any
other rights to which these officers or directors may be entitled under any law,
charter provision, by-law, agreement, vote of shareholders or otherwise.
We maintain a CDN$5,000,000 directors and officers liability insurance
policy.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC this indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against these liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person of us in
the successful defense of an action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, we 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 this indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of the issue.
ITEM 15. 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. 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 us 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 under the exemption provided in Rule 504 of Regulation D
under the Securities Act for a total consideration of US$540,000. No underwriter
was involved in either 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 to investors
(excluding Molex). 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. All of these warrants have been exercised. The securities were
offered and sold to the following entities and individuals under the exemption
provided in Section 4(2) of the Securities Act: Manitex Capital Inc., a Canadian
venture capital company, Pinetree Capital Corp., a Canadian venture capital
company, a group of Canadian investors investing through a confidential trust,
and a group of Canadian investors investing through Groome Capital.com, Inc., an
investment banking firm. Each investor was an accredited investor (as defined in
Rule 501 of Regulation D under the Securities Act) or otherwise a sophisticated
investor or employed a purchaser's representative having knowledge and
experience in financial and business matters, each being capable of evaluating
the merits and risks of its investment and each having had the opportunity to
ask questions and receive answers concerning the terms and conditions of the
offering and to obtain additional information from Lumenon, necessary to make an
informed investment decision. All these securities were deemed by us to be
restricted securities and were appropriately legended and restricted as to
subsequent transfer. No underwriter was involved in this transaction.
II-2
<PAGE> 92
In March 1999, we issued US$200,000 principal amount of its 10%
Convertible Notes (the "Notes") to Brant Investments Limited Global Securities
Services, a Canadian entity and an accredited investor within the meaning of
Rule 501 of Regulation D under the Securities Act. 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 holders received for each US$1,000
principal amount, 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 pursuant to the exemption provided in Section 4(2) of the Securities Act.
All of the Notes were deemed by us to be restricted securities and were
appropriately legended and restricted as to subsequent transfer. The warrants
were exercised in July 2000. Groome Capital.com, Inc. ("Groome") acted as
underwriter in connection with this placement. The notes were converted in
September 1999 in accordance with their terms.
In June 1999, we 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 entitled Molex to acquire
one share of common stock at a price of US$0.90 on or before August 1, 2001 and
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 and were exercised during fiscal year 2000. The securities
were offered and sold in reliance on the exemption provided in Section 4(2) of
the Securities Act and solely to an accredited investor, Molex, within the
meaning of Rule 501 of Regulation D under the Securities Act. No underwriter was
involved in this transaction.
In July 1999, we 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. 200,000 of these warrants were exercised in May 2000. The securities
were offered and sold in reliance on the exemption provided in Section 4(2) of
the Securities Act and solely to accredited investors (as defined in Rule 501 of
Regulation D of the Securities Act) or otherwise to sophisticated investors or
to investors employing a purchaser representative having knowledge and
experience in financial and business matters, each being capable of evaluating
the merits and risks of its investment and each having had the opportunity to
ask questions and receive answers concerning the terms and conditions of the
offering and to obtain additional information from Lumenon necessary to make and
informed investment decision. All securities were deemed by us to be restricted
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in this transaction.
In September 1999, we 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 in
reliance on the exemption provided in Section 4(2) of the Securities Act and
solely to accredited investors (as defined in Rule 501 of Regulation D of the
Securities Act), or otherwise to sophisticated investors or to investors
employing a purchaser representative having knowledge and experience in
financial and business matters, each being capable of evaluating the merits and
risks of its investment and each having had the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering and to
obtain additional information from us necessary to make and informed investment
decision. All these securities were deemed by us to be restricted securities and
were appropriately legended and restricted as to subsequent transfer. Groome
acted as underwriter in connection with this placement. 125,000 of the warrants
were exercised in October 1999.
II-3
<PAGE> 93
In September 1999, we issued 400,000 additional units to holders of the
Notes, Brant Investments Limited Global Securities Services upon the full
conversion of its 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 in reliance on the exemption provided in Section 4(2) of the
Securities Act and solely to accredited investors (as defined in Rule 501 of
Regulation D of the Securities Act) or otherwise to sophisticated investors or
to investors employing a purchaser representative having knowledge and
experience in financial and business matters, each being capable of evaluating
the merits and risks of its investment and each having had the opportunity to
ask questions and receive answers concerning the terms and conditions of the
offering and to obtain additional information from us necessary to make an
informed investment decision. All these securities were deemed by us 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 these 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, we issued 21,500 units at a price of US$7.00 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 per share before September 30,
2000. The securities were offered and sold solely in reliance on the exemption
provided in Section 4(2) of the Securities Act and solely to Ghaemi Holdings, a
Canadian holding company, and an accredited investor within the meaning of Rule
501 of Regulation D under the Securities Act. All these securities were deemed
by us to be restricted securities and were appropriately legended and restricted
as to subsequent transfer. Ghaemi Holdings exercised the 21,500 warrants for US
$193,500 in September 2000. No underwriter was involved in this transaction.
