SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Lightpath Technologies, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration No.
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3) Filing party:
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4) Date filed:
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LIGHTPATH TECHNOLOGIES, INC.
6820 Academy Parkway East, N.E.
Albuquerque, New Mexico 87109
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NOTICE OF A JOINT SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 1997
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To the Holders of Class A and Classes E-1, E-2 and E-3 Common Stock of LightPath
Technologies, Inc.:
A Joint Special Meeting of the Stockholders of Class A and Classes E-1,
E-2 and E-3 Common Stock of LightPath Technologies, Inc., a Delaware corporation
(the "Company"), will be held at the Company's corporate headquarters, located
at 6820 Academy Parkway East, N.E., Albuquerque, New Mexico 87109, on June 6
1997, at 1:00 p.m. M.D.S.T. for the following purposes:
(1) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to provide, subject to the prior
respective sequential conversions of the Class E-1 and Class
E-2 Common Stock into shares of Class A Common Stock, for the
extension by successive one-year periods, respectively, of the
dates by which the Company's Class A Common Stock must attain
certain market price levels or the Company must meet certain
per share earnings levels, in order to cause the automatic
conversions into Class A Common Stock of the Company's Class
E-2 and Class E-3 Common Stock and forestall the redemption
thereof at a nominal price; and
(2) To transact such other business as may properly come before
the meeting or any adjournment thereof.
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Stockholders of record of Class A and Classes E-1, E-2 and E-3 Common
Stock at the close of business on May 5, 1997 (the "Record Date") are entitled
to vote at the meeting and at any adjournment or postponement thereof. At the
meeting the holders of Class A and Classes E-1, E-2 and E-3 Common Stock will
vote together as a class and, in addition, the holders of Class A Common Stock
will vote separately as a class, with respect to the proposal set forth in (1)
above. Holders of Class A Common Stock and Classes E-1, E-2 and E-3 Common Stock
will, subject to applicable law, vote together as a class on all other matters
properly brought before the meeting, if any. Shares can be voted at the meeting
only if the holder is present or represented by duly authorized proxy. A list of
stockholders entitled to vote at the meeting will be available for inspection at
the Company's corporate headquarters for any purpose germane to the Special
Meeting during ordinary business hours for ten (10) days prior to the meeting.
Management and the Board of Directors cordially invite you to attend the
Special Meeting.
By Order of the Board of Directors,
Leslie A. Danziger
President and Chief Executive Officer
Albuquerque, New Mexico
May 9, 1997
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IMPORTANT: It is important that your shareholdings be represented at this
meeting. Please complete, date, sign and promptly mail the enclosed two (2)
proxy cards in the accompanying envelope, which requires no postage if mailed
within the United States.
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<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
PROXY STATEMENT FOR THE JOINT SPECIAL MEETING
OF CLASS A AND CLASSES E-1, E-2 AND E-3 COMMON STOCK STOCKHOLDERS
TO BE HELD JUNE 6, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PROXY STATEMENT........................................................................................................... 1
INFORMATION CONCERNING SOLICITATION AND VOTING............................................................................ 1
Voting and Revocation of Proxies................................................................................. 3
Solicitation of Proxies.......................................................................................... 3
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS............................................................... 4
Voting Trust Agreement........................................................................................... 6
PROPOSAL - AMENDMENT OF CERTIFICATE OF INCORPORATION
WITH RESPECT TO THE CONVERSION AND REDEMPTION
OF THE CLASS E COMMON STOCK............................................................................... 7
Descriptions of Class A and Class E Common Stock................................................................. 8
Class A Common Stock............................................................................................. 8
Class E-1, E-2 and E-3 Common Stock.............................................................................. 8
Current Conditions to Conversion and Redemption of Class E Common Stock.......................................... 9
Reasons to Vote in Favor of the Proposed Amendment............................................................... 13
Changes occasioned by the Proposed Amendment..................................................................... 15
Effect of the Proposed Amendment................................................................................. 18
CHANGE OF INDEPENDENT ACCOUNTANTS......................................................................................... 20
OTHER BUSINESS............................................................................................................ 20
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
EXHIBIT A SECTIONS 3.E(2) AND (3) OF PROPOSED AMENDMENT TO CERTIFICATE
OF DESIGNATION FORMING PART OF CERTIFICATE OF INCORPORATION.................................... 21
EXHIBIT B FINANCIAL INFORMATION.......................................................................... 24
</TABLE>
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LIGHTPATH TECHNOLOGIES, INC.
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
The accompanying two (2) proxies are each solicited by the Board of
Directors of LightPath Technologies, Inc., a Delaware corporation (the
"Company"), for use at the Joint Special Meeting of Class A and Classes E-1, E-2
and E-3 Common Stock Stockholders to be held on June 6, 1997 (the "Special
Meeting"), or any adjournment or postponement thereof, for the purposes set
forth herein and in the accompanying Notice of Joint Special Meeting of
Stockholders. This Proxy Statement and the accompanying two (2) forms of proxy
were mailed on or about May 9, 1997 to all stockholders entitled to vote at the
Special Meeting. The corporate offices of the Company are located at 6820
Academy Parkway East, N.E., Albuquerque, New Mexico 87109 and its telephone
number at that address is (505) 342-1100.
Only stockholders of record at the close of business on May 5, 1997
(the "Record Date") are entitled to notice of and to vote at the Special Meeting
or any adjournment or postponement thereof. On the Record Date there were issued
and outstanding 2,764,589 shares of Class A Common Stock, $.01 par value, (the
"Class A Common Stock") and 1,449,942, 1,449,942 and 966,621 shares of Class
E-1, Class E-2 and Class E-3 Common Stock, $.01 par value, respectively
(collectively, a total of 3,866,505 shares of Class E Common Stock, each of
which has share-for-share voting rights with the Class A shares, the "Class E
Common Stock"), were issued and outstanding. Each holder of Class A or Class E
Common Stock is entitled to one vote for
<PAGE>
each share of Class A, Class E-1, Class E-2 and Class E-3 Common Stock held of
record on the Record Date. At the Special Meeting, all holders of Class A and
Classes E-1, E-2 and E-3 Common Stock will vote together as a class on the
proposed amendment to the Company's Certificate of Incorporation. In addition,
pursuant to the Delaware General Corporation Law, at the Special Meeting the
holders of Class A Common Stock will also vote as a separate class with respect
to such proposed amendment. In other words, the Class A stockholders will vote
twice, once as members of the class containing both Class A and Class E
stockholders and once as members of the class consisting only of holders of
Class A Common Stock.
