As filed with the Securities and Exchange Commission on March 13, 1998.
Registration No. _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
LIGHTPATH TECHNOLOGIES, INC.
----------------------------
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Delaware 3225 86-0708398
- ------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
6820 Academy Parkway East, N.E., Albuquerque, New Mexico 87109 (505) 342-1100
-----------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
Leslie A. Danziger, Chairman of the Board and Chief Executive Officer
6820 Academy Parkway East, N.E., Albuquerque, New Mexico 87109
Telephone: (505) 342-1100; Facsimile: (505) 342-1111
----------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Nina Lopez Gordian, Esq.
Squire, Sanders & Dempsey L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Telephone: (602) 528-4000
FAX: (602) 253-8129
Approximate date of commencement of proposed sale to the public: As soon as
practicable from time to time after the Registration Statement becomes
effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /x/
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering./ /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box./ /
<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
- ----------------------------------------------------- ---------------- ---------------------- ----------------------
Title of each class of securities to be registered Amount to be Maximum aggregate Amount of
registered offering price(1) registration fee
- ----------------------------------------------------- ---------------- ---------------------- ----------------------
- ----------------------------------------------------- ---------------- ---------------------- ----------------------
<S> <C> <C> <C>
Class A Common Stock, $.01 par value(2) 1,758,490 $12,749,053 $3,760.97
- ----------------------------------------------------- ---------------- ---------------------- ----------------------
- ----------------------------------------------------- ---------------- ---------------------- ----------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee based
upon the average of the bid and asked price as of March 9, 1998.
(2) Includes up to 1,750,000 shares issuable upon conversion of Series C
Preferred Stock and exercise of Class G Warrants and Class H Warrants by
the Selling Securityholders.
------------------
Pursuant to Rule 416 under the Securities Act of 1933, as amended,
there are also being registered such additional shares of Common Stock as may
become issuable pursuant to anti-dilution provisions upon exercise of the Class
G and Class H Warrants, and the conversion of Series C Preferred Stock.
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.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 13, 1998
Prospectus
LIGHTPATH TECHNOLOGIES, INC.
1,758,490 Shares of Class A Common Stock
This Prospectus relates to an aggregate of up to 1,750,000 shares of
Class A Common Stock, $.01 par value (the "Common Stock") of LightPath
Technologies, Inc., a Delaware corporation (the "Company") issuable upon
conversion of 375 shares of Series C Preferred Stock and exercise of 337,078
redeemable Class G Warrants and 58,427 redeemable Class H Warrants
(collectively, the "Warrants") which were issued to investors in a private
placement completed by the Company in February 1998. In addition, this
Prospectus relates to 8,490 shares of Class A Common Stock outstanding as of the
date of this Prospectus, all of which, were issued to the placement agent for
services rendered in connection with the Series C Preferred Stock private
placement (collectively the "Selling Securityholders" ). All of the shares
covered by this Prospectus are being offered by the Selling Securityholders.
The securities offered by this Prospectus may be resold from time to
time by the Selling Securityholders. 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.
None of the proceeds from the sale of the shares of Common Stock
offered hereby will be received by the Company, however, the Company will
receive proceeds from the exercise, if any, of the Warrants. Substantially all
of the expenses in connection with the registration of the Common Stock will be
borne by the Company, except for any underwriters', brokers', and dealers'
commissions and/or discounts. See "Plan of Distribution".
The Common Stock of the Company is quoted on the Nasdaq SmallCap Market
under the symbol "LPTHA". On March 9, 1998, the last reported bid price for the
Common Stock, as reported by Nasdaq Stock Market was $7.25.
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 "Securities 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 resale of
securities by the Selling Securityholders.
1
<PAGE>
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 8.
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 March 13, 1998.
------------------
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-3, of which this Prospectus
forms a part, ("Registration Statement") under the Securities 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 or incorporated by reference, 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, (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Commission. For further information with respect to the Company, its
reports, proxy statements and other information and the securities offered
hereby, reference is made to such reports, proxy statements and other
information, the Registration Statement and the exhibits filed as part thereof.
The Registration Statement and the reports and other information filed by the
Company in accordance with the Exchange Act can be inspected and copied at the
public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: 7 World Trade Center, New York, New York, 10048 and
Citicorp Center 500, West Madison Street, Suite 1400, Chicago, IL 60661. Copies
of such material may be obtained from the Public Reference Section of the
Commission at its principal office 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission. In addition the
Commission maintains a website (http://www.sec.gov) that contains reports, proxy
and information statements regarding registrants, such as the Company, that file
electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the
Company and are hereby incorporated by reference into this Prospectus:
i. The Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997. The report of KPMG Peat Marwick LLP on the
aforementioned financial statements contains an explanatory paragraph
that states that the Company's recurring losses from operations and
resulting continued dependence on external sources of capital raise
substantial doubt about the entity's ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of that uncertainty;
ii. The Company's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1997;
iii. The Company's Quarterly Report on Form 10-QSB for the quarterly period
ended December 31, 1997;
iv. The description of the Company's Class A Common Stock, Class A Warrants
and Class B Warrants contained in the Company's Registration Statement
on Form 8-A filed with the Commission pursuant to Section 15(d) of the
Exchange Act dated January 13, 1996; and
v. The Company's Proxy Statement relating to its 1997 Annual Meeting, as
filed with the Commission pursuant to Section 14 of the Exchange Act on
September 11, 1997.
All other documents and reports filed pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act from the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of the filing of
such reports and documents.
Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is also deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a Prospectus is delivered, upon written or oral request of each such
person, a copy of any document incorporated herein by reference, (not including
exhibits to the document that have been incorporated herein by reference unless
such exhibits are specifically incorporated by reference in this Prospectus).
Requests should be directed to Investor Relations, LightPath Technologies, Inc.,
6820 Academy Parkway East NE, Albuquerque, New Mexico, 87109, telephone
(505)342-1100.
3
<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) incorporated by reference. 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 certain 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. ("LightPath" or the "Company") produces
GRADIUM(R) glass and performs research and development on future GRADIUM glass
applications. GRADIUM glass 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 traditionally
performed by multi-element conventional lens systems. The Company believes that
GRADIUM glass lenses provide advantages over conventional lenses for certain
applications. By reducing optical aberrations, the Company believes that GRADIUM
glass 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 glass 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 glass, 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
fourteen patents and has pending filed patent applications related to its
materials composition, product design and fabrication processes for the
production of GRADIUM glass products. The Company continues to develop new
GRADIUM glass materials with various refractive index and dispersion profiles,
whole value added lens systems for a variety of optical applications, and
multiplexers and interconnects for the telecommunications field.
The Company believes that GRADIUM glass can potentially be marketed for
use in most optics and optoelectronics products. In an attempt to more rapidly
establish initial sales volume, to date the Company has emphasized laser
products that it believes may have the greatest immediate commercial impact with
the least initial investment. Generally, optical designers can substitute
GRADIUM glass components from the Company's standard line of products in lieu of
existing conventional laser lens elements. Lasers are presently used extensively
in a broad range of consumer and commercial products, including fiber optics,
robotics, wafer chip inspection, bar code reading, document reproduction and
audio and video compact disc machines. Because GRADIUM glass can concentrate
light transmission into a much smaller focal spot than conventional lenses, the
Company believes and customers' test results confirm that GRADIUM glass has the
ability to improve laser performance. The Company's growth strategy is 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. During fiscal
year 1997, the Company established relationships with seven foreign distributors
and a Silicon Valley manufacturer representative. The Company believes these
relationships will enable it to rapidly establish a presence in certain foreign
and domestic markets. In addition to laser applications, the Company, through
its printed and Internet on-line catalog, offers a standard line of GRADIUM
glass lenses for commercial sales to optical designers developing particular
systems for original equipment manufacturers ("OEMs") or in-house products.
Because complex optical systems contain many optical components, and
GRADIUM glass lenses can be utilized to reduce the number of lens elements in
such systems, the Company believes that GRADIUM glass 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 glass,
reconfigure the product housing, re-engineer the assembly process and commence
commercial quantity orders for GRADIUM glass components.
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4
<PAGE>
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The Company can not predict how much time will be required for
manufacturers of existing optical systems to incorporate GRADIUM glass into such
systems , if ever. Accordingly, the Company intends to focus its long-term
marketing efforts on emerging niche industries, such as multimedia and
telecommunications, that are currently designing next-generation optical
systems, and performance driven industries, such as medical instruments, that
are seeking to optimize performance of existing optical products.
The Company's growth strategy is also to develop strategic
relationships with OEMs that incorporate or produce optical components. The
Company believes OEM relationships may expand and develop the Company's
technology base by evolving into more sophisticated joint development efforts
and, as a result, complex products, although there can be no assurances in this
regard. The Company's existing OEM relationships have resulted in the
development of prototype lenses a leading manufacturer of endoscopes, Karl Storz
GMBH & Co., camera television lenses, wafer chip inspection and the optimization
of a high performance riflescope for a gunsight manufacturer.
Optoelectronics technologies represent an overlap of photonics and
electronics and are key enablers of "Information Age" technologies, such as
fiberoptic communications, optical data storage, laser printers, digital
imaging, and sensors for machine vision and environmental monitoring. As part of
its growth strategy, the Company has targeted various optoelectronic industry
market niches and is currently developing additional GRADIUM glass products and
key strategic alliances with technology and marketing partners to design, build
and sell next generation integrated components and devices. The Company believes
that GRADIUM glass can provide industry wide solutions to optoelectronic
problems associated with light gathering, packaging and alignment.
Since its inception in 1985 until June 1996, the Company was a
development stage enterprise that engaged in basic research and development.
During fiscal year 1997, the Company's operational focus began to shift to
product development and commercial sales. The Company believes that most of its
product sales prior to fiscal year 1997 have been to persons evaluating the
commercial application of GRADIUM glass or using the products for research and
development. During 1997, numerous prototypes for production orders were
completed. In addition, catalog sales of standard profiles were received. The
Company currently offers standard, computer-based profiles of GRADIUM glass that
engineers can use for product design. The current focus of the Company's
technology department development efforts is the expansion of GRADIUM product's
applications to the areas of multiplexers and interconnects for the
telecommunications field, the addition of the Company's crown glass product line
to supplement its existing flint products, development of acrylic axial gradient
material to extend the range of existing product applications, and the upgrade
of proprietary material design software and optical design tools to facilitate
product design.
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.
The Private Securities Litigation Reform Act of 1995 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 constitute
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 stage
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.
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5
<PAGE>
- --------------------------------------------------------------------------------
The Offering
- --------------------------------------------------------------------------------
Securities Offered by Selling 1,758,490 shares of Class A Common
Securityholders: Stock
1,750,000 shares of the Class A
Common Stock offered hereby are
issuable upon conversion of Series
C Preferred Stock and exercise of
outstanding Class G Warrants and
Class H Warrants. Each Class G
Warrant is exercisable at any time
on or before February 2001 to
purchase for $6.68 one share of
Class A Common Stock, subject to
adjustment. Each Class H Warrant is
exercisable at any time on or
before February 2003 to purchase
for $6.68 one share of Class A
Common Stock subject to adjustment.
8,490 shares of the Class A Common
Stock offered hereby are currently
outstanding. Each share of Series C
Preferred Stock has a stated value
and liquidation preference of
$10,000, plus an 8% per annum
premium.