In November 1999, we issued 10,000 additional units at a price of
US$10.50 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 per share before
October 31, 2000. The warrants expired unexercised. The securities were offered
and sold in reliance on the exemption provided in Section 4(2) of the Securities
Act and solely to Groupe Huot Inc., a Canadian holding company, and an
accredited investor within the meaning of Rule 501 of Regulation D under the
Securities Act. All these securities were deemed by us to be restricted
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in this 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. Molex
is an accredited investor within the meaning of Rule 501 of Regulation D under
the Securities Act and we relied upon the exemption provided in Section 4(2) of
the Securities Act. All these securities were deemed by us to be restricted
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in these transactions.
Additionally, 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. These warrants were issued in prior transactions described
above. All these securities were deemed by us to be restricted securities and
were appropriately legended and restricted as to subsequent transfer. No
underwriter was involved in these transactions.
In December 1999, we entered into an agreement to issue 86,022 additional
units at a price of US$23.25 per unit. Each unit comprised one share of common
stock and a warrant for the
II-4
<PAGE> 94
purchase of one half of an additional share at a price of US$30.00 per share
before December 7, 2000. The shares were issued on January 12, 2000. The
securities were offered and sold solely in reliance on the exemption provided in
Section 4(2) of the Securities Act and solely to Terima a.v.v., a British Virgin
Islands holding company, and an accredited investor within the meaning of Rule
501 of Regulation D under the Securities Act. All these securities were deemed
by us to be restricted securities and were appropriately legended and restricted
as to subsequent transfer. No underwriter was involved in this transaction.
In March 2000, we issued 1,500,000 shares of Common Stock to Molex for
cash consideration in the amount of US$750,000 as part of the scheduled second
closing under the terms of our Agreement with Molex . The securities were
offered and sold in reliance on the exemption provided in Section 4(2) of the
Securities Act and solely to an accredited investor, Molex, within the meaning
of Rule 501 of Regulation D under the Securities Act. No underwriter was
involved in this transaction. The proceeds were used to fund current activities
and expenses associated with the expansion project.
The following unregistered securities were issued by us from April 1,
2000 to October 31, 2000:
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUED/SUBJECT OFFERING/
DATE OF DESCRIPTION OF TO OPTIONS OR EXERCISE
SALE/ ISSUANCE SECURITIES ISSUED WARRANTS & NOTES PRICE PER SHARE
-------------- ----------------- ---------------- ---------------
<C> <S> <C> <C>
March 2, 2000 Common stock issued to Molex, an accredited 709,848 US$26.38
investor, upon exercise of the services
warrant
April 14, 2000 Common stock issued to Groome Capital Corp., 26,000 US$6.00
Inc., an accredited investor, upon exercise
of warrants
May 8, 2000 Common stock issued to Lavery, de Billy as 150,000 US$0.90
nominee for accredited investors, upon
exercise of warrants
May 19, 2000 Warrants to purchase shares of common stock 200,000 US$0.90
issued to Lavery, de Billy as nominee for
accredited investors, upon exercise of
warrants
June 23, 2000 Common stock issued to Molex, an accredited 5,090,152 US$26.38
investor, upon the exercise of the services
warrant
July 18, 2000 Common Stock issued to Lavery, de Billy as 210,000 US$0.90
nominee for Consultants Alconsultex, an
accredited investor, upon exercise of
warrants
July 20, 2000 Common Stock issued to Lavery, de Billy as 50,000 US$0.90
nominee for Jean-Louis Poulin, an accredited
investor, upon exercise of warrants
July 20, 2000 Common Stock issued to Lavery, de Billy as 50,000 US$0.90
nominee for 2973-9711 Quebec, Inc., an
accredited investor, upon exercise of
warrants
July 24, 2000 Common stock issued to Pinetree Capital 500,000 US$0.90
Corp., a accredited investor, upon exercise
of warrants
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUED/SUBJECT OFFERING/
DATE OF DESCRIPTION OF TO OPTIONS OR EXERCISE
SALE/ ISSUANCE SECURITIES ISSUED WARRANTS & NOTES PRICE PER SHARE
-------------- ----------------- ---------------- ---------------
<C> <S> <C> <C>
July 25, 2000 Warrants to purchase shares of common stock 10,000,800 to be
and convertible notes into shares of common determined
stock issued to Capital Ventures
International and Castle Creek Technology
Partners LLC
July 25, 2000 Common stock issued to Brant Investments 400,000 US$0.90
Limited Global Securities Services, an
accredited investor, upon exercise of
warrants
August 1, 2000 Common stock issued to Lavery, de Billy as 60,000 US$1.50
nominee for accredited investor, upon
exercise of warrants
August 1, 2000 Common Stock issued to Lavery, de Billy as 175,000 US$0.90
nominee for Rush & Co., an accredited
investor, upon exercise of warrants
August 1, 2000 Common Stock issued to Lavery, de Billy as 39,750 US$0.90
nominee for Jacques Paul-Hus, an accredited
investor, upon exercise of warrants
August 1, 2000 Common Stock issued to Lavery, de Billy as 25,000 US$0.90
nominee for Pierre Genest, an accredited
investor, upon exercise of warrants
August 11, 2000 Common Stock issued to Lavery, de Billy as 300,000 US$0.90
nominee for Klug Investments, an accredited
investor, upon exercise of warrants
August 25, 2000 Common Stock issued to Lavery, de Billy as 160,000 US$0.90
nominee for Pierre L. Baribeau, an accredited
investor, upon exercise of warrants
August 25, 2000 Common Stock issued to Lavery, de Billy as 50,000 US$0.90
nominee for Diane Nadeau, an accredited
investor, upon exercise of warrants
August 29, 2000 Common Stock issued to MDL Investments Ltd., 100,000 US$6.00
an accredited investor, upon exercise of
warrants
September 5, 2000 Common Stock issued to Egger & Co., an 26,000 US$6.00
accredited investor, upon exercise of
warrants
September 6, 2000 Common Stock issued to National Bank 40,700 US$6.00
Financial, an accredited investor, upon
exercise of warrants
September 6, 2000 Common Stock issued to NBC Clearing Services 26,000 US$6.00
Inc., an accredited investor, upon exercise
of warrants
September 6, 2000 Common Stock issued to NBC Clearing Services 26,000 US$6.00
Inc., an accredited investor, upon exercise
of warrants
September 6, 2000 Common Stock issued to First Marathon, an 26,000 US$6.00
accredited investor, upon exercise of
warrants
</TABLE>
II-6
<PAGE> 96
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUED/SUBJECT OFFERING/
DATE OF DESCRIPTION OF TO OPTIONS OR EXERCISE
SALE/ ISSUANCE SECURITIES ISSUED WARRANTS & NOTES PRICE PER SHARE
-------------- ----------------- ---------------- ---------------
<C> <S> <C> <C>
September 6, 2000 Common Stock issued to NBC Clearing Services 26,000 US$6.00
Inc., an accredited investor, upon exercise
of warrants
September 7, 2000 Common Stock issued to Sassoon Shahmoun, an 26,000 US$6.00
accredited investor, upon exercise of
warrants
September 20, 2000 Common stock issued to accredited investors 21,500 US$9.00
upon exercise of warrants
October 16, 2000 Common stock issued to accredited investors 616,414 US$11.55
upon conversion of notes
</TABLE>
The issuances of all of the securities listed in this Item 15 were exempt
from registration pursuant to Section 4(2) of the Securities Act as transactions
not involving a public offering. All of the securities listed in this Item 15
were deemed by us to be restricted securities and were appropriately legended
and restricted as to subsequent transfer. No underwriter was involved in these
transactions. For each of the issuances listed in this Item 15, there were no
solicitations or advertising by Lumenon, and investors completed an investor
questionnaire as to their qualifications and level of experience.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
*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 (incorporated
by reference to Exhibit 2.1 to our Registration Statement on
Form 10).
*3.1 Amended and Restated Certificate of Incorporation of Lumenon
Innovative Lightwave Technology, Inc. (incorporated by
reference to Exhibit 3.1 to our Registration Statement on
Form 10).
*3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to our Registration Statement on Form 10).
*4.1 Specimen Certificate for Shares of Common Stock
(incorporated by reference to Exhibit 4.1 to our
Registration Statement on Form 10).
*4.2 Lumenon Innovative Lightwave Technology, Inc. Stock Option
Incentive Plan (incorporated by reference to Exhibit 4.2 to
our Registration Statement on Form 10).
*4.3 Form of Lumenon Innovative Lightwave Technology, Inc.
Warrant to Acquire Shares of Common Voting Stock
(incorporated by reference to Exhibit 4.3 to our
Registration Statement on Form 10).
*4.4 Form of Convertible Note dated, July 25, 2000 (incorporated
by reference to Exhibit 4.1 to our Current Report on Form
8-K, filed July 28, 2000).
*4.5 Form of Stock Purchase Warrant, dated July 25, 2000
(incorporated by reference to Exhibit 4.2 to our Current
Report on Form 8-K, filed July 28, 2000).
*5 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.
*10.1 License Agreement by and between Polyvalor and McGill
University and Lumenon Innovative Lightwave Technology, Inc.
(incorporated by reference to our Registration Statement on
Form 10, Exhibit 10.1).
</TABLE>
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<PAGE> 97
<TABLE>
<C> <S>
*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 (incorporated by
reference to Exhibit 10.2 to our Registration Statement on
Form 10).
*10.3 Stock Purchase Agreement between Molex Incorporated, Lumenon
Innovative Lightwave Technology, Inc., and LILT Canada,
Inc., dated May 19, 1999 (incorporated by reference to
Exhibit 10.3 to our Registration Statement on Form 10).
*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 (incorporated by reference to
Exhibit 10.4 to our Registration Statement on Form 10).
*10.5 Registration Rights Agreement between Lumenon Innovative
Lightwave Technology, Inc. and Molex Incorporated dated June
21, 1999 (incorporated by reference to Exhibit 10.5 to our
Registration Statement on Form 10).
*10.6 Securities Purchase Agreement by and among Lumenon
Innovative Lightwave Technology, Inc., Capital Ventures
International and Castle Creek Partners LLC, dated July 25,
2000 (incorporated by reference to Exhibit 10.8 to our
Current Report on Form 8-K, filed July 28, 2000).
*10.7 Registration Rights Agreement by and among Lumenon
Innovative Lightwave Technology, Inc., Capital Ventures
International and Castle Creek Partners LLC, dated July 25,
2000 (incorporated by reference Exhibit 10.2 to our Current
Report on Form 8-K filed on July 28, 2000).
*10.8 Agreement of Lease between Liberty Sites Ltd. and LILT
Canada, Inc., dated May 19, 2000 (incorporated by reference
to Exhibit 10.8 to our Annual Report on Form 10-K for the
fiscal year ended June 30, 2000).
*10.9 License Agreement between Polaroid Corporation and LILT
Canada, Inc., a subsidiary of Lumenon Innovative Lightwave
Technology, Inc., dated July 21, 2000 (incorporated by
reference Exhibit 10.9 to our Current Report on Form 8-K
filed on July 28, 2000).
*21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to our Registration Statement on Form 10).
**23.1 Consent of KPMG, LLP.
*23.2 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included on Exhibit 5 to this Registration Statement).
*24 Power of Attorney (included on signature page to this
Registration Statement).
*27 Financial Data Schedule (incorporated by reference to
Exhibit 27 to our Annual Report on Form 10-K for the fiscal
year ended June 30, 2000).
</TABLE>
---------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
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<PAGE> 98
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(h) 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 Act and is, therefore, unenforceable.
In the event that a claim for indemnification against liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such a 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
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
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<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Amendment
No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Montreal, Canada, on the 20th day of
December, 2000.
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY,
INC.
By: *
-------------------------------------
Dr. S. Iraj Najafi,
President and Chief Executive Officer
December 20, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S. Iraj Najafi, Mark P. Andrews and Vincent
Belanger his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, including post-effective amendments to this Registration Statement,
and any related registration statement filed pursuant to Rule 462(b) of the Act
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, ratifying and confirming all
that said attorney-in-fact and agent or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* President, Chief Executive
------------------------------------------------ Officer
Dr. S. Iraj Najafi and Director (Principal Executive December 20, 2000
Officer)
* Vice President, Chief Technology
------------------------------------------------ Officer, Secretary and Director
Mark P. Andrews December 20, 2000
* Director
------------------------------------------------
Anthony Moretti December 20, 2000
</TABLE>
II-10
<PAGE> 100
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director
------------------------------------------------
Denis N. Beaudry December 20, 2000
* Director
------------------------------------------------
Pierre-Paul Allard December 20, 2000
/s/ VINCENT BELANGER Vice President Finance, Chief
------------------------------------------------ Financial Officer and Treasurer
Vincent Belanger (Principal Financial and December 20, 2000
Accounting Officer)
* Director
------------------------------------------------
Guy Brunet December 20, 2000
* Director
------------------------------------------------
Gilles Marcotte December 20, 2000
* Director
------------------------------------------------
Pierre-Andre Roy December 20, 2000
* By: /s/ VINCENT BELANGER
-------------------------------------------
Vincent Belanger
Attorney-in-fact
</TABLE>
II-11
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*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 (incorporated
by reference to Exhibit 2.1 to our Registration Statement on
Form 10).
*3.1 Amended and Restated Certificate of Incorporation of Lumenon
Innovative Lightwave Technology, Inc. (incorporated by
reference to Exhibit 3.1 to our Registration Statement on
Form 10).
*3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to our Registration Statement on Form 10).
*4.1 Specimen Certificate for Shares of Common Stock
(incorporated by reference to Exhibit 4.1 to our
Registration Statement on Form 10).
*4.2 Lumenon Innovative Lightwave Technology, Inc. Stock Option
Incentive Plan (incorporated by reference to Exhibit 4.2 to
our Registration Statement on Form 10).
*4.3 Form of Lumenon Innovative Lightwave Technology, Inc.
Warrant to Acquire Shares of Common Voting Stock
(incorporated by reference to Exhibit 4.3 to our
Registration Statement on Form 10).
*4.4 Form of Convertible Note dated, July 25, 2000 (incorporated
by reference to Exhibit 4.1 to our Current Report on Form
8-K, filed July 28, 2000).
*4.5 Form of Stock Purchase Warrant, dated July 25, 2000
(incorporated by reference to Exhibit 4.2 to our Current
Report on Form 8-K, filed July 28, 2000).
*5 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.
*10.1 License Agreement by and between Polyvalor and McGill
University and Lumenon Innovative Lightwave Technology, Inc.
(incorporated by reference to our Registration Statement on
Form 10, Exhibit 10.1).
*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 (incorporated by
reference to Exhibit 10.2 to our Registration Statement on
Form 10).
*10.3 Stock Purchase Agreement between Molex Incorporated, Lumenon
Innovative Lightwave Technology, Inc., and LILT Canada,
Inc., dated May 19, 1999 (incorporated by reference to
Exhibit 10.3 to our Registration Statement on Form 10).
*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 (incorporated by reference to
Exhibit 10.4 to our Registration Statement on Form 10).
*10.5 Registration Rights Agreement between Lumenon Innovative
Lightwave Technology, Inc. and Molex Incorporated dated June
21, 1999 (incorporated by reference to Exhibit 10.5 to our
Registration Statement on Form 10).
*10.6 Securities Purchase Agreement by and among Lumenon
Innovative Lightwave Technology, Inc., Capital Ventures
International and Castle Creek Partners LLC, dated July 25,
2000 (incorporated by reference to Exhibit 10.8 to our
Current Report on Form 8-K, filed July 28, 2000).
*10.7 Registration Rights Agreement by and among Lumenon
Innovative Lightwave Technology, Inc., Capital Ventures
International and Castle Creek Partners LLC, dated July 25,
2000 (incorporated by reference Exhibit 10.2 to our Current
Report on Form 8-K filed on July 28, 2000).
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.8 Agreement of Lease between Liberty Sites Ltd. and LILT
Canada, Inc., dated May 19, 2000 (incorporated by reference
to Exhibit 10.8 to our Annual Report on Form 10-K for the
fiscal year ended June 30, 2000).
*10.9 License Agreement between Polaroid Corporation and LILT
Canada, Inc., a subsidiary of Lumenon Innovative Lightwave
Technology, Inc., dated July 21, 2000 (incorporated by
reference Exhibit 10.9 to our Current Report on Form 8-K
filed on July 28, 2000).
*21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to our Registration Statement on Form 10).
**23.1 Consent of KPMG, LLP.
*23.2 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included on Exhibit 5 to this Registration Statement).
*24 Power of Attorney (included on signature page to this
Registration Statement).
*27 Financial Data Schedule (incorporated by reference to
Exhibit 27 to our Annual Report on Form 10-K for the fiscal
year ended June 30, 2000).
</TABLE>
---------------
* Previously filed.
** Filed herewith.