In addition to a majority of the class consisting of both Class A and
Class E Common Stock, a majority of the shares of Class A Common Stock, voting
separately as a class, must vote in favor of the proposed amendment in order for
it to be adopted. AS A RESULT, A MAJORITY OF THE CLASS A COMMON STOCK IN THE
VOTING CLASS COMPOSED SOLELY OF CLASS A COMMON STOCK, WILL EFFECTIVELY HAVE THE
ABILITY TO DETERMINE WHETHER OR NOT THE PROPOSAL IS RATIFIED BY THE
STOCKHOLDERS.
Should they wish to vote at the Special Meeting by proxy, holders of
Class A Common Stock and Class E Common Stock, should complete and return the
enclosed RED proxy card. In addition, holders of Class A Common Stock, should
complete and return the enclosed BLUE proxy card to vote as a separate class.
The presence of the holders of a majority of the outstanding Class A
Common Stock, and the holders of a majority of all outstanding Common Stock
either in person or by proxy, is required to constitute a quorum for the conduct
of business at the Joint Special Meeting. Abstentions and broker non-votes will
also be included in the determination of the number of shares represented for a
quorum. At the Special Meeting,
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the Company will appoint Inspectors of Election to count all votes and ballots
and make a written report thereof.
Voting and Revocation of Proxies
All valid proxies received before the Special Meeting and not revoked
will be exercised. All shares represented by proxy will be voted, and where a
stockholder specifies by means of his or her proxy a choice with respect to any
matter to be acted upon, the shares will be voted in accordance with the
specifications so made. If no choice is indicated on the proxy, the shares will
be voted in accordance with the recommendations of the Board of Directors as to
such matters. Proxies may be revoked at any time prior to the time they are
voted by: (a) delivering to the Secretary of the Company a written instrument of
revocation bearing a date later than the date of the proxy; or (b) duly
executing and delivering to the Secretary a subsequent proxy relating to the
same shares; or (c) attending the meeting and voting in person.
Solicitation of Proxies
The cost of soliciting proxies, including the cost of preparing and
mailing the Notice and Proxy Statement, will be paid by the Company.
Solicitation will be primarily by mailing this Proxy Statement to all
stockholders entitled to vote at the meeting. Proxies may be solicited by
officers and directors of the Company personally or by telephone or facsimile,
without additional compensation. The Company may reimburse brokers, banks and
others holding shares in their names for others for the cost of forwarding proxy
materials and obtaining proxies from beneficial owners.
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SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of shares of
Class A Common Stock and Class E Common Stock of the Company on May 1, 1997 by
(i) each director, (ii) each executive officer, (iii) 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, and (iv) all directors and executive
officers as a group.
The percentage ownership information set forth in the right hand column
of the following table has been computed in accordance with Securities and
Exchange Commission ("SEC") guidelines.
<TABLE>
<CAPTION>
Class A Class E
Common Stock Common Stock % of Vote of
------------ ------------ all Classes of
Name and Address Position with Number of Number of Common
of Beneficial Owner Company Shares % Owned Shares % Owned Stock
------------------- ------------- ---------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Leslie A. Danziger Chairman and 112,946 (3) 4% 751,878(4) 19% 13%
President
Louis P. Wagman Executive Vice 18,742 (5) 1% 99,965 (6) 3% 2%
President and
Secretary
Donald E. Lawson Executive Vice 22,000 (7) 1% 25,000 1% 1%
President and
Treasurer
Louis G. Leesburg Director 22,090 (8)(14) 1% 36,360 (14) 1% 1%
Milton Klein Director 32,945 (9) 1% 119,786 (10) 3% 2%
Haydock H. Miller, Jr. Director 21,454 (11) 1% 73,819 (12) 2% 1%
The John E. Fetzer 118,447 4% 473,789 12% 9%
Institute, Inc.(13)
All executive officers 230,177 (3) 8% 1,106,808 (4) 29% 20%
and directors as a
group (6 persons)
</TABLE>
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* Less than one percent.
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(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 in care of LightPath Technologies, Inc., 6820
Academy Parkway East N.E., Albuquerque, New Mexico, 87109.
(2) Includes Classes E-1, E-2 and E-3 Common Stock.
(3) Includes 25,397 shares of Class A Common Stock represented by
immediately exercisable options and shares of 9,090 Class A Common
Stock represented by immediately exercisable options held by Joel
Goldblatt, Ms. Danziger's spouse. Excludes 231,157 shares of Class A
Common Stock subject to a Voting Trust, of which Ms. Danziger is
Voting Trustee. See "Voting Trust Agreement" below.
(4) Includes 101,589 shares of Class E Common Stock represented by
immediately exercisable options and 36,360 shares of Class E Common
Stock represented by immediately exercisable options held by Joel
Goldblatt, Ms. Danziger's spouse. Excludes 974,651 shares of Class E
Common Stock subject to a Voting Trust, of which Ms. Danziger is
Voting Trustee. See "Voting Trust Agreement" below.
(5) Includes 18,218 shares of Class A Common Stock represented by
immediately exercisable options.
(6) Includes 72,873 shares of Class E Common Stock represented by
immediately exercisable options.
(7) Includes 22,000 shares of Class A Common Stock represented by
immediately exercisable options.
(8) Includes 13,000 shares of Class A Common Stock of which 3,000 shares
are immediately exercisable options and the balance vested by
September 1999.
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(9) Includes 14,720 shares of Class A Common Stock represented by
immediately exercisable options.
(10) Includes 46,880 shares of Class E Common Stock represented by
immediately exercisable options.
(11) Includes 13,182 shares of Class A Common Stock represented by
immediately exercisable options.
(12) Includes 40,727 shares of Class E Common Stock represented by
immediately exercisable options.
(13) The address of The John E. Fetzer Institute, Inc. is 9292 KL Avenue,
Kalamazoo, Michigan 49009.
(14) Includes 7,272 shares of Class A Common Stock and 29,088 shares of
Class E Common Stock held by Mr. Leeburg's brother. Mr. Leeburg is the
treasurer and trustee for two funds associated with The John E. Fetzer
Institute, Inc., neither of which funds 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.
Voting Trust Agreement
Stockholders of the Company owning an aggregate of 231,157 shares of
Class A Common Stock and 974,651 shares of Class E Common Stock, which
represents 8% and 25%, respectively, of the total voting power of the Class A
Common Stock and Class E Common Stock outstanding as of the Record Date, 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 that 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 or ratification
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<PAGE>
and approval of acts of herself as a director in the conduct of business affairs
of the Company. Consequently, when combined with her individual holdings, Ms.
Danziger effectively controls 11% and 41% of the total voting power of the Class
A Common Stock and Class E Common Stock, respectively. 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. Ms. Danziger intends to vote all of the shares of Class A and Class E
Common Stock covered by the Voting Trust and the shares of such stock owned by
her personally, FOR the proposed amendment to the Certificate of Incorporation.
PROPOSAL - AMENDMENT OF CERTIFICATE OF INCORPORATION
WITH RESPECT TO THE CONVERSION AND REDEMPTION
OF THE CLASS E COMMON STOCK
At the Special Meeting, the Company will seek stockholder approval of
an amendment (the "Amendment") to the Certificate of Designation forming a part
of its Certificate of Incorporation in order to provide, subject to prior
respective sequential conversions of Class E-1 and E-2 Common Stock into shares
of Class A Common Stock, for the extension by successive one-year periods,
respectively, of the dates by which the Company's Class A Common Stock must
attain certain market price levels or the Company must meet certain earnings per
share earnings levels, in order to cause the automatic conversions into Class A
Common Stock of the Company's Class E-2 and Class E-3 Common Stock, and thereby
forestall the redemption thereof at a nominal price.
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<PAGE>
Descriptions of Class A and Class E Common Stock
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 holders of
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 fully paid and non-assessable.
Class E-1, E-2 and E-3 Common Stock. Each share of Class E-1, Class E-2 and
Class 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
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<PAGE>
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 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 Classes 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 case, 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 shareholders of Classes E-1, E-2 or E-3 Common Stock 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 shall be distributed with
respect to Classes E-1, E-2 and E-3 Common Stock.
Current Conditions to Conversion and Redemption of Class E Common Stock
At the present time, the Class E Common Stock is subject to the
following conditions as set forth in the Company's Certificate of Incorporation:
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:
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(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; or
(ii) the Minimum Pretax Income is at least $10.3 million
for the fiscal year ending June 30, 2000; or
(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 February 22, 1996; or
(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 August 22, 1997; 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 February 22, 1996; or (ii) $16.75
during the 18-month period commencing August 22,
1997;
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:
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(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, 2000; or
(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 February 22, 1996; or
(ii) $23.00 during the 18-month period commencing
August 22, 1997.
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 $28.0
million during any of the fiscal years ending June
30, 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, Class E-2 and Class E-3 Common Stock) equal to
or greater than: (i) $30.00 during the 18-month
period commencing February 22, 1996; or (ii) $40.00
during the 18-month period commencing August 22,
1997.
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<PAGE>
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 Common Stock 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 prior to the applicable dates. The Bid Price
amounts set forth above are subject to adjustment in the event of any stock
splits, stock dividends, recapitalization or other similar events.
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<PAGE>
Reasons to Vote in Favor of the Proposed Amendment
The purpose of the amendment is to continue to provide appropriate
continuing incentive to the Company's current management to continue to grow the
Company's operations and to generate revenue. The Company's 1995 reorganization
and the public offering in 1996 resulted in current management holding 8% of the
Company's Class A Common Stock and 29% of its Class E Common Stock, all of which
Class E shares are contingent in their potential value on management's efforts
and ability to cause the Company to meet the stock prices and earnings levels
required to convert the classes of Class E Common Stock into Class A Common
Stock. The dates for meeting the applicable thresholds for conversion of the
various classes of Class E Common Stock were set in August 1995 in negotiations
with the Underwriter of the Company's 1996 initial public offering. However,
such offering was not completed until the end of February 1996 which was
substantially later than anticipated in August 1995. As a result of the working
capital shortage experienced because of this delay, the Company fell behind its
schedule for implementing the business strategy which formed a basis for the
negotiations with the underwriter in August 1995.
Since its inception, the Company has been a development stage company
with its primary activities in basic research and development and license fees.
See the Company's Financial Statements attached as Exhibit B hereto. Although
the Company has recently increased production of products and anticipates
increased revenues from product sales in 1997. Management believes it is in the
best interests of the Company to focus on long-term products and goals, such as
the development of its laser optics products. Management believes that the
current deadlines for conversion of the Class E-2 and Class E-3 Common Stock
will result in an inappropriate emphasis on short term products and performance.
Nonetheless, the extension of the dates for conversion of the Class E-2 and
Class E-3 Common Stock currently proposed will apply, if approved by the
stockholders, only if the respective performance thresholds applicable to Class
E-1 and Class E-2 Common Stock, respectively, have been previously satisfied.
Thus, management is required to demonstrate successful
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performance in order to take advantage of the proposed extensions. Because,
however, of the uncertainties of the economy, the development stage of many of
its products and the pace of revenue generation once products are developed and
put into commercial production, management anticipates that it may take an
additional year of operation beyond the required time frame to reach the
performance levels required to convert the Class E-2 Common Stock into Class A
Common Stock and an additional one year period beyond the required time frame to
enable the conversion of the Class E-3 shares.
The proposed one-year extensions of time apply only to the Class E-2
and Class E-3 Common Stock. The requirements with respect to stock price levels
and revenue attainment for the conversion of Class E-1 Common Stock remain
exactly as set forth above under Section "A" of "Current Conditions to
Conversion and Redemption of Class E Common Stock." Although the effect of the
proposed extensions with respect to Class E-2 and Class E-3 are to give
Management more time to operate the Company in order to attempt to attain the
stock price and reverse levels for conversion of such stock, there can be no
guarantee that Management will be successful in such endeavors or, that despite
such efforts, factors beyond the control of Management will not intervene or
interfere with such efforts.
As these time frames are set forth in the Company's Articles of
Incorporation, a vote of stockholders, as set forth in this Proxy Statement, is
required to amend the Certificate of Incorporation to for conversion of the
Class E-2 and Class E-3 Common Stock by one year, respectively, subject to the
prior conversion of the Class E-1 Common Stock with respect to the Class E-2
Common Stock and the prior conversion of the Class E-2 Common Stock with respect
to the Class E-3 Common Stock.
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Changes Occasioned by the Proposed Amendment.
A. If the proposed amendment, a copy of which is attached hereto as
Exhibit A, is approved by the stockholders, conditions with respect to the
conversion of the Class E-1 Common Stock will remain as set forth above and the
Class E-2 and Class E-3 Common Stock will become subject to the following
conditions (CHANGES RESULTING FROM AMENDMENTS ARE SET FORTH IN BOLD):
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, 1997,
1998 or 1999; or
(ii) THE CLASS E-1 COMMON STOCK HAS BEEN PREVIOUSLY
CONVERTED INTO CLASS A COMMON STOCK PURSUANT TO
PARAGRAPH A ABOVE, AND THE MINIMUM PRETAX INCOME IS
AT LEAST $10.9 MILLION DURING ANY OF THE FISCAL YEARS
ENDING JUNE 30, 2000; OR
(iii) the Minimum Pretax Income is at least $14.0 million
during the fiscal year ending June 30, 2000; or
(iv) THE CLASS E-1 COMMON STOCK HAS BEEN PREVIOUSLY
CONVERTED INTO CLASS A COMMON STOCK PURSUANT TO
PARAGRAPH A ABOVE, AND THE MINIMUM PRETAX INCOME IS
AT LEAST $14.0 MILLION DURING THE FISCAL YEAR ENDING
JUNE 30, 2001; OR
15
<PAGE>
(vi) 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 February 22, 1996; or
(ii) $23.00 during the 18-month period commencing
August 22, 1997; or
(vii) THE CLASS E-1 COMMON STOCK HAS BEEN PREVIOUSLY
CONVERTED INTO CLASS A COMMON STOCK PURSUANT TO
PARAGRAPH A ABOVE AND 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 30-MONTH PERIOD COMMENCING FEBRUARY
22, 1996; OR (II) $23.00 DURING THE 30-MONTH PERIOD
COMMENCING AUGUST 22, 1998.
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 $28.00
million during any of the fiscal years ending June
30, 1997, 1998, 1999 or 2000; or
(ii) THE CLASS E-2 COMMON STOCK HAS BEEN PREVIOUSLY
CONVERTED INTO CLASS A COMMON STOCK PURSUANT TO
PARAGRAPH B ABOVE AND THE MINIMUM PRETAX INCOME
AMOUNTS TO AT LEAST $28.00 MILLION DURING THE FISCAL
YEAR ENDING JUNE 30, 2001; OR
16
<PAGE>
(iii) 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, Class E-2 and Class E-3 Common Stock) equal to
or greater than: (i) $30.00 during the 18-month
period commencing February 22, 1996; or (ii) $40.00
during the 18-month period commencing August 22,
1997; or
(iv) THE CLASS E-2 COMMON STOCK HAS BEEN PREVIOUSLY
CONVERTED INTO CLASS A COMMON STOCK PURSUANT TO
PARAGRAPH B ABOVE AND 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, CLASS E-2 AND CLASS E-3 COMMON
STOCK) EQUAL TO OR GREATER THAN: (I) $30.00 DURING
THE 30-MONTH PERIOD COMMENCING FEBRUARY 22, 1996; OR
(II) $40.00 DURING THE 30-MONTH PERIOD COMMENCING
AUGUST 22, 1998; OR
The shares of Class E Common Stock will be redeemed on September 30,
2001 by the Company for $.0001 per share if such earnings levels or market price
targets are not achieved.
All other rights and restrictions of the Class E Common Stock shall
remain unchanged, if the proposal is ratified by the stockholders. A copy of a
form of Amended and Restated Certificate of Designation to be filed with the
Delaware Secretary of State if the stockholders approve the Amendment is
attached hereto.
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
17
<PAGE>
or exercisable into Common Stock are issued after completion of this Offering.
The Bid Price amounts set forth above are subject to adjustment in the event of
any stock splits, stock dividends, recapitalization or other similar events.
Effects of the Proposed Amendment
As of the Record Date, there were issued and outstanding 1,449,942,
1,449,942 and 966,621 shares of Class E-1, Class E-2 and Class E-3 Common Stock,
respectively. Currently, the Company's directors and executive officers, as a
group, effectively control 29%, including 19% which Leslie A. Danziger,
President and Chairman of the Board, effectively controls. If the Amendment is
not approved and all of the shares of Classes E-1, E-2 and E-3 Common Stock are
ultimately redeemed, the Company's current directors and executive officers, as
a group, and Ms. Danziger will control only 8% and 4%, respectively, of the
Company's outstanding Common Stock which will consist only of Class A Common
Stock. Conversion of any of the classes of Class E Common Stock will result in
each share of Class A Common Stock then outstanding, representing a lesser
percentage interest in the beneficial ownership of the Company's voting
securities. Conversely, redemption of any of the classes of Class E Common Stock
will result in each share of Class A Common Stock then outstanding, representing
a greater percentage interest in the beneficial ownership of the Company's
outstanding voting securities.
The economic effect of the failure to approve the Proposed Amendment
and the total redemption of the Classes E-1, E-2 and E-3 Common Stock will be
that Management's percentage of equity in the Company will be greater than if
the Amendment was approved and all shares of Class E Common Stock were
converted, of which there is no assurance. See "Security Ownership of Management
and Principal Shareholders," above.
18
<PAGE>
The Company's Board of Directors approved the proposed Amendment in
April 1997 and have directed that the Amendment be submitted to the stockholders
of the Company for approval at the Special Meeting.
Each of the Company's directors and executive officers has indicated
that he or she intends to vote all of his or her shares of Class A Common Stock,
representing 8% of the total shares of Class A Common Stock outstanding, and 29%
of the Class E Common Stock FOR the Amendment.
THE BOARD OF DIRECTORS RECOMMEND THAT STOCKHOLDERS VOTE IN FAVOR
OF RATIFICATION OF THE AMENDMENT.
19
<PAGE>
CHANGE OF INDEPENDENT ACCOUNTANTS
The independent auditors utilized by the Company during the fiscal year
ended June 30, 1996 was Ernst & Young LLP. When the Company relocated to
Albuquerque in April 1996, management decided to review its financial services
since Ernst & Young LLP did not have offices in Albuquerque. Upon the
recommendation of the Board of Directors, the Company has selected KPMG Peat
Marwick LLP as independent public accountants to audit the financial statements
of the Company for the fiscal year ending June 30, 1997 and to perform other
accounting services as requested by the Company. There were no disagreements on
accounting practices with Ernst & Young LLP.
OTHER BUSINESS
The Board of Directors is not aware of any other business to be
considered or acted upon at the Special Meeting. If any other business properly
comes before the Special Meeting, it is the intention of the persons named in
the enclosed proxy card to vote the shares they represent as the Board of
Directors may recommend.
By Order of the Board of Directors,
Leslie A. Danziger
President and Chief Executive Officer
Albuquerque, New Mexico
May 9, 1997
20
<PAGE>
EXHIBIT A
SECTIONS 3.E (2) AND (3) OF PROPOSED AMENDMENT TO CERTIFICATE OF
DESIGNATION FORMING PART OF CERTIFICATE OF INCORPORATION
21
<PAGE>
EXHIBIT A
SECTIONS 3.E(2) AND (3) OF PROPOSED AMENDMENT TO CERTIFICATE
OF DESIGNATION FORMING PART OF CERTIFICATE OF INCORPORATION
E. Conversion.
-----------
(2) Each share of Class E-2 Common Stock will be automatically
converted into one share of Class A Common Stock, and the holder thereof will
receive a certificate representing the number of shares of Class A Common Stock
into which such class was converted, if, and only if, one or more of the
following conditions is/are met:
(a) the Minimum Pretax Income is at least $10.9 million
during any of the fiscal years ending June 30, 1997,
1998 or 1999; or
(b) the Class E-1 Common Stock has been previously
converted into Class A Common Stock pursuant to
paragraph A above, and the Minimum Pretax Income is
at least $10.9 million during any of the fiscal years
ending June 30, 2000; or
(c) the Minimum Pretax Income is at least $14.0 million
during the fiscal year ending June 30, 2000; or
(d) the Class E-1 Common Stock has been previously
converted into Class A Common Stock pursuant to
paragraph A above, and the Minimum Pretax Income is
at least $14.0 million during the fiscal year ending
June 30, 2001; or
(e) 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 February 22, 1996; or
(ii) $23.00 during the 18-month period commencing
August 22, 1997; or
(f) the Class E-1 Common Stock has been previously
converted into Class A Common Stock pursuant to
paragraph A above and 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
22
<PAGE>
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 30-month period
commencing February 22, 1996; or (ii) $23.00 during
the 30-month period commencing August 22, 1998.
(3) Each share of Class E-3 Common Stock will automatically be
converted into one share of Class A Common Stock, and the holder thereof will
receive a certificate representing the number of shares of Class A Common Stock
into which suchclass was converted, if and only if, one or more of the following
conditions is/are met:
(a) the Minimum Pretax Income amounts to at least $28.00
million during any of the fiscal years ending June
30, 1997, 1998, 1999 or 2000; or
(b) the Class E-2 Common Stock has been previously
converted into Class A Common Stock pursuant to
paragraph B above and the Minimum Pretax Income
amounts to at least $28.00 million during the fiscal
year ending June 30, 2001; or
(c) 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, Class E-2 and Class E-3 Common Stock) equal to
or greater than: (i) $30.00 during the 18-month
period commencing February 22, 1996; or (ii) $40.00
during the 18-month period commencing August 22,
1997; or
(d) the Class E-2 Common Stock has been previously
converted into Class A Common Stock pursuant to
paragraph B above and 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, Class E-2 and Class E-3 Common
Stock) equal to or greater than: (i) $30.00 during
the 30-month period commencing February 22, 1996; or
(ii) $40.00 during the 30-month period commencing
August 22, 1998; or
The shares of Class E Common Stock will be redeemed on September 30,
2001 by the Company for $.0001 per share if such earnings levels or market price
targets are not achieved.
23
<PAGE>
EXHIBIT B
FINANCIAL INFORMATION
Balance Sheet
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
Management's Discussion and Analysis of Financial Condition and Results
of Operations
24
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
-------------------------------------
Unaudited
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,299,377 $ 4,335,133
Trade accounts receivable 354,254 23,500
Inventories 220,486 66,186
Advances to employees 2,583 14,445
Prepaid expenses and other 76,938 82,608
-------------------------------------
Total current assets 1,953,638 4,521,872
Property and equipment - net 773,984 438,726
Intangible assets - net 313,582 250,206
-------------------------------------
Total assets $ 3,041,204 $ 5,210,804
=====================================
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable and accrued liabilities $ 367,163 $ 362,206
Accrued payroll and benefits 288,526 274,237
-------------------------------------
Total current liabilities 655,689 636,443
Note payable to related parties 30,000 30,000
Redeemable common stock:
Class E-1 - performance based and redeemable common stock
1,449,942 and 1,454,547, shares issued and outstanding at March
31, 1997 and June 30, 1996, respectively 14,499 14,545
Class E-2 - performance based and redeemable common stock
1,449,942 and 1,454,547 shares issued and outstanding at March
31, 1997 and June 30, 1996, respectively 14,499 14,545
Class E-3 - performance based and redeemable common stock
966,621 and 969,691, issued and outstanding at March 31, 1997 and
June 30, 1996, respectively 9,666 9,697
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued and outstanding at March 31, 1997 or June 30, 1996 - -
Common stock:
Class A, $.01 par value; 34,500,000 shares authorized, voting
2,764,589 and 2,722,191, shares issued and outstanding at March
31, 1997 and June 30, 1996, respectively 27,647 27,222
Additional paid-in capital 18,844,785 18,692,578
Deficit accumulated during the development stage (16,555,581) (14,214,226)
-------------------------------------
Total stockholders' equity 2,316,851 4,505,574
-------------------------------------
Total liabilities and stockholders' equity $ 3,041,204 $ 5,210,804
=====================================
</TABLE>
See accompanying notes.
25
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Inception
August 23,
Three Months Ended Nine Months Ended 1985 through
Unaudited March 31, March 31, March 31,
1997 1996 1997 1996 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Product development fees $306,000 $ 62,000 $ 419,153 $ 137,000 $ 688,153
Lenses and other 74,959 22,472 113,440 32,066 233,828
-----------------------------------------------------------------------------------
Total revenues 380,959 $ 84,472 532,593 169,066 921,981
Costs and expenses:
Cost of goods sold 60,148 10,949 90,471 16,427 297,327
Selling, general and
administrative 790,882 576,798 2,137,162 1,166,068 13,283,598
Research and development 201,928 9,752 741,235 30,073 7,415,688
Amortization of unearned
compensation - - - 867,642 2,076,217
-----------------------------------------------------------------------------------
Total costs and expenses 1,052,958 597,499 2,968,868 2,080,210 23,072,830
-----------------------------------------------------------------------------------
Operating loss (671,999) (513,027) (2,436,275) (1,911,144) (22,150,849)
Other income(expense):
Investment income 22,065 21,833 97,664 21,833 191,115
Interest expense (1,171) (201,892) (2,744) (397,298) (1,853,111)
-----------------------------------------------------------------------------------
Net loss $ (651,105) $ (693,086) $(2,341,355) $(2,286,609) $(23,812,845)
===================================================================================
Net loss per share $(.24) $(.44) $(.85) $(2.18) -
===================================================================================
Number of shares used in per share
calculation 2,764,338 1,580,945 2,751,623 1,049,819 -
===================================================================================
</TABLE>
See accompanying notes.
26
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Inception
August 23,
Nine Months Ended 1985
Unaudited March 31, through
March 31,
------------------------------------------------------
1997 1996 1997
------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $ (2,341,355) $ (2,286,609) $(23,812,845)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 134,139 56,701 590,194
Accretion of bridge notes - 223,135 244,808
Services provided for common stock 252,509 5,000 1,393,322
Write-off abandoned patent applications - 1,895 111,059
Amortization of unearned compensation - 867,642 2,076,217
Changes in operating assets and liabilities:
Receivable, advances to employees (318,892) 61,464 (356,837)
Inventories (154,300) - (220,486)
Prepaid expenses and other 5,670 (62,816) (76,938)
Accounts payable and accrued expenses 19,246 (633,419) 1,941,353
------------------------------------------------------
Net cash used in operating activities (2,402,983) (1,767,007) (18,110,153)
Cash flows from investing activities
Property and equipment additions (460,856) (17,070) (1,327,342)
Costs incurred in acquiring patents (71,917) (13,120) (461,475)
------------------------------------------------------
Net cash used in investing activities (532,773) (30,190) (1,788,817)
Cash flows from financing activities
Proceeds from notes payable - 40,000 4,398,606
Payments on notes payable - (314,511) (1,097,350)
Proceeds from convertible notes payable - - 1,465,529
Repayments of convertible notes payable - (162,500) (212,500)
Proceeds from bridge loans - 1,285,433 1,765,748
Repayments of bridge loans - (1,250,000) (1,250,000)
Proceeds from sales of common stock - 7,202,499 9,189,443
Repurchase of common stock (100,000) (26,000) (669,512)
Proceeds from sales of treasury stock - 201,000 351,119
Proceeds from sales of limited partnership units - - 7,257,264
------------------------------------------------------
Net cash provided by financing activities (100,000) 6,975,921 21,198,347
------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,035,756) 5,178,724 1,299,377
Cash and cash equivalents at beginning period 4,335,133 11,177 -
------------------------------------------------------
Cash and cash equivalents at end of period $ 1,299,377 $ 5,189,901 $ 1,299,377
======================================================
Supplemental disclosure of cash flow information:
Class A common stock issued for services $ 252,509 $ 4,992 $ 1,364,126
Debt and accrued interest converted into Class A
common stock - 4,242,824 6,281,164
Stock options granted for services - - 98,500
Class E common stock issued - 9,613 38,801
</TABLE>
See accompanying notes.
27
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Unaudited
Organization and Purpose
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.
1. Summary of Significant Accounting Matters
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Article 10 of Regulation S-X and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's financial statements and related notes
included in the Form 10-KSB as filed with the Securities and Exchange Commission
on August 28, 1996.
The information furnished, in the opinion of management, reflects all
adjustments, which include normal recurring adjustments, necessary to present
fairly the results of operations of the Company for the three month and nine
month periods ended March 31, 1997 and 1996. Results of operations for interim
periods are not necessarily indicative of results which may be expected for the
year as a whole.
Cash and cash equivalents consist of cash in the bank and temporary investments
with maturities of ninety days or less when purchased.
Inventories which consist 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.
Revenue recognition occurs from sales of product upon shipment.
28
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements - Unaudited
Research and development costs are expensed as incurred.
Stock based employee compensation is accounted for under the provisions 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 the date of
grant.
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. 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 March 31, 1997 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. Inventories
The components of inventories include the following at March 31, 1997:
Finished goods and work in process $ 131,958
Raw materials 88,528
-------------
Total inventories $220,486
=============
29
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
The Private Securities Litigation Reform Act of 1995 ("the Act")
provides a safe harbor for forward looking statements made by or on behalf of
the Company. All statements, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures, growth, product development, sales, business strategy and
other such matters are forward-looking statements. These forward-looking
statements are based largely on the Company's expectations and assumptions and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from the
forward-looking statements as a result of a number of factors, including, but
not limited to, the Company's early state of development, the need for
additional financing, and intense competition in various aspects of its
business. In light of these risks and uncertainties, all of the forward-looking
statements made are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized.
Three months ended March 31, 1997 compared with three months ended March 31,
1996
Revenue totaled $380,959 for the three months ended March 31, 1997, an
increase of approximately $297,000 over the comparable period last year. The
increase was attributable to $244,000 in product development/ license fees and
an additional $53,000 in lens sales. Product development/ license fees included
two significant sales for the Company. First, the Company entered into the final
phase, prior to production, with Karl Storz GMBH & Co. ("Karl Storz") for the
lenses used in their endoscopy instruments. Under the 1994 agreement, the
Company received a $200,000 fee for this phase of the contract. In the future,
the Company anticipates that it will sell Karl Storz lens blanks and receive a
royalty fee for all sales of endoscopes containing GRADIUM lenses. The Company
expects to receive a production order from Karl Storz for 500 lenses in the
fourth quarter and anticipates more significant production orders in 1998.
Second, the Company received $25,000 from The Fuji Photo Optical Co., Ltd
("Fuji") which is a subsidiary of Fuji Photo Film Co., for the exclusive right
to use GRADIUM glass in a new generation of television camera lenses. After
Fuji's initial study, the Companies entered into an agreement whereby Fuji will
evaluate the lenses for eight months. At the end of the period, Fuji will have
the right to engage in a long-term license and purchase agreement with
LightPath. Revenues for government funded subcontracts in the area of solar
energy totaled $75,000 for the quarter. Lens sales included approximately thirty
customers representing a variety of industrial and government accounts. The
Company's increase in lens sales is primarily due to its sales of lenses for
wafer chip inspection and laser markets. The Company's efforts in targeting
laser applications, an area where GRADIUM's lenses ability to increase the
quality of YAG laser beams and reduce the focal spot size, is beginning to
receive market acceptance. The Company continues to witness a multi-step sales
cycle. New customers are first purchasing one or two lenses for testing, then
after a period of several months a more significant sale may occur. At March 31,
1997, a backlog of $20,000 existed for lens sales. The Company's backlog on its
current government projects is $50,000.
The Company continues to work with a number of additional OEM's towards
the completion of projects which may result in production orders for LightPath.
During the quarter, the Company added a manufacturers representative in Silicon
Valley to work directly with OEM's to increase our presence in the
optoelectronics industry. The Company formalized relationships with and obtained
orders from four industrial, optoelectronic and medical component distributors
based in Japan, the United Kingdom, Germany and Israel. The Company believes
these distributors may create new markets for GRADIUM in their countries
primarily in the area of sales into the YAG laser market. In addition, The
Company entered into a strategic alliance with Hikari Glass Co., Ltd. of Japan,
( "Hikari" is a 40% owned subsidiary of Nikon), to increase the presence of
GRADIUM glass in Hikari's established Asian optics market and to develop a
continuous flow manufacturing process, currently used by Hikari for high-end
optical lenses, for GRADIUM glass. To solidify our position in governmental
research and development projects, the Company entered into an agreement with DR
Technologies Inc. ( "DR" ) to pursue Department of
30
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Defense contracts. DR is a developer and manufacturer of advanced optical
systems and is currently working with LightPath on the solar energy government
subcontract.
Cost of sales during the three months ended March 31, 1997 was 80% of
product sales an increase of 31% over the corresponding prior year period, and
was primarily due to outside finishing expenses, and the low volume of inventory
production. It is anticipated that with increased volume and the increased
utilization of off-shore lens finishers, the cost of production will decrease.
Administrative costs increased $214,084, or 37% over the corresponding 1996
period, primarily due to the addition of personnel in sales and marketing,
administration and operations along with increased overhead in these areas as a
result of an expected scale-up of operations to the levels planned in the
Company's IPO in February 1996. The Company's public awareness campaign, through
print advertising, web site and trade shows has generated approximately 4,000
inquiries since September 1996. Research and development costs increased from
$9,752 in the 1996 period to $201,928 in the 1997 period. The research
department staff has increased to approximately 6 full time equivalents since
the IPO. The focus of the development efforts has been to expand GRADIUM product
lines to the areas of multiplexers and interconnects for the telecommunications
field, the addition of the crown glass product line to supplement its existing
flint products, development of acrylic axial gradient material to extend the
product range, and upgrade the proprietary material design software and optical
design tools to facilitate product design.
Investment income of $22,065 from interest earned on temporary
investments equaled the prior period. Interest expense decreased approximately
$200,000 during the 1997 period as compared to the 1996 period due primarily to
the conversion of debt to equity in conjunction with the completion of the IPO.
Net loss of $651,105 was a decrease of $41,981 from the comparable
period last year due to the improved gross margin of $247,288 and the increase
in other income of $200,953, which are offset by increases in selling, general
and administrative costs of $214,084 and research and development of $192,176.
Net loss per share of $.24 was an improvement of $.20 due to an increase in
gross margin and other income of $.16, offset by the increase in selling,
general and administrative costs of $.09 and research and development expenses
of $.07. The remaining $.20 gain was due to the increase in weighted average
common shares due to the IPO.
Nine months ended March 31, 1997 compared with the nine months ended March
31,1996
Revenue totaled $532,593 for the nine months ended March 31, 1997, an
increase of approximately $364,000 over the comparable period last year. The new
development/ license sales included $61,000 from OEM Karl Storz for their
endoscopy development agreement, $25,000 from Fuji for an exclusive eight month
evaluation option for television camera lenses and $197,000 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 Company anticipates an additional $50,000 of
revenue in the fourth quarter from these government contracts. The Company also
experienced $81,000 growth in lens sales to industrial and government accounts.
At March 31, 1997 the Company had approximately $20,000 in lens back orders
which it intends to ship during the fourth quarter.
For the nine months ended March 31, 1997 the cost of sales for product
sales was 80%. It is anticipated that with increased volume the cost of
production will continue to decrease. Administrative costs during the 1997
period increased $971,094 or 83% over the corresponding period in 1996,
primarily due to the addition of personnel in 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 $30,073 in the 1996 period to $741,235 in the 1997 period. In
January 1997, the research department staff added an additional staff member to
continue the Company's research and development efforts in the area of new glass
families and opto-electronic
31
<PAGE>
LightPath Technologies, Inc.
(A Development Stage Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
applications. There were no costs related to unearned compensation from
incentive stock options during the nine months representing a decrease of
$867,642 from the prior period.
Investment income increased approximately $76,000 in 1997 due to the
interest earned on temporary investments. Interest expense decreased
approximately $394,000 during the 1997 period as compared to the 1996 period due
primarily to the conversion of debt to equity in conjunction with the completion
of the IPO.
Net loss of $2,341,355 was an increase of $54,746 from the comparable
period last year due to increases in selling, general and administrative costs
$971,094 and research and development $711,162 which expenses were partially
offset by the increased gross margin of $289,483, a decrease of $867,642 in
unearned compensation and the increase in other income of $470,385. Net loss per
share of $.85 was an improvement of $1.33 from the 1996 period due to increased
gross margin of $.11, decrease in unearned compensation of $.32 and the increase
in other income of $.17, offset by the increase in selling, general and
administrative costs of $.35 and research and development expenses of $.26. The
remaining $1.34 gain was due to the increase in weighted average common shares
due to the IPO.
Financial Resources and Liquidity
- ---------------------------------
LightPath has financed its operations through private placements of
equity and debt, borrowings, and the IPO which generated net proceeds of
approximately $7.452 million in February 1996. The Company expects to continue
to incur losses until such time, if ever, it obtains market acceptance for its
products 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 from fiscal 1996 due to the
implementation of a sales program, additional personnel and overhead costs.
During the three months ended March 31, 1997, the Company's actual cash
requirements were approximately $120,000 under the quarterly budget, this
decrease in the administrative area was used to fund an overage in research
costs. The Company budgeted $700,000 for fiscal 1997 to continue its research
and development efforts. During the three months ended March 31, 1997, the
Company's actual cash requirements for research and development exceeded the
quarterly budget by $122,000. During the nine months ended March 31, 1997 the
Company's total actual operating cash requirements were approximately $280,000
under budget.
The Company also budgeted $800,000 primarily to be used for equipment
to expand its manufacturing facilities during fiscal year 1997. During the nine
month period ended March 31, 1997, the Company incurred approximately $533,000
in capital equipment and patent costs. The Company anticipates expending
approximately $100,000 in capital equipment and patent costs by June 30, 1997.
The Company has initiated discussions about a number of financing
options to generate sufficient capital to meet its liquidity needs in fiscal
1998 and beyond. The Company's capital requirements after fiscal 1997 will
depend on the extent that GRADIUM glass 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 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.
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.
32
<PAGE>
RED PROXY CARD
LightPath Technologies, Inc.
6820 Academy Parkway East N.E.
Albuquerque, NM 87109
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leslie A. Danziger, as the attorney and
proxy of the undersigned, with full power of substitution, for and in the name
and stead of the undersigned, to attend the Special Meeting of Stockholders of
LightPath Technologies, Inc. (the "Company") to be held on June 6, 1997, at 1:00
p.m., M.S.T. at the Corporate Office, 6820 Academy Parkway East NE, Albuquerque,
New Mexico, 87109 and any adjournment or postponement thereof, and thereat to
vote all shares of Class A and Class E Common Stock which the undersigned would
be entitled to cast if personally present at indicated herein:
PLEASE MARK YOUR CHOICES IN BLUE OR BLACK INK
1. Proposal No. 1, amend the Certificate of Incorporation to extend the amount
of time by which the Company must meet the performance thresholds for
holders of the Company's Class E-2 and E-3 Common Stock to convert such
shares into Class A Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In his/her discretion, the proxy is authorized to vote on such other
business as may properly be brought before the meeting or any adjournment
or postponement thereof.
(Please date and sign on the reverse side)
(Continued from other side)
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO
SUCH DIRECTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" THE PROPOSAL TO AMEND
THE CERTIFICATE OF INCORPORATION. THIS PROXY ALSO DELEGATES AUTHORITY TO VOTE
WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting,
Proxy Statement and Form 10-QSB of LightPath Technologies, Inc.
PLEASE SIGN, DATE AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED REPLY ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
----------------------------------------
SIGNATURE
----------------------------------------
SIGNATURE
Dated;______________________________1997
(When signing as an attorney, executor,
administrator, trustee or guardian,
please give title as such. If
stockholder is a corporation please sign
in full corporate name by a duly
authorized officer or officers. Where
stock is issued in the name of two or
more persons, all such persons should
sign.)
<PAGE>
BLUE PROXY CARD
LightPath Technologies, Inc.
6820 Academy Parkway East N.E.
Albuquerque, NM 87109
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leslie A. Danziger, as the attorney and
proxy of the undersigned, with full power of substitution, for and in the name
and stead of the undersigned, to attend the Special Meeting of Stockholders of
LightPath Technologies, Inc. (the "Company") to be held on June 6, 1997, at 1:00
p.m., M.S.T. at the Corporate Office, 6820 Academy Parkway East NE, Albuquerque,
New Mexico, 87109 and any adjournment or postponement thereof, and thereat to
vote all shares of Class A Common Stock which the undersigned would be entitled
to cast if personally present at indicated herein:
PLEASE MARK YOUR CHOICES IN BLUE OR BLACK INK
1. Proposal No. 1, amend the Certificate of Incorporation to extend the amount
of time by which the Company must meet the performance thresholds for
holders of the Company's Class E-2 and E-3 Common Stock to convert such
shares into Class A Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In his/her discretion, the proxy is authorized to vote on such other
business as may properly be brought before the meeting or any adjournment
or postponement thereof.
(Please date and sign on the reverse side)
(Continued from other side)
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO
SUCH DIRECTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" THE PROPOSAL TO AMEND
THE CERTIFICATE OF INCORPORATION. THIS PROXY ALSO DELEGATES AUTHORITY TO VOTE
WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting,
Proxy Statement and Form 10-QSB of LightPath Technologies, Inc.
PLEASE SIGN, DATE AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED REPLY ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
----------------------------------------
SIGNATURE
----------------------------------------
SIGNATURE
Dated;______________________________1997
(When signing as an attorney, executor,
administrator, trustee or guardian,
please give title as such. If
stockholder is a corporation please sign
in full corporate name by a duly
authorized officer or officers. Where
stock is issued in the name of two or
more persons, all such persons should
sign.)