Each share of Series C Preferred
Stock is convertible into a number
of shares of Class A Common Stock
at the option of holder, with
volume limitations, during the
first 9 months, based on its stated
value at the conversion date
divided by a conversion price. The
conversion price is defined as the
lesser of (i) $6.675 or (ii) 85% of
the average closing bid price of
the Company's Class A Common Stock
for the five days preceding the
conversion date.
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6
<PAGE>
- --------------------------------------------------------------------------------
Company's Capitalization
- --------------------------------------------------------------------------------
Common Stock Outstanding December 31,
1997(1)(3):
Class A Common Stock 2,988,746 shares(1)(3)
Class E-1 Common Stock 1,481,584 shares(2)
Class E-2 Common Stock 1,481,584 shares(2)
Class E-3 Common Stock 987,715 shares(2)
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." All proceeds
received upon resale of any of the
shares of Class A Common Stock
offered hereby will be received by
the Selling Securityholders.
Risk Factors The securities offered
hereby involve a high degree of
risk and immediate substantial
dilution to public investors. An
investment in the Class A Common
Stock 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) Does not include outstanding options at December 31, 1997 to purchase
809,175 shares of Class A Common Stock and 117,862 shares of Class E-1,
117,862 shares of Class E-2 and 78,575 shares of Class E-3 Common Stock
which are exercisable at option exercise prices ranging from $5.00 to
$51.56 per share and 1,138,226 shares of Class A Common Stock reserved for
issuance upon future grants of options issuable under the Company's stock
option plans.
(2) Each share of outstanding 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 basis, automatically convert 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.
(3) Does not include an aggregate of 12,088,000 shares of Class A Common Stock
issuable upon exercise of (i) the Unit Purchase Option granted to the IPO
underwriter 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 IPO Units, (iii) the 839,000 Class A Warrants
issued at the IPO; (iv) the 839,000 additional Class B Warrants issuable
upon exercise of the Class A Warrants referred to in (iii) above, and (v)
the additional 4,250,000 shares of Class A Common Stock issuable upon
conversion of Series A, Series B, and Series C Preferred Stock and exercise
of Class C, Class D, Class E, Class F, Class G and Class H Warrants.
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7
<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 the documents incorporated herein by reference and the
documents filed by the Company from time to time with the Securities and
Exchange Commission, to the following risk factors.
Accumulated Deficit, Working Capital and Capital Deficiency; Limited
Operating History. The Company's predecessor commenced operations in 1985, and
the Company was a development stage company through June 30, 1996. Prior to
fiscal year 1997, the Company's primary activities had been basic research and
development. At June 30, 1997, the Company had an accumulated deficit of
($17,212,516). For the year ended June 30, 1997, the Company recognized revenues
of $673,677 and had a net loss of ($2,998,290). For the six months ended
December 31, 1997, the Company recognized revenues of $372,203 and a net loss of
($1,764,290). The Company's products currently are at an early stage of
development and the Company believes that most of its product sales prior to
fiscal year 1997 were to parties evaluating the commercial application of
GRADIUM or using the products for research and development. During fiscal year
1997, numerous prototypes for production orders were completed but no commercial
orders have been received to date. During fiscal year 1998, the Company's
increase in lens sales has been primarily due to laser customers, distributors
and wafer chip inspection markets. 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 the incorporation
of 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 1998 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.
Independent Auditors' 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
auditors as raising substantial doubt as to the Company's ability to continue as
a going concern are that the Company's recurring losses from operations and
resulting continued dependence on external sources of capital raise substantial
doubt about the entity's ability to continue as a going concern. 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.
Anticipation of Operating Losses; Need for Additional Financing. The
Company anticipates continuing to incur substantial operating losses for fiscal
year 1998 and until such time, if ever, as the Company's operations generate
sufficient revenues to offset its costs. The Company expects to incur
substantial expenses principally as the result of the various costs associated
with the Company's implementation of a sales and marketing program, distribution
channels, recruitment and training of personnel and other operating activities
and its continuing research and development efforts to expand its product line,
and capital expenditures for the scale-up of its manufacturing operations. 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 product sales and the net proceeds from the Company's private
placements of preferred stock completed in July and October 1997 will be
sufficient to finance the Company's working capital requirements for at least
fiscal year 1998, although the Company's capital requirements are subject to
numerous contingencies associated with a company in its early stages of
8
<PAGE>
operations. The net proceeds from the Company's private placement completed in
February 1998 provides working capital into fiscal 1999 and more rapid entrance
into optoelectronics development and sales. The Company's capital requirements
after such period will depend on the extent that GRADIUM glass becomes
commercially accepted, if at all, and if 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 the proceeds from its private placements of Series A Preferred Stock in
July 1997, Series B Preferred Stock in October 1997 and Series C Preferred Stock
in February 1998 are insufficient to offset costs associated with unanticipated
delays, cost overruns, unanticipated expenses or in the event the Company does
not realize anticipated revenues. The Company has no commitments from others to
provide such additional financing and there can be no assurance that any such
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.
Early Stage of Development of Proposed Products; Need for Market
Acceptance. Through June 1996, the Company's primary activities were basic
research and development of glass material properties. The Company's current
line of GRADIUM products have not been widely sold ( approximately 90 customers
as of June 30, 1997) 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 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. 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 of
its products.
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. Through fiscal
1996, product revenues received by the Company have been from purchasers engaged
in prototype development, evaluation of the commercial application of the
Company's products, or other research and development activities, and purchases
have not reached commercial quantities. Most of the Company's fiscal 1997 and
1998 product sales have been to laser customers, distributors and the wafer chip
inspection market. 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, if any, or that any products currently
existing or to be developed in the future 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
unrelated to the Company 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 quantities
of GRADIUM products, since the Company will be the sole supplier and licensor.
The Company does not have demonstrated experience as a manufacturer and does 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 of
its products. Prospective customers will need to make substantial expenditures
to redesign products to incorporate GRADIUM lenses. There can be no assurances
that potential customers will view GRADIUM's benefits as sufficient to warrant
such design expenditures.
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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 CEO, 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 Donald E. Lawson, the Company's
President, whose responsibilities for the Company's 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. 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
on the life of Mr. Lawson. The Company had thirty-one employees on January 1,
1998. Additional personnel will need to be hired if the Company is able to
successfully expand its operations. There can be no assurance that the Company
will be able to identify, attract and retain employees with skills and
experience necessary and relevant to the future operations of the Company's
business.
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 of which the Company is not yet aware 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.
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 will need to hire additional sales and marketing personnel,
develop additional sales and marketing programs and establish sales distribution
channels in order to achieve and sustain commercial sales of its products. In
October 1997, the Company hired a Vice President of Sales to develop its sales
and marketing program and recruit personnel. While the Company has developed a
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
market segments in which it believes it may have the most success. It may be
very difficult for the Company to penetrate any particular market segment, and
any attempt will require a substantial, but unknown, amount of effort and
resources. The fragmented nature of the optical products market may impede the
Company's ability to achieve commercial acceptance for its products. In
addition, 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.
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
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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. An inability by the Company to develop and adequately protect its
proprietary technology and other assets could have a material adverse effect on
the Company's business, financial condition and results of operations.
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, OEMs, licensees and others in
order to generate product sales, license fees, royalties and other funds
adequate 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 such endoscope manufacturer will progress to a
production phase or, if production commences, that the Company will receive
significant revenues from this relationship. In 1996, the Company terminated its
agreement with a catalog company to distribute certain of its products on an
exclusive basis. While the Company has no agreement with such catalog company
with respect to the future distribution of the Company's products, it
anticipates continuing such relationship on a non-exclusive basis. In 1997, the
Company formalized relationships with seven foreign distributors to create
markets for GRADIUM in their respective countries. 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. Prior to the Company's February 1996
IPO, the Company had minimal experience in manufacturing optical components. In
addition, the Company had limited resources to manufacture its products.
Proceeds from the IPO were primarily used to expand its manufacturing facilities
and hire personnel to scale-up production activities. In March 1996, the Company
entered into a 5 year lease for a new corporate headquarters and larger
manufacturing facility in Albuquerque, New Mexico. Within such 13,300 square
foot facility, the Company established its present manufacturing processes. The
Company believes that the present manufacturing facilities are sufficient for
its planned operations over the next several years. However, the Company does
not have any experience manufacturing products in quantities sufficient to meet
commercial demand. If the Company is unable to manufacture its products in
sufficient quantities and in a timely manner to meet customer demand, the
Company's business, financial condition and results of operations will be
materially adversely affected.
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
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 Class A Common Stock. Therefore, purchasers of the
securities offered hereby will bear a proportionately greater risk of loss than
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the Company's current stockholders.
Charge to Income in the Event of Conversion of Class E Common Stock. In
the event any shares of the Company's Class E Common Stock held by stockholders
who are officers, directors, employees or consultants of the Company are
converted into shares of Class A Common Stock, the Company will record
compensation expense for financial reporting purposes during the period in which
such conversion occurs. 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 reportable earnings, if
any, for such period. Such charge will 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 material 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 will have a material adverse effect on the Company's earnings per
share.
Control by Present Holders of Common Stock; Voting Trust. The Company's
principal stockholders beneficially owned 250,210 shares of Class A Common
Stock, 1,106,809 shares of the combined Class E Common Stock, representing 9% of
the outstanding Class A Common Stock, 28% of the combined outstanding Class E
Common Stock, and 20% of the total combined voting power of all of the Common
Stock outstanding at September 12, 1997. In addition, certain stockholders of
the Company holding approximately 18% 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 CEO, is granted the authority to vote all 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. Holders
of the Company's issued and outstanding Preferred Stock have no voting rights.
Consequently, the holders thereof will have no such rights until and unless such
shares are converted into Class A Common Stock.
Future Sales of Common Stock. As of February 22, 1998, less than 5% of
the Company's outstanding Common Stock 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. Although no significant sales have
occurred, 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.
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.
Arbitrary Determination of Warrant Exercise Price. The exercise price
of the warrants and other terms of such securities have been arbitrarily
established by negotiation between the Company and one Underwriter with respect
to the Class A and Class B Warrants and with the placement agent with respect to
the Class C, Class D, Class E, Class F, Class G and Class H Warrants, 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. As of December 31, 1997,
the Company had outstanding (i) 2,679,000 Class A Warrants to purchase an
aggregate of 2,679,000 shares of Class A Common Stock and 2,679,000 Class B
Warrants; (ii) 1,840,000 Class B Warrants to purchase 1,840,000
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shares of Class A Common Stock; (iii) the Unit Purchase Option to purchase an
aggregate of 240,000 Units; (iv) 832,000 shares of Class A Common Stock reserved
for the conversion of Series A Preferred Stock and exercise of Class C and Class
D Warrants, (v) 1,500,000 shares of Class A Common Stock reserved for the
conversion Series B Preferred Stock and exercise of Class E and Class F
Warrants; (vi) 1,750,000 shares of Class A Common Stock reserved for the Selling
Securityholders Securities; and (vii) outstanding options to purchase an
aggregate of 809,175 shares of Class A Common Stock, 117,862 shares of Class
E-1, 117,862 shares of Class E-2 and 78,575 shares of Class E-3 Common Stock. As
of December 31, 1997, the Company also has an additional 1,138,226 shares of
Class A Common Stock reserved for issuance under its Omnibus Incentive Plan and
Directors Stock Incentive Plan. 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 in 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 the period such options and Warrants remain exercisable may be
adversely affected by the existence of such options and Warrants. The holders of
the Company's outstanding 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.
Potential Adverse Effect of Redemption of IPO Warrants. Commencing
February 22, 1997, the Class A and Class B 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.
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 additional 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. As of the date of this Prospectus, the Company has
authorized 250 shares of Series A Preferred Stock, 300 shares of Series B
Preferred Stock, and 500 shares of Series C Preferred Stock, of which 180, 230
and 375 shares, respectively, have been issued and 55, 225 and 375 shares
respectively, were outstanding. Although the Company has no present intention to
issue any additional 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.
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.
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Possible Adverse Effect on the Liquidity of the Company's Securities
Due to Securities and Exchange Commission Investigation of the IPO Underwriter
and Blair & Co. and Recent Settlement by Blair & Co. with NASD. The Securities
and Exchange Commission (the "Commission") is conducting an investigation
concerning various business activities of the Underwriter in the Company's IPO
(the "IPO Underwriter") and D.H. Blair & Co., Inc., ("Blair & Co.") a selling
group member which distributed a substantial portion of the IPO Units. The
Company has been advised by the IPO Underwriter that the investigation has been
ongoing since at least 1989 and that it is cooperating with the investigation.
The IPO Underwriter cannot predict whether this investigation will ever result
in any type of formal enforcement action against the IPO Underwriter or Blair &
Co.
In July 1997, Blair & Co., its Chief Executive Officer and its head
trader consented, without admitting or denying any violations, to a settlement
with the NASD Regulation, Inc. ("NASDR"), the regulatory oversight subsidiary of
the National Association of Securities Dealers, Inc. ("NASD") District Business
Conduct Committee for District No. 10 to resolve allegation of NASD rule and
securities law violations in connection with mark-up and pricing practices and
adequacy of disclosures to customers regarding market-making activities of Blair
& Co. in connection with certain securities issues during the period from June
1993 through May 1995 where Blair & Co. was the primary selling group member.
NASDR alleged the firm failed to accurately calculate the contemporaneous cost
of securities in instances where the firm dominated and controlled after-market
trading, thereby causing the firm to charge its customers excessive mark-ups.
NASDR also alleged the firm did not make adequate disclosure to customers about
its market-making activities in two issues. As part of the settlement, Blair &
Co. has consented to censure and has agreed to pay a $2 million fine, make $2.4
million in restitution to retail customers, employ an independent consultant for
two years to review and make recommendations to strengthen the firm's compliance
procedures, and has undertaken for twelve months not to sell to its retail
customers (excluding banks and other institutional investors) more than 60% of
the total securities sold in any securities offering in which it participates as
an underwriter or selling group member. The Chief Executive Officer of Blair &
Co. has agreed to settle failure to supervise charges by consenting to a
censure, the imposition of a $300,000 fine and a 90-day suspension from
associating with any member firm and has undertaken to take certain
requalification examinations. The settlement with NASDR does not involve or
relate to the IPO Underwriter, its chief executive officer or any of its other
officers or directors.
Blair & Co. currently makes a market in the Company's securities see
"Possible Restrictions and Potential Effect of Blair & Co. Acquisition on
Market-Making Activities in Company's Securities." The Company is unable to
predict whether Blair & Co.'s settlement with the NASDR or any unfavorable
resolution of the Commission's investigation will have any effect on such firm's
ability to make a market in the Company's securities and, if so, whether the
liquidity or price of the Company's securities would be adversely affected.
Possible Restrictions and Potential Effect of Blair & Co. Acquisition
on Market-Making Activities in Company's Securities. On January 9, 1998,
Barington Capital Group L.P. , a New York investment bank, agreed to acquire
most of the assets of Blair & Co. The Company is not able to determine the
impact, if any, this acquisition will have on the Company's securities. Blair &
Co. currently makes a market in the Company's securities. In addition,
Regulation M, which was adopted to replace Rule 10b-6 under the Exchange Act may
prohibit Blair & Co. from engaging in any market-making activities with regard
to the Company's securities for the period of up to five business days (or such
other applicable period as Regulation M may provide) prior to any solicitation
by the IPO Underwriter of the exercise of Class A and Class B Warrants until the
later of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that such IPO 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 Class A Warrants issued to the Bridge Securityholders in
the Company's IPO and offered for sale may not simultaneously engage in
market-making activities with respect to any securities of the Company for the
applicable restricted period prior to the commencement of such distribution.
Accordingly, in the event the IPO Underwriter or Blair & Co. engages in a
distribution of any of the Bridge
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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 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 has 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 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 and Preferred Stock; Need for Current Prospectus. Although none of the
shares of Common Stock offered hereby will knowingly be sold to purchasers in
jurisdictions in which such securities are not registered or otherwise qualified
for sale, purchasers may buy such securities in the aftermarket in, or may move
to, jurisdictions in which such shares of Common Stock are not so registered or
qualified during the period that the Warrants are exercisable or the Preferred
Stock is convertible. In this event, the Company would be unable to issue shares
to those persons desiring to exercise their Warrants or convert their Preferred
Stock 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 will not be
able to exercise their Warrants or convert their Preferred Stock, unless at the
time of exercise the Company has a current prospectus covering the shares of
Class A Common Stock underlying the Warrants and Preferred Stock, as the case
may be. No assurances can be given that the Company will be able to effect any
required registration or qualification or maintain a current prospectus.
Nasdaq Listing and Maintenance Requirements, Risk of Delisting. The
Units, Class A Common Stock and Class A and Class B Warrants are currently
traded on Nasdaq SmallCap Market ("Nasdaq"). Under the rules for continued
listing on Nasdaq SmallCap Market, a company is required to maintain at least
$2,000,000 in "net tangible assets" ("net tangible assets" equals total assets
less total liabilities and goodwill) or at least $35,000,000 in total market
capitalization or at least $500,000 in net income in two out of its last three
fiscal years, as well as at least 500,000 shares in public float, at least
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$4,000,000 in market value of the public float and a bid price of not less than
$1.00 per share, and meet certain corporate governance standards. Upon notice of
a deficiency in one or more of the maintenance requirements, the Company would
be given between 10 to 90 days (depending on the criteria which is not
satisfied) 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 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. 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.
Risk of Insufficient Funds Available to Effect Redemptions. In the
events of conversion of the Series A, Series B or Series C Preferred Stock or
exercise of their accompanying Class C, Class E and Class G Warrants,
respectively, in a manner that would cause an undue dilution of its Common
Stock, the Company has the right to redeem such preferred stock and warrants for
cash. In addition, a Liquidation Event (as defined in the Company's applicable
Certificates of Designation) may require redemption of the Series A, Series B or
Series C Preferred Stock for cash. There can be no assurance that in either of
the foregoing events that the Company will have adequate cash to effect such
cash redemptions.
USE OF PROCEEDS
All proceeds from the resale of any securities offered hereby will be
received by the respective Selling Securityholders. In the event that all of the
337,078 outstanding Class G Warrants, and all of the 58,427 outstanding Class H
Warrants are exercised, the Company would receive net proceeds of approximately
$2,642,000. Holders of Warrants are not obligated to exercise their Warrants.
There can be no assurance that the Warrantholders will choose to exercise all or
any of their Warrants. The Company intends to use the net proceeds received upon
the exercise of the Warrants, if any, for general corporate purposes and working
capital, including but not limited to marketing efforts, research and
development programs and continuing product development.
DETERMINATION OF OFFERING PRICE
An aggregate of up to 1,750,000 of the 1,758,490 shares of Common Stock
offered are issuable upon the exercise of the Class G and Class H Warrants and
the conversion of the Series C Preferred Stock. The subsequent sale of the
shares of Common Stock received upon exercise of the Warrants and conversion of
the Series C Preferred Stock and the sale of the remaining 8,490 shares of
Common Stock currently outstanding will be determined by the respective Selling
Securityholder at prices and on terms then prevailing or at prices related to
the then current market price, or in negotiated transactions.
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SELLING SECURITYHOLDERS
An aggregate of 1,758,490 shares of Class A Common Stock may be offered
for resale by the Selling Securityholders from time to time. The shares of Class
A Common Stock offered hereby include 1,750,000 shares which are issuable upon
exercise of 337,078 Class G Warrants, and 58,427 Class H Warrants and upon
conversion of 375 shares of Series C Preferred Stock, all of which are currently
outstanding. Each Class G and Class H Warrant is exercisable for one share of
Class A Common Stock. Each share of Series C Preferred Stock is convertible into
a number of shares of Class A Common Stock determined by dividing its stated
value on the date of conversion by a conversion price. The conversion price is
defined as the lesser of (i) $6.675 or (ii) 85% of the average closing bid price
of the Company's Class A Common Stock for the five days preceding the conversion
date. All of the Class G Warrants, Class H Warrants, Series C Preferred Stock
and Class A Common Stock were acquired by the Selling Securityholders in
connection with a private placement completed by the Company in February 1998.
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of February 1, 1998, and as adjusted to
reflect the sale of the Class A Common Stock being offered hereby, by the
Selling Securityholders. Except as described below, there are no material
relationships between any of the Selling Securityholders and the Company, nor
have any such material relationships existed within the past three years.
<TABLE>
<CAPTION>
---------------------------------------------
Shares Beneficially owned
After Offering (1)
--------------------- ----------------- ---------------------------------------------
Shares Beneficially Number of Number Percent of Percent of
owned Prior to the Shares Being Class A All
Offering (1)(2)(3) Offered (3) Common Stock Classes of
Common Stock
--------------------- ----------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Cranshire Capital LLP 200,513(4) 93,035(5) 107,478(4) 3% 1.5%
EP Opportunity Fund, LLC 548,295(6) 232,588(7) 310,307(6) 8% 4%
JRA Enterprises 11,629(8) 11,629 -0- * *
Kopin Rice Corporation 69,776(9) 69,776 -0- * *
Keyway Investments, LTD 908,206(10) 465,175(11) 443,031(10) 12% 6%
Swartz Family Partnership, LP 42,948(12)(21) 15,309 27,639(12) * *
KendrickFamily Partnership LLP 33,549(13)(21) 15,309 18,240(13) * *
Brad Hathorn 4,928(14)(21) 2,000 2,925(14) * *
Jerry Harris 8,698(15)(21) 2,500 6,198(15) * *
Carl Johnson 5,500(17)(21) 1,500 4,000(17) * *
Davis Holden 6,500(18)(21) 1,500 5,000(18) * *
Frank Mauro 32,810(16)(21) 15,309 27,640(16) * *
Chuck Whiteman 4,265(19)(21) 1,500 2,765(19) * *
Dwight Bronnum 1,000(20)(21) 250 750(20) * *
Robert Hopkins 1,000(20)(21) 250 750(20) * *
H. Nelson Logan 1,000(21) 1,000 0 * *
James Mills 1,000(21) 1,000 0 * *
Kelley Smith 1,000(21) 1,000 0 * *
Swartz Investments LLC 8,490 8,490 0 * *
</TABLE>
* Represents beneficial ownership of less than 1%.
(1) Except as otherwise noted, and subject to community property laws, where
applicable, each person named in the table has sole voting power and
investment power with respect to all shares shown as beneficially owned.
(2) As noted below, the information set forth below includes shares of Class A
Common Stock issuable upon conversion of shares of the Company's Series A
and Series B Preferred Stock which are presently outstanding. Each share of
Series A and Series B Preferred Stock is convertible into a number of
shares of Class A Common Stock determined by dividing its stated value on
the date of conversion by a
17
<PAGE>
conversion price. The Series A and Series B conversion price is defined as
the lesser of (i) $5.625 and $7.2375 respectively, or (ii) 85% of the
average closing bid price of the Company's Class A Common Stock for the
five days preceding the conversion date. For purposes of the information
set forth in this table, it is assumed that each outstanding share of
Series A and Series B Preferred Stock was converted as of March 1, 1998
into approximately 1,872 and 1,427 shares, respectively, of Class A Common
Stock.
(3) As noted below, the information set forth below includes shares of Class A
Common Stock issuable upon conversion of shares of the Company's Series C
Preferred Stock which are presently outstanding. Each share of Series C
Preferred Stock is convertible into a number of shares of Class A Common
Stock determined by dividing its stated value on the date of conversion by
a conversion price. The conversion price is defined as the lesser of (i)
$6.675 or (ii) 85% of the average closing bid price of the Company's Class
A Common Stock for the five days preceding the conversion date. For
purposes of the information set forth in this table, it is assumed that
each share of Series C Preferred Stock was converted as of March 1, 1998
into approximately 1,505 shares of Class A Common Stock.
(4) Includes 200,513 shares of which 44,396 were received from the conversion
of 15 shares of Series A Preferred Stock and related Class C Warrants and
156,117 shares issuable upon (A) conversion of (i) 20 shares of Series B
Preferred Stock and (ii) 40 shares of Series C Preferred Stock and upon (B)
the exercise of (i) 34,542 Class E Warrants and (ii) 35,955 Class G
Warrants to purchase shares of Class A Common Stock.
(5) Includes 93,035 shares issuable upon conversion of 40 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
35,955 shares of Class A Common Stock.
(6) Includes 548,295 shares issuable upon (A) conversion of (i) 35 shares of
Series A Preferred Stock (ii) 65 shares of Series B Preferred Stock and
(iii) 100 shares of Series C Preferred Stock and upon (B) the exercise of
(i) Class C Warrants to purchase 62,222 shares, (ii) 89,810 Class E
Warrants and (iii) 89,888 Class G Warrants to purchase shares of Class A
Common Stock.
(7) Includes 232,588 shares issuable upon conversion of 100 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
89,888 shares of Class A Common Stock.
(8) Includes 11,629 shares issuable upon conversion of 5 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
4,494 shares of Class A Common Stock.
(9) Includes 69,776 shares issuable upon conversion of 30 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
26,966 shares of Class A Common Stock.
(10) Includes 908,206 shares which 82,162 were received from the conversion of
45 shares of Series A Preferred Stock and 826,044 shares issuable upon (A)
conversion of (i) 100 shares of Series B Preferred Stock and (ii) 200
shares of Series C Preferred Stock and upon (B) the exercise of (i) 80,000
Class C Warrants (ii) 138,169 Class E Warrants and (ii) 179,775 Class G
Warrants to purchase shares of Class A Common Stock.
(11) Includes 465,175 shares issuable upon conversion of 200 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
179,775 shares of Class A Common Stock.
(12) Includes 42,948 shares issuable upon the exercise of 15,750 Class D
Warrants, 11,889 Class F Warrants and 15,309 Class H Warrants.
(13) Includes 33,549 shares of which 6,351 were received from the exercise of
Class D Warrants and 27,198 shares issuable upon the exercise of 11,889
Class F Warrants and 15,309 Class H Warrants.
(14) Includes 4,928 shares of which 928 were received from the exercise of Class
D Warrants and 4000 shares issuable upon the exercise of 2,000 Class F
Warrants and 2,000 Class H Warrants.
(15) Includes 8,698 shares of which 2,198 were received from the exercise of
Class D Warrants and 6,500 shares issuable upon the exercise of 4,000 Class
F Warrants and 2,000 Class H Warrants.
(16) Includes 32,810 shares of which 5,611 were received from the exercise of
Class D Warrants and 27,199 shares issuable upon the exercise of 11,890
Class F Warrants and 15,309 Class H Warrants.
(17) Includes 5,500 shares issuable upon the exercise of (i) 2,000 Class D
Warrants, (ii) 2,000 Class F Warrants and (iii) 1,500 Class H Warrants.
(18) Includes 6,500 shares issuable upon the exercise of (i) 3,000 Class D
Warrants, (ii) 2,000 Class F Warrants and (iii) 1,500 Class H Warrants..
(19) Includes 4,265 shares of which 1,265 were received from the exercise of
Class D Warrants and 3,000 shares issuable upon the exercise of 1,500 Class
F Warrants and 1,500 Class H Warrants.
(20) Includes 1,000 shares of which 500 were received from the exercise of Class
D Warrants and 500 shares issuable upon the exercise of 250 Class F
Warrants and 250 Class H Warrants.
(21) Each of these persons were designated by Swartz Investments, LLC to receive
certain securities issuable to Swartz. See "Certain Relationships".
18
<PAGE>
CERTAIN RELATIONSHIPS
All of the Class D and Class F Warrants were issued to Swartz
Investments, LLC or its designees (collectively "Swartz") along with cash
placement fees as consideration for its services as placement agent in
connection with the Company's sales of Series A Preferred Stock in July 1997 and
Series B Preferred Stock in October 1997, respectively.
All of the Class G Warrants were issued to Swartz with a cash placement
fee of $187,500 and 8,490 shares of unregistered Class A Common Stock equal to 1
1/2% of the gross proceeds from the sale of Series C Preferred Stock as
compensation for their services as placement agent in connection with the
February 1998 private placement of 375 shares of its Series C Preferred Stock.
The purchasers of the Company's Series A, Series B and Series C
Preferred Stock have a right of first offer to participate in any issuances of
equity or debt securities by the Company during the respective one year period
commencing on the date which such shares of Series A, Series B or Series C
Preferred Stock, as the case may be, were sold. Swartz Investments LLC has the
right of first refusal to act as placement agent with respect to any future
private financings by the Company during the one year period ended July 1998.
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby the ("Selling
Securityholders' Securities") may be sold from time to time by the Selling
Securityholders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made in the over-the-counter market or otherwise, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The Selling Securityholders'
Securities may be sold in one or more of the following types of transactions:
(a) a block trade in which the broker-dealer so engaged will attempt to sell the
Selling Securityholders' Securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this Prospectus; (c) an exchange distribution in accordance with the
rules of such exchange; and (d) ordinary brokerage transactions and transactions
in which the broker solicits purchasers. In effecting sales, broker-dealers
engaged by the Selling Securityholders may arrange for other broker-dealers to
participate in the resales.
In connection with distributions of the Selling Securityholders'
Securities or otherwise, the Selling Securityholders may enter into hedging
transactions with broker-dealers. In connection with such transactions,
broker-dealers may engage in short sales of the Selling Securityholders'
Securities in the course of hedging the positions they assume with Selling
Securityholders. The Selling Securityholders may also sell Selling
Securityholders' Securities short and redeliver the Selling Securityholders'
Securities to close out such short positions. The Selling Securityholders may
also enter into option or other transactions with broker-dealers which require
the delivery to the broker-dealer of the Selling Securityholders' Securities,
which the broker-dealer may resell or otherwise transfer pursuant to this
Prospectus. The Selling Securityholders may also loan or pledge Selling
Securityholders' Securities to a broker-dealer and the broker-dealer may sell
the Selling Securityholders' Securities so loaned or, upon a default, the
broker-dealer may effect sales of the pledged Selling Securityholders'
Securities pursuant to this Prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Securityholders in
amounts to be negotiated in connection with the sale. Such broker-dealers and
any other participating broker-dealers may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 under the Securities
Act may be sold under Rule 144 rather than pursuant to this Prospectus.
All costs, expenses and fees in connection with the registration of the
Selling Securityholders' Securities offered hereby will be borne by the Company.
Commission and discounts, if any, attributable to the sales of the Selling
Securityholders' Securities will be borne by the respective Selling
19
<PAGE>
Securityholders. The Selling Securityholders may agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of the
Selling Securityholders' Securities against certain liabilities, including
liabilities arising under the Securities Act. The Company and the Selling
Securityholders have agreed to indemnify certain persons including
broker-dealers or agents against certain liabilities in connection with the
offering of the Selling Securityholders' Securities, including liabilities
arising under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or
persons controlling the Company, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
DESCRIPTION OF SECURITIES
For a description of the Company's Class A Common Stock see the
Company's Registration Statement on Form SB-2 filed with the Commission on
December 7, 1995 and incorporated by reference into this Prospectus.
Each Class G Warrant entitles the holder to purchase one share of Class
A Common Stock at $6.68 per share at any time through February 2001. Each Class
H Warrant entitles the holder to purchase one share of Class A Common Stock at
$6.68 per share at any time through February 2003. For a description of the
Class G Warrants and Class H Warrants see Exhibit 4.7 and Exhibit 4.8 to the
Registration Statement.
Each share of Series C Preferred Stock is convertible into a number of
shares of Class A Common Stock at the option of the holder at any time
commencing in June, 1998, subject to certain volume limitations applicable until
November, 1998. The number of shares of Class A Common Stock issuable upon
conversion of the Series C Preferred Stock is determined by dividing the stated
value of the Series C Preferred Stock on the date of conversion by a conversion
price. The conversion price is defined as the lesser of (i) $6.675 or (ii) 85%
of the average closing bid price of the Company's Class A Common Stock for the
five days preceding the conversion date. Each share of Series C Preferred Stock
has a stated value of $10,000 plus an 8% per annum premium.
LEGAL MATTERS
Certain legal matters with respect to the Company and the validity of
the securities offered hereby will be passed upon for the Company by Squire,
Sanders & Dempsey L.L.P., Phoenix, Arizona.
INTERESTS OF NAMED EXPERTS AND COUNSEL
On October 13, 1997, James L. Adler, Jr. was appointed to serve as a
Director of the Company for a two year term. Mr. Adler is a partner of the law
firm of Squire, Sanders & Dempsey, L.L.P.
EXPERTS
The financial statements of the Company as of June 30, 1997, and for
the year then ended, have been incorporated by reference in this Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the June 30, 1997,
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations and resulting continued dependence on
external sources of capital raise substantial doubt about the entity's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
The statements of operations, stockholders' equity (deficiency in net
assets), and cash flows of the Company, for the year ended June 30, 1996,
incorporated by reference in this Prospectus, have been audited by Ernst & Young
LLP, independent auditors, to the extent indicated in their report thereon also
incorporated by reference (which contains an explanatory paragraph with respect
to going concern mentioned in the Notes to the financial statements). Such
financial statements have been incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in
20
<PAGE>
accounting and auditing.
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 connection with the offer made by this Prospectus and, if given or
made, such information and representations must not be relied upon as 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 Class A 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 Class A 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 delivery 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
----
Available Information 3
Prospectus Summary 4
Risk Factors 8
Use of Proceeds 16
Determination of Offering Price 16
Selling Securityholders 17
Certain Relationships 19
Plan of Distribution 19
Description of Securities 20
Legal Matters 20
Experts 20
------------------
LIGHTPATH TECHNOLOGIES, INC.
1,758,490 Shares of Class A Common Stock
------------------
PROSPECTUS
------------------
March 13, 1998
21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
It is estimated that the following expenses will be incurred in connection with
the proposed offering hereