As filed with the Securities and Exchange Commission on December ___, 1996.
Registration No. 33-80119
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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LIGHTPATH TECHNOLOGIES, INC.
----------------------------
(Name of small business issuer in its charter)
Delaware 3225 86-0708398
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
6820 Academy Parkway East, N.E., Albuquerque, New Mexico 87109 (505) 342-1100
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(Address and telephone number of principal executive offices)
Leslie A. Danziger, Chairman of the Board and President
6820 Academy Parkway East, N.E., Albuquerque, New Mexico 87109
Telephone: (505) 342-1100; Facsimile: (505) 342-1111
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(Name, address and telephone number of agent for service)
Copies to:
James L. Adler, Jr., Esq. Sheldon Misher, Esq.
Bradley S. Paulson, Esq. Steven A. Fishman, Esq.
Squire, Sanders & Dempsey Bachner, Tally, Polevoy & Misher LLP
Two Renaissance Square 380 Madison Avenue, 18th Floor
40 North Central Avenue, Suite 2700 New York, New York 10017
Phoenix, Arizona 85004 Telephone: (212) 687-7000
Telephone: (602) 528-4000 FAX: (212) 682-5729
FAX: (602) 253-8129
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: /x/
Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to anti-dilution provisions of the Class
A Warrants and Class B Warrants and/or the IPO Unit Purchase Options, as defined
herein.
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
2
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
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FORM SB-2 ITEM CAPTION IN PROSPECTUS
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PART I
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1. Front of Registration Statement
and Outside Front Cover Page of
Prospectus........................ Outside Front Cover Page of
Prospectus
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2. Inside Front and Outside Back
Cover Pages of Prospectus......... Inside Front and Outside Back Cover
Pages of Prospectus; Available
Information
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3. Summary Information and Risk
Factors........................... Prospectus Summary; Risk Factors
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4. Use of Proceeds .................. Use of Proceeds
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5. Determination of Offering Price... Risk Factors; Plan of Distribution
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6. Dilution.......................... Not Applicable
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7. Selling Security Holders.......... Concurrent Offering by Selling
Security holders
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8. Plan of Distribution.............. Plan of Distribution
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9. Legal Proceedings................. Business-Legal Proceedings
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10. Director, Executive Officers,
Promoters and Control Persons..... Management
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11. Security Ownership of Certain
Beneficial Owners and Management.. Principal Shareholders
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12. Description of Securities......... Description of Securities
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13. Interest of Named Experts and
Counsel........................... Not Applicable
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14. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities........ Management-Director Compensation
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15. Organization within Last Five
Years............................. Certain Transactions
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16. Description of Business........... Business
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3
<PAGE>
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FORM SB-2 ITEM CAPTION IN PROSPECTUS
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17. Management's Discussion and
Analysis or Plan of Operation... Management's Discussion and Analysis
of Financial Condition and Results of
Operations
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18. Description of Property......... Business-Property
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19. Certain Relationships and
Related Transactions............ Certain Transactions
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20. Market for Common Equity and
Related Stockholder Matters..... Price Range of Class A
Common Stock; Dividend Policy
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21. Executive Compensation.......... Management
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22. Financial Statements............ Selected Financial Data;
Financial Statements
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23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure........ Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure
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4
<PAGE>
EXPLANATORY NOTE
This Post Effective Amendment No. 1 to Form SB-2 Registration Statement
covers the registration of (i) the offer and sale of Class A Common Stock, no
par value ("Class A Common Stock") of LIGHTPATH TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and redeemable Class B Warrants of the Company
("Class B Warrants"), pursuant to outstanding redeemable Class A Warrants of the
Company ("Class A Warrants") and Class B Warrants issued in the Company's
underwritten initial public offering in December 1995 and January 1996 or
subsequently sold in registered resales by selling securityholders, and (ii) the
resale of Class A Warrants by certain holders thereof who acquired such
securities in a private transaction, and the sale of the Class A Common Stock
and Class B Warrants issuable upon exercise of such Class A Warrants.
The first of these transactions involves the registration of (1) up to
1,840,000 units (the "Units"), each Unit consisting of one share of Class A
Common Stock, and one Class B Warrant, for sale by the Company upon the exercise
of Class A Warrants, and (2) an additional 3,680,000 shares of Class A Common
Stock issuable upon exercise of outstanding Class B Warrants or Class B Warrants
issuable upon exercise of the Class A Warrants contained within the Units. The
second of these transactions involves the registration of (3) an additional
839,000 Class A Warrants, for resale by the holders thereof (the "Remaining
Selling Securityholders' Warrants") in an offering that is not underwritten, and
(4) an additional 839,000 shares of Class A Common Stock and 839,000 Class B
Warrants underlying the Remaining Selling Securityholders' Warrants, and
1,678,000 shares of Class A Common Stock issuable upon exercise of the Class B
Warrants underlying the Remaining Selling Securityholders' Warrants. The
Remaining Selling Securityholders' Warrants were issued upon the closing of the
underwritten offering in exchange for warrants issued in a private placement by
the Company completed in August 1994 prior to the filing of this Registration
Statement. The Remaining Selling Securityholders' Warrants became freely
tradeable 45 days from the date of the final Prospectus included in this
Registration Statement (which date was April 7, 1996).
Following the Prospectus for the offering made pursuant to outstanding
Class A Warrants and Class B Warrants are the pages of the Prospectus relating
solely to the resale of the Remaining Selling Securityholders' Warrants and the
securities underlying the Remaining Selling Securityholders' Warrants: alternate
front and back cover pages and sections entitled "Concurrent Offering" and
"Selling Securityholders and Plan of Distribution," to be used in lieu of the
sections entitled "Concurrent Offering by Selling Securityholders" and "Plan of
Distribution." All other sections of the Prospectus for the offering made
pursuant to the outstanding Warrants are to be used in the Prospectus relating
to the resale of the Remaining Selling Securityholders' Warrants and the
securities underlying the Remaining Selling Securityholders' Warrants.
The Registration Statement on Form SB-2 which is amended by this
Post-Effective Amendment also registered the issuance of options issued to the
Company's underwriter in its February 1996 initial public offering, and the
issuance of options issued to certain finders in such offering, as well as the
issuance of underlying securities upon the exercise of such options. This
Post-Effective Amendment is not intended to deregister any of the securities so
registered, and such Registration Statement, as amended hereby, is intended to
continue to register such transactions.
5
<PAGE>
Prospectus
LIGHTPATH TECHNOLOGIES, INC.
1,840,000 UNITS, EACH CONSISTING OF ONE SHARE OF
CLASS A COMMON STOCK AND ONE REDEEMABLE B WARRANT,
ISSUABLE UPON THE EXERCISE OF REDEEMABLE CLASS A WARRANTS
AND
3,680,000 SHARES OF CLASS A COMMON STOCK
ISSUABLE UPON THE EXERCISE OF REDEEMABLE CLASS B WARRANTS
Lightpath Technologies, Inc., a Delaware corporation (the "Company"),
hereby offers: (i) 1,840,000 Units ("Units") issuable upon the exercise of
1,840,000 Class A Warrants (the "Class A Warrants"), each unit consisting of one
share of Class A Common Stock, $.01 par value, ("Class A Common Stock") and one
redeemable Class B Warrant (the "Class B Warrants"); and (ii) 3,680,000 share of
Class A Common Stock issuable upon the exercise of Class B Warrants which are
presently outstanding. The shares of Class A Common Stock and the Class B
Warrants included in the Units will be immediately separately transferable and
the Units will not trade as a separate security. 1,600,000 of the outstanding
Class A Warrants and Class B Warrants (collectively, the "Warrants") were issued
in connection with the Company's initial public offering ("IPO") in February
1996 of 1,840,000 Units ("IPO Units"), with each IPO Unit consisting of one
share of Class A Common Stock, one Class A Warrant and one Class B Warrant. In
March 1996, D.H. Blair Investment Banking Corp. ("Blair"), as the underwriter of
the IPO, exercised its over-allotment to purchase an additional 240,000 IPO
Units. The Company also registered in the IPO 839,000 Class A Warrants (the
"Selling Securityholders' Warrants") on behalf of certain selling
securityholders (the "Selling Securityholders"), none of which have been sold to
date by the Selling Securityholders. There are 1,840,000 Class A Warrants
outstanding and 1,840,000 Class B Warrants outstanding as of the date of this
Prospectus (excluding the 839,000 Warrants that continue to be held the Selling
Securityholders (the "Remaining Selling Securityholders")and an option to Blair
to purchase 160,000 Units for an exercise price of $6.75 , "Unit Purchase
Option"),assuming the exercise of all Class A Warrants, there will be 1,840,000
additional Class B Warrants issuable, for a total of 3,680,000 Class B Warrants.
Each Class A Warrant entitles the holder to purchase one Unit at an exercise
price of $6.50, subject to adjustment. Each Class B Warrant entitles the holder
to purchase, at an exercise price of $8.75, subject to adjustment, one share of
Class A Common Stock. The Class A Warrants and the Class B Warrants are
exercisable until February 22, 2001. The Warrants are subject to redemption by
the Company for $.05 per Warrant, upon 30 days' written notice, if the average
closing bid price of the Class A Common Stock exceeds $9.10 per share with
respect to the Class A Warrants and $12.25 per share with respect to the Class B
Warrants (subject to adjustment in each case) for 30 consecutive business days
ending within 15 days of the date the Warrants are called for redemption.
The Class A Common stock is one of four classes of the Company's Common
Stock: Class A, Class E-1, Class E-2 and Class E-3 ( which are collectively
referred to herein as the "Common Stock"). See "Description of Securities."
---------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL IMMEDIATE DILUTION. SEE "RISK FACTORS".
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is____________1996.
<PAGE>
The Company has agreed to pay to Blair a solicitation fee (the "Solicitation
Fee") equal to 5% of the exercise prices in connection with the exercise of
Warrants under certain conditions. See "Plan of Distribution." The exercise
prices of the Warrants were determined by negotiation between the Company and
Blair, and are not necessarily related to the Company's asset value, net worth
or other criteria of value.
The Company's IPO Units, Class A Common Stock, Class A Warrants and Class B
Warrants are traded on the Nasdaq SmallCap Market under the symbols LPTHU,
LPTHA, LPTHW, LPTHZ, respectively. On November 15, 1996 closing prices of the
IPO Units, Class A Common Stock, Class A Warrants and Class B Warrants were
$7.50, $5.88, $2.00 and $.75, respectively.
<TABLE>
<CAPTION>
=======================================================================================================
Warrant Warrant Proceeds to
Exercise Price Solicitation Fee(1) the Company
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<S> <C> <C> <C>
Per Class A Warrant $6.50 $.33 $6.17
Total (2) $11,960,000 $ 598,000 $11,362,000
Per Class B Warrant $8.75 $.44 $8.31
Total (2) $32,200,000 $1,610,000 $30,590,000
=======================================================================================================
</TABLE>
(1) Represents Solicitation Fees payable to Blair pursuant to the Warrant
Agreement between the Company and Blair in certain circumstances. See
"Plan of Distribution."
(2) Assumes the exercise of all Class A Warrants and Class B Warrants.
There can be no assurance that any of the Warrants will be exercised.
2
<PAGE>
PROSPECTUS SUMMARY
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The following summary should be read in conjunction with, and is
qualified in its entirety by the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes no
exercise of any other outstanding warrants or options. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed in the "Risk Factors."
The Company
LightPath Technologies, Inc. (the "Company") is a development stage
enterprise engaged in the research, development and production of GRADIUM(TM)
lenses. GRADIUM is an optical quality glass material with varying refractive
indices, capable of reducing optical aberrations inherent in conventional lenses
and performing with a single lens, or fewer lenses, tasks performed by
multi-element conventional lens systems. The Company believes that GRADIUM
lenses provide advantages over conventional lenses for certain applications. By
reducing optical aberrations, the Company believes that GRADIUM lenses can
provide sharper images, higher resolution, less image distortion, a wider usable
field of view and a smaller focal spot size. By reducing the number of lenses in
an optical system, the Company believes that GRADIUM can provide more efficient
light transmission and greater brightness, lower production costs, and a
simpler, smaller product. While other researchers have sought to produce optical
quality lens material with the properties of GRADIUM, the Company is not aware
of any other person or firm that has developed a repeatable manufacturing
process for producing such material on a prescribable basis. The Company has
been issued patents and has pending patent applications related to its materials
composition, product design and fabrication processes for the production of
GRADIUM products.
The Company's initial products are a line of loose optical components
for "simple" optical products (products with one to three lens elements and
simple mounts, as opposed to products with many lens elements and complex
housing or alignment requirements). The Company believes that designers of
simple optical products will be able to incorporate GRADIUM lenses into their
products without substantial redesign or retooling. The Company believes that
laser applications present a market for its loose optical components, and
intends to concentrate its initial product development and marketing efforts on
that market segment. Lasers are presently used extensively in a broad range of
consumer and commercial products, including fiber-optics, robotics, barcode
reading, document reproduction and audio and video compact disc machines.
In addition to broad-based marketing of laser components, the Company
also will seek contracts with original equipment manufacturers ("OEMs") to
design and produce complex, proprietary optical products incorporating GRADIUM.
The Company expects initially to target OEMs in emerging industries, such as
multimedia and telecommunications, which the Company believes may be more
inclined to incorporate GRADIUM lenses in the development of their
next-generation products, and perform-oriented industries, such as medical
instruments, which are seeking to optimize performance of existing
3
<PAGE>
optical products. The Company has produced prototype lenses for several OEMs,
but these relationships have not yet yielded commercial sales and there can be
no assurance that any of them will mature to the commercial production phase or
produce significant revenues for the Company. Further development of GRADIUM
will be necessary for certain of these uses.
Since its inception in 1985, the Company has been engaged in basic research
and development and only recently began to focus on product development. The
Company received its first revenues from product sales in 1994, which were
generated by catalog sales to researchers. The Company believes that most of its
product sales to date have been to persons evaluating the commercial application
of GRADIIJM or using the products for research and development The Company
intends to offer standard, computer-based profiles of GRADIUM that engineers can
use for product design. Further development is necessary to expand the Company's
available standard profiles and to add additional GRADIUM glass families
required for certain optics applications. The Company conduces to develop new
GRADIUM materials with various refractive index profiles. The Company's
marketing efforts are still in the early stage, and it will need to devote
substantial effort and resources to develop its marketing organization, to
educate optical designers in the various markets of GRADIUM's advantages over
alternative lens materials, and to obtain OEM product development contracts. The
Company's insufficient capital has limited its production and marketing of
GRADIUM products. The Company intends to expand its production and marketing of
GRADIUM products upon completion of the IPO.
The Company was incorporated in Delaware in 1992. Its corporate
headquarters are located at 6820 Academy Parkway East N.E., Albuquerque, New
Mexico, 87109 and its telephone number is (505) 342-1100.
Securities Offered by the Company: 1,840,000 Units consisting of one
share of Class A Warrant and one
Class B Warrant of the Company.
Each Class A Warrant is exercisable
at any time on or before February
22 , 2001 to purchase for $6.50 one
share of Class A Common Stock and
one Class B Warrant, subject to
adjustment. Each Class B Warrant is
exercisable any time on or before
February 22 , 2001 to purchase one
share of Class A Common Stock for
$8.75, subject to adjustment. The
Warrants are subject to redemption
in certain circumstances. The Class
A Common Stock and Class A and
Class B Warrants will be separately
tradable immediately upon issuance.
Unit Purchase Option to Blair for
160,000 Units for $6.75 per unit
during the three year period
commencing February 22, 1998. Each
Unit consists of one share of Class
A Common Stock, one share of Class
A Warrant and one Class B Warrant
of the Company. See "Description of
Securities."
Securities Offered Concurrently by Selling 839,000 Units consisting of Class
Securityholders: A Common Stock; 839,000 Class B
Warrants issuable upon exercise of
the Class A Warrants and 1,678,000
shares of Common Stock issuable
upon exercise of the Class A and
Class B Warrants. See "Concurrent
Offering".
4
<PAGE>
Common Stock Outstanding June 30,
1996(1)(3):
Class A Common Stock 2,722,191 shares(2)(4)
Class E-1 Common Stock 1,454,547 shares(3)
Class E-2 Common Stock 1,454,547 shares(3)
Class E-3 Common Stock 969,691shares(3)
Use of Proceeds The Company intends to use the net
proceeds received upon the exercise
of the Warrants, if any, for
general corporate purposes and
working capital to support
anticipated growth including
research and development programs
and continuing product development.
See "Use of Proceeds."
Risk Factors The securities offered hereby
involve a high degree of risk and
immediate substantial dilution to
public investors. An investment in
the Units offered hereby should be
made only after a careful
consideration of the various risks
which may affect the Company and
its operations. See "Risk Factors"
Nasdaq Symbols Units - LPTHU
Class A Common Stock - LPTHA
Class A Warrants - LPTHW
Class B Warrants - LPTHZ
- --------
(1) For a description of the voting and other rights of the Common Stock, see
"Description of Securities--Common Stock."
(2) Does not include outstanding options at June 30, 1996 to purchase 155,578
shares of Class A Common Stock and 176,233 shares of Class E-1, 176,233
shares of Class E-2 and 117,487 shares of Class E-3 Common Stock which are
exercisable at option exercise prices ranging from $5.50 to $51.56 per
share and 12,297 shares of Class A Common Stock reserved for issuance upon
future grants of options to be issued under the Company's stock option
plans. See "Management--Stock Option Plans."
(3) The Class E-1 Common Stock, Class E-2 Common Stock and Class E-3 Common
Stock (collectively, the "Class E Shares") will, on a class-by-class basis,
automatically convert on a share-for-share basis into Class A Common Stock
if and as the Company attains certain earnings levels or the market price
of the Company's Class A Common Stock achieves certain targets with respect
to each of the three separate classes. The Class E Shares will be redeemed
by the Company for a nominal amount if such earnings levels or market price
targets are not achieved. See "Description of Securities."
(4) Does not include an aggregate of 7,838,000 shares of Class A Common Stock
issuable upon exercise of (i) the Unit Purchase Option and the Class A and
Class B Common Stock Purchase Warrants underlying the Unit Purchase Option;
(ii) the Class A Warrants and Class B Warrants forming part of the Units
offered hereby, (iii) the 214,000 Class A Warrants issued to persons who
converted debt into Common Stock of the Company prior to the IPO; (iv) the
625,000 Class A Warrants issued to holders of the Bridge Warrants; and (v)
the 839,000 additional Class B Warrants issuable upon exercise of the Class
A Warrants referred to in (iii) and (iv) above.See "Capitalization" and
"Concurrent Offering".
5
<PAGE>
Summary Financial Information
Statement of Operations Data:
<TABLE>
<CAPTION>
Inception
(August
23, 1985) Through
June 30, September 30, September 30,
1996 1995 1996 1995 1996
---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Revenues ........... $ 200,444 $ 166,465 $ 123,470 $ 30,128 $ 512,858
Costs and expense .. 2,787,894 2,523,705 922,380 1,174,086 21,021,342
Net (loss) ......... (2,914,905) (2,789,580) (757,129) (1,234,838) (22,228,619)
Net (loss) per share
(1)................. $ (1.98) $ (3.95) $ (0.28) $ (1.65) --
Weighted average
number of common
shares and common
share equivalents
outstanding(1)...... 1,471,006 705,580 2,735,287 748,898 --
------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
September 30,
-------------
Balance Sheet Data: June 30, 1996 1996
------------- ----
<S> <C> <C>
Total assets ............. $ 5,210,804 $ 4,421,467
Total liabilities......... 666,443 623,816
Stockholders' equity...... 4,505,574 3,758,987
</TABLE>
- ----------
(1) The shares of Class E Common Stock are excluded from the computation of net
loss per share.
See notes to the Financial Statements.
6
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk and should only be made by investors who can afford the loss of their
entire investment. Prospective investors, prior to making an investment
decision, should give careful consideration, in addition to the other
information contained in this Prospectus, to the following risk factors.
Development Stage Company; Accumulated Deficit, Working Capital and
Capital Deficiency; Limited Operating History. The Company's predecessor
commenced operations in 1985, and the Company has been a development stage
company throughout its existence. To date, the Company's primary activities have
been basic research and development. From inception until June 30, 1996, the
Company recognized revenues of $389,388 and had an accumulated deficit of
($14,214,226). For the year ended June 30, 1996, the Company recognized revenues
of $200,444 and had a net loss of ($2,914,905). The Company's products are at an
early stage of development and the Company believes that its product sales to
date are to parties evaluating the commercial application of GRADIUM or using
the products for research and development, but not for commercial usage. While
the Company has been engaged in some marketing efforts over the past few years
that have resulted in some collaborative arrangements or purchases by parties
considering incorporating GRADIUM in their product designs, these efforts have
not resulted in material sales revenues. The Company has continued to operate at
a deficit and expects to continue to operate at a deficit for fiscal year 1997
and until such time, if ever, as the Company's operations generate sufficient
revenues to cover its costs. The likelihood of the success of the Company must
be considered in light of the delays, uncertainties, difficulties and risks
inherent in a new business, many of which may be beyond the Company's control.
These include, but are not limited to, unanticipated problems relating to
product development, testing, manufacturing, marketing and competition, and
additional costs and expenses that may exceed current estimates. There can be no
assurance that revenues will increase significantly in the future or that the
Company will ever achieve profitable operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Independent Auditor's Report as to Company's Ability to Continue as a
Going Concern. The Company has received a report from its independent auditors
that includes an explanatory paragraph regarding uncertainty as to the ability
of the Company to continue as a going concern. Among the factors cited by the
accountants as raising substantial doubt as to the Company's ability to continue
as a going concern are that the Company is in development stage, has incurred
operating losses, is in default on certain debt obligations, and has a working
capital deficiency and capital deficiency. The Company may incur losses for the
foreseeable future due to the significant costs associated with the development,
manufacturing and marketing of its GRADIUM products and due to the continued
research and development activities that will be necessary to further refine the
Company's technology and products and to develop products with additional
applications. The Company expects that the proceeds from the IPO will enable it
to fund its operations for fiscal year 1997. See "--Anticipation of Operating
Losses; Need for Additional Financing," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Financial Statements--Report of
Independent Auditors" and "Business--Research and Development."
Anticipation of Operating Losses; Need for Additional Financing. The
Company anticipates continuing to incur substantial operating losses for fiscal
year 1997 and until such time, if ever, as the Company's operations generate
sufficient revenues to cover its costs. The Company expects to incur substantial
expenses principally as the result of the various costs associated with the
Company's continuing research and development to expand its product line,
capital expenditures for scale-up of manufacturing and implementation of a sales
and marketing program and distribution channels, recruitment and training of
personnel and other operating activities. The Company's potential receipt of
revenues from product sales are subject to substantial contingencies, and there
can be no assurances concerning the timing and amount of future revenues from
product sales, if any. The Company anticipates that the net proceeds from the
IPO will be sufficient to finance the Company's working capital requirements for
at least fiscal year 1997, although the Company's capital requirements are
subject to numerous contingencies associated with development stage companies.
The Company's capital requirements after such period will depend on the extent
that GRADIUM becomes commercially accepted and the Company's marketing program
is successful in generating sales sufficient to sustain its operations. There
can be no assurance that the Company will generate sufficient revenues to fund
its operations. The Company may be required to seek additional financing in the
event of delays, cost overruns, unanticipated expenses including those
associated with a company in an early stage of development and damages which may
be payable from lawsuits (see "Business--Legal Proceedings"), or in the event
the Company does not realize anticipated revenues. The Company has no
commitments from others to provide additional financing, and there can be no
assurance that any additional financing will be available if needed or, if
available, will be on terms acceptable to the Company. In the event such
necessary financing is not obtained, the Company's operations will be materially
adversely affected and the Company will have to cease or substantially reduce
operations. Any additional equity financing may be dilutive to stockholders, and
debt financings, if available, may involve restrictive covenants. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Early Stage of Development of Proposed Products; Need for Market
Acceptance. To date, the Company's primary activity has been basic research and
development of glass material properties. The Company's current line of GRADIUM
products has not been widely sold or marketed. While the Company believes its
existing products are commercially viable, market feedback may require the
Company to further refine these products. Development of additional product
lines will require significant further
7
<PAGE>
research, development, testing and marketing prior to commercialization. In
particular, the Company's lens technology will require substantial further
refinement to develop products capable of correcting chromatic optical
applications, which is required for many optical product applications. See
"Business--Research and Development." There can be no assurance that any
proposed products will be successfully developed, demonstrate desirable optical
performance, be capable of being produced in commercial quantities at reasonable
costs or be successfully marketed. In order for its products to achieve
commercial acceptance, the Company must educate the optical components markets
to create product awareness and demand, and, in large part, persuade potential
customers to redesign existing products and retool existing assembly processes
in order to substitute GRADIUM for existing materials. There can be no assurance
that the Company can accomplish the foregoing to the extent necessary to develop
market acceptance. See "Business."
Uncertainty of Commercialization of the Company's Technology; Limited
Number of Potential Customers Testing the Company's Technology. The Company's
existing products have not yet achieved commercial acceptance. To date, the only
product revenues received by the Company are from parties evaluating the
commercial application of the Company's products or using the products for
research and development activities, and purchases have not reached commercial
quantities. Most of the Company's sales have been to a catalog distributor that,
until such arrangement was recently terminated, had the exclusive right to
distribute the Company's products. While the Company has no agreement with the
catalog company with respect thereto, it anticipates continuing its relationship
with the distributor on a non-exclusive basis. See "Business--Product
Applications." Although the Company is engaged in negotiations and discussions
with other potential customers, there can be no assurance that any such
discussions will lead to development of commercially viable products or
significant revenues for the Company, or that any existing or developed products
will attain sufficient market acceptance to generate significant revenues. In
order to persuade potential customers to purchase GRADIUM products, the Company
will need to overcome industry resistance to, and suspicion of, gradient lens
technology that has resulted from previous failed attempts by various
researchers and manufacturers to develop a repeatable, consistent process for
producing lenses with variable refractive indices. The Company must also satisfy
prospective customers that it will be able to meet their demand for GRADIUM
products, since the Company will be the sole supplier and licenser. The Company
does not have a proven track record as a manufacturer and, even after the IPO,
will not have a substantial net worth. There can be no assurance that the
Company can accomplish the foregoing to the extent necessary to develop market
acceptance. Prospective customers will need to make substantial expenditures to
redesign products to incorporate GRADIUM lenses. There can be no assurances that
companies will view GRADIUM's benefits as sufficient to warrant such design
expenditures. Additionally, GRADIUM may be cost effective for only high-end uses
which require multiple lenses or the increased performance that the Company
believes GRADIUM provides. See "Business."
Dependence on Key Personnel, Need for Additional Personnel. The
operations of the Company depend to a significant extent upon the efforts of
Leslie A. Danziger, the Company's Chairman of the Board and President, who
conceived the Company's technology and strategic plan and who is substantially
responsible for planning and guiding the Company's direction. In addition, the
Company's success depends upon the contributions of Louis P. Wagman and Donald
E. Lawson, the Company's Executive Vice Presidents, whose respective
responsibilities for the Company's strategic planning and operations are very
substantial. Each of the foregoing officers has an employment agreement with the
Company that provides, among other things, for severance compensation in certain
events. See "Management-- Executive Compensation." The loss of any of these key
employees would adversely affect the Company's business. The Company has
obtained key employee life insurance policies in the amount of $3,000,000 on the
life of Ms. Danziger and $1,000,000 each on the lives of Messrs. Wagman and
Lawson. See "Management." The Company had twenty-one employees by June 30, 1996.
See "Business--Sales and Marketing."
Competition. The optical lens and components markets are intensely
competitive and numerous companies, substantially all of which have greater
financial and other resources than the Company, provide products and services
that compete with those offered by the Company. The Company competes with
manufacturers of conventional spherical lens products and aspherical lens
products, producers of optical quality glass and other developers of gradient
lens technology and products. In the markets for conventional and aspheric
lenses, the Company will be competing against, among others, established
international industry giants. Many of these companies also are primary
customers for optical components, and therefore have significant control over
certain markets for the Company's products. The Company is aware of other
companies that are attempting to develop radial gradient lens technology, and it
is possible that other companies are attempting to develop axial gradient lens
technology similar to the Company's technology. There can be no assurance that
existing or new competitors will not develop technologies that are superior to
or more commercially acceptable than the Company's technology and products. See
"Business--Competition."
Limited Marketing and Sales Capabilities; Fragmented Market. The
Company's operating results will depend to a large extent on its ability to
educate the various industries utilizing optical glass about the advantages of
GRADIUM and to market GRADIUM products to the participants within those
industries. The Company currently has very limited marketing capabilities and
experience and needs to hire additional sales and marketing personnel and
develop a sales and marketing program and sales distribution channels. The
Company has only recently hired a sales manager. The Company will use a portion
of the proceeds of the IPO to develop its sales and marketing program and
recruit personnel. See "Use of Proceeds." In addition, while the Company has
developed a preliminary marketing plan, there can be no assurance that the plan
will be implemented or, if implemented, will succeed in creating sufficient
levels of customer demand for the Company's products. The markets for optical
lenses and components are highly fragmented. Consequently, the Company will need
to target particular segments in which it believes it may have the most
8
<PAGE>
success. It may be very difficult for the Company to penetrate any particular
market segments, and any attempt will require a substantial, but unknown, amount
of effort and resources. The fragmented nature of the market may impede the
Company's ability to achieve commercial acceptance for its products. The
Company's success will depend in great part on its ability to develop and
implement a successful marketing and sales program. There can be no assurance
that any marketing and sales efforts undertaken by the Company will be
successful or will result in any significant sales of the Company's products. If
the sales and marketing efforts implemented by the Company do not generate
expected revenues, the Company may be required to seek additional financing or
alter its business plan. See "Business--Sales and Marketing."
Dependence on Patents and Proprietary Technology. The Company's success
will depend, in part, on its ability to obtain protection for its products and
technologies under United States and foreign patent laws, to preserve its trade
secrets, and to operate without infringing the proprietary rights of third
parties. There can be no assurance that patent applications relating to the
Company's products or potential products will result in patents being issued,
that any issued patents will afford adequate protection to the Company or not be
challenged, invalidated, infringed or circumvented, or that any rights granted
thereunder will afford competitive advantages to the Company. Furthermore, there
can be no assurance that others have not independently developed, or will not
independently develop, similar products and/or technologies, duplicate any of
the Company's product or technologies, or, if patents are issued to, or licensed
by, the Company, design around such patents. There can be no assurance that
patents owned or licensed by the Company and issued in one jurisdiction will
also issue in any other jurisdiction. Furthermore, there can be no assurance
that the Company can adequately preserve proprietary technology and processes
that it maintains as trade secrets. See "Business--Patents and Other Proprietary
Intellectual Property."
Dependence on Others. The Company's strategy for the research,
development and commercialization of certain of its products entails entering
into various arrangements with corporate partners, original equipment
manufacturers (OEMs), licensees and others in order to receive product sales and
royalties and funds for product development. The Company may also rely on its
collaborative partners to conduct research efforts, product testing and to
manufacture and market certain of the Company's products. Although the Company
believes that parties to any such arrangements would have an economic motivation
to succeed in performing their contractual responsibilities, the amount and
timing of resources to be devoted to these activities may not be within the
control of the Company. There can also be no assurance that the Company will be
successful in establishing any such collaborative arrangements or that, if
established, the parties to such arrangements will assist the Company in
commercializing products. Presently the Company has entered into a development
agreement with an endoscope manufacturer pursuant to which it has developed
prototype lenses. There can be no assurance that the endoscope manufacturer will
progress to a production phase or, if production commences, that the Company
will receive significant revenues from this relationship. The Company recently
terminated its agreement with a catalog company to distribute certain of its
products on an exclusive basis. While the Company has no agreement with the
catalog company with respect thereto, it anticipates continuing such
relationship on a non-exclusive basis. There can be no assurance that these
parties, or any future partners, will perform their obligations as expected or
that any revenue will be derived from such arrangements.
Limited Manufacturing Capability. The Company had minimal experience in
manufacturing optical components. The Company had limited resources to
manufacture products. The-Company has not manufactured on a commercial scale,
and will need to expand its manufacturing facilities and personnel using
proceeds from the IPO to scale-up production. In that regard, the Company
negotiated with respect to several locations for a new corporate headquarters
and larger manufacturing facility in Albuquerque, New Mexico. See
"Business--Property." Within the present 13,300 square foot facility, the
Company believes that it can scale-up its manufacturing processes, there can be
no such assurance and the Company may experience unanticipated delays, costs
and/or logistical problems. See "Business--Manufacturing."
Product Liability Exposure. The sale of the Company's optical products
will involve the inherent risk of product liability claims against the Company.
The Company currently does not maintain product liability insurance coverage,
but intends to procure such insurance in the future. Product liability insurance
is expensive, subject to various coverage exclusions and may not be obtainable
by the Company in the future on terms acceptable to the Company. Moreover, the
amount and scope of any coverage may be inadequate to protect the Company in the
event that a product liability claim is successfully asserted against the
Company.
Immediate and Substantial Dilution. Purchasers of the securities
offered hereby will incur immediate substantial dilution in the per share net
tangible book value of their Common Stock. Therefore, purchasers of the
securities offered hereby will bear a proportionately greater risk of loss than
the Company's current stockholders.
Charge to Income in the Event of Conversion of Class E Common Stock In
the event any shares of Class E Common Stock held by the stockholders of the
Company who are officers, directors, employees or consultants of the Company are
converted into shares of Class A Common Stock, compensation expense will be
recorded for financial reporting purposes. Therefore, if the Company attains any
of the earnings thresholds or the Company's Class A Common Stock meets certain
minimum bid prices required for the conversion of the shares of Class E Common
Stock, such conversion will be deemed additional compensation expense of the
Company. Accordingly, the Company will, in the event of the conversion of the
Class E Common Stock, recognize during the period in which the reportable
earnings thresholds are met or such minimum bid prices obtained, what could be a
substantial charge that would have the effect of significantly increasing the
Company's reportable loss or reducing or eliminating
9
<PAGE>
reportable earnings, if any, at such time. Such charge win equal the fair market
value of such shares on the date of release, which may be substantial Although
the amount of compensation expense recognized by the Company will not affect the
Company's total stockholders' equity, it may have a negative effect on the
market price of the Company's securities. Since Class E shares are not treated
as outstanding for purposes of earnings per share calculations, the increase in
the number of shares of Class A Common Stock upon conversion of any series of
Class E Common Stock win negatively affect the Company's earnings per share. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Securities."
Control by Present Stockholders; Voting Trust. Upon completion of the
IPO, the Company's present stockholders will beneficially own 882,191 shares of
Class A Common Stock, 1,454,547 shares of Class E-1 Common Stock, 1,454,547
shares of Class E-2 Common Stock and 969,691 shares of Class E-3 Common Stock,
representing 32% of the outstanding Class A Common Stock, 100% of the combined
outstanding Class E Common Stock, and 72.13% of the total combined voting power
of all of the Common Stock to be outstanding after the IPO. As a result, acting
in concert, the Company's present stockholders win be able to elect a majority
of the Company's directors and otherwise control the Company's operations. In
addition, certain stockholders of the Company holding approximately 27% of the
total voting power have entered into a voting trust agreement. Additional
stockholders may subsequently join the voting trust. Pursuant to the voting
trust, Leslie A. Danziger, the Company's Chairman and President, is granted the
authority to vote an of the shares subject to the voting trust on all matters
that the Company's stockholders are entitled to vote. Accordingly, Ms. Danziger
will likely be able to influence the election of the Company's directors and
thereby direct the policies of the Company. See "Principal Stockholders" and
"Description of Securities."
Investigation of the Underwriter by the Securities and Exchange
Commission. The Securities and Exchange Commission (the "Commission") is
conducting an investigation concerning various business activities of the
Underwriter and D. H. Blair & Co., Inc. ("Blair & Co."), a selling group member
which will distribute substantially all of the Units offered hereby. The
investigation appears to be broad in scope, involving numerous aspects of the
Underwriter's and Blair & Co.'s compliance with the Federal securities laws and
compliance with the Federal securities laws by issuers whose securities were
underwritten by the Underwriter or Blair & Co., or in which the Underwriter or
Blair & Co. made over-the-counter markets, persons associated with the
Underwriter or Blair & Co., such issuers and other persons. The Company has been
advised by the Underwriter that the investigation has been ongoing since at
least 1989 and that it is cooperating with the investigation. The Underwriter
cannot predict whether this investigation will ever result in any type of formal
enforcement action against the Underwriter or Blair & Co., or, if so, whether
any such action might have an adverse effect on the Underwriter or the
securities offered hereby. The Company has been advised that Blair & Co. intends
to make a market in the securities following the IPO. An unfavorable resolution
of the Commission's investigation could have the effect of limiting such firm's
ability to make a market in the Company's securities, which could affect the
liquidity or price of such securities.
Future Sales of Common Stock. All of the shares of Common Stock
currently outstanding are "restricted securities" as that term is defined under
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and under certain circumstances may be sold without
registration pursuant to such rule. The Company's officers and directors and
holders of substantially all of the shares of Class A Common Stock and options
to purchase Common Stock outstanding prior to the IPO have agreed with the
Underwriter not to offer, sell or otherwise dispose of any of their shares of
Class A Common Stock or other securities issued by the Company for a period of
13 months after February 22,1996 without the prior written consent of the
Underwriter. Upon expiration of such 13-month period, substantially all of the
shares of Class A Common Stock will be eligible for resale under Rule 144. The
Company is unable to predict the effect that sales made under Rule 144, or
otherwise, may have on the then prevailing, market price of the Company's
securities although any future sales of substantial amounts of securities
pursuant to Rule 144 could adversely affect prevailing market prices. See
"Principal Stockholders," "Description of Securities," "Shares Eligible For
Future Sale," and "Management --Stock Option Plans."
Dividends Unlikely. The Company has not paid any cash dividends on its
Common Stock and does not intend to declare or pay cash dividends in the
foreseeable future. The Company expects that it will retain all available
earnings, if any, to finance and expand its business. See "Dividend Policy."
Arbitrary Determination of Warrant Exercise Price. The exercise prices
and other terms of the Warrants have been arbitrarily established by negotiation
between the Company and Blair, the underwriter in the Company's IPO, and do not
necessarily bear any relationship to the Company's asset value, net worth or
financial condition of the Company or any generally recognized criteria of value
and should not be regarded as an indication of any future market price of the
Company's securities.
Effect of Outstanding Options and Warrants. Upon completion of the IPO,
the Company will have outstanding (i) 1,840,000 Class A Warrants to purchase an
aggregate of 1,840,000 share of Class A Common Stock and 1,840,000 Class B
Warrants; (ii) 1,840,000 Class B Warrants to purchase 1,840,000 shares of Class
A Common Stock; (iii) the Selling Securityholders Warrants to purchase an
aggregate of 839,000 shares of Class A Common Stock and 839,000 Class B
Warrants; (iv) the Unit Purchase Option to purchase an aggregate of 240,000
Units; and (v) outstanding options at June 30, 1996 to purchase an aggregate of
155,578 shares of Class A Common Stock, 176,233 shares of Class E-1, 176,233
shares of Class E-2 and 117,487 shares of Class E-3 Common Stock. The Company
also has an additional 12,297 shares of Class A Common Stock reserved for
issuance under its Omnibus Incentive
10
<PAGE>
Plan and Amended and Restated Directors Stock Incentive Plan. In order for the
Company to attract additional members of its Board of Directors, officers and
employees, it may be necessary to obtain shareholder approval to add additional
shares to its existing option plans or to promulgate new plans. For the
respective terms of such Warrants, options and the Unit Purchase Option, the
holders thereof are given an opportunity to profit from a rise n the market
price of the Company's Class A Common Stock with a resulting dilution in the
interests of the other stockholders. Further, the terms on which the Company may
obtain additional financing during that period may be adversely affected by the
existence of such options and Warrants. The holders of the Warrants may exercise
them at a time when the Company might be able to obtain additional capital
through a new offering of securities on terms more favorable than those provided
therein. In addition, holders of the Unit Purchase Option have registration
rights with respect to such option and the underlying securities. Exercise of
the registration rights may involve substantial expense to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management--Stock Option Plans," and "Description of Securities."
Potential Adverse Effect of Redemption of Warrants. Commencing February
22, 1997, the Warrants may be redeemed by the Company at a redemption price of
$.05 per Warrant upon 30 days' notice provided the average closing bid price (as
defined herein) of the Class A Common Stock for any 30 consecutive trading days
ending within 15 days of the notice of redemption exceeds $9.10, in the case of
the Class A Warrants, or $12.25, in the case of the Class B Warrants (subject to
adjustment in each case). Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "Description of
Securities--Redeemable Warrants."
Possible Adverse Effects of Authorization of Preferred Stock,
Anti-Takeover Provisions. The Company's Certificate of Incorporation authorizes
the issuance of 5,000,000 shares of "blank check" Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of Preferred Stock, there can be no assurance that the Company will
not do so in the future. In addition, the Company's Certificate of Incorporation
requires a super majority vote of stockholders to approve certain transactions,
a classified Board of Directors and certain other provisions that may have the
effect of discouraging a change of control of the Company. Further, the Company
is subject to the provisions of Section 203 of the Delaware General Corporation
Law which may have the effect of discouraging persons from pursuing a
non-negotiated takeover of the Company and delaying or preventing certain
changes of control. See "Management," "Principal Stockholders" and "Description
of Securities."
Limitation of Liability of Directors. The Company's Certificate of
Incorporation provides that directors of the Company shall not be personally
liable for monetary damages to the Company or its stockholders for a breach of
fiduciary duty as a director, subject to limited exceptions. Although such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission, the presence of these provisions in the
Certificate of Incorporation could prevent the recovery of monetary damages
against directors of the Company. See "Management--Limitation of Liability and
Indemnification."
Possible Restrictions on Market-Making Activities in Company's
Securities. The Underwriter has advised the Company that Blair & Co. intends to
make a market in the Company's securities. Rule 10b-6 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") may prohibit Blair & Co.
from engaging in any market-making activities with regard to the Company's
securities for the period from nine business days (or such other applicable
period as Rule 10b-6 may provide) prior to any solicitation by the Underwriter
of the exercise of Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
that the Underwriter may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, Blair & Co. may be unable to provide a
market for the Company's securities during certain periods while the Warrants
are exercisable. In addition, under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the Selling
Securityholders Warrants may not simultaneously engage in market-making
activities with respect to any securities of the Company for the applicable
"cooling off" period (at least two and possibly nine business days) prior to the
commencement of such distribution. Accordingly, in the event the Underwriter or
Blair & Co. is engaged in a distribution of the Selling Securityholders
Warrants, neither of such firms will be able to make a market in the Company's
securities during the applicable restrictive period. Any temporary cessation of
such market-making activities could have an adverse effect on the market price
of the Company's securities.
Risk of Low-Priced Stock. If the Company's securities were delisted
from Nasdaq (See "Risk Factors--Nasdaq Listing and Maintenance Requirements"),
they could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for
11
<PAGE>
the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, such rule may adversely affect the
ability of broker-dealers to sell the Company's securities and may adversely
affect the ability of purchasers in the IPO to sell any of the securities
acquired hereby in the secondary market.
The Commission adopted regulations which generally define a "penny
stock" to be any non-Nasdaq equity security that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require delivery, prior to any transaction
in a penny stock, of a disclosure schedule prepared by the Commission relating
to the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest.
If the Company's securities were subject to the existing or proposed
rules on penny stocks, the market liquidity for the Company's securities could
be severely adversely affected.
Non-Registration in Certain Jurisdictions of Shares Underlying the
Warrants; Need for Current Prospectus. The Class A Warrants and Class B Warrants
constituting part of the Units offered hereby are detachable immediately from
the Units and may be traded separately. Although the Units will not knowingly be
sold to purchasers in jurisdictions in which the Units are not registered or
otherwise qualified for sale, purchasers may buy Units or the components thereof
in the aftermarket in, or may move to, jurisdictions in which the shares
underlying the Class A Warrants or the Class B Warrants issuable upon exercise
of the Warrants are not so registered or qualified during the period that the
Warrants are exercisable. In this event, the Company would be unable to issue
shares and/or Class B Warrants to those persons desiring to exercise their
Warrants unless and until the underlying securities could be qualified for sale
in jurisdictions in which such purchasers reside, or an exemption to such
qualification exists in such jurisdiction. In addition, investors in the IPO
will not be able to exercise their Warrants, unless at the time of exercise the
Company has a current prospectus covering the shares of Class A Common Stock
underlying the Warrants. No assurances can be given that the Company will be
able to effect any required registration or qualification or maintain a current
prospectus. See "Description of Securities--Redeemable Warrants."
Nasdaq Listing and Maintenance Requirements. The Units, Class A Common
Stock and Warrants are listed on Nasdaq. Under the rules for continued listing
on Nasdaq, a company is required to maintain at least $2,000,000 in total
assets, two market makers, a public float of at least $200,000 and a minimum bid
price of $1.00 per share or, if the share price criterion cannot be met,
$2,000,000 in capital and surplus and a public float of $1,000,000. Upon notice
of a deficiency in one or more of the maintenance requirements, the Company
would be given 90 days (30 days in the case of the number of market makers) to
comply with the maintenance standards. Failure of the Company to meet the
maintenance requirements of Nasdaq could result in the Company's securities
being delisted from Nasdaq, with the result that the Company's securities would
trade on the OTC Bulletin Board or in the "pink sheets" maintained by the
National Quotation Bureau Incorporated. As a consequence of such delisting, an
investor could find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the Company's securities. Among other
consequences, delisting from Nasdaq may cause a decline in the stock price, the
loss of news coverage about the Company and difficulty in obtaining future
financing.
Stock Market Volatility. There have been periods of extreme volatility
in the stock market, which in many cases were unrelated to the operating
performance of, or announcements concerning, the issuers of the affected stock.
General market price declines or market volatility in the future could adversely
affect the price of the Common Stock and the Warrants. In certain cases,
volatility in the price of a given security can result from the short-term
trading strategies of certain market segments. Such volatility can distort
market value and can be particularly severe in the case of smaller
capitalization stocks and immediately before or after an important corporate
event such as a public offering.
USE OF PROCEEDS
Holders of Warrants are not obligated to exercise their Warrants and
there can be no assurance that the Warrantholders will choose to exercise all of
any of their Warrants. In the event that all of the 1,840,000 outstanding Class
A Warrants (excluding the Remaining Security Holders and Unit Purchase Option)
are exercised, the net proceeds to the Company would be $11,362,000, after
deducting the Solicitation Fee. In the event that all of the 3,680,000 Class B
Warrants outstanding and issuable upon the exercise of
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<PAGE>
the outstanding Class A Warrants are exercised, (excluding the Remaining
Security Holders and Unit Purchase Option), the Company would receive additional
net proceeds of $30,590,000, after deducting the Solicitation Fee.
The Company intends to use the net proceeds received upon the exercise
of the Warrants, if any, for general corporate purposes and working capital to
support anticipated growth including research and development programs and
continuing product development.
DIVIDEND POLICY
The Company does not intend to declare or pay cash dividends on its
Class A Common Stock (or any other securities) in the foreseeable future. The
Company intends to retain all available earnings to finance and expand its
business. Declaration of dividends in the future will be at the discretion of
the Company's Board of Directors, which will review its dividend policy from
time to time.
PRICE RANGE OF CLASS A COMMON STOCK
The Company's Common Stock has been quoted on the National Association
of Securities Dealers Automated Quotation ("NASDAQ") system under the symbol
LPTHA since February 22, 1996.
The Company estimates there were approximately 300 holders of record
and approximately 1200 beneficial holders on August 15, 1996. The Company has
not paid dividends in the past and does not intend to pay cash dividends in the
foreseeable future. Declaration of dividends will be at the discretion of the
Board of Directors.
The following table sets forth the range of high and low bid prices for
the Class A common stock for the periods indicated, as reported by NASDAQ, the
principal system or exchange on which such securities are quoted or traded.
Class A
Common Stock
For periods noted High Low
------------------------------------------------------------
February 22, 1996 to
March 31, 1996 $ 5 $ 4
Quarter ended June 30, 1996 $ 6.5 $ 4.63
Quarter ended September 30, 1996 $ 6.5 $ 4.75
13
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company
as of September 30, 1996 and to reflect the conversion of Class A and Class B
Warrants. This table should be read in conjunction with the Financial Statements
and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------------
Further Adjusted
Actual Adjusted for A for A and B
Warrants (1) Warrants (2)
----------------------------------------------------------
<S> <C> <C> <C>
Class E-1 Common Stock, $.01 par value, 2,000,000 $14,499 $14,499 $14,499
shares authorized, 1,449,942 shares issued and
outstanding (4)
Class E-2 Common Stock, $.01 par value, 2,000,000 $14,499 $14,499 $14,499
shares authorized, 1,4449,942 shares issued and
outstanding (5)
Class E-3 Common Stock, $.01 par value, 1,500,000 $ 9,666 $ 9,666 $ 9,666
shares authorized, 966,621 shares issued and
outstanding (6)
Preferred Stock, $.01 par value, 5,000,000 shares 0 0 0
authorized, none issued
Class A Common Stock, $.01 par value, 34,500,000 $27,414 $45,814 $ 82,614
shares authorized; 2,741,291 shares issued and
outstanding; 4,581,291and 8,261,291 shares issued
and outstanding as adjusted for A Warrants and A
and B Warrants (3)
Additional paid in capital $18,702,928 $30,046,528 $60,599,728
(Deficit) accumulated during the development stage $(14,971,355) $(14,971,355) $(14,971,355)
------------- ------------- -------------
Total Stockholders' Equity (Capital Deficiency) $ 3,758,987 $15,120,987 $45,710,987
------------- ------------- -------------
Total Capitalization $3,797,651 $15,159,651 $45,749,651
============= ============= =============
</TABLE>
(1) Gives effect to the exercise of 1,840,000 Class A Warrants (excludes the
Remaining Selling Securityholders) at $6.50 per Class A Warrant, net of
solicitation fee.
(2) Gives effect to the exercise of 3,680,000 Class B Warrants outstanding and
issuable upon the exercise of the outstanding Class A Warrants (excludes
the Remaining Selling Securityholders and Unit Purchase Option) at $8.75
per Class B Warrant, net of solicitation fee.
(3) Unless otherwise indicated, the number of outstanding shares of the
Company's Class A Common Stock referenced in this Prospectus does not
include (i)5,520,00 shares of Class A Common Stock issuable upon exercise
of the Company's outstanding publicly-held Class A Warrants and Class B
Warrants (ii)640,000 shares of Class A Common Stock issuable upon exercise
of the Unit Purchase Option (and the underlying Class A Warrants and Class
B Warrants); (iii) 1,678,000 shares of Class A Common Stock issuable upon
exercise of Class A Warrants and Class B Warrants issued to persons who
purchased Bridge Warrants or previously loaned the Company money in
anticipation of a public offering, and (iv) 155,578 shares of Class A
Common Stock and 176,233 shares of Class E-1, 176,233 shares of Class E-2
and 117,487 shares of Class E-3 Common Stock issuable upon exercise of
outstanding stock options. See "Principal Stockholders," and "Description
of Securities."
(4) Does not include 176,233 shares issuable upon exercise of outstanding
options.
(5) Does not include 176,233 shares issuable upon exercise of outstanding
options.
(6) Does not include 117,487 shares issuable upon exercise of outstanding
options.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended June
30, 1996 and 1995 have been derived from the financial statements of the
Company, which together with the notes thereto and the related report of Ernst &
Young LLP, are included elsewhere in this Prospectus. The selected financial
data as of and for the three -month period ended September 30, 1996 and
September 30, 1995 are derived from the Company's unaudited financial
statements. The Company's unaudited financial statements include all
adjustments, consisting of only normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the three months
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for future periods. The selected financial data set forth below
should be read in conjunction with the financial statements of the Company and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
Statement of Operations Data
<TABLE>
<CAPTION>
Inception
Three Months August 23, 1985
Year Ended Ended through
June 30, September 30 September 30,
1996 1995 1996 1995 1996
---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 200,444 $ 166,465 $123,470 $30,128 $512,858
Costs and Expenses 2,787,894 2,523,705 922,380 1,174,086 21,026,342
Net (loss) (2,914,905) (2,789,580) (757,129) (1,234,838) (22,228,619)
Net (loss) per share (1) (1.98) (3.95) (0.28) (1.65) -
Weighted average number of common
shares and common share equivalents 1,471,006 705,580 2,735,287 748,898 -
outstanding (1)
</TABLE>
Balance Sheet Data:
September 30,
-------------
June 30, 1996 1996
------------- ----
Total assets $ 5,210,804 $ 4,421,467
Total liabilities 666,443 623,816
Stockholders' equity 4,505,574 3,758,987
(1) The Class E shares are excluded from the computation of net (loss) per
share.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operation
General
The Company is a development stage company that has only recently begun
to generate limited revenues from the sale of its GRADIUM products. Since 1985,
the Company has been engaged in research and development relating to the
discovery and patenting of GRADIUM and processes to manufacture GRADIUM. The
Company began to recognize revenues from product sales in the fiscal year ending
June 30, 1995. The Company believes that most of its product sales to date have
been to persons evaluating the commercial application of GRADIUM or using the
products for research and development, but not for commercial usage. From
inception through June 30, 1996, the Company has sustained cumulative losses of
($21,471,490). These losses have resulted from substantial expenditures in
connection with research and development and general and administrative
expenses, including legal and professional fees. During the ten year period from
1985 to 1996, the Company and its predecessors raised approximately $16 million
of private investment capital for basic research and development and other
operating expenses.
Plan of Operation
During fiscal year 1997, the Company plans to utilize proceeds from the
IPO to incur substantial research and development costs of approximately
$700,000 due to continuing research of materials composition, design and
production process optimization, development of new GRADIUM profiles and product
development. The Company also budgeted for the 1997 fiscal year, $3,700,000 in
general and administrative costs associated with the scale-up of manufacturing
operations, creation of a marketing and sales organization, programs and
distribution channels, recruitment and training of personnel and other operating
activities. The Company incurred capital expenditures of approximately $280,000
from the date of the IPO through June 30, 1996, and additional capital
expenditures of approximately $800,000 are planned for administrative, research
and development and manufacturing equipment during the 1997 fiscal year. The
Company believes that the IPO proceeds will be sufficient to cover the fiscal
year operating and capital budget. At this time, the Company has no plans to
raise additional funds in fiscal year 1997.
Results of Operations
Year ended June 30, 1996 compared with the year ended June 30, 1995
Revenue totaled $200,444 for the year ended June 30, 1996, an increase
of $33,979 or 20% over the comparable period last year. The increase was
attributable to greater product development fees from an OEM. The development
phase of the OEM project is nearing completion and the Company does not
anticipate additional revenue from this phase of the project. Cost of sales was
$18,563, 56% of product sales, a decline of approximately $123,000 over the
comparable period in which cost of sales exceeded product revenue.
Administrative costs increased $473,147 or 35% primarily due to fourth quarter
staff additions which increased salaries approximately $245,000 during the
quarter, and accretion costs for the bridge financing obtained in November 1995.
Research and development costs decreased $29,091 for the year but during the
fourth quarter approximately $50,000 was expended. Use of research personnel and
consultants were reduced during the year due to limited resources prior to the
IPO. It is anticipated that research costs will increase to approximately
$150,000 a quarter in fiscal year 1997 as personnel are hired to continue
research and development efforts. Costs related to unearned compensation from
incentive stock options decreased $56,825 for the year. The Company has no
additional unearned compensation from incentive stock options to amortize in
future periods. The net variances resulted in an increase in total operating
costs of $264,189.
Investment income increased $71,003 due to the interest earned on the
IPO proceeds. Interest expense decreased $33,882 for the year, due to the
repayment or conversion of bridge loans and other interest bearing notes with
IPO proceeds.
Net loss totaled $2,914,905, an increase of $125,325 or 4% from the
comparable period last year. The increase in net loss was attributable to an
increase in administrative costs of $387,231, offset by improved gross margin of
$157,021 and other income/expense of $104,885. Net loss per share of $1.98 was
an improvement of $1.97 from the prior year due to increased gross margin of
$.11 and other income/expense of $.07, offset by the increase in administrative
costs of $.26. The remaining $2.05 gain was due to the increase in weighted
common stock resulting from the IPO.
16
<PAGE>
Three months ended September 30, 1996 compared with three months ended September
30,1995
Revenue totaled $123,470 for the three months ended September 30, 1996,
an increase of $93,342, over the comparable period last year. The increase was
attributable to an additional $81,000 in product development fees and an
additional $12,000 in lens sales. The new sales were derived from government
funded subcontracts in the area of solar energy to allow satellites to produce
their own power and the next generation of multiplexing devices used in
conjunction with optical fiber. The total award of the subcontracts was
$285,000. The Company did not enter into any new OEM projects during the
quarter. Cost of sales approximated product sales due to shipment of samples,
outside finishing expenses, and the low volume of inventory production. It is
anticipated that with increased volume the cost of production will decrease.
Administrative costs increased $368,876 or 126% primarily due to the addition of
personnel in all areas, sales and marketing, administration and operations along
with increased overhead in these areas as a result of an expected scale-up of
operations. Research and development costs increased from $12,570 to $246,943.
The research department staff has increased to 4.5 full time equivalents, which
were hired to continue the Company's research and development efforts in the
area of new glass families. There were no costs related to unearned compensation
from incentive stock options during the current quarter representing a decrease
of $867,642 for the period.
Investment income increased $42,588 due to the interest earned on
temporary investments. Interest expense decreased approximately $90,000 due
primarily to the conversion of debt to equity in conjunction with the completion
of the Company's IPO.
Net loss of $757,129 was a decrease of $477,709 from the comparable
period last year due to the increased gross margin $80,655, decrease of $867,642
in unearned compensation and the increase in other income of $132,661. These
gains were offset by the increase in selling, general and administrative costs
$368,876 and research and development $234,373. Net loss per share of $.28 was
an improvement of $1.37 due to increased gross margin $.03, the decrease
unearned compensation $.32 and the increase in other income $.05, offset by the
increase in selling, general and administrative costs $.13 and research and
development and other expenses $.09. The remaining $1.19 gain was due to the
increase in weighted common stock due to the IPO.
Financial Resources and Liquidity
LightPath had financed its operations through private placements of
equity, borrowings or debt until February 1996 when the IPO generated net
proceeds of approximately $7,200,000. The Company expects to continue to incur
losses until such time, if ever, as it obtains market acceptance for its product
at selling prices and volumes which provide adequate gross profit to cover
operating costs. The Company has budgeted its cash requirements for fiscal 1997
at $3,700,000 a substantial increase due to the implementation of a sales
program, additional personnel and overhead costs as detailed in the "Plan of
Operations". Cash required for operating and research activities in fiscal 1996
were approximately $2,300,000. In addition, the Company plans to expend $700,000
to continue its research and development efforts and to purchase $800,000 in
capital equipment to expand its manufacturing facilities during fiscal year
1997. During fiscal 1996 the Company incurred approximately $280,000 in capital
equipment.
During the first quarter the Company's actual cash requirements were
approximately $280,000 under this budget. In addition, the Company budgeted
$700,000 for fiscal 1997 to continue its research and development efforts.
During the first quarter the Company's actual cash requirements for research and
development equaled this budget. The Company also budgeted $800,000 primarily to
be used for equipment to expand its manufacturing facilities during fiscal year
1997. During first quarter the Company incurred approximately $210,000 in
capital equipment and patent costs. The Company anticipates purchasing
approximately $170,000 in capital equipment and patent costs by December 31,
1996.
The Company believes that IPO proceeds will be sufficient to cover the
fiscal 1997 operating and capital budget. The Company's capital requirements
after such period will depend on the extent that GRADIUM becomes commercially
accepted and the Company's sales program is successful in generating sales
sufficient to sustain its operations. There can be no assurance that the Company
will generate sufficient revenues to fund its operations or that the Company
will successfully commercialize its GRADIUM products. In addition, the Company
may be required to seek additional financing or alter its business plan in the
event of delays, cost overruns or unanticipated expenses associated with a
company in the development stage. The Company currently has no credit facility
with a bank or other financial institution. There also can be no assurance that
any additional financing will be available if
17
<PAGE>
needed, or, if available, will be on terms acceptable to the Company. In the
event necessary financing is not obtained, the Company will be materially
adversely affected and have to cease or substantially reduce operations.
The shares of Class E common stock have the characteristics of escrowed
shares; therefore, shares owned by key officers, employees, directors or
consultants of the Company are subject to variable plan compensation accounting.
In the event the Company attains any of the earnings thresholds of the Company's
Class A common stock meets certain minimum market prices required for conversion
of Class E common stock into Class A common stock, the Company will be required
to recognize compensation expense in the periods in which the stated criteria
for conversion are probable of being met.
Effective April 1, 1996, the Company entered into a five year lease
agreement for a 13,300 square foot manufacturing and office facility in
Albuquerque, New Mexico at a monthly cost of $6,500 for the first three years,
increasing to $6,900 monthly in the last two years. The Company has relocated
its staff and manufacturing equipment as of this date. No significant costs were
incurred in the move. The Company incurred capital expenditures of approximately
$280,000 from the date of the IPO through June 30, 1996, and additional capital
expenditures of approximately $800,000 are planned for administrative and
manufacturing facilities during the 1997 fiscal year.
Since the Company has principally been engaged in basic research and
development of its products, it has not been significantly impacted by
inflation. The Company does not believe that seasonality will have a significant
impact on its business.
Business
General
LightPath Technologies, Inc. (the "Company") is a development stage
enterprise engaged in the research, development and production of GRADIUM(TM)
glass. GRADIUM is an optical quality glass material with varying refractive
indices, capable of reducing optical aberrations inherent in conventional lenses
and performing with a single lens tasks performed by multi-element conventional
lens systems. The Company believes that GRADIUM lenses provide advantages over
conventional lenses for certain applications. By reducing optical aberrations,
the Company believes that GRADIUM lenses can provide sharper images, higher
resolution, less image distortion, a wider usable field of view and a smaller
focal spot size. By reducing the number of lenses in an optical system, the
Company believes that GRADIUM can provide more efficient light transmission and
greater brightness, lower production costs, and a simpler, smaller product.
While the Company believes that other researchers have sought to produce optical
quality lens material with the properties of GRADIUM, the Company is not aware
of any other person or firm that has developed a repeatable manufacturing
process for producing such material on a prescribable basis. LightPath has been
issued ten patents and has filed pending patent applications related to its
materials composition, product design and fabrication processes for the
production of GRADIUM products. The Company continues to develop new GRADIUM
materials with various refractive index and dispersion profiles.
LightPath was incorporated under Delaware law in June 1992 as the
successor to LightPath Technologies Limited Partnership, a New Mexico limited
partnership (the "Partnership") formed in 1989, and its predecessor, Integrated
Solar Technologies Corporation, a New Mexico corporation ("ISOTEC") organized in
1985. The Company's initial objective in 1985 was to improve solar energy
technology by creating optical material that could efficiently bend light from
varying angles in order to track the path of the sun across the sky. In 1987,
the Company realized that its early discoveries had much broader application,
and expanded its focus to imaging optics applications. On February 22, 1996 the
company completed an initial public offering ("IPO") for sale of 1,840,000
units, each unit consisting of one share of Class A common stock, one Class A
warrant and one Class B warrant at a price of $5.00 per unit.
Since its inception in 1985, the Company has been engaged in basic
research and development and only recently began to focus on product
development. The Company believes that most of its product sales to date have
been to persons evaluating the commercial application of GRADIUM or using the
products for research and development. The Company is offering standard,
computer-based profiles of GRADIUM that engineers can use for product design.
Further development is necessary to expand the Company's available standard
profiles and to add additional GRADIUM glass families required for certain
optics applications.
18
<PAGE>
LightPath has developed a patented process for producing an optical
quality material, GRADIUM, with an "axial" gradient refractive index (i.e., the
index gradient runs parallel to the optical lens axis, rather than perpendicular
or "radial"). GRADIUM is produced by inter-diffusing the atomic constituents of
different glass compounds into one material with the prescribed optical profile
throughout. GRADIUM profiles with large or small changes in refractive index can
be prescribed and achieved with precision, and GRADIUM lenses can be produced
across a large diameter range (currently 4mm-50mm). Unlike aspheres, GRADIUM
lenses can be finished using conventional spherical surface grinding and
polishing techniques. Each piece of GRADIUM can contain the properties of a
number of conventional optical glasses combined into one, thus allowing a simple
spherical lens to correct spherical aberrations or perform more complicated
"multi-element lens system" functions with a single lens.
By reducing optical aberrations, GRADIUM lenses can provide sharper
images, higher resolution, less image distortion, a wider usable field of view
and a smaller focal spot size. By reducing the number of lenses in an optical
system, GRADIUM should provide more efficient light transmission and greater
brightness, lower production costs, and a simpler, smaller and lighter product.
Although the Company's present GRADIUM products are designed for monochromatic
applications (e.g., lasers), the Company believes that GRADIUM may be developed
for high performance white light applications such as endoscopes or high
precision microscopes. GRADIUM's unique properties will allow the Company to
develop products for markets that emphasize performance, as well as markets that
emphasize efficiency (by reducing conventional lens count or as a substitute for
more expensive aspheres).
Business Strategy
In an attempt to achieve more rapid sales, the Company initially
intends to emphasize laser products that it believes may have the greatest
immediate commercial impact with the least initial investment. Lasers are
presently used extensively in a broad range of consumer and commercial products,
including fiber-optics, robotics, bar-code reading, document reproduction and
audio and video compact disc machines. Generally, optical designers can
substitute GRADIUM components included in the Company's standard line for
existing laser lens elements. Because GRADIUM can concentrate light transmission
into a much smaller focal spot than conventional lenses, the Company believes
that GRADIUM has the ability to improve laser performance. The Company's
strategy will be to target key laser market niches and establish the necessary
products and partnership alliances to sell into Europe and Asia as well as the
U.S. market. In addition to laser applications, loose optical components can
easily be substituted into many simple products. The Company intends to provide
a standard line of GRADIUM profiles for broad-based sales to optical designers
developing particular systems for original equipment manufacturers ("OEMs") or
in-house products.
Because complex systems contain many optical components, and GRADIUM
lenses can be utilized to reduce the number of lens elements in such systems,
the Company believes that GRADIUM lenses can simplify the design and improve the
performance of complex optical systems. However, design and production of an
optical product is a lengthy process, and it could take years for producers to
redesign complex optical systems using GRADIUM, reconfigure the product housing,
re-engineer the assembly process and commence commercial quantity orders for
GRADIUM components. Accordingly, the Company intends to focus its marketing
efforts on niche emerging industries, such as multimedia and telecommunications,
that are designing for next-generation optical systems, and performance driven
industries, such as medical instruments, that are seeking to optimize
performance of existing optical products. The Company believes OEM relationships
may improve the Company's technology base by evolving into more sophisticated
research and products, although there can be no assurances in this regard. The
Company's existing OEM relationships include the development of prototype lenses
for a leading manufacturer of endoscopes and the optimization of a high
performance rifle scope for a gunsight manufacturer.
The Company has targeted various optoelectronic industry market niches
and is currently developing additional GRADIUM products and key strategic
relationships that potentially could impact this large growth area. The Company
believes that GRADIUM can provide industry wide solutions to optoelectronic
problems of light gathering, packaging and alignment.
The Company intends to engage in promotional and educational activities
concerning GRADIUM so that optical engineers from the numerous, high performance
optics markets become familiar with GRADIUM and its properties. The Company
presently has five standard profiles of GRADIUM that engineers can use for
product design, and is continuing to develop more profiles. In addition, using
customers' designs, the Company intends to provide the lenses or lens blanks
with the profiles necessary to perform the desired function. The Company's
GRADIUM profiles are compatible with established software design programs
utilized by optical designers, enabling designers to integrate GRADIUM into
their designs. While this enables designers to incorporate GRADIUM into their
product design, the Company must create
19
<PAGE>
awareness of GRADIUM so that designers will utilize GRADIUM in their designs. If
a standard GRADIUM profile is not suited for a specific design, LightPath may
create a custom GRADIUM profile for the customer. The Company's objective is
that optical designers will learn from information furnished by the Company that
GRADIUM can provide them with additional flexibility and design freedom to
create optical products more efficiently and with enhanced performance.
Sales and Marketing
The Company's primary marketing objectives are to target specific OEM
customers, to promote direct sales to the laser market and to promote product
awareness by educating the various optics markets about the advantages of
GRADIUM. The Company's limited revenues and financing prior to the IPO had been
applied primarily to research and development, consequently, LightPath and
GRADIUM are largely unknown.
The optics industry is characterized by extensive product diversity and
varying levels of product maturity. Products range from consumer (e.g., cameras,
copiers) to industrial (e.g., lasers), from products where the lenses are the
central feature (e.g., telescopes, microscopes) to products incorporating lens
components (e.g., robotics, semiconductor production equipment). As a result,
the market for the Company's products is highly segmented and no single
marketing approach will allow the Company to access all available market
segments. Accordingly, the Company will selectively focus in specific laser and
optoelectronic niches that provide the best opportunity for market penetration.
However, all optical products are restricted by the same design constraints and
technological shortcomings of conventional optical technology and materials.
Because the optics industry is so segmented the Company plans to
utilize the Internet as a vehicle for promotion of GRADIUM. "Light.Net" is an
Internet sight where interested persons may presently obtain information on the
Company and GRADIUM, and order products from our catalog. In addition the
Company will develop a computer-based instructional program to answer frequently
asked questions about GRADIUM and provide technical information about product
applications for customers, suppliers and interested individuals. The Company
has placed, and will continue to place, print media advertisements in various
trade magazines and will be participating in appropriate trade shows.
The Company continues to develop a network of selected independent
optical engineering firms which it has named LightPath-Design!(TM) Centers, to
promote the sale of GRADIUM products. There presently exists an unorganized
worldwide group of optical engineering firms that provide optical design
services and support. The Company's objective is to refer potential customers
that inquire about GRADIUM (on the Light.Net or otherwise) to such firms in the
customers' geographic location in an effort to promote the use of GRADIUM in the
design of the customers' optical systems. LightPath-Design!(TM) Centers are a
strategic alliance between the Company and optical engineering firms owned and
operated by third parties.
The Company plans to market GRADIUM through relationships with OEMs for
the production of particular prototype lenses to be incorporated into the
manufacturer's proprietary products. LightPath has entered into an agreement
with Karl Storz GMBH & Co. ("Storz"), a major endoscope manufacturer, for the
development of lenses for endoscopy instruments. Endoscopes are used to observe
diagnostic or surgical procedures in vivo (within the body), substantially
reducing surgical costs. Pursuant to the terms of the agreement, the Company has
designed and delivered GRADIUM materials with profiles specified by Storz, and
Storz is in the process of producing prototype instruments incorporating the
GRADIUM materials. Storz is not obligated to order commercial quantities of
GRADIUM products, and may terminate the agreement without entering into a
production phase. Although the agreement provides for the Company to receive
payments upon achievement of certain development milestones, the relationship
will yield significant revenues only if Storz sells commercial quantities of the
GRADIUM endoscopes. The Company granted Storz an exclusive worldwide license to
use GRADIUM materials in the production of endoscopes, as well as the right to
use the Company's tradenames in connection with the sale of such endoscopes. The
exclusive license provides for royalties based on actual sales as well as
certain minimum royalties once Storz commences commercial production, if ever.
Pursuant to a purchase order from a military contractor, LightPath
designed a prototype for a more rugged, high performance gunsight lens system.
The Company believes that the GRADIUM prototype has demonstrated greater
ruggedness and an imperviousness to harsh environmental conditions. The
LightPath lens design eliminates air spaces between lens elements, eliminating
condensation caused by rapid changes between warm, humid indoor and cold or
humid outdoor environments. The contractor is seeking next-stage U.S. government
funding, of which there can be no assurance, before continuing the project.
LightPath has also developed a prototype lens for a commercial gunsight
manufacturer that is considering incorporating a GRADIUM lens in its gunsights,
and is developing prototype lenses for other military/aerospace OEMs and
government research labs.
20
<PAGE>
Competition
The market for optical components is highly competitive and highly
fragmented. The Company competes with manufacturers of conventional spherical
lens products and optical components, providers of aspherical lenses and optical
components and producers of optical quality glass. To a lesser extent, the
Company competes with developers of radial gradient lenses and optical
components. Many of these competitors have greater financial, manufacturing,
marketing and other resources than the Company.
Manufacturers of conventional lenses and optical components include
industry giants such as Eastman Kodak Corporation, Nikon, Olympus Optical
Company, Carl Zeiss and Leica AG. In addition to being substantial producers of
optical components, these entities are also some of the primary customers for
such components, incorporating them into finished products for sale to
end-users. Consequently, these competitors have significant control over certain
markets for the Company's products. In addition, although these companies do not
manufacture axial gradient lenses, and the Company believes that it has a
substantial technological lead in this field, in light of their substantial
resources, these companies could pursue development of axial gradient products.
In addition, the Company's products compete with products produced by these
manufacturers.
Because the Company also sells GRADIUM blanks for final fabrication to
customers, it competes directly with producers of homogenous optical quality
glass such as Schott Glaswerke and Hoya Corporation. These manufacturers are
continually seeking to improve the materials available for lenses and optical
components. Due to their substantial resources, they also might be expected to
try to develop products more directly competitive with GRADIUM and/or impede
market opportunities for the Company's sale of GRADIUM materials.
Manufacturers of aspherical lenses and optical components provide
significant competition for the Company in providing products that improve the
shortcomings of conventional lenses. Aspherical lens system manufacturers
include Eastman Kodak Corporation, Olympus Optical Company, Gel-Tech, Inc., Hoya
Corporation and U.S. Precision Lens. The use of aspherical surfaces provides the
optical designer with a powerful tool in correcting spherical aberrations and
enhancing performance in state-of-the-art optical products. But the nonspherical
surfaces of glass "aspheres" are difficult to fabricate and test, are limited in
diameter range and induce light scatter. Plastic molded aspheres, on the other
hand, allow for high volume production, but primarily are limited to low-tech
consumer products that do not place a high demand on performance (such as
plastic lenses in disposable cameras). Molded plastic aspheres appear in
products that stress weight, size and cost as their measure of success. Molded
glass aspheric technology requires high volume production to be cost-effective
because hand polishing is too time consuming. Despite these drawbacks,
aspherical lenses presently have significant commercial acceptance.
To a lesser extent, the Company competes with manufacturers of other
gradient index lens materials. Currently, processes to produce gradient index
materials include ion-exchange, chemical vapor deposition (CVD) and Sol-Gel, all
of which produce small radial gradient index rods with limited applications.
Manufacturers using these processes include Nippon Sheet Glass, Olympus Optical
Company and Gradient Lens Corporation. The Company believes that these processes
are limited by the small refractive index change achievable (typically, less
than 0.05), the small skin depth of the gradient region (typically less than 3
mm), the lack of control of the shape of the resultant gradient profile, limited
glass compositions, and high per unit manufacturing costs.
Another potentially competitive technology being pursued by certain
researchers is diffractive optics, a process that etches microscopic patterns on
the surface of a homogenous lens to correct spherical aberrations. Because
diffraction alters the lens surface, optical coatings cannot be applied to
minimize light scatter and maximize light transmission. However, this process
has the potential to compete with both aspheres and GRADIUM in certain
applications.
21
<PAGE>
Manufacturing
LightPath had limited manufacturing capabilities prior to the move to
Albuquerque. In the larger facility, the Company has begun to implement its
plans for a high-volume blank and lens production manufacturing plant by
purchasing appropriate equipment, expanding and training a production work force
and implementing process controls. Although the Company has not produced high
volumes of GRADIUM lenses, it believes that a scale-up of manufacturing can be
achieved in the larger facility by adding appropriate equipment and personnel
without requiring any significant engineering advances. The Company also
believes that proper scale-up of the manufacturing process will yield
efficiencies and reduce unit production costs. By purchasing larger, more
sophisticated furnaces, milling machines and metrology equipment, the Company
believes that greater production efficiencies should be realized. Automation of
certain assembly processes, including core drilling and metrology, may result in
further cost savings and quality improvements. The Company believes that low
manufacturing costs will be a key to its long-term success.
The Company presently uses subcontractors for finishing lenses and
intends to continue to do so. The Company has purchased a limited amount of lens
finishing equipment for finishing prototype lenses and for rapid turnaround of
small volume orders.
The Company believes that the production process is repeatable with
consistent high quality, and has accurately completed a production scale up of
its catalog product lines. The Company's process does not require any
extraordinary controls. Since present GRADIUM lenses have spherical surfaces,
lens finishing costs will continue to be considerably less expensive than most
aspheric lenses. Although GRADIUM lenses may be more expensive than conventional
homogenous lenses, the lens price may be offset by GRADIUM's ability to reduce
the number of lens elements and/or to increase the performance and functionality
of the complete optical system. The Company is now able to use standard,
off-the-shelf base glass to produce its GRADIUM lenses.. Base glasses are
manufactured by a number of major glass manufacturers, and the Company believes
that a satisfactory supply of glass can be assured at a reasonable price.
Patents and Other Proprietary Intellectual Property
The Company's policy is to protect its technology by, among other
things, patents, trade secrets, trademarks and copyrights. As of June 1996, the
Company had ten issued U.S. patents, four foreign patents and had filed
applications for four additional U.S. patents. Patents have been issued and/or
patent applications have been filed in the areas of glass composition, gradient
geometries, production processes and product design. One of the Company's issued
patents expires in 2006, two in 2007, one in 2008, three in 2010, two in 2012
and one in 2013. Patent applications corresponding to LightPath's U.S.
applications have been filed in the patent offices in Europe and Japan pursuant
to the Patent Cooperation Treaty ("PCT). Under the PCT, a patent applicant may
file one patent application and have it acknowledged as an accepted filing in as
many member nations to the PCT as the applicant elects.
In addition to patent protection, certain process inventions and
innovations are retained as trade secrets. A key feature of GRADIUM is that,
once fabricated, it does not reveal its formula upon inspection and cannot be
reverse-engineered. LightPath(R) is now registered as a service mark in the
United States; registrations for LightPath(TM), GRADIUM and other trademarks are
pending. The Company intends to register these trademarks in key foreign
jurisdictions.
There can be no assurance that any issued patents owned by the Company
will afford adequate protection to the Company or not be challenged,
invalidated, infringed or circumvented, or that patent applications relating to
the Company's products or technologies that it may license in the future or file
itself will result in patents being issued, or that any rights granted
thereunder will provide competitive advantages to the Company. There can be no
assurance that patents owned or licensed by the Company and issued in one
jurisdiction will also issue in any other jurisdiction. Furthermore, there can
be no assurance that the validity of any of the patents would be upheld if
challenged by others in litigation or that the Company's activities would not
infringe patents owned by others. No such challenges have been made to date.
Further, there can be no assurance that others have not independently
developed or will not independently develop and patent similar or superior
products and/or technologies, duplicate any of the Company's products or
technologies or design around the Company's patents. There can be no assurance
that patents issued to others will not adversely affect the development or
commercialization of the Company's products or technologies. The Company does
not have a policy of patent infringement liability coverage for costs or damages
relating to claims of infringement. The Company could incur substantial costs in
defending itself in suits brought against it or any of its licensees, or in
suits in
22
<PAGE>
which the Company may assert its patent or patents in which it may have rights
against others or in suits contesting the validity of a patent. Any such
proceedings would be protracted. In addition, there can be no assurance that the
Company could be successful in defending its patent rights in any future
infringement action. If the outcome of any such litigation is adverse to the
Company's interests, the Company's business may be materially adversely
affected.
The Company is not aware of its products and/or processes infringing
any U.S. or foreign patent rights of any other party. There can be no assurance,
however, that all United States and any foreign patents or patent applications
that may pose a risk of infringement have been identified. Patent applications
in the United States are maintained in secrecy until patents issue. The Company
could incur substantial costs in defending itself in infringement litigation
brought by others, or in prosecuting infringement claims against third parties.
An adverse party claiming patent or copyright infringement might assert claims
for substantial damages or seek to obtain an injunction or other equitable
relief, which could effectively block the ability of the Company to make, use
distribute and sell products.
The Company relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants and customers. However, there can be no assurance that the Company's
confidentiality agreements, when in place, will not be breached or that the
Company would have adequate remedies for any breach. Some of the confidentiality
agreements that the Company relies upon will expire in the next few years. There
can be no assurance that others will not independently develop technology or
processes substantially equivalent to or better than the Company's technology or
processes, or that the Company's trade secrets will not otherwise become
disclosed to or independently discovered by its competitors. It is very
difficult to protect unpatented know-how and trade secrets.
Environmental and Government Regulation
Emissions and waste from the Company's present manufacturing process
are at such low levels that no special environmental permits or licenses are
required. In the future, the Company may need to obtain special permits for
disposal of increased waste by-products. The glass materials utilized by the
Company contain lead and other toxic elements in a stabilized molecular form.
However, the high temperature diffusion process results in low-level emission of
such elements in gaseous form. If production reaches a certain level, the
Company believes that it will be able to efficiently recycle certain of its raw
material waste, thereby reducing disposal levels. The Company believes that it
presently is in compliance with all material federal, state and local laws and
regulations governing its operations and has obtained all material licenses and
permits necessary for the operation of its business.
There are no federal, state or local regulations that restrict the
manufacturing and distribution of GRADIUM materials. Certain end-user
applications will require that the complete optical systems receive government
approval, such as Federal Drug Administration approval for use in endoscopy. In
these cases, the Company will generally be involved on a secondary level and the
license and approval process will be up to the OEM customer.
Research and Development
Since inception, the Company has been engaged in basic research and
development that has resulted in the discovery of GRADIUM and the proprietary
processes for fabricating GRADIUM lenses. This research included theoretical
development of the mathematical formulas for accurately defining GRADIUM,
development and refinement of the prescribable, repeatable fabrication process,
and development of the software modeling tools and metrology. The Company
shipped its first GRADIUM products in May 1994. The Company intends to continue
fundamental materials research, process and production optimization, and the
development of new glass compositions to create different "families" and
geometries of GRADIUM materials to be offered to customers. "Families" of glass
are various base glass compounds comprised of different elements. Variation of
refractive index can be accomplished by using different elements in glass.
Further development is necessary to produce GRADIUM materials for high
performance, white light applications (such as high performance microscopes and
other products where sensitive color discrimination is critical). The Company
will continue to refine its design modeling software in an attempt to gain
greater design accuracy and more efficient production processes.
The Company's initial product line is lead-based. The Company currently
is developing a barium-based product line, and may in the future conduct
development regarding lanthanum-based products. Optical elements of lanthanum or
barium may be used with lead-based glass to correct or reduce certain chromatic
aberrations. From within these families, a specific range of refractive indices
and dispersive properties is selected for each specific profile, providing an
inventory of GRADIUM profiles for a diverse range of applications.
23
<PAGE>
The Company has expended in excess of $6,900,000 for research and
development since inception. The Company expended or incurred expenditures for
research and development for the two years ended June 30 as follows: 1996,
$83,074; 1995, $112,165. The decrease in research and development expenditures
in recent years is due to personnel reductions and declining activity as a
result of the Company's lack of operating capital. The Company plans to expend
approximately $700,000 on research and development during fiscal 1997.
Employees
The Company currently had twenty-one full-time employees at June 30,
1996 and expects to hire four additional employees in the next twelve months,
including manufacturing, technical design and engineering, marketing and sales.
Seven of the Company's present employees are engaged in management,
administrative and clerical functions, four in research and development, five in
production and five in sales and marketing. In order to maintain low overhead
expenses, the Company intends to continue its current practice of utilizing
outside consultants, where appropriate, in addition to hiring additional
full-time personnel. None of the Company's employees are represented by labor
unions.
Description of Property
The Company leases its principal offices in Albuquerque, New Mexico
which are used to house all of its operations, including research, product
design and development, production and all administrative operations. The 13,300
square foot facility is located in a business and research park. The Company is
obligated to make monthly rental payments of $6,500 (increasing to $6,900 in
year four) on a five year lease which expires April 2001.
Legal Proceedings
On July 31, 1995 a former employee commenced a lawsuit against the
Company for deferred compensation, reimbursable expenses and damages totaling
$114,672 in the Superior Court of Arizona, County of Pima. On September 22, 1995
an additional suit was filed in the same court, by the employee, alleging
wrongful discharge and damages in an unspecified amount. The Company settled
both of the lawsuits in May 1996, for approximately $75,000, the majority of
which was deferred wages the Company had accrued in the prior year.
On April 24, 1995, another former employee commenced a lawsuit in the
U.S. District Court, Tucson, against the Company alleging that he was unlawfully
terminated in retaliation for his efforts to secure unpaid wages for himself and
co-workers. He also filed a complaint with the National Labor Relations Board
(the "NLRB"). The NLRB found in favor of LightPath on the merits of the claim.
The discovery phase has begun and the Company is preparing a motion for summary
judgment. The former employee seeks an unspecified amount of damages. In October
1996, the Company was informed that the lawsuit had been terminated by the
employee following the discovery phase.
On January 9, 1996, a former consultant filed a lawsuit against the
Company in Arizona Superior Court, County of Pima, alleging that the Company
owes him additional fees in the amount of $25,600 plus interest. Discovery has
been initiated and the Company intends to answer and defend against the claim.
The Company is involved in other various legal actions arising in the
normal course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that their outcome will
not have a significant effect on the Company's financial statements. The Company
is also aware of the existence of certain unasserted claims. Certain potential
claims exist due to nonpayment of payables during the periods when the Company
had inadequate cash flow. Third parties have not recently manifested their
intent to pursue such matters. Management is of the opinion that such matters
are not likely to be asserted or if they are will not result in any material
liability to the Company.
24
<PAGE>
MANAGEMENT
Directors and Executive Officers
The Directors and Executive Officers of the Company, and their
respective ages and positions with the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Leslie A. Danziger 43 Chairman and President
Louis P. Wagman 54 Executive Vice President and Secretary
Donald E. Lawson 45 Executive Vice President, Chief Operating Officer and Treasurer
David W. Collins 56 Director
Milton Klein, M.D. (1) 48 Director
Louis Leeburg (2) 42 Director
Haydock H. Miller, Jr. (1) 71 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Leslie A. Danziger has been Chairman of the Company, since its
incorporation in June 1992, and has also held the position of President since
August 1995. Ms. Danziger was a partner or executive officer of the Company's
predecessors from 1985 until incorporation of the Company. Ms. Danziger is a
founder of the Company and a co-inventor of the first two LightPath patents. She
has developed and guided the execution of the Company's long-term business
strategies and the development and commercialization of the Company's
technologies. From 1974 to 1979 she served as an Executive Vice President of
COS, Inc., and from 1979 to 1982 she served as Executive Vice President of
Arctic Communications Corporation. Both of these communication consulting firms
developed tools designed to assist clients in resolving conflicts relating to
economic development, land use and natural resource issues. Ms. Danziger
attended the University of Texas. Ms. Danziger is married to Joel C. Goldblatt,
the Company's Vice President of Strategic Planning and Communications, and is
the sister-in-law of Milton Klein, M.D., a Director of the Company.
Louis P. Wagman has been the Executive Vice President of the Company
since May 1992 and as its Secretary since October 1992. Mr. Wagman is
responsible for the Company's strategic alliances and licensing and new business
development. From 1991 until the time he joined the Company, Mr. Wagman
performed management consulting services for various firms, including the
Company. From 1989 to 1991, Mr. Wagman was President and Chief Executive Officer
of Photometrics, Ltd., a supplier of advanced electronic imaging equipment for
scientific and industrial applications. From 1977 to 1989, he served as Vice
President and General Manager of four different companies engaged in the design
and manufacture of high-tech diagnostic, testing and service equipment:
Princeton Gamma-Tech, Sun Electric Corporation, Sensors/Dynatech and KLT
Industries. During the previous eleven years, Mr. Wagman was an executive with
Bendix Corporation. Mr. Wagman received a B.S. degree in Electronics Engineering
from George Washington University and an M.B.A. with distinction from the
University of Michigan.
Donald E. Lawson has been Executive Vice President of the Company since
May 5, 1995 and Treasurer since September 1995. Mr. Lawson has also served as
the Company's Chief Operating Officer since June 1995 and is responsible for the
Company's financial activities, manufacturing, sales, research and development,
and intellectual property management. From 1991 to 1995, Mr. Lawson served as
Vice President, Operations for Lukens Medical Corporation, a medical device
manufacturer. From 1980 to 1990, Mr. Lawson served in various capacities,
including Production Superintendent, for Ethicon, Inc., a division of Johnson &
Johnson and a manufacturer of medical products. Mr. Lawson received a B.B.A.
degree in Finance from Texas A & M University.
David W. Collins has served as a Director of the Company since 1992.
Dr. Collins served as an in-house patent counsel for Bell Laboratories from 1970
to 1974, for Allied Chemical Corporation from 1974 to 1978, for Exxon Research
and Development from 1978 to 1979, and for Hughes Aircraft from 1979 to 1985.
Dr. Collins has been a patent attorney in private practice in since 1985 with
his office in Tucson, Arizona, since 1992, and has served as special patent
counsel to the Company since 1987. Dr. Collins received a B.S. degree in
chemistry from the University of Massachusetts, an
25
<PAGE>
M.S. degree in chemistry from Williams College, a Ph.D. in solid state science
from Penn State University and a J.D. from Seton Hall University. Dr. Collins is
a member of the New Jersey and California Bar Associations.
Milton Klein, M.D. has served as a Director of the Company since its
inception. Dr. Klein is principally involved in medically related uses for
LightPath GRADIUM materials. In March 1992 Dr. Klein organized the Company's
group of scientific advisors to explore the use of the Company's technology in
endoscopic equipment, microscopy and related medical optical systems. Dr. Klein
specializes in cardiology and from 1982 to the present has been a Clinical
Associate Professor of Medicine at The Baylor College of Medicine, Houston,
Texas. He is a Fellow of the American College of Cardiology and the American
College of Physicians. Dr. Klein received a B.S. degree from McGill University
and an M.D. from the University of California in San Diego. Dr. Klein is the
brother-in-law of Leslie A. Danziger.
Louis Leeburg has served as a Director of the Company since May 1996.
Since 1993 Mr. Leeburg has been with the investment firm, Jay A. Fishman, Ltd.
From December 1988 until August 1993 he was the Vice President, Finance of The
Fetzer Institute, Inc. From 1980 to 1988 he was in financial positions with
different organizations with an emphasis in investment management. Mr. Leeburg
was an audit manager for Price Waterhouse & Co. until 1980. Mr. Leeburg received
a B.S. in accounting from Arizona State University. Mr. Leeburg is a member of
Financial Foundation Officers Group and the treasurer and trustee for the John
E. Fetzer Memorial Trust Fund and the John E. Fetzer ILM Trust Fund, affiliated
with a significant stockholder of the Company.
Haydock H. Miller, Jr. has served as a Director of the Company since
January 1993. Since that time he has advised the Company on administrative,
management and financial matters. Mr. Miller served as an executive with the
Aluminum Company of America (ALCOA) from 1949 until his retirement in 1983. Mr.
Miller received a B.A. degree from Yale University. His last position with ALCOA
was Manager of Organization Analysis, an internal consulting group for all ALCOA
departments and divisions prior hereto he was Manager for salaried job
evaluations for ALCOA and its subsidiaries and immediately before that, was
Superintendent of several ALCOA plants, concentrating on quality control and
production techniques, and consultant to its operations in the United Kingdom.
Since 1983, Mr. Miller has been an independent management consultant.
Committees of the Board of Directors
The Board of Directors has a Compensation Committee which reviews and
recommends to the Board of Directors the compensation and benefits of all
officers of the Company and also administers the Company's Omnibus Incentive
Plan, pursuant to which incentive awards, including stock options, are granted
to officers and key employees. The Board of Directors appointed an Audit
Committee comprised of Louis Leeburg on July 8, 1996. It is anticipated that the
Audit Committee will review, with the Company's independent accountants, the
annual financial statements of the Company, and also will review the
effectiveness of the Company's financial and accounting functions and
organization and make recommendations to the Board of Directors in that regard.
Directors' Compensation
During the year end June 30, 1996 directors were not compensated for
their services in that capacity or for serving on committees. On July 8, 1996
the Board of Directors approved a proposal to compensate each non-employee
director $1,000 per meeting attended. Non-employee Directors serving on the
Company's Board receive nonqualified stock options of Class A Common Stock as
part of the Directors Stock Plan. The plan provides for an automatic annual
grant of 182 shares and an initial option grant of 900 shares at the time a
director commences service to the Company. On August 21, 1996, the Board of
Directors approved a proposal to modify the plan for fiscal 1997, for an
automatic annual grant of 3,000 shares and an initial option grant of 10,000
shares at the time a director commences service to the Company.
All Directors are reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attendance at Board and Committee meetings.
Directors who are employees of the Company do not receive compensation for
service on the Board or Committees of the Board other than their compensation as
employees.
Limitation of Liability and Indemnification
The Certificate of Incorporation limits, as permitted by the Delaware
General Corporation Law liability of the Company's directors to the Company or
its stockholders for monetary damages arising from a breach of their fiduciary
duties as directors in certain circumstances. This provision presently limits a
director's liability except where a director (i) breaches his or her duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or
26
<PAGE>
engages in intentional misconduct or a knowing violation of law, (iii) for any
transaction from which a director obtains an improper personal benefit, or (iv)
under Section 174 of the Delaware General Corporation Law which imposes
liability for willful or negligent payment of unlawful dividends, distributions
or redemptions. This provision does not prevent the Company or its stockholders
from seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against actions
taken by directors that constitute negligence or gross negligence.
The Bylaws of the Company authorize the Company to indemnify its
directors, officers or other persons serving at the request of the Company
against liabilities and losses arising from their services in such capacities to
the fullest extent permitted by law, including payment in advance of a final
disposition of a director's or officer's expenses or attorneys' fees reasonably
incurred in defending any action, suit or proceeding, other than in the case of
an action, suit or proceeding brought by the Company on its own behalf against
such person. Presently, the Delaware General Corporation Law provides that to be
entitled to indemnification an individual must have acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the Company's
best interests.
The Company has been advised that it is the position of the Commission
that insofar as the foregoing provision may be invoked to disclaim liability for
damages arising under the Securities Act, such provision is against public
policy as expressed in the Securities Act and is therefore unenforceable.
The Company believes that these charter provisions are consistent with
certain provisions of the Delaware General Corporation Law, which are designed,
among other things, to encourage qualified individuals to serve as directors and
officers of Delaware corporations. The Company also believes these provisions
will assist it in maintaining and securing the services of qualified directors
and officers.
27
<PAGE>
Executive Compensation
The following table sets forth the compensation paid or accrued by the
Company for the services rendered during the fiscal years ended June 30, 1996,
1995 and 1994 to the Company's Chief Executive Officer and the other executive
officers of the Company or any employee who earned in excess of $100,000 during
the last fiscal year (collectively, the "Named Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
================================================================================================================
Long Term
Annual Compensation Compensation
------------------- ------------
================================================================================================================
Bundled Stock Class A
Name and Position Year Salary Bonus Options (1) Options (2)
- ----------------- ---- ------ ----- ----------- -----------
<S> <C>
Leslie A. Danziger
Chairman, President FY 1996 $150,000(3)
FY 1995 150,000(4) 90,910
FY 1994 120,000(5) 36,077
Louis P. Wagman
Exec. Vice President FY 1996 120,000(6)
FY 1995 120,000(7) 5,000 58,182
FY 1994 120,000(8) 32,909
Donald E. Lawson
Exec. Vice President FY 1996 90,000(9) 25,000
FY 1995 10,269(10)
================================================================================================================
</TABLE>
(1) With respect to the Bundled Stock Options, the total amount of shares
indicated consists of 20% shares of Class A common stock, 30% shares of
Class E-1common stock, 30% shares of Class E-2 common stock, and 20% shares
of Class E-3 common stock.
(2) Options are for Class A common stock only.
(3) Of this amount, $125,591 was paid, and the remainder has been deferred
contingent upon the Company meeting the Class E-1 conversion conditions.
(4) Of this amount, $31,250 was paid, $30,250 has been deferred contingent upon
the Company meeting the Class E-1 conversion conditions and the remainder
converted into Class E common stock at a $1 per share conversion price.
(5) Of this amount, $37,500 was paid and the remainder converted into Class E
common stock at a $1 per share conversion price.
(6) Of this amount, $111,410 was paid and the remainder has been deferred
contingent upon the Company meeting the Class E-1 conversion conditions.
(7) Of this amount, $87,500 was paid, $32,500 has been deferred contingent upon
the Company meeting the Class E-1 conversion conditions and the remainder
converted into Class E common stock at a $1 per share conversion price.
(8) Of this amount, $78,750 was paid, $16,250 has been deferred contingent upon
the Company meeting the Class E-1 conversion conditions and the remainder
converted into Class E common stock at a $1 per share conversion price.
(9) Of this amount, $65,000 was paid, and the remainder converted into Class E
common stock at a $1 per share conversion price.
(10) Of this amount, $2,770 was paid, and the remainder has been deferred
contingent upon the Company meeting the Class E-1 conversion conditions.
Mr. Lawson was hired in May 1995.
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<PAGE>
The following table sets forth information regarding Options granted to
the Named Officers during the fiscal year ended June 30, 1996.
Option Grants For The
Year Ended June 30, 1996
<TABLE>
<CAPTION>
=====================================================================================================
Options % of Total
Name Granted(1) Options Granted Exercise Price Expiration Date
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leslie A. Danziger 0 0 0 -
Louis P. Wagman 0 0 0 -
Donald E. Lawson 25,000 45% $5.00 Feb. 22, 2006
=====================================================================================================
</TABLE>
(1) Options represented are to purchase shares of Class A Common Stock.
The following table sets forth information regarding options exercised by the
Named Officers during the fiscal year June 30, 1996 and the value of options
held by the Named Officers at the fiscal year end.
Option Exercises And Year End Values
<TABLE>
<CAPTION>
================================================================================================================
# of Unexercised Value of
Options at FY end, Unexercised
Shares Exercisable/ In-The-Money
Name Acquired on Value Unexercisable Options at FY End
Exercise Realized -Class A (3)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leslie A. Danziger(1) 0 $0 126,987/0 $105,787
Louis P. Wagman (1) 0 $0 91,091/0 $ 75,882
Donald E. Lawson (2) 0 $0 10,000/15000 $3,750/5,625
==========================================================================================================
</TABLE>
(1) With respect to the Bundled Stock Options, the total amount of shares
indicated consists of 20% shares of Class A common stock, 30% shares of
Class E-1common stock, 30% shares of Class E-2 common stock, and 20% shares
of Class E-3 common stock.
(2) Options represented are to purchase shares of Class A common stock.
(3) Assumes a fiscal year end value of $5.375 per share of Class A common
stock. To compute the unrealized value of Class A common stock, the
underlying E shares were excluded and 20% of the option exercise price was
attributed to the Class A portion of the options. If the E shares were
included neither the shares held by Ms. Danziger or Mr. Wagman would be
in-the-money at June 30, 1996.
Employment Agreements
Effective November 8, 1995, the Company entered into three-year
employment agreements with its senior executive officers, Leslie A. Danziger,
Louis P. Wagman and Donald E. Lawson. The agreements provide for base salaries
of $150,000, $120,000 and $90,000 for Ms. Danziger, Mr. Wagman and Mr. Lawson,
respectively. In the event the Company terminates any of the executive's
employment during the term of the agreement without cause, or in the event the
executive terminates the agreement for good reason, the executive is entitled to
(i) continue to receive salary until the earlier of obtaining comparable
employment with another company or the lapse of two years, with respect to Ms.
Danziger, one year, with respect to Mr. Wagman, and six months, with respect to
Mr. Lawson, (ii) continue to receive benefits until the earlier of obtaining
comparable employment with another company or the corresponding periods stated
in (i) above, (iii) have all unvested stock options become immediately
exercisable, and (iv) receive a lump sum payment equal to the average of the
annual bonuses paid to the executive during the previous three fiscal years. The
Agreement defines "cause" to mean termination due to felony conviction, willful
disclosure of confidential information or willful
29
<PAGE>
failure to perform the executive's duties. The Agreement defines "good reason"
as a material detrimental alteration in the executive's position or
responsibilities, a material reduction in compensation, relocation, exclusion
from compensation plans or fringe benefits enjoyed by other executives, or a
material breach by the Company. The executive officers have agreed not to
terminate for good reason as a result of the Company's move to Albuquerque, New
Mexico. In addition, if the termination under the foregoing events occurs after
a change in control of the Company, the executive shall also receive a lump sum
severance payment equal to 2.99 times the executive's annual compensation,
including bonuses. The Agreement defines "change in Control" as an acquisition
of 40% of Company's combined voting power by any party, a change in the majority
of the directors over a two-year period (unless supported by the incumbent
directors), a reorganization or other business combination resulting in the
present stockholders of the Company no longer owning more than 50% of the
combined voting power of the Company, a sale of substantially all of the assets
of the Company or other similar transactions. The employment agreements reaffirm
the executives' agreements pursuant to previously executed confidential
information and invention agreements to, among other things, not compete with
the Company for a period of two years following termination of employment and to
assign any inventions, patents and other proprietary rights to the Company. Any
controversies regarding the employment agreements are to be settled by binding
arbitration.
Stock Option Plans
The Omnibus Incentive Plan In June 1992, the Board of Directors adopted
and the Company's stockholders approved, the LightPath Technologies, Inc.
Omnibus Incentive Plan (the "Incentive Plan") pursuant to which employees and of
ricers of the Company and any subsidiary corporations are eligible to receive
incentive stock options ("incentive options") within the meaning of Section 422
of the Internal Revenue Code ("Code"), as well as options that do not qualify as
incentive options ("nonqualified options"), stock appreciation rights,
restricted stock awards and/or performance bonuses of cash or stock. To date,
the only forms of awards under the Incentive Plan have been incentive and
nonqualified stock options. The Incentive Plan, is administered by a committee
of the Board of Directors, pursuant to Rule 16b-3 ("Rule 16b-3") promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), consisting of
"disinterested" directors as defined in Rule 16b-3. The purposes of the
Incentive Plan are to ensure the retention of existing executive personnel and
key employees who are expected to contribute to the Company's future growth and
success and to provide additional incentive by permitting such individuals to
participate in the ownership of the Company. The criteria utilized by the
committee in granting awards pursuant to the Incentive Plan is consistent with
these purposes.
Awards may be granted only to such employees and officers of the Company
as the committee shall select from time to time in its sole discretion. As of
June 30, 1996, the number of employees and officers of the Company eligible to
receive grants under the Incentive Plan was twenty-one persons. The committee,
in its discretion, determines (subject to the terms of the Incentive Plan) who
will be granted awards, the time or times at which awards shall be granted, and
the number of shares subject to each award, whether any options are incentive
options or nonqualified options, and the manner in which any options may be
exercised. In making such determination, consideration may be given to the value
of the services rendered by the respective individuals, their present and
potential contributions to the success of the Company and it subsidiaries and
such other factors deemed relevant in accomplishing the purpose of the Incentive
Plan.
As set forth above, options granted under the Incentive Plan may be either
incentive options or nonqualified options. Incentive options are exercisable for
a period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive option granted under the Incentive
Plan to a stockholder owning more than 10% of the outstanding voting power may
not exceed five years and its exercise price may not be less than 110% of the
fair market value of the Common Stock on the date of the grant. To the extent
that the aggregate fair market value, as of the date of grant, of the shares for
which incentive options become exercisable for the first time by an optionee
during the calendar year exceeds $100,000, the portion of such option which is
in excess of the $100,000 limitation will be treated as a nonqualified option.
The Company has agreed not to issue options with exercise prices below the
greater of the initial public offering price for the Units or the fair market
value of the Class A Common Stock on the date of grant of the option.
Awards granted under the Incentive Plan may be exercised only while the
recipient is employed or retained by the Company or within three months of the
date of termination of employment. However, awards which become exercisable at
the time of termination by reason of death or permanent disability of the
optionee may be exercised within one year of the date of termination of
employment. Upon the exercise of an award, payment may be made by cash or by any
other means the Board of Directors or the committee determines.
30
<PAGE>
Under the Incentive Plan, an award recipient has none of the rights of a
stockholder with respect to the shares issuable upon the exercise or
satisfaction of conditions for the award, until such shares are issued. No
adjustment may be made for dividends or distributions or other rights for which
the record date is prior to the date of exercise, except as provided in the
Incentive Plan. During the lifetime of the recipient, an award shall be
exercisable only by the recipient. No option may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of decent and distribution.
The Board of Directors may amend or terminate the Incentive Plan except
that stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Incentive Plan (unless
adjusted to reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of the Company), to modify the
requirements as to eligibility to receive options, to increase materially the
benefits accruing to participants or as otherwise may be required by Rule 16b-3
or Section 422 of the Code. No action taken by the Board may materially and
adversely affect any outstanding award grant without the consent of the
recipient.
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of nonqualified options if
granted under the terms set forth in the Incentive Plan. Upon exercise of a
nonqualified option, the excess of the fair market value of the shares subject
to the option over the option price (the "Spread") at the date of exercise is
taxable as ordinary income to the optionee in the year it is exercised and is
deductible by the Company as compensation for Federal income tax purposes, if
Federal income tax is withheld on the Spread. However, if the shares are subject
to vesting restrictions conditioned on future employment or the holder is
subject to the short-swing profits liability restrictions of Section 16(b) of
the Exchange Act (i.e., is an executive of ricer, director or 10% stockholder of
the Company), then taxation and measurement of the Spread is deferred until such
restrictions lapse, unless a special election is made under Section 83(b) of the
Code to report such income currently without regard to such restrictions. The
optionee's basis in the shares will be equal to the fair market value on the
date taxation is imposed and the holding period commences on such date.
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of such option, assuming that the optionee
was an employee of the Company from the date the option was granted until 90
days before such exercise. However, upon exercise, the Spread must be added to
regular Federal taxable income in computing the option's "alternative minimum
tax" liability. An optionee's basis in the shares received on exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to the Company for Federal income
tax purposes in connection with the grant or exercise of incentive options.
If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or within
one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (i e., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period. The holding period for long-term
capital gain or loss treatment is more than one year.
A total of 104,545 shares of Class A Common Stock are available for
issuance under the Incentive Plan at June 30, 1996. The Board of Directors
resolved to increase the available shares to 325,000 which the shareholders
approved on September 30, 1996. At June 30, 1996 options to purchase 102,384
shares of Class A Common Stock 71,076 shares of Class E-1, 71,076 shares of
Class E-2 and 47,384 shares of Class E-3 Common Stock at exercise prices ranging
from $5.00 to $6.05 per share are outstanding under the Incentive Plan. No other
form of award has been granted by the committee. The Company has agreed not to
issue for a period of one year any awards other than options under the Incentive
Plan.
31
<PAGE>
Directors Stock Incentive Plan. In June 1992, the Board adopted, and the
stockholders of the Company approved, the Amended and Restated Directors Stock
Incentive Plan (the "Directors Plan"). The provisions of the Directors Plan were
amended on July 8, 1996 to provide for the automatic grant of nonqualified stock
options to purchase shares of Common Stock ("Director Options") to directors of
the Company who are not employees or principal stockholders of the Company
("Eligible Directors"). Eligible Directors of the Company will be granted a
Director Option to purchase10,000 shares of Class A Common Stock on the date
they first become a director at a per share exercise price equal to the fair
market value of the Common Stock on the grant date. Further, each Eligible
Director is granted a Director Option to purchase 3,000 shares of Class A Common
Stock ("Automatic Grant") on the date of each annual meeting of stockholders, as
long as he or she is a member of the Board of Directors. The exercise price of
each share subject to a Director Option is required to be equal to the fair
market value of the Common Stock on the date of grant. Director Options become
exercisable in three equal annual installments and expire the earlier of
termination of service as a Board member or 10 years after the date of grant. To
the extent options are exercisable on the date of termination of the director's
service on the Board of Directors, the optionee will continue to be entitled to
exercise such Director Option in accordance with its terms. A total of 75,000
shares of Class A Common Stock are now authorized for issuance under the
Directors Plan. As of June 30, 1996, options to purchase 3,500 shares of Class A
Common Stock, 5,250 shares of Class E-1, 5,250 shares of Class E-2 and 3,500
shares of Class E-3 Common Stock at per share exercise prices ranging from
$35.75 to $51.56 were outstanding under the Directors Plan. The tax consequences
with respect to Director Options are the same as discussed above for
nonqualified options granted under the Incentive Plan.
Other Nonqualified Options. In addition to options outstanding under the
foregoing Plans, the Company had outstanding on June 30, 1996 nonqualified
options to purchase 49,694 shares of Class A Common Stock 74,541 shares of Class
E-1, 74,541 shares of Class E-2 and 49,694 shares of Class E-3 Common Stock that
were not issued pursuant to a written plan. Most of these options were issued in
consideration for consulting services from independent consultants or Board
members. Most of these options were immediately exercisable in full upon grant,
although some vested over a several year schedule. The per share exercise prices
for these options ranges from $5.50 to $42.95. The tax consequences with respect
to these options are the same as discussed above for nonqualified options issued
under the Incentive Plan. The Company anticipates that, in the future, any
options granted will be pursuant to a written plan.
32
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 15, 1996, the number and
percentage of outstanding shares of the Company's Class A, and Class E Common
Stock, by (i) each stockholder known by the Company to own beneficially five
percent or more of the outstanding Class A and Class E Common Stock of the
Company, (ii) each director, (iii) each person named in the Executive
Compensation Table and (iv) all executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
==============================================================================================================
(1) Class A (2) Class E
Common Common
Stock Stock
--------------------------------------------------------------------------------------------------------------
% of Vote of all
Name and Address of Number of Percent Number of Percent Classes of
Beneficial Owner Shares Owned Shares Owned Common Stock
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leslie A. Danziger 112,946 (3) 4% 751,878(4) 19% 13%
--------------------------------------------------------------------------------------------------------------
Louis P. Wagman 18,742 (5) * 99,965(6) 3% 2%
--------------------------------------------------------------------------------------------------------------
Donald E. Lawson 22,000 (7) 1% 25,000 1% 1%
--------------------------------------------------------------------------------------------------------------
David W. Collins 4,907 (8) * 19,627(9) * *
--------------------------------------------------------------------------------------------------------------
Milton Klein 29,945(10) 1% 119,786(11) 3% 2%
--------------------------------------------------------------------------------------------------------------
Louis Leeburg 9090(15) * 36,360(15) 1% 1%
--------------------------------------------------------------------------------------------------------------
Haydock H. Miller, Jr. 18,454(12) * 73,819(13) 2% 1%
--------------------------------------------------------------------------------------------------------------
The John E. Fetzer 118,447 4% 473,789 12% 9%
Institute, Inc. (14)
--------------------------------------------------------------------------------------------------------------
All exec. officers and 216,088 8% 1,126,435 29% 20%
directors as a group
(7 persons)
==============================================================================================================
</TABLE>
- --------------------
* Less than one percent.
1. Except as otherwise noted, each of the parties listed above has sole voting
and investment power over the securities listed. The address for all
directors is care of LightPath Technologies, Inc., 6820 Academy Parkway
East N.E., Albuquerque, New Mexico, 87109.
2. Includes Class E-1, E-2 and E-3 Common Stock.
3. Includes 25,397 Class A shares represented by immediately exercisable
options and 9,090 Class A shares represented by immediately exercisable
options held by Joel Goldblatt, Ms. Danziger's spouse.
4. Includes 101,589 Class E shares represented by immediately exercisable
options and 36,360 Class E shares represented by immediately exercisable
options held by Joel Goldblatt, Ms. Danziger's spouse.
5. Includes 18,218 Class A shares represented by immediately exercisable
options.
6. Includes 72,873 Class E shares represented by immediately exercisable
options.
7. Includes 22,000 Class A shares represented by immediately exercisable
options.
8. Includes 1,091 Class A shares represented by immediately exercisable
options.
9. Includes 4,364 Class E shares represented by immediately exercisable
options.
10. Includes 11,720 Class A shares represented by immediately exercisable
options.
11. Includes 46,880 Class E shares represented by immediately exercisable
options.
12. Includes 10,182 Class A shares represented by immediately exercisable
options.
13. Includes 40,727 Class E shares represented by immediately exercisable
options.
14. The address of The John E. Fetzer Institute, Inc. is 9292 KL Avenue,
Kalamazoo, Michigan 49009.
15. Includes 7272 Class A shares and 29088 Class E shares held by Mr. Leeburg's
brother. Mr. Leeburg is the treasurer and trustee for two funds associated
with the John E. Fetzer Institute, Inc. which do not hold any shares in the
Company. Shares held by the John E. Fetzer Institute, Inc. are not,
however, included in the beneficial ownership amounts for Mr. Leeburg.
33
<PAGE>
Voting Trust Agreement
Stockholders of the Company owning an aggregate of 1,105,704 shares of
Common Stock, which represents 17% of the total voting power outstanding at June
30, 1996, entered into a Voting Trust Agreement dated January 10,1996. Pursuant
to that Agreement, Leslie A. Danziger, the President and Chairman of the
Company, is designated as the trustee of the trust and empowered to vote all
shares subject to the trust with respect to any matter subject to a vote by the
Company's stockholders, including voting in favor of the election of herself as
a director of the Company and in favor of ratification and approval of acts of
herself as a director in the conduct of business affairs of the Company.
Consequently, combined with her individual holdings, Ms. Danziger will
effectively control 27% of the total voting power of the Company. The
stockholders' agreements to deposit their shares in the voting trust are
irrevocable for 13 months following February 22, 1996. Thereafter, parties to
the agreement may withdraw their shares upon ten days' prior written notice. The
Voting Trust Agreement terminates upon the earlier of five years or the date on
which Ms. Danziger ceases to be Chairman of the Board or resigns as trustee
under the Agreement.
CERTAIN TRANSACTIONS
During the period from November 1993 through August 1995, the Company
deferred payment of salary to its executive officers due to a shortage of
working capital. In November 1995, Leslie A. Danziger, Louis P. Wagman and
Donald E. Lawson agreed to convert $300,000, $25,000 and $25,000, respectively,
of deferred salary into shares of Class E Common Stock at an average per share
conversion price of $1.00 per share. Consequently, Ms. Danziger received 112,500
shares of Class E-1 Common Stock, 112,500 shares of Class E-2 Common Stock and
75,000 shares of Class E-3 Common Stock. Messrs. Wagman and Lawson each received
9,375 shares of Class E-1 Common Stock, 9,375 shares of Class E-2 Common Stock
and 6,250 shares of Class E-3 Common Stock. Mr. Wagman also converted a $5,000
bonus into common stock at a conversion price of $1 per share. He received 182
shares of Class A Common Stock, 273 shares of Class E-1 Common Stock, 273 shares
of Class E-2 Common Stock and 182 shares of Class E-3 Common Stock. An aggregate
of $119,500 of deferred salary is owed to the executive officers at June 30,
1996 and was placed into a contingent liability account to be paid only upon the
accomplishment of the milestones for conversion of the Class E-1 common stock
into Class A common stock.
From January to July 1995, the Company privately placed units
consisting of a $50,000 promissory note (Unit Notes) and 1,818 Class A shares,
2,727 Class E-1 shares, 2,727 Class E-2 shares and 1,818 Class E-3 shares for a
per unit purchase price of $50,000. Family members of Leslie A. Danziger and
Louis P. Wagman purchased units in that private offering on the same terms as
other investors. In September, October and November 1995, the Company agreed
with certain holders of the Unit Notes to convert such notes into shares of
Class A and Class E Common Stock at an adjusted per share conversion rate of
$5.50 per share. As additional consideration for the debt conversion, the
Company issued an aggregate of 214,000 Class A Warrants to all of the Unit Note
holders. In connection with the foregoing, family members of Leslie A. Danziger
and Louis P. Wagman, each agreed to convert their respective outstanding debt
into 19,220, and 18,666 shares of Class A and Class E Common Stock,
respectively, and received 21,000 and 17,000 Class A Warrants, respectively. The
19,220 represents 3,844 Class A shares, 5,766 Class E-1 shares, 5,766 Class E-2
shares and 3,844 Class E-3. The 18,666 represents 3,733 Class A shares, 5,600
Class E-1 shares, 5,600 Class E-2 shares and 3,733 Class E-3 shares.
During the fiscal year ended June 30, 1996 and 1995, David W. Collins
and Haydock H. Miller, Jr., Directors of the Company, provided legal and
consulting services to the Company for which they billed the Company
approximately, $58,000 and $54,000 respectively. In February 1994, Dr. Collins
converted $54,000 of receivables into a six month loan. In June 1995, Dr.
Collins agreed to convert this loan into shares of Class A and Class E common
stock. In addition the company was provided legal and consulting services by
several individuals and companies who are shareholders (none of which own more
than .05% of common stock) of the Company, for which they billed $144,000. The
Company has retained the legal services of a shareholder for licensing work to
be performed during fiscal year 1997 for $90,000 of which half is paid in cash
and half in Class A common stock.
Milton Klein, a Director of the Company, loaned the Company $50,000 in
January 1995 in consideration for a three month promissory note bearing interest
at an annual rate of 9%. The note was subsequently converted to a Unit Note
consisting of a $50,000 promissory note and 1,818 Class A shares, 2,727 Class
E-1 shares, 2,727 Class E-2 shares and 1,818 Class E-3 shares as part of the
private placement noted above. In September, 1995, Dr. Klein agreed to convert
the $50,000 note, receiving 1,926 Class A shares, 2,889 Class E-1 shares, 2,889
Class E-2 shares and 1,926 Class E-3 shares and the Company issued Dr. Klein
16,000 Class A Warrants as part of its debt conversion efforts. Additionally, in
34
<PAGE>
November 1995, Dr. Klein converted other indebtedness owed to him by the Company
in the total amount of $27,984 into 1,018 Class A shares, 1,527 Class E-1
shares, 1,527 Class E-2 shares and 1,018 Class E-3 shares.
In connection with the Company's IPO, the Company agreed with certain
other debt holders to convert outstanding debt into shares of Class A and Class
E Common Stock of the Company (in the same proportion as the Recapitalization)
at an adjusted per share conversion price per share of $5.50 per share. In
connection with the debt conversion on the same terms as other debt holders, the
John E. Fetzer Institute, Inc. (a principal stockholder of the Company)
converted debt of $2,043,241 into 74,300 shares of Class A Common Stock, 111,450
shares of Class E-1 Common Stock, 111,450 shares of Class E-2 Common Stock and
74,300 shares of Class E-3 Common Stock.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. In addition, ongoing and future transactions
with affiliates will be on terms no less favorable than may be obtained from
third parties, and any loans to affiliates will be approved by a majority of the
disinterested directors.
CONCURRENT OFFERING BY SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part, also
relates to the Remaining Selling Securityholders' Warrants and to the Class A
Common Stock and Class B Warrants underlying such Remaining Selling
Securityholders' Warrants. An aggregate of 839,000 warrants were originally
issued in connection with the Private Placement in November 1995 as warrants to
purchase 839,000 shares of Class A Common Stock, and were automatically
converted into 839,000 Class A Warrants at the closing of the IPO. None of the
original Class A Warrants have been sold by the respective holders thereof.
Exercise of the Remaining Selling Securityholders' Warrants by the persons named
below is further subject to the existence of an exemption form registration
applicable to the issuance of the underlying securities by the Company to the
Remaining Selling Securityholders. It is likely that sales of the Remaining
Selling Securityholders' Warrants or the underlying Class B Warrants and Class A
Common Stock, or even the potential of such sales at any time, could have an
adverse effect on the market prices of the Class A Common Stock and Warrants.
The following table sets forth certain information with respect to each
Remaining Selling Securityholder for whom the Company is registering securities
for resale to the public. The Company will not receive any of the proceeds from
the sale of these securities. Except as described below, there are no material
relationships between any of the Remaining Selling Securityholders and the
Company, nor have any such material relationships existed within the past three
years.
35
<PAGE>
Number of Class A
Warrants Beneficially
Owned and Maximum
Selling Securityholders Number to be sold(1)
- ----------------------- --------------------
Magid Abraham 50,000
William Aden 35,000
Bruce Barrus 8,500
Thomas J. & Dorothy M. Biuso 12,500
Burns Family Trust 1200
Kenneth & Sherry Cohen 12,500
David B. Cornstein 25,000
Benjamin Danziger 21,000
Charles Garcia 7,500
Irving L. Goldman 25,000
Stuart Gruber 12,500
Kenneth Hoffer 15,000
Herman S. Howard 50,000
Michael Jesselson 12/18/80 Trust 25,000
Jesselson Grandchildren 12/18/80 Trust 50,000
Robert & Eileen Jordan 12,500
Milton Klein 16,000
Guy Knolle 17,500
Louis Leeburg 7,500
William Leeburg 15,000
William Leeburg Profit Sharing Plan 15,000
Lenny Corp 12,500
William J. Lipkin 12,500
Gloria Marra 25,000
Charles Bechert 7,500
James S. Mulholland, Sr. 37,500
Ray & Vita Pliskow 17,000
Robin Prever 25,000
Marc Roberts 25,000
Robert Roberts 7,500
F.B. Rooke & Sons 18,000
Alan J. Rubin 25,000
Robert & Daniel Ruscutti 12,500
Anand J. Sathe 12,500
Louise Schrier 50,000
E. Donald Shapiro 12,500
Gary J. Strauss 12,500
Morris Talansky 12,500
Leonard R. and Jane G. Wohletz, Jr. 12,500
Wolfson Equities 50,000
Martin Zelman 12,500
=========================
Total 839,000
=========================
(1) Does not include shares of Class A Common Stock and Class B Warrants
issuable upon exercise of the Class A Warrants and the shares of Class A
Common Stock issuable upon exercise of the Class B Warrants. The Selling
Securityholders have agreed not to exercise the Class A Warrants being
registered hereby for a period of one year from February 22, 1996.
With the exception of Milton Klein, a director of the Company; Benjamin
Danziger, the father of Leslie A. Danziger, Ray and Vita Pliskow, relatives of
Louis A. Wagman; Louis Leeburg, a principal of the John E. Fetzer Institute--a
principal stockholder of the Company; and, the Burns Family Trust, another
principal stockholder of the Company, there are no material relationships
between any of the Remaining Selling
36
<PAGE>
Securityholders and the Company, nor have any such material relationships
existed within the past three years. See "Certain Transactions" with reference
to ownership by family members or affiliates of certain officers, directors and
principal stockholders of Notes who received Class A Warrants and who are
Remaining Selling Securityholders. The Company has been informed by the
Underwriter that there are no agreements between the Underwriter and any
Remaining Selling Securityholder regarding the distribution of the Selling
Securityholders Warrants or their underlying securities.
The sale of the securities by the Remaining Selling Securityholders may
be effected from time to time in transactions (which may include block
transactions by or for the account of the Remaining Selling Securityholders) in
the over-the-counter market or in negotiated transactions, a combination of such
methods of sale or otherwise. Sales may be made at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Remaining Selling Securityholders or to broker-dealers who may purchase
securities as principals and thereafter sell the securities from time to time in
the over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Remaining Selling Securityholders and/or the
purchasers for whom such broker-dealers act as agents or to whom they may sell
as principals or otherwise (which compensation as to a particular broker-dealer
may exceed customary commissions).
Each Selling Securityholder has agreed (i) not to sell, transfer, or
otherwise dispose of publicly the Remaining Selling Securityholder Warrants
except through a 270 day maximum lock up period measured from February 22, 1996,
and (ii) not to exercise the Remaining Selling Securityholder Warrants for a
period of one year from February 22, 1996. Purchasers of the Remaining Selling
Securityholder Warrants will not be subject to such restrictions.
Under applicable rules and regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), any person engaged in the distribution of the
Remaining Selling Securityholders Warrants may not simultaneously engage in
market making activities with respect to any securities of the Company for a
period of at least two (and possibly nine) business days prior to the
commencement of such distribution. Accordingly, in the event the Underwriter of
the Company's offering or D.H. Blair & Co. Inc. ("Blair & Co.") is engaged in a
distribution of the Remaining Selling Securityholders Warrants, neither of such
firms will be able to make a market in the Company's securities during the
applicable restrictive period. However, neither the Underwriter nor Blair & Co.
have agreed to nor are either of them obliged to act as broker/dealer in the
sale of the Remaining Selling Securityholders Warrants and the Remaining Selling
Securityholders may be required, and in the event Blair is a market maker, will
likely be required, to sell such securities through another broker/dealer. In
addition, each Selling Securityholder desiring to sell Warrants will be subject
to the applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of the purchases and sales of shares of the
Company's securities by such Selling Securityholders.
The Remaining Selling Securityholders and broker-dealers, if any,
acting in connection with such sales might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commission received
by them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
37
<PAGE>
DESCRIPTION OF SECURITIES
General
In September 1995, the Board of Directors and the stockholders of the
Company approved the recapitalization of the Company, which consisted of (i) a
1-for-5.5 reverse stock split of all then outstanding shares of Common Stock,
(ii) an increase of the authorized Common and Preferred Stock of the Company,
(iii) a recapitalization of the shares of the Company's Common Stock into Class
A Common Stock and Class E Common Stock, and similar adjustments to outstanding
options and the option plans, and (iv) a stock dividend of one and one-half
share of Class E-1 Common Stock, one and one-half shares of Class E-2 Common
Stock and one share of Class E-3 Common Stock, for each share of Class A Common
Stock outstanding following the reverse stock split. The Company's authorized
capital stock now consists of (i) 40,000,000 shares of Common Stock, $.01 par
value per share, divided into 34,500,000 shares of Class A Common Stock,
2,000,000 shares of Class E-1 Common Stock, 2,000,000 shares of Class E-2 Common
Stock and 1,500,000 shares of Class E-3 Common Stock, and (ii) 5,000,000 shares
of "blank check" Preferred Stock. Immediately prior to the IPO, there were
outstanding 871,147 shares of Class A Common Stock (held by approximately 200
holders), and 1,441,724 shares of Class E-1 Common Stock, 1,441,724 shares of
Class E-2 Common Stock, and 961,147 shares of Class E-3 Common Stock (all such
classes of shares held by the same approximately 200 persons), and no
outstanding shares of Preferred Stock.
The following summary descriptions of capital stock of the Company are
qualified in their entirety by reference to the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), Certificate of
Designation, and Bylaws (the "Bylaws"), a copy of each of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Class A Common Stock
Holders of Class A Common Stock have the right to cast one vote for
each share held of record on all matters submitted to a vote of holders of Class
A Common Stock, including the election of directors. The Class A, Class E-1,
Class E-2 and Class E-3 Common Stock vote together as a single class on all
matters on which stockholders may vote, except when class voting is required by
applicable law.
Holders of Class A Common Stock are entitled to receive dividends,
together with the holders of Class E-1, Class E-2 and Class E-3 Common Stock,
pro rata based on the number of shares held, when, as and if declared by the
Board of Directors, from funds legally available therefor, subject to the rights
of holders of any outstanding Preferred Stock. In the case of dividend or other
distributions payable in stock of the Company, including distributions pursuant
to stock splits or divisions of stock of the Company, only shares of Class A
Common Stock will be distributed with respect to Class A Common Stock. In the
event of the liquidation, dissolution or winding up of the affairs of the
Company, all assets and funds of the Company remaining after the payment of all
debts and other liabilities, subject to the rights of the holders of any
outstanding Preferred Stock, shall be distributed to the holders of Class A
Common Stock, together with the holders of Class E Common Stock to the extent
such holders are then entitled to participate in such distribution. Holders of
Class A Common Stock are not entitled to preemptive, subscription, cumulative
voting or conversion rights, and there are no redemption or sinking fund
provisions applicable to the Class A Common Stock. All outstanding shares of
Class A Common Stock are, and the shares of Class A Common Stock offered hereby
will be when issued, fully paid and non-assessable.
Class E-1, E-2 and E-3 Common Stock
Each share of Class E-1, E-2 and E-3 Common Stock is entitled to one
vote on all matters on which stockholders may vote, including the election of
directors. The Class A, Class E-1, Class E-2 and Class E-3 Common Stock vote
together as a single class on all matters on which stockholders may vote, except
when class voting is required by applicable law. Holders of Class E Common Stock
are not entitled to preemptive, subscription, cumulative voting or conversion
rights and there are no redemption or sinking fund provisions
38
<PAGE>
applicable to the Class E Common Stock. All shares of Class E Common Stock
issued are and will be fully paid and non-assessable.
Holders of Class E-1, E-2 and E-3 Common Stock are entitled to
participate together with the holders of Class A Common Stock, pro rata based on
the number of shares held, in the payment of dividends and in the liquidation,
dissolution and winding up of the Company, subject to the rights of holders of
any outstanding Preferred Stock. In the case of cash, securities and other
property that is the subject of a distribution or dividend (except with respect
to an acquisition of the Company or its merger with or into another entity)
payable to Class E-1, E-2 or E-3 shareholders shall be held in escrow until the
applicable Class E shares are converted into Class A Common Stock. In the case
of dividends and other distributions payable in stock of the Company, including
distributions pursuant to stock splits or divisions of stock of the Company,
only shares of Class A Common Stock shad be distributed with respect to Class
E-1, E-2 and E-3 Common Stock.
Conversion of Class E Common Stock
A. Each share of Class E-1 Common Stock will be automatically converted
into one share of Class A Common Stock, if, and only if, any one or more of the
following conditions is/are met:
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited and determined by
the Company's independent public accountants) (the "Minimum Pretax Income")
is at least $8.0 million during any of the fiscal years ending June 30,
1996, 1997, 1998 or 1999;
(ii) the Minimum Pretax Income is at least $10.3 million for the fiscal
year ending June 30, 2000;
(iii) the Bid Price (as defined) of the Company's Class A Common Stock
averages in excess of $12.50 per share for 30 consecutive business days
during the 18-month period commencing on the date of this Prospectus;
(iv) the Bid Price (as defined) of the Company's Class A Common Stock
averages in excess of $16.75 per share for 30 consecutive business days
during the 18-month period commencing 18 months from the date of this
Prospectus; or
(v) the Company is acquired by or merged with or into another entity during
either of the periods referred to below and as a result thereof holders of
the Class A Common Stock of the Company (after giving consideration to the
conversion of the Class E-1 Common Stock) receive per share consideration
equal to or greater than: (i) $12.50 during the 18-month period commencing
on the date of this Prospectus; or, (ii) $16.75 during the 18-month period
commencing 18 months from the date of this Prospectus;
B. Each share of Class E-2 Common Stock will be automatically converted
into one share of Class A Common Stock, if, and only if, one or more of the
following conditions is/are met:
(i) the Minimum Pretax Income is at least $10.9 million during any of the
fiscal years ending June 30, 1996, 1997, 1998 or 1999; or
(ii) the Minimum Pretax Income is at least $14.0 million during the fiscal
year ending June 30,
(iii) the Company is acquired by or merged with or into another entity
during either of the periods referred to below and as a result thereof
holders of Class A Common Stock of the Company receive per share
consideration (after giving effect to the conversion of the Class E-1
Common Stock, and Class E-2 Common Stock) equal to or greater than: (i)
$18.00 during the 18-month period commencing on the date of this
Prospectus; or (ii) $23.00 during the 18-month period commencing 18 months
from the date of this Prospectus.
C. Each share of Class E-3 Common Stock will automatically be converted
into one share of Class A Common Stock, if and only if, one or more of the
following conditions is/are met:
(i) the Minimum Pretax Income amounts to at least $28 million during any of
the fiscal years ending June 30, 1996, 1997, 1998, 1999 or 2000;
(ii) the Company is acquired by or merged with or into another entity
during the periods referred to below and as a result thereof holders of
Class A Common Stock of the Company receive per share
39
<PAGE>
consideration (after giving effect to the conversion of the Class E-1,
Class E-2 and Class E-3 Common Stock) equal to or greater than: (i) $30.00
during the 18-month period commencing on the date of this Prospectus; or
(ii) $40.00 during the 18-month period commencing 18 months from the date
of this Prospectus.
D. Distributions in the event the Company is acquired or merged with or
into another entity will be made as follows:
(i) if the merger or acquisition proceeds are sufficient to pay the Class A
Common Stock outstanding prior to such event up to the applicable Bid Price
amount per share set forth in A(v), B(iii) or C(ii), the applicable Class E
Common Stock shall participate in the balance remaining up to the
applicable Bid Price per share amount;
(ii) if the proceeds are sufficient to pay the holders of the Class A and
the applicable Class E Common Stock the full amount set forth in A(v),
B(iii) or C(ii), then the applicable Class E Common Stock will be converted
into Class A Common Stock and distributions will be made pro rata on all
such stock outstanding subsequent to such conversion.
The shares of Class E Common Stock will be redeemed on September 30,
2000 by the Company for $.0001 per share if such earnings levels or market price
targets are not achieved.
The Minimum Pretax Income amounts set forth above shall be increased
proportionately, with certain limitations, in the event additional shares of
Common Stock or securities convertible into, exchangeable for or exercisable
into Common Stock are issued after completion of the IPO. The Bid Price amounts
set forth above are subject to adjustment in the event of any stock splits,
stock dividends, recapitalizations or other similar events.
Redeem able Warrants
Class A Warrants
Each Class A Warrant entitles the registered holder to purchase one
share of Class A Common Stock and one Class B Warrant at an exercise price of
$6.50 at any time until 5:00 P.M., New York City time, on February 22, 2001.
Commencing one year from the date of this Prospectus, the Class A Warrants are
redeemable by the Company on 30 days' written notice at a redemption price of
$.05 per Class A Warrant if the "closing price" of the Company's Class A Common
Stock for any 30 consecutive trading days ending within 15 days of the notice of
redemption averages in excess of $9.10 per share. "closing price" shall mean the
closing bid price if listed in the over-the-counter market on Nasdaq or
otherwise or the closing sale price if listed on the Nasdaq National Market
System or a national securities exchange. All Class A Warrants must be redeemed
if any are redeemed.
Class B Warrants
Each Class B Warrant entitles the registered holder to purchase one
share of Class A Common Stock at an exercise price of $8.75 at any time until
5:00 P.M. New York City time, on February 22, 2001. Commencing one year from the
date of this Prospectus, the Class B Warrants are redeemable by the Company on
30 days' written notice at a redemption price of $.05 per Class B Warrant, if
the closing price of the Company's Class A Common Stock for any 30 consecutive
trading days ending within 15 days of the notice of redemption averages in
excess of $12.25 per share. All Class B Warrants must be redeemed if any are
redeemed.
General
The Class A Warrants and Class B Warrants will be issued pursuant to a
warrant agreement (the "Warrant Agreement") among the Company, the Underwriter
and Continental Stock Transfer Company, New York, New York, as Warrant Agent,
and will be evidenced by warrant certificates in registered form. The Warrants
provide for adjustment of the exercise price and for a change in the number of
shares issuable upon exercise to protect holders against dilution in the event
of a stock dividend, stock split, combination or reclassification of the Class A
Common Stock or upon issuance of shares of Class A Common Stock at prices lower
than the market price then in effect other than issuances upon exercise of
40
<PAGE>
options granted to employees, directors and consultants to the Company under the
Company's stock option plans, other outstanding warrants on the date of this
Prospectus or with respect to the Unit Purchase Option.
The exercise prices of the Warrants were determined by negotiation
between the Company and the Underwriter and should not be construed to be
predictive of or to imply that any price increases in the Company's securities
will occur.
A Warrant may be exercised upon surrender of the Warrant certificate on
or prior to its expiration date (or earlier redemption date) at the offices of
Continental Stock Transfer Company, New York, New York, as Warrant Agent, with
the form of "Election to Purchase" on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified or bank check payable to the order of the
Company) for the number of shares with respect to which the Warrant is being
exercised. Shares issued upon exercise of Warrants and payment in accordance
with the terms of the Warrants will be fully paid and nonassessable.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Preferred Stock
The Certificate of Incorporation of the Company authorize the issuance
of 5,000,000 shares of Preferred Stock, none of which are currently outstanding.
The Board of Directors, within the limitations and restrictions contained in the
Certificate of Incorporation and without further action by the Company's
stockholders, has the authority to issue shares of Preferred Stock from time to
time in one or more series and to fix the number of shares and the relative
rights, conversion rights, voting rights, and terms of redemption, liquidation
preferences and any other preferences, special rights and qualifications of any
such series. Any issuance of Preferred Stock could, under certain circumstances,
have the effect of delaying, deferring or preventing a change in control of the
Company and may adversely affect the rights of holders of Common Stock. The
Company has no present plans to issue any shares of Preferred Stock.
IPO Units
The Company also has outstanding IPO Units which are currently listed
on the Nasdaq SmallCap Market. Each IPO Unit consists of (i) one share of Class
A Common Stock, (ii) one Class A Warrant and (iii) one Class B Warrant. The of
Class A Common Stock, Class A Warrants and Class B Warrants were separately
transferrable immediately upon issuance.
IPO Unit Purchase Option
In conjunction with the Company's IPO, the Company granted to Blair IPO
Unit Purchase Options to purchase up to 160,000 IPO Units. The Unit Purchase
Options are exercisable at any time commencing on February 22, 1998 for a period
of three years at an exercise price of $6.75 per Unit (135% of the initial
public offering price) subject to adjustment in certain events to protect
against dilution. These Units will be identical to the publicly traded Units
except that the Class A Warrants and Class B Warrants included in the Unit
Purchase Option will not be subject to redemption by the Company, except if at
the time the Warrants are called for redemption, the Unit Purchase Options have
been exercised and the underlying warrants are outstanding. The Unit Purchase
Options cannot be transferred, sold, assigned or hypothecated until February 22,
1998, except in the case of a transfer to any officer of the underwriter for the
IPO or a member of that selling group.
41
<PAGE>
Certain Statutory and Charter Provisions
Section 203 of the Delaware General Corporation Law provides, in
general, that a stockholder acquiring more than 15% of the outstanding voting
shares of a publicly-held Delaware corporation subject to the statute (an
"Interested Stockholder") may not engage in certain "Business Combinations" with
the corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder; or (ii)
upon consummation of the Business Combination, the Interest Stockholder owns 85%
or more of the outstanding voting stock of the corporation (excluding shares
owned by directors who are also officers of the corporation or shares held by
employee stock option plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) the Business Combination is
approved by the corporation's board of directors and authorized an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock of the corporation
not owned by the Interested Stockholder.
Section 203 of the Delaware General Corporation Law defines the term
"Business Combination" to encompass a wide variety of transactions with or
caused by an Interested Stockholder in which the Interested Stockholder receives
or could receive a Bennett on other than a pro rata basis with other
stockholders, including mergers, certain asset sales, certain issuances of
additional shares to the Interested Stockholders, transactions with the
corporation which increase the proportionate interest of the Interested
Stockholder or transaction in which the Interested Stockholder receives certain
other benefits.
The Certificate of Incorporation of the Company, as amended, further
provides that the following actions, among others, must be approved by the
affirmative vote of the holders of 85% of the outstanding shares of capital
stock entitled to vote thereon: (a) adopt, alter, amend or repeal the Bylaws;
(b) eliminate indemnification of directors; (c) grant any pre-emptive rights;
(d) change the number or manner of election of the Board of Directors; and (e)
eliminate the supermajority voting rights contained therein. In addition, unless
approved by a majority of the Board, the affirmative vote of the holders of at
least 85% of the outstanding shares is required to: (a) change the capital
structure of the Company, or (b) amend the Certificate of Incorporation to allow
stockholders to act without a meeting.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate of Incorporation or Bylaws of the Company, may
elect not to be governed by Section 203 of the Delaware General Corporation Law,
effective twelve months after adoption. Neither the Certificate of Incorporation
nor the Bylaws of the Company currently excludes the Company from the
restrictions imposed by Section 203 of the Delaware General Corporation Law.
Transfer Agent and Warrant Agent
Continental Stock Transfer Company, New York, New York will serve as
Transfer Agent for the Common Stock and Warrant Agent for the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
As of June 30,1996, the Company had outstanding an aggregate of
2,722,191 shares of Class A Common Stock. Of all such shares, the 1,840,000
shares of Class A Common Stock included in the Units sold in the IPO will be
freely transferable without restriction under the Securities Act except for any
shares purchased by any person who is or thereby becomes an "affiliate" of the
Company, which shares will be subject to the resale limitations contained in
Rule 144 promulgated under the Securities Act. All of the other shares of Class
A Common Stock outstanding prior to the IPO are "restricted securities" as that
term is defined under Rule 144. The Company's shares of Class E Common Stock are
not transferable. Accordingly, holders of Class E Common Stock must hold such
shares until such shares are converted into shares of Class A Common Stock. If
converted, the shares of Class A Common Stock received upon conversion will be
"restricted securities."
42
<PAGE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
for at least two years, may sell within any three-month period a number of
restricted shares which does not exceed the greater of 1% of the then
outstanding shares of such class of securities or the average weekly trading
volume during the four calendar weeks prior to such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. Rule 144 also
permits, under certain circumstances, the sale of shares by a person who is not
an affiliate of the Company with respect to restricted securities that satisfy a
three-year holding period, without regard to the volume or other resale
limitations. For shares issued in consideration of an unsecured or nonrecourse
promissory note, the holding period does not commence until the note is paid in
full. The above is a brief summary of Rule 144 and is not intended to be a
complete description of the Rule.
Substantially all of the current stockholders, including all of the
principal stockholders, officers and directors of the Company, holding in the
aggregate approximately 882,191 shares of Class A Common Stock, have agreed not
to sell, assign or transfer or otherwise dispose publicly of any of their shares
for a period of 13 months from the date of this Prospectus without the prior
written consent of the Underwriter. Following the expiration of such period,
approximately 625,000 of such shares of Class A Common Stock will be freely
transferrable subject to the requirements of Rule 144. Prior to the IPO, there
has been no market for any securities of the Company and the Company is unable
to predict the effect that sales under Rule 144, pursuant to a registered public
offering or otherwise, may have on the then prevailing market price of the
Common Stock, but such sales may have a substantial negative effect on such
market price.
As of June 30, 1996, options to purchase an aggregate of 155,578 shares of
Class A Common Stock and 150,867 shares of Class E-1, 150,867 shares of Class
E-2 and 100,578 shares of Class E-3 Common Stock were outstanding. An aggregate
of an additional 12,297 shares of Class A Common Stock are available for future
option grants under the Incentive Plan and the Directors Plan. See "Management
- --Stock Option Plans."
PLAN OF DISTRIBUTION
The securities offered hereby are being offered directly by the Company
pursuant to the terms of the Warrants. No underwriter is being utilized in
connection with this offering.
The Company has agreed to pay Blair a Solicitation Fee of 5% of the
aggregate exercise price of each Warrant which is exercised, if (i) the market
price of the Class A Common Stock on the date of the Warrant is exercises is
greater than the then exercise price of the Warrant; (ii) the exercise of the
Warrant was solicited by a member of the NASD; (iii) the Warrant is not held in
a discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the solicitation of exercise of the Warrants was not in violation of Rule
10b-6 as promulgated under the Exchange Act or respective state blue sky laws.
Any costs incurred by the Company in connection with the exercising of the
Warrants shall be borne by the Company.
Blair acted as the underwriter of the Company's IPO in February and
March 1996. Other than the securities underlying the Unit Purchase Option
granted to Blair in connection with the IPO, the Company is not aware of any
other securities of the Company owned by Blair. In connection with the IPO, the
Company and Blair agreed to indemnify each other against certain liabilities in
connection with the IPO and this offering including liabilities under the Act.
In connection with the IPO, the Company sold to Blair, for nominal
consideration, the Unit Purchase Option to purchase up to 160,000 IPO Units at
an exercise price of $6.75 per IPO Unit. The Unit Purchase Options and the
underlying securities cannot be transferred, sold, or assigned until February
22, 1998, except to officers of Blair or to any NASD member participating in the
IPO and is exercisable during the period commencing February 22, 1998 and ending
February 22, 2001.
The Company entered into an agreement with Blair providing for the
payment of a fee to Blair, in the event that Blair is responsible for a merger
or other acquisition transaction to which the Company is a party. The fee is
based on a percentage of the consideration paid in the transaction ranging from
7% of the first $1,000,000 to 2 (OMEGA)% of any consideration in excess of
$9,000,000.
43
<PAGE>
Unless granted an exemption by the Commission from Rule 10b-6, Blair
will be prohibited from engaging in any market making activities with regard to
the Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation of the
exercise of Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that Blair may
have to receive a fee for the exercise of Warrants following such solicitation.
As a result, Blair may be unable to continue to make a market in the Company's
securities during certain periods while the Warrants are exercisable.
The warrant prices and other terms of the Warrants have been determined
by negotiation between the Company and Blair and are not necessarily related to
the Company's asset value, net worth or other established criteria of value.
Blair acted as a placement agent in connection with the Private
Placement of the Bridge Notes and warrants completed in November 1995.
Blair has informed the Company that The Securities and Exchange
Commission is conducting an investigation concerning various business activities
of Blair. The investigation appears to be broad in scope, involving numerous
aspects of Blair's compliance with the Federal securities laws and compliance
with the Federal securities laws by issuers whose securities were underwritten
by Blair, or in which Blair made over-the-counter markets, persons associated
with Blair, such issuers and other persons. The Company has been advised by
Blair that the investigation has been ongoing since at least 1989 and that it is
cooperating with the investigation. Blair cannot predict whether this
investigation will ever result in any type of formal enforcement action against
Blair, or, if so, whether any such action might have an adverse effect on Blair
or the securities offered hereby. Blair intends to make a market in the
securities following the IPO. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could affect the liquidity or price of
such securities.
EXPERTS
The financial statements of the Company, at June 30, 1996 and for each
of the two years in the period then ended appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon (which contains an explanatory
paragraph with respect to going concern mentioned in Notes to the financial
statements) appearing elsewhere herein and are included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Post-Effective Amendment to its Registration Statement on Form
SB-2, File No. 33-80119,("Registration Statement") under the Securities Exchange
Act of 1933, as amended with respect to the securities offered hereby.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete. In each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance herewith files
reports, proxy statements and other information with the Commission. For further
information with respect to the Company, reports, proxy statements and other
information and the securities offered, reference is made to such reports, proxy
statements and other information, the Registration Statement and the exhibits
filed as part thereof, which may be examined without charge and copies of such
material can be obtained at prescribed rates from the Public Reference Section
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
A copy of the Company's Annual Report on Form 10-KSB, as filed with the
Commission, is available upon request, without charge, by writing to LightPath
Technologies, Inc., 6820 Academy Parkway East N.E., Albuquerque, New Mexico,
87109, Attention: Investor Relations.
44
<PAGE>
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Ernst & Young LLP was the principal accountants of LightPath. In July
1996, the Board of Directors of the Company voted on the recommendation of the
Company's management to retain KPMG Peat Marwick to serve as the Company's
principal accountants and to the dismissal of Ernst & Young LLP at the
conclusion of the June 30, 1996 reporting period. Ernst & Young was notified of
the dismissal in August 1996. The Company will obtain shareholder ratification
for the selection of KPMG Peat Marwick at the annual meeting on September 30,
1996.
In April 1996, the Company relocated its corporate headquarters to
Albuquerque, New Mexico from Tucson, Arizona. Since that time the Company has
continued to work with Ernst & Young's Tucson office. Ernst & Young does not
have an Albuquerque office. The Board believes that the change to KPMG, which
has an Albuquerque office, will be more convenient and efficient for the
Company.
There were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, and such firm's report on the Company's financial statements
did not contain an adverse opinion or disclaimer of opinion and was not modified
as to audit scope, or accounting principles. For the past two years the audit
report has contained explanatory language as to the uncertainty of the Company
as a going concern. Additionally, Ernst & Young LLP's management letter related
to their audit of the June 30, 1995 financial statements contained certain
comments regarding material weaknesses noted. These particular comments related
to the Company's internal controls in its accounting and financial reporting
systems and information systems. The Company agreed to the inclusion of the
explanatory language and the material weaknesses which management believes have
been properly resolved subsequent to June 30, 1995.
45
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Index to Financial Statements
Report of Ernst & Young LLP, Independent Auditors..........................F-2
Audited Financial Statements
Balance Sheet..............................................................F-3
Statements of Operations...................................................F-4
Statements of (Deficiency in Net Assets) Stockholders' Equity..............F-5
Statements of Cash Flows...................................................F-6
Notes to Financial Statements..............................................F-7
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
LightPath Technologies, Inc.
We have audited the accompanying balance sheet of LightPath
Technologies, Inc., (a development stage company) as of June 30, 1996, and the
related statements of operations, (deficiency in net assets) stockholders'
equity, and cash flows for each of the two years in the period ended June 30,
1996. These financial statements are the responsibility of LightPath
Technologies, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statemens are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the finanical statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the finanical statements referred to above present
fairly, in all material respects, the financial position of LightPath
Technologies, Inc., as of June 30, 1996, and the results of its operations and
its cash flows for each of the two years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
LightPath Technologies, Inc., will continue as a going concern. As more fully
described in the notes, since inception, the Company has incurred substantial
losses related to its formation, research and development, and operating
activities. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in the notes. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Tucson, Arizona
August 2, 1996
F-2
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
June 30,
1996
------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,335,133
Trade accounts receivable 23,500
Inventories 66,186
Advances to employees 14,445
Prepaid expenses and other 82,608
------------
Total current assets 4,521,872
Property and equipment - net (Note 2) 438,726
Intangible assets - net (Note 3) 250,206
------------
Total assets $ 5,210,804
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 362,206
Accrued payroll and benefits 274,237
------------
Total current liabilities 636,443
Note payable to related parties (Note 4) 30,000
Commitments and contingencies (Note 9)
Redeemable common stock (Note 8)
Class E-1 - performance based and redeemable common stock 1,454,547 shares
issued and outstanding 14,545
Class E-2 - performance based and redeemable common stock 1,454,547 shares
issued and outstanding 14,545
Class E-3 - performance based and redeemable common stock 969,691 issued
and outstanding 9,697
Stockholders' equity (Notes 5, 7 and 8)
Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued and outstanding --
Common stock:
Class A, $.01 par value, voting; 34,500,000 shares authorized; 2,722,191
shares issued and outstanding 27,222
Additional paid-in capital 18,692,578
Deficit accumulated during the development stage (14,214,226)
------------
Total stockholders' equity 4,505,574
------------
Total liabilities and stockholders' equity $ 5,210,804
============
</TABLE>
See accompanying notes
F-3
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Inception
August 23,
1985 through
Year Ended June 30 June 30,
1996 1995 1996
--------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Revenues
Product development fees $ 167,000 $ 102,000 $ 269,000
Lenses and other 33,444 64,465 120,388
--------------------------------------------------
Total revenues 200,444 166,465 389,388
Costs and expenses
Cost of goods sold 18,563 141,605 206,855
Selling, general and administrative 1,818,615 1,345,468 11,146,436
Research and development 83,074 112,165 6,674,454
Amortization of unearned compensation 867,642 924,467 2,076,217
--------------------------------------------------
Total costs and expenses 2,787,894 2,523,705 20,103,962
--------------------------------------------------
Operating loss (2,587,450) (2,357,240) (19,714,574)
Other income(expense)
Investment income 71,003 -- 93,451
Interest expense (398,458) (432,340) (1,850,367)
--------------------------------------------------
Net loss $ (2,914,905) $ (2,789,580) ($21,471,490)
==================================================
Net loss per share $ (1.98) $ (3.95) --
==================================================
Number of shares used in per share calculation 1,471,006 705,580 --
==================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Statements of (Deficiency in Net Assets) Stockholders' Equity
<TABLE>
<CAPTION>
Class A
Common Stock Treasury Stock
---------------------- Additional -----------------------
Number of Paid-in Number of
Shares Amount Capital Shares Amount
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at July 1, 1994 643,491 $ 6,435 $4,238,255 (208,484) $ (224,802)
Issuance of common stock 46,348 464 446,573 - -
Common stock issued for services 2,028 20 34,450 - -
Common stock from debt conversion 37,792 378 1,031,755 - -
Sales of treasury stock - - 22,401 22,401 44,802
Issuance of options to purchase common stock
below market price - - 1,413,548 - -
Amortization of unearned compensation - - - - -
Repurchase of common stock for treasury - - - (5,000) (10,000)
Net loss - - - - -
-----------------------------------------------------------------
Balances at June 30, 1995 729,659 7,297 7,186,982 (191,083) (190,000)
Issuance of common stock, net of offering costs 1,842,547 18,425 7,198,089 - -
Common stock issued for services 182 2 4,990 - -
Common stock issued for debt conversion 152,418 1,524 4,294,880 - -
Sales of treasury stock - - - 190,628 185,000
Amortization of unearned compensation - - - - -
Warrants issued with bridge loans - - 62,500 - -
Retirement of common and treasury stock (2,615) (26) (54,863) 455 5000
Net loss - - - - -
=================================================================
Balances at June 30, 1996 2,722,191 $ 27,222 $18,692,578 - -
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Unearned Development
Compensation Stage Total
----------------------------------------------------
<S> <C> <C> <C>
Balances at July 1, 1994 $ (378,561) $ (8,509,741) $ (4,868,414)
Issuance of common stock - - 447,037
Common stock issued for services - - 34,470
Common stock from debt conversion - - 1,032,133
Sales of treasury stock - - 67,203
Issuance of options to purchase common stock
below market price (1,413,548) - -
Amortization of unearned compensation 924,467 - 924,467
Repurchase of common stock for treasury - - (10,000)
Net loss - (2,789,580) (2,789,580)
----------------------------------------------------
Balances at June 30, 1995 (867,642) (11,299,321) (5,162,684)
Issuance of common stock, net of offering costs - - 7,216,514
Common stock issued for services - - 4,992
Common stock issued for debt conversion - - 4,296,404
Sales of treasury stock - - 185,000
Amortization of unearned compensation 867,642 - 867,642
Warrants issued with bridge loans - - 62,500
Retirement of common and treasury stock - - (49,889)
Net loss - (2,914,905) (2,914,905)
====================================================
Balances at June 30, 1996 - $ (14,214,226) $ 4,505,574
====================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Inception
August
23, 1985
Year Ended through
June 30 June 30
--------------------------------------------------
1996 1995 1996
--------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Operating activities
Net loss $ (2,914,905) $ (2,789,580) $(21,471,490)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 86,875 86,105 456,055
Accretion of bridge notes 213,568 31,240 244,808
Services provided for common stock 5,000 34,552 1,140,813
Write-off abandoned patent applications 1,895 23,025 111,059
Amortization of unearned compensation 867,642 924,467 2,076,217
Changes in operating assets and liabilities:
Receivables, advances to employees 44,399 (10,762) (37,945)
Inventories (66,186) -- (66,186)
Prepaid expenses and other (49,688) (24,756) (82,608)
Accounts payable and accrued expenses (510,561) 504,497 1,922,107
--------------------------------------------------
Net cash used in operating activities (2,321,961) (1,221,212) (15,707,170)
Cash flows from investing activities
Property and equipment additions (269,057) (2,678) (866,486)
Costs incurred in acquiring patents (49,962) (36,110) (389,558)
--------------------------------------------------
Net cash used in investing activities (319,019) (38,788) (1,256,044)
Cash flows from financing activities
Proceeds from notes payable 40,000 76,100 4,398,606
Payments on notes payable (314,511) (172,535) (1,097,350)
Proceeds from convertible notes payable -- 391,000 1,465,529
Repayments of convertible notes payable (162,500) (50,000) (212,500)
Proceeds from bridge loans 1,285,433 480,315 1,765,748
Repayments of bridge loans (1,250,000) -- (1,250,000)
Proceeds from sales of common stock 7,216,514 448,891 9,189,443
Repurchase of common stock (40,000) (10,000) (569,512)
Proceeds from sales of treasury stock 190,000 67,203 351,119
Proceeds from sales of limited partnership units -- -- 7,257,264
--------------------------------------------------
Net cash provided by financing activities 6,964,936 1,230,974 21,298,347
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,323,956 (29,026) 4,335,133
Cash and cash equivalents at beginning period 11,177 40,203 --
--------------------------------------------------
Cash and cash equivalents at end of period $ 4,335,133 $ 11,177 $ 4,335,133
==================================================
Supplemental disclosure of cash flow information:
Class A common stock issued for services $ 4,992 $ 34,470 $ 1,111,617
Debt and interest converted into Class A common stock 4,296,404 1,032,133 6,281,164
Stock options granted for services -- 98,500 98,500
Class E common stock issued 9,613 3,448 38,801
</TABLE>
See accompanying notes.
F-6
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements June 30,1996
Organization
LightPath Technologies, Inc. (the Company) was incorporated in Delaware on June
15, 1992 as the successor to LightPath Technologies Limited Partnership formed
in 1989, and its predecessor, Integrated Solar Technologies Corporation formed
on August 23, 1985. The Company is a development stage enterprise engaged in the
research, development and production of GRADIUM(TM) lenses. GRADIUM is an
optical quality glass material with varying refractive indices, capable of
reducing optical aberrations inherent in conventional lenses and performing with
a single lens, or fewer lenses, tasks performed by multi-element conventional
lens systems. Since its inception in 1985, the Company has been engaged in basic
research and development. With the proceeds from the initial public offering
(IPO) on February 22, 1996, the Company began to focus on product development
and sales.
Basis of Presentation
The Company has incurred substantial losses since inception. The Company
consummated an IPO to raise additional capital to further fund research,
development and commercialization of GRADIUM with the objective of developing
products that will achieve market acceptance. Management believes the net
proceeds from the offering will be sufficient to finance the Company's working
capital requirements for the next year. Without sales of the GRADIUM products,
there is substantial doubt about the ability of the Company to continue as a
going concern. The financial statements do not include any adjustments to
reflect the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.
1. Summary of Significant Accounting Matters
Cash and cash equivalents consist of cash in the bank and temporary investments
with maturities of ninety days or less when purchased.
Inventories which consists principally of raw materials, lenses and components
are stated at the lower of cost, on a first-in, first-out basis, or market.
Inventory costs include material, labor and manufacturing overhead.
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets from
three to seven years.
Intangible assets consisting of patents and trademarks, are recorded at cost.
These assets are being amortized on the straight-line basis over the estimated
useful lives of the related assets from ten to seventeen years.
Income taxes are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based upon enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change in
deferred tax assets and liabilities during the period.
F-7
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Revenue recognition occurs from sales of product upon shipment.
Research and development costs are expensed as incurred.
Stock based employee compensation is accounted for under the provision of APB
Opinion No. 25, Accounting for Stock Issued to Employees, which requires no
recognition of compensation expense when the exercise price of the employees
stock option equals the market price of the underlying stock on t;he date of
grant.
Pro forma information required by Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, has been presented under the
fair value method using a Black-Scholes option pricing model (see Note 7).
Per share data is computed using the weighted average number of common shares
and common equivalent shares outstanding during each period after giving
retroactive effect to the recapitalization (see Note 8). Restricted Class E
common shares and stock options for the purchase of Class E common shares are
considered contingently issuable and, accordingly, are excluded from the
weighted average number of common and common equivalent shares outstanding.
Net loss per share for the period from inception through June 30, 1996 is not
presented as the Company's predecessor was a limited partnership and no common
shares were outstanding.
Management uses estimates and makes assumptions during the preparation of the
Company's financial statements that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which in turn could impact the
amounts reported and disclosed herein.
Financial instruments of the Company are valued as required by Statement of
Financial Accounting Standards No. 107, Disclosures about Fair Values of
Financial Instruments. The carrying amounts of cash and cash equivalents
approximate fair value.
2. Property and Equipment
Property and equipment consist of the following:
June 30,1996
Manufacturing equipment $ 491,614
Computer equipment and software 203,243
Furniture and fixtures 84,656
Leasehold improvements 65,207
------------
844,720
Less depreciation (405,994)
============
$ 438,726
============
F-8
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
3. Intangible Assets
Intangible assets consist of the following:
June 30,1996
Patents and trademarks granted $ 162,838
Patent applications in process 106,863
Trademark applications in process 8,797
------------
278,498
Less amortization (28,292)
------------
$ 250,206
============
4. Note Payable
At June 30, 1996, the Company has a note payable to a stockholder of $30,000,
which bears interest at 10.28%, payable monthly. The stockholder has agreed to
make repayment of the remaining balance contingent upon the Company meeting the
conditions for conversion of the Class E-1 common stock into Class A common
stock (as discussed in Note 8).
Bridge Loans
In November 1995, the Company completed a bridge financing consisting of an
aggregate of $1,250,000 principal amount of Bridge Notes and 625,000 Bridge
Warrants from which it received net proceeds of $1,070,380, after deducting
commissions and expenses of such financing. The Bridge Notes and accumulated
interest were repaid with proceeds from the initial public offering. The Bridge
Warrants entitled the holders to purchase one share of common stock for $3 per
share, which were automatically exchanged on the closing of the IPO into 625,000
Class A warrants with exercise price of $6.50 per share. The warrants, which
were initially valued at $62,500 by management were recorded as debt discount.
Debt discount and deferred financing costs were amortized over the life of the
loan.
Conversion of Debt into Equity
In October and November 1995, the majority of the holders of bridge notes agreed
to convert $440,000 in principal and related accrued interest under such notes
into shares of Class A and Class E common stock at a conversion rate of $5.50
per share. In February 1996, the Company converted the remaining $215,000 in
principal and related accrued interest into shares of Class A and Class E common
stock at a conversion rate of $5.50 per share. As additional consideration for
the debt conversion, the Company issued 214,000 Class A warrants to the
noteholders.
In February 1996, in conjunction with the IPO, certain other debtholders agreed
to convert approximately $3.3 million in principal, accrued interest and other
payables into shares of Class A and Class E common stock at a conversion price
of $5.50 per share.
Interest of $58,023 and $21,613 was paid in 1996 and 1995 respectively.
5. Deferred Employee Salaries
In November 1993, the Company implemented a plan for the deferment of a portion
of all employees' salaries. The salaries not paid were accrued as a continuing
obligation of the Company. As of June 30, 1996 and 1995, the total deferred
amounts were $211,470 and $789,449 respectively. During 1996 portions of these
deferrals were repaid with proceeds from bridge loans, while other obligations
were converted into common stock. Additionally, in November 1995, key officers
of the Company agreed to convert $350,000 of their deferred amounts into Class E
common stock at an average conversion price
F-9
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
of $1 per share. Key officers and employees of the Company have agreed to make
repayment of the June 30, 1996 balance plus the balance of an accrued liability
for a director (totals $275,000) contingent upon the Company meeting the
conditions for conversion of the Class E-1 common stock into Class A common
stock (as discussed in Note 8).
6. Income Taxes
Temporary differences between the net operating losses for financial reporting
and income tax purposes primarily relate to the use of the cash method of
accounting and deferral of research and development and start-up expenses for
tax purposes. Research and development and start-up expenses will be deductible
over a five year period commencing with the year the Company advances from the
development stage into its commercialization phase.
For financial reporting purposes a valuation allowance of $3,674,000 has been
recognized to offset the Company's deferred tax assets. The valuation allowance
has increased by $692,000 and $747,000 during the years ended June 30, 1996 and
1995, respectively, as a result of increased deferred tax assets created
principally by the operating losses and the deferral of research and development
and start-up expenses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. Significant
components of the Company's deferred tax assets at June 30, 1996 are as follows:
Deferred tax assets:
Capitalized start-up expenses, net $ 2,474,000
Capitalized research and development expenses 533,000
Net operating loss carryforwards 434,000
Research and development credits 106,000
Other deferred deductions 127,000
-----------------
Total deferred tax assets 3,674,000
Valuation allowance for deferred tax assets (3,674,000)
-----------------
$ --
=================
The reconciliation of income tax attributable to operations computed at the U.S.
federal statutory tax rates is a difference equal to the federal statutory rate
given that the annual losses resulted in no tax benefits.
At June 30, 1996, the Company has net operating loss carryforwards for federal
income tax purposes of approximately $1 million which will begin to expire in
2009 if not previously utilized. The Company also has research and development
credit carryforwards of approximately $106,000 which will begin to expire in
2009, if not previously utilized. The majority of the net operating loss
carryforward and research and development credits are subject to certain
limitations of the Internal Revenue Code which restrict their annual
utilization.
F-10
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
7. Employee and Director Stock Option Plans
At June 30, 1996 the Company has three stock based compensation plans which are
described below. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Prior to becoming a public company,
the Company's management valued options granted based on the cash transactions
price of the Company's common stock during the period of grant. Certain of the
grants, prior to 1995, were at less than fair market value and the Company
recorded total unearned compensation of $1,413,548 and $662,669 in 1995 and
1994, respectively, at the date of the grants, and was amortizing the unearned
compensation expense over the vesting periods. The amortization expense totaled
$867,642 and $924,467 in 1996 and 1995, respectively. The unamortized balance of
unearned compensation was charged to expense in the first quarter of fiscal 1996
when the vesting of all options outstanding was accelerated due to the approval
by the stockholders of an underwriting agreement. No compensation costs have
been recognized for its fixed stock options plans where fair market value
equalled the option price at the date of grant. Had compensation costs for the
Company's stock based compensation plans been determined consistent with FASB
Statement No. 123, the Company's net loss and net loss per share for the year
ended June 30, 1996 would have been substantially the same as reported.
In June 1992, the Company implemented the Omnibus Incentive Plan (the "Incentive
Plan"), and the Directors Stock Option Plan (the "Directors Plan"). An aggregate
of 104,545 and 13,636 shares of the Company's common stock has been reserved for
awards under the Incentive Plan and the Directors Plan, respectively.
The Incentive Plan authorizes the Company to grant various awards using common
stock, and cash to officers and other key employees of the Company, including
incentive stock options, nonqualified stock options, "reload" options, deferred
compensation stock options, stock appreciation rights, restricted stock grants,
restricted unit grants and performance bonus awards. The term of the options
granted under the Incentive Plan cannot exceed ten years for all option holders
except stockholders with 10% or more of the Company's stock for which the term
is five years after the date of grant. Each option issued prior to the IPO is
now, due to the recapitalization discussed in Note 8, bundled into an option for
the purchase of one share of Class A common stock, 1.5 shares each of Class E-1
and E-2 common stock and one share of Class E-3 common stock. Options under the
Incentive Plan available for grant at June 30, 1996 were 2,161 shares of Class A
common stock.
The Directors Plan authorizes the Company to grant awards to certain eligible
nonemployee directors of the Company using common stock. Under the plan formula:
i) each of the current nonemployee directors will receive options to purchase
182 shares of the Company's common stock at the date of each annual meeting of
stockholders; and ii) on the date an individual first becomes a nonemployee
director, they will receive options to purchase 900 shares of the Company's
common stock which vest ratably over a three year period. Each option granted
under the Directors Plan will be granted at a price equal to the fair market
value of such shares on the date the options are granted with a term of ten
years. Each option issued prior to the IPO is now, due to the recapitalization
discussed in Note 8, bundled into an option for the purchase of one share of
Class A common stock, 1.5 shares each of Class E-1 and E-2 common stock and one
share of Class E-3 common stock. Options under the Director Plan available for
grant at June 30, 1996 were 10,136 shares of Class A common stock.
In addition, the Company has issued nonqualified options to certain directors
and consultants to the Company not covered by the Incentive or Directors Plan.
The Company issued 26,628 shares in 1995 to consultants for services rendered,
recognizing $445,000 in cost related to these options issued. Each option issued
prior to the IPO is now, due to the recapitalization discussed in Note 8,
bundled into an option for the purchase of one share of Class A common stock,
1.5 shares each of Class E-1 and E-2 common stock and one share of Class E-3
common stock.
F-11
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
A summary of the status of the stock option plans as of June 30, 1996 and 1995
and changes during the years ended is presented below:
<TABLE>
<CAPTION>
========================================================================================
Incentive Directors
Shares under option: Plan Plan Nonqualified
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at June 30, 1994 19,655 4,182 24,675
Granted 57,529 - 26,628
Exercised - - -
Lapsed or canceled (12,891) (682) -
----------------------------------------------------
Outstanding at June 30, 1995 64,293 3,500 51,303
Granted at $5.00 55,000 - -
Exercised - - -
Lapsed or canceled (16,909) - (1,609)
----------------------------------------------------
Outstanding at June 30, 1996 102,384 3,500 49,694
====================================================
Options exercisable:
June 30, 1996 57,384 3,500 49,694
Weighted-avg fair value of
options granted during year $ 1.03 - -
</TABLE>
The following table summarizes information about fixed stock options outstanding
at June 30, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
====================================================================================================================
Weighted-Avg.
Range of Number Remaining Number
Exercise outstanding at Contractual Weighted-Avg. Exercisable at Weighted-Avg.
Prices June 30,1996 Life Exercise Price June 30, 1996 Exercise Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5 to 15 137,673 8.7 Years $ 5.57 92,673 $ 5.85
$ 25 to 40 12,658 7.3 $ 35.71 12,658 $ 35.71
$ 41 to 55 5,247 7.2 $ 44.44 5,247 $ 44.44
------------------ ------------------
$ 5 to 55 155,578 8.5 $ 9.33 110,578 $ 11.09
================== ==================
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: dividend yield of 0%; expected volatility
of 25%; risk free interest rate of 7%; and expected lives of 2 years.
8. Stockholder's Equity
Initial Public Offering
The Company completed an IPO on February 22, 1996 for the sale of units which
consisted of one share of Class A common stock, one Class A warrant and one
Class B warrant. The initial public offering price per unit was $5.00.
Common Stock
Effective September 29, 1995, the Board of Directors and the stockholders of the
Company approved the recapitalization of the Company as follows:
A 1-for-5.5 reverse stock split of all then outstanding shares of common stock.
Concurrently, a stock dividend of 1.5 shares of Class E-1 common stock, 1.5
shares of Class E-2 common stock and one
F-12
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
share of Class E-3 stock, for each share of Class A common stock outstanding
following the reverse stock split was declared
The Company's common stock and preferred stock consists of the following:
- - Authorized 34,500,000 shares of Class A common stock, $.01 par value. The
stockholders of Class A common stock are entitled to one vote for each
share held.
- - Authorized 2,000,000 shares of Class E-1 common stock, $.01 par value. The
stockholders of Class E-1 common stock are entitled to one vote for each
share held. Each Class E-1 share will automatically convert into one share
of Class A common stock in the event that (i) the Company's income before
provision of income taxes and extraordinary items or any charges which
result from the conversion of the Class E common stock is equal to or
exceeds $8,000,000 in fiscal 1996, 1997, 1998 or 1999, or is at least
$10,300,000 in fiscal 2000; or (ii) the Company's bid price per share of
Class A common stock averages in excess of $5.00 multiplied by 2.5 (subject
to adjustment for stock splits) for 30 consecutive business days during the
18-month period commencing on February 22, 1996, or (iii) the bid price per
share of Class A common stock averages in excess of $5.00 multiplied by
3.35 (subject to adjustment for stock splits) for 30 consecutive business
days during the period from 18 months through 36 months after February 22,
1996, or (iv) the Company is acquired by or merged with or into another
entity during any of the periods referred to in (ii) or (iii) and as a
result thereof holders of the Class A common stock of the Company receive
per share consideration (after giving effect to the conversion of the Class
E-1 common stock) equal to or greater than the respective bid price amounts
set forth in (ii) or (iii) above, respectively, as applicable.
- - Authorized 2,000,000 shares of Class E-2 common stock, $.01 par value. The
stockholders of Class E-2 common stock are entitled to one vote for each
share held. Each Class E-2 share will automatically convert into one share
of Class A common stock in the event that (i) the Company's income before
provision of income taxes and extraordinary items or any charges which
result from the conversion of the Class E common stock is equal to or
exceeds $10,900,000 in fiscal 1996, 1997, 1998 or 1999, or is at least
$14,000,000 in fiscal 2000; or (ii) the Company is acquired by or merged
with or into another entity during any of the periods referred to below and
as a result thereof holders of the Class A common stock of the Company
receive per share consideration (after giving effect to the conversion of
the Class E-1 and Class E-2 common stock) equal to or greater than 3.6
times $5.00 during the 18-month period commencing on February 22, 1996, or
4.6 times $5.00 during the period from 18 months through 36 months after
February 22, 1996 set forth in (ii) or (iii) above, respectively, as
applicable.
- - Authorized 1,500,000 shares of Class E-3 common stock, $.01 par value. The
stockholders of Class E-3 common stock are entitled to one vote for each
share held. Each Class E-3 share will automatically convert into one share
of Class A common stock in the event that (i) the Company's income before
the provision of income taxes and extraordinary items or any charges which
result from the conversion of the Class E common stock is equal to or
exceeds $28,000,000 in fiscal 1996, 1997, 1998, 1999 or 2000; or (ii) the
Company is acquired by or merged with or into another entity during the
periods referred to below and as a result thereof holders of Class A common
stock of the Company receive per share consideration (after giving effect
to the conversion of the Class E-1, E-2 and E-3 common stock) equal to or
greater than 6 times $5.00 price during the 18-month period commencing on
February 22, 1996, or 8 times $5.00 during the period from 18 months
through 36 months after February 22, 1996.
The shares of Class E common stock will be redeemed on September 30, 2000
by the Company for $.0001 per share and will be canceled by the Company
without further obligation to the stockholder if such earnings levels a
market price targets are not achieved.
The Class E common stock performance shares have the characteristics of
escrowed shares; therefore, shares owned by key officers, employees,
directors or consultants of the Company are
F-13
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
subject to variable plan compensation accounting. In the event the Company
attains any of the earnings thresholds or the Company's Class A common
stock meets certain minimum market prices required for the conversion of
Class E common stock by such stockholders, the Company will be required to
recognize compensation expense in the periods in which the stated criteria
for conversion are probable of being met.
- - Authorized 5,000,000 shares of preferred stock; no par value, none of which
have been issued. Designations, rights, and preferences related to these
shares may be determined by the Board of Directors. The terms of any series
of preferred stock may include priority claims to assets and dividends and
voting or other rights.
Warrants
Each Class A warrant entitles the holder to purchase one share of Class A common
stock and one Class B warrant at an exercise price of $6.50 until February 22,
2001. Commencing one year from the offering, the Class A warrants are redeemable
by the Company on 30 day's written notice at a redemption price of $.05 per
warrant if the closing price of the Class A common stock for any 30 consecutive
trading days ending within 15 days of the notice averages in excess of $9.10 per
share.
Each Class B warrant entitles the holder to purchase one share of Class A common
stock at an exercise price of $8.75 until February 22, 2001. Commencing one year
from the offering, the Class B warrants are redeemable by the Company on 30
day's written notice at a redemption price of $.05 per warrant if the closing
price of the Class A common stock for any 30 consecutive trading days ending
within 15 days of the notice averages in excess of $12.25 per share. All Class B
warrants must be redeemed if any are redeemed.
All of the Class A warrants, the Class A common stock and Class B warrants
issuable upon exercise of such Class A warrants and the Class A common stock
issuable upon exercise of the Class B warrants were registered and tradeable
subject to a contractual restriction that such Class A warrants and underlying
securities may not be sold for a period of between 90 and 270 days after the
effective date of the IPO. Original securityholders have also agreed not to
exercise their warrants for a period of one year following the effective date of
the IPO; provided, however, that subsequent purchasers of the warrants are not
subject to such restrictions on exercise.
9. Commitments and Contingencies
The Company has operating leases for office equipment and office space.
Effective April 1, 1996 Company has entered into a 5 year lease (with a three
year renewal option) agreement for a 13,300 square foot manufacturing and office
facility in Albuquerque, New Mexico. Rent expense recognized for the years ended
June 30, 1996 and 1995 was $55,640 and $66,352 respectively. Commitments under
noncancelable operating leases are $93,500 for 1997; $89,000 for 1998; $91,000
for 1999; $94,000 for 2000; and $73,000 for 2001.
The Company has outstanding purchase commitments for approximately $100,000 at
June 30, 1996 for capital expenditures for the manufacturing facility.
In June 1996, the Company entered into an agreement with Invention Machine
Corporation (IMC) for a benchmarking and prediction analysis of technologies
related to LightPath's proprietary process for the manufacturing of GRADIUM. The
agreement calls for the Company to pay IMC a total of $24,000 from July 1996
through December 1996 and issue 40,000 shares of unregistered Class A common
stock upon completion of the project.
In 1995, a former employee commenced a lawsuit against the Company for deferred
compensation and reimbursable expenses. A second lawsuit was commenced by this
same person alleging wrongful
F-14
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
discharge. The Company settled both of these lawsuits in May 1996, for
approximately $75,000. The majority of which was deferred compensation accrued
in 1995.
The Company is involved in other various legal actions arising in the normal
course of business. After taking into consideration legal counsel's evaluation
of such actions, management is of the opinion that their outcome will not have a
significant effect on the Company's financial statements. The Company is also
aware of the existence of certain unasserted claims. Certain potential claims
exist due to nonpayment of payables during the periods when the Company had
inadequate cash flow. Third parties have not recently manifested their intent to
pursue such matters. Management is of the opinion that such matters are not
likely to be asserted or if they are will not result in any material liability
to the Company.
10. Related Party Transactions
During the fiscal year ended June 30, 1996, two directors of the Company,
provided legal and consulting services to the Company for which they billed the
Company approximately, $58,000. In addition, the Company was provided legal and
consulting services by several individuals and companies who are stockholders of
the Company, for which they billed approximately, $144,000. The Company has
retained the legal services of a stockholder for licensing work to be performed
during fiscal 1997 for $90,000 of which half is paid in cash and half in Class A
common stock.
11. Supplemental Net Loss Per Share Information
On February 22, 1996 the Company completed an IPO upon which shares of common
stock was issued due to the conversion of certain accounts payable, accrued
liabilities, payables to related parties, notes payable, convertible notes
payable and bridge loans into Class A common stock and shares of Class E common
stock. Had the conversion occurred on July 1, 1995 the earnings per share
amounts for 1996 would have been as follows:
1996
----
Actual $(1.98)
Adjustments .07
-----------------
Supplemental $(1.91)
=================
F-15
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in conneNo dealer, salesman or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus in connection with the offer made by this
Prospectus and, if given r made, such information and representations must not
be relied upon has having been authorized by the Company or the Selling
Securityholders. This Prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any security other than the shares of Common
Stock offered by this Prospectus, nor does it constitute an offer to sell or a
solicitation of any offer to buy the shares of Common Stock by anyone in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the deliver of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that information contained herein is
correct as of any time subsequent to the date hereof.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary 3
Risk Factors 7
Use of Proceeds 12
Dividend Policy 13
Price Range of Class A Common Stock 13
Capitalization 14
Selected Financial Data 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
Business 18
Management 25
Principal Stockholders 33
Certain Transactions 34
Concurrent Offering by Selling Securityholders 35
Description of Securities 38
Shares Eligible For Future Sale 42
Plan of Distribution 43
Experts 44
Available Information 44
Changes and Disagreements with Accountants on
Accounting and Financial Disclosure 45
Financial Statements F-1
----------------------
Until ____________, 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subsciptions.
LIGHTPATH TECHNOLOGIES, INC.
1,840,000 UNITS, EACH CONSISTING OF ONE SHARE OF CLASS A COMMON
STOCK AND ONE REDEEMABLE B WARRANT, ISSUABLE UPON THE
EXERCISE OF REDEEMABLE CLASS WARRANTS
AND 3,680,000 SHARES OF CLASS A COMMON STOCK ISSUABLE
UPON THE EXERCISE OF REDEEMABLE CLASS B WARRANTS
----------------------
PROSPECTUS
----------------------
_____________, 1996
46
<PAGE>
ALTERNATE
PROSPECTUS
LIGHTPATH TECHNOLOGIES, INC.
839,000 Redeemable Class A Warrants to Purchase
839,000 Shares of Class A Common Stock
and 839,000 Redeemable Class B Warrants
to Purchase 839,000 Shares of Class A Common Stock
This Prospectus relates to 839,000 redeemable Class A Warrants (the
"Class A Warrants") of Lightpath Technologies, Inc., a Delaware corporation (the
"Company"), 625,000 of which were issued to investors upon conversion of other
warrants issued to such investors in a private placement by the Company in
November 1995 (the "Private Placement"), and 214,000 of which were issued to
other investors upon conversion of certain Notes issued by the Company in a
private placement during the first seven months of 1995. See "Selling
Securityholders." This Prospectus also relates to 839,000 Redeemable Class B
Warrants ("Class B Warrants") issuable upon exercise of the Class A Warrants and
1,678,000 shares of Class A Common Stock issuable upon exercise of the Class A
Warrants and Class B Warrants. Each Class A Warrant entitles the holder to
purchase, at an exercise price of $6.50, subject to adjustment, one Class B
Warrant and one share of Class A Common Stock. Each Class B Warrant entitles the
holder to purchase, at an exercise price of $8.75, subject to adjustment, one
share of Class A Common Stock. The Class A Warrants and the Class B Warrants
(collectively, the "Warrants") are exercisable at any time after issuance
through the fifth anniversary of the date of this Prospectus. The Warrants are
subject to redemption by the Company for $.05 per Warrant, upon 30 days' written
notice, if the average closing bid price of the Class A Common Stock exceeds
$9.10 per share with respect to the Class A Warrants and $12.25 per share with
respect to the Class B Warrants (subject to adjustment in each case) for 30
consecutive business days ending within 15 days of the date the Warrants are
called for redemption. See "Description of Securities."
The securities offered by this Prospectus may be sold from time to time
by the holders thereof ("Selling Securityholders"), or by their transferees. All
of the Class A Warrants are expected to become freely traceable commencing 90
days from the date of this Prospectus, and the securities underlying such Class
A Warrants are expected to become freely traceable commencing one year from the
date of this Prospectus. See "Concurrent Offering." The distribution of the
securities offered hereby may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated paces. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, Including liabilities under the
Act.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders.
On December 7, 1995, the Company filed a Registration Statement under
the Act with respect to a public offering by the Company (the "Offering")
underwritten by D.H. Blair Investment Banking Corp. ("Blair") of 1,840,000
Units, each Unit consisting of one share of Class A Common Stock, one Class A
Warrant and one Class B Warrant, with the Securities and Exchange Commission
(the "Commission"). The Company received approximately $7,200,000 net Proceeds
from the Offering after payment of underwriting discounts and commissions and
estimated expenses of the Offering. In the event all of the Class A and Class B
Warrants are fully exercised, the Company will receive gross proceeds of
approximately $61,835,000.
The Company has agreed to pay Blair a solicitation fee (the
"Solicitation Fee") equal to 5% of the exercise price in connections with the
exercise of Warrants under certain conditions. See "Selling Securityholders and
Plan of Distribution." The warrant prices and other terms of the Warrants have
been determined by negotiation between the Company and Blair and are not
necessarily related to the Company's asset value, net worth or other established
criteria of value.
----------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATESECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONTO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1996.
A-1
<PAGE>
ALTERNATE
CONCURRENT OFFERING
On December 7, 1995, the Company Filed a Registration Statement under
the Securities Act with respect to an underwritten offering of the 1,840,000 IPO
Units by the Company (i.e., the IPO). The offering of the IPO Units has
subsequently been completed, but the Company may be deemed to continue to be
offering securities pursuant to the outstanding Warrants. Sales of Securites by
the Selling Securityholders, or the potential of such sales, chould have an
adverse effect on the market price of the Warrants and of the Class A Common
Stock purchasable upon exercise of the Warrants.
ALTERNATE
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of 839,000 Class A Warrants, consisting of Class A Common
Stock and a Class B Warrant may be offered by certain security holders who
received their Class A Warrant in connection with the Private Placement in
November 1995.
The following table sets forth certain information with respect to each
Remaining Selling Securityholder for whom the Company is registering securities
for resale to the public. The Company will not receive any of the proceeds from
the sale of these securities. Except as described below, there are no material
relationships between any of the Remaining Selling Securityholders and the
Company, nor have any such material relationships existed within the past three
years.
Number of Class A
Warrants Beneficially
Owned and Maximum
Selling Securityholders Number to be sold(1)
- ----------------------- --------------------
Magid Abraham 50,000
William Aden 35,000
Bruce Barrus 8,500
Thomas J. & Dorothy M. Biuso 12,500
Burns Family Trust 1200
Kenneth & Sherry Cohen 12,500
David B. Cornstein 25,000
Benjamin Danziger 21,000
Charles Garcia 7,500
Irving L. Goldman 25,000
Stuart Gruber 12,500
Kenneth Hoffer 15,000
Herman S. Howard 50,000
Michael Jesselson 12/18/80 Trust 25,000
Jesselson Grandchildren 12/18/80 Trust 50,000
Robert & Eileen Jordan 12,500
Milton Klein 16,000
Guy Knolle 17,500
Louis Leeburg 7,500
William Leeburg 15,000
William Leeburg Profit Sharing Plan 15,000
Lenny Corp 12,500
William J. Lipkin 12,500
Gloria Marra 25,000
Charles Bechert 7,500
James S. Mulholland, Sr. 37,500
A-2
<PAGE>
Ray & Vita Pliskow 17,000
Robin Prever 25,000
Marc Roberts 25,000
Robert Roberts 7,500
F.B. Rooke & Sons 18,000
Alan J. Rubin 25,000
Robert & Daniel Ruscutti 12,500
Anand J. Sathe 12,500
Louise Schrier 50,000
E. Donald Shapiro 12,500
Gary J. Strauss 12,500
Morris Talansky 12,500
Leonard R. and Jane G. Wohletz, Jr. 12,500
Wolfson Equities 50,000
Martin Zelman 12,500
=========================
Total 839,000
=========================
(1) Does not include shares of Class A Common Stock and Class B Warrants
issuable upon exercise of the Class A Warrants and the shares of Class A
Common Stock issuable upon exercise of the Class B Warrants. The Remaining
Selling Securityholders have agreed not to exercise the Class A Warrants
being registered hereby for a period of one year from February 22, 1996.
With the exception of Milton Klein, a director of the Company; Benjamin
Danziger, the father of Leslie A. Danziger, Ray and Vita Pliskow, relatives of
Louis A. Wagman; Louis Leeburg, a principal of the John E. Fetzer Institute--a
principal stockholder of the Company; and, the Burns Family Trust, another
principal stockholder of the Company, there are no material relationships
between any of the Remaining Selling Securityholders and the Company, nor have
any such material relationships existed within the past three years. See
"Certain Transactions" with reference to ownership by family members or
affiliates of certain officers, directors and principal stockholders of Notes
who received Class A Warrants and who are Remaining Selling Securityholders. The
Company has been informed by the Underwriter that there are no agreements
between the Underwriter and any Remaining Selling Securityholder regarding the
distribution of the Remaining Selling Securityholders Warrants or their
underlying securities.
The sale of the securities by the Remaining Selling Securityholders may
be effected from time to time in transactions (which may include block
transactions by or for the account of the Remaining Selling Securityholders) in
the over-the-counter market or in negotiated transactions, a combination of such
methods of sale or otherwise. Sales may be made at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices.
Remaining Selling Securityholders may effect such transactions by
selling their securities directly to purchasers, through broker-dealers acting
as agents for the Remaining Selling Securityholders or to broker-dealers who may
purchase securities as principals and thereafter sell the securities from time
to time in the over-the-counter market, in negotiated transactions or otherwise.
Such broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Remaining Selling Securityholders and/or the
purchasers for whom such broker-dealers act as agents or to whom they may sell
as principals or otherwise (which compensation as to a particular broker-dealer
may exceed customary commissions).
Each Remaining Selling Securityholder has agreed (i) not to sell,
transfer, or otherwise dispose of publicly the Selling Securityholder Warrants
except through a 270 day maximum lock up period measured from February 22, 1996,
and (ii) not to exercise the Remaining Selling Securityholder Warrants for a
period of one year from February 22, 1996. Purchasers of the Remaining Selling
Securityholder Warrants will not be subject to such restrictions.
A-3
<PAGE>
Under applicable rules and regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), any person engaged in the distribution of the
Remaining Selling Securityholders Warrants may not simultaneously engage in
market making activities with respect to any securities of the Company for a
period of at least two (and possibly nine) business days prior to the
commencement of such distribution. Accordingly, in the event the Underwriter of
the Company's offering or D.H. Blair & Co. Inc. ("Blair & Co.") is engaged in a
distribution of the Remaining Selling Securityholders Warrants, neither of such
firms will be able to make a market in the Company's securities during the
applicable restrictive period. However, neither the Underwriter nor Blair & Co.
have agreed to nor are either of them obliged to act as broker/dealer in the
sale of the Remaining Selling Securityholders Warrants and the Remaining Selling
Securityholders may be required, and in the event Blair is a market maker, will
likely be required, to sell such securities through another broker/dealer. In
addition, each Remaining Selling Securityholder desiring to sell Warrants will
be subject to the applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of the purchases and sales of shares of
the Company's securities by such Remaining Selling Securityholders.
The Remaining Selling Securityholders and broker-dealers, if any,
acting in connection with such sales might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
The Company has agreed to pay Blair a Solicitation Fee of 5% of the
aggregate exercise price of each Warrant which is exercised, if (i) the market
price of the Class A Common Stock on the date of the Warrant is exercises is
greater than the then exercise price of the Warrant; (ii) the exercise of the
Warrant was solicited by a member of the NASD; (iii) the Warrant is not held in
a discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the solicitation of exercise of the Warrants was not in violation of Rule
10b-6 as promulgated under the Exchange Act or respective state blue sky laws.
Any costs incurred by the Company in connection with the exercising of the
Warrants shall be borne by the Company.
A-4
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in conneNo dealer, salesman or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus in connection with the offer made by this
Prospectus and, if given r made, such information and representations must not
be relied upon has having been authorized by the Company or the Selling
Securityholders. This Prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any security other than the shares of Common
Stock offered by this Prospectus, nor does it constitute an offer to sell or a
solicitation of any offer to buy the shares of Common Stock by anyone in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the deliver of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that information contained herein is
correct as of any time subsequent to the date hereof.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary 3
Risk Factors 7
Use of Proceeds 12
Dividend Policy 13
Price Range of Class A Common Stock 13
Capitalization 14
Selected Financial Data 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
Business 18
Management 25
Principal Stockholders 33
Certain Transactions 34
Concurrent Offering by Selling Securityholders 35
Description of Securities 37
Shares Eligible For Future Sale 42
Plan of Distribution 43
Experts 44
Available Information 44
Financial Statements F-1
----------------------
Until ____________, 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subsciptions.
LIGHTPATH TECHNOLOGIES, INC.
839,000 Redeemable Class A Warrants
839,000 Redeemable Class B Warrants
1,678,000 Shares of Class A Common Stock
----------------------
PROSPECTUS
----------------------
_____________, 1996
A-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article TENTH of the Company's Certificate of Incorporation, as
amended, provides as follows:
TENTH: No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the foregoing clause shall not apply
to any liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for any transaction from which the director derived an improper
personal benefit, or (iv) under Section 174 of the DGCL. This Article shall not
eliminate or limit the liability of a director for any act or omission occurring
prior to the time this Article became effective.
Article VII of the Company's Bylaws provides, in summary, that the
Company is required to indemnify to the fullest extent permitted by applicable
law, any person made or threatened to be made a party or involved in a lawsuit,
action or proceeding by reason that such person is or was an officer, director,
employee or agent of the Company. Indemnification is against all liability and
loss suffered and expenses reasonably incurred. Unless required by law, no such
indemnification is required by the Company of any person initiating such suit,
action or proceeding without board authorization. Expenses are payable in
advance if the indemnified party agrees to repay the amount if he is ultimately
found to not be entitled to indemnification. For a full text of Article VI of
the Bylaws, see Exhibit 3.3 to this Registration Statement.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is estimated that the following expenses, in addition to Blair's
Solicitation Fee of 5% of the Warrant exercise price under certain
circumstances, will be incurred in connection with the proposed offering
hereunder. All of such expenses will be borne by the Company:
Amount
------
Legal fees and expenses........................................... $8,000.00
Accounting fees and expenses...................................... $4,000.00
Printing expenses................................................. 20,000.00
Total........................................................ 32,000.00
=========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the period commencing September 1, 1992, the Company sold or
issued the securities listed below without registration under the Securities Act
of 1933, as amended.
During September and October of 1992, the Company issued 35,497 shares
of Common
II-1
<PAGE>
Stock for an aggregate cash consideration of $322,025 to eleven accredited
investors, all but two of whom were existing shareholders of the Company.
In December 1992, the Company sold $774,500 of 9% Convertible
Subordinated Debentures Due December 31, 1994 to 17 accredited investors, all
but two of whom were existing shareholders of the Company. These debentures were
convertible into shares of Common Stock of the Company at a conversion price of
$7.81 per share, with interest also payable in shares at a price of $3.00 per
share. Prior to the maturity of these debentures, debentures with an aggregate
principal amount of $448,488 were converted into a total of 66,408 shares of
Common Stock, including shares issued in payment of interest.
Between January and March 1993, the Company issued 110,634 shares of
Common Stock for an aggregate cash consideration of $935,785 to 43 accredited
investors, all but five of whom were existing shareholders of the Company.
During April and May of 1993, a total of 184,699 shares of Common Stock
were sold by the Company for the account of a founding shareholder for aggregate
consideration of $438,107 from 34 existing shareholders of the Company. All of
the proceeds were paid to the founding shareholder.
Between July 1993 and April 1994, the Company issued 105,223 shares of
Common Stock to 19 accredited investors, of whom 10 were existing shareholders
of the Company, for an aggregate consideration of $704,002. During this period
1,779 shares were also issued to five existing shareholders of the Company
(including one executive officer and one director) in payment of interest for
funds lent to the Company.
Between June and September 1994, the Company sold 27,500 shares of
Common Stock for an aggregate consideration of $139,000 to six accredited
investors.
In November and December of 1994, the Company sold $391,000 principal
amount of Short-Term Mandatorily Convertible Notes to 34 accredited investors,
of whom 31 were existing shareholders of the Company. These notes were converted
according to the terms of the Notes into 78,200 shares of Common Stock of the
Company in March 1995.
In March and April of 1995, the Company sold 10,750 shares of Common
Stock for aggregate consideration of $53,750 to six existing shareholder of the
Company all of whom were accredited investors.
Since May 1995, 150,167 shares of Common Stock have been issued upon
conversion of an aggregate of $750,809 of funds borrowed by the Company from 12
existing shareholders of the Company, all of whom are accredited investors.
Since January 1995, the Company has issued to 13 accredited investors,
of whom nine were existing shareholders of Company, $655,000 principal amount of
9% notes, together with 262,000 shares of Common Stock for aggregate
consideration of $655,000. An additional 5,385 shares of Common Stock were
issued in payment of interest on such notes.
Between June 1994 and January 1995, the Company also granted stock
options (net of canceled options) to purchase an aggregate of 353,600 shares of
the Company's Common Stock at a price of $1.00 per share to certain employees
under its Employee Omnibus Incentive Plan. Between July 1992 and March 1994, the
Company also granted stock options (net of canceled
II-2
<PAGE>
options) to purchase a total of 23,000 shares of the Company's Common Stock at
prices ranging from $6.50 to $9.375 per share to four directors under the
Company's Directors stock Option Plan. During 1994 and 1995 the Company also
granted to certain consultants, advisors and directors nonqualified options
covering an aggregate of 282,164 shares of Common Stock at prices ranging from
$1.00 to $7.81 per share. As of the date hereof, no options have been exercised.
All of the above options become fully vested upon the effectiveness of the
within public offering, in accordance with the terms of the plans or agreements
under which they were issued.
Since December 1992, 12,280 shares of Common Stock have been issued to
five consultants to the Company including one director who serves as patent
counsel, and 12,106 shares were issued to a former executive officer and
director for prior services rendered to the Company. Additionally, 66,000 shares
were issued to J.P. Morgan & Co. between April 1993 and January 1994 for
financial advisory and market evaluation services provided to that Company.
All of the foregoing transactions refer to shares of
pre-Recapitalization Common Stock.
In September 1995, the Company effected a reverse stock split by which
all shares of the Company's issued and outstanding Common Stock, all shares
issuable under outstanding options or warrants, and all shares of Common Stock
authorized for issuance under various stock option plans were split on a reverse
5.5-to-1 basis into shares of Class A Common Stock. On September 29, 1995, the
Company declared a stock dividend of 1.5 shares of Class E-1 Common Stock, 1.5
shares of Class E-2 Common Stock and one share of Class E-3 Common Stock for
each share of Class A Common Stock outstanding. These transactions were deemed
to be exempt from registration under the Securities Act of 1933, as amended (the
"Act"), pursuant to the provisions of Section 2(3) thereof as not involving a
"sale" of the securities involved.
On November 17, 1995, the Company issued 25 Units, each Unit consisting
of the Company's Note for $50,000 and warrants, convertible on closing of this
Offering into Class A Warrants, to purchase 25,000 shares of Class A Common
Stock and one Class B Warrant exercisable to purchase 25,000 shares of Class A
Common Stock. The aggregate consideration received by the Company for the Units
was $1,250,000, less placement fees and Placement Agent expenses. All of the
Units were sold to accredited investors.
On February 22, 1996, the Company issued 168,780 shares of Class A
Common Stock, 384,420 shares of Class E-1, 384,420 shares of Class E-2 and
296,280 shares of Class E-3 Common Stock in exchange for aggregate outstanding
indebtedness of approximately $4,940,000.
From March through September 1996, the Registrant granted stock options
under its 1992 Omnibus Incentive Plan to purchase an aggregate of 100,000 shares
of Class A Common Stock at exercise prices ranging from $5.00 to $5.875 per
share. These options are subject to the shareholders approval of this plan. In
addition, on September 30, 1996, the Registrant granted to four nonemployee
directors options to purchase an aggregate of 22,000 shares of Class A Common
Stock at an exercise price of $6.06 per share pursuant to a formula granted
under the Registrant's Amended and Restated Directors Stock Option Plan.
Unless otherwise noted herein, the issuances of securities in the
transactions described above were deemed to be exempt from registration under
the Act either pursuant to the exemption from registration contained in Section
3(a)(9) and Section 4(2) thereof, or under the provisions of Regulation D or
Rule 701 promulgated under the Act. Such sales were made solely to investors who
represented that they were accredited investors and to not more than 35 non-
II-3
<PAGE>
accredited investors, all of whom purchased such securities for investment and
not with a view to the distribution thereof. All sales were made directly by the
Company acting through its officers and directors, without any general
solicitation or general advertising. Restrictions have been imposed on the
resale of such securities, including the placement of legends thereon noting
such restrictions, and written disclosure of such restrictions were made prior
to issuance of the securities.
ITEM 27. EXHIBITS.
Page Number or
Exhibit Method of
Number Description Filing
------ ----------- ------
1.1 Form of Underwriting Agreement *
3.1 Certificate of Incorporation of Registrant, as *
amended
3.2 Certificate of Designations filed November *
9, 1995 with the Secretary of State of the
State of Delaware
3.3 Bylaws of Registrant *
4.1 Form of Warrant Agreement *
4.2 Form of Unit Purchase Option *
4.3 Form of Voting Trust Agreement dated *
among certain stockholders of the Registrant
4.4 Specimen Certificate for the Class A *
Common Stock
4.5 Specimen Certificate for the Class A. *
Warrants
4.6 Specimen Certificate for the Class B *
Warrants
5.1 Opinion and Consent of Squire, Sanders & *
Dempsey
10.1 Employment Agreement between Registrant *
and Leslie A. Danziger
10.2 Employment Agreement between Registrant *
and Louis P. Wagman
10.3 Employment Agreement between Registrant *
and Donald E. Lawson
10.4 Product Development and License **
Agreement between Registrant and Karl
Storz GMBH & Co. dated December 22,
1994
II-4
<PAGE>
Page Number or
Exhibit Method of
Number Description Filing
------ ----------- ------
10.5 Letter Agreement dated June 14, 1995 *
between Registrant and Newport
Corporation
10.6 Omnibus Incentive Plan *
10.7 Amended and Restated Directors Stock *
Option Plan
10.8 Merger and Acquisition Agreement between *
Registrant and D.H. Blair Investment
Banking Corp., dated November 17, 1995.
11 Computation of Net Loss Per Share 1
23.1 Consent of Ernst & Young LLP, 1
Independent Auditors
23.2 Consent of Squire, Sanders & Dempsey Included in
Exhibit 5.1
23.3 Consent of David W. Collins, Esq. *
24 Powers of Attorney *
* Previously filed.
** This document was filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment. An excised version
of the document was previously filed as an exhibit hereto
1 Filed herewith
II-5
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) It will file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) 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; and
(iii) Include any additional or changed material information
on the plan of distribution not previously disclosed in the Registration
Statement.
(4) It will file a post-effective amendment to remove from registration
any of the securities that remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24 hereof, 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 such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person thereof in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirement 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 each form on Form SB-2 Registration Statement and
duly authorized this Amendment to the Registrant Statement to be signed on its
behalf by the undersigned, in the City of Albuquerque and State of New Mexico on
December 20, 1996.
LIGHTPATH TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/LESLIE A. DANZIGER
----------------------------------------
Leslie A. Danziger
Chairman of the Board
President
In accordance with the requirement of the Securities Act of 1933, this
Amendment to the Registration Statement was signed below by the following
persons in the capacities and on the dates stated.
Signature Title Date
--------- ----- ----
Chairman of the Board and
/s/ LESLIE A. DANZIGER President (Principal Executive December 20, 1996
------------------------ Officer)
Leslie A. Danziger
Executive Vice President and
/s/ DONALD E. LAWSON Treasurer (Principal Financial December 20, 1996
------------------------ and Accounting Officer)
Donald E. Lawson
* December 20, 1996
------------------------
David W. Collins Director
* December 20, 1996
------------------------
Milton Klein, M.D. Director
* December 20, 1996
------------------------
Haydock H. Miller, Jr. Director
*By /s/ LESLIE A. DANZIGER December 20, 1996
------------------------
Leslie A. Danziger
II-7
Exhibit 11
LightPath Technologies, Inc.
(A Development Stage Company)
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
For the Year Ended June 30
---------------- -----------------
1996 1995
---- ----
<S> <C> <C>
Weighted average common shares outstanding 1,462,155 678,721
Conversion of convertible notes 8,851 26,859
================ =================
Total weighted average common shares and common equivalent
shares outstanding 1,471,006 705,580
================ =================
Net loss $(2,914,905) $(2,789,580)
Weighted average common shares and common equivalent shares
outstanding 1,471,006 705,580
================ =================
Net loss per common and common equivalent shares $ (1.98) $
(3.95)
================ =================
</TABLE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and under
the caption "Selected Financial Data" and to the use of our report dated August
2, 1996, in Post-Effective Amendment No. 1 to the Registration Statement (Form
SB-2 No. 33-80119) and related Prospectus of LightPath Technologies, Inc. (the
Company) for the Registration of (i) Class A Common Stock and redeemable Class B
Warrants of the Company (1,840,000 units), pursuant to outstanding redeemable
Class A Warrants of the Company and Class B Warrants issued in the Company's
initial public offering and (ii) 3,680,000 shares of Class A Common Stock
issuable upon the exercise of such redeemable Class B Warrants.
Ernst & Young LLP
Tucson, Arizona
December 20, 1996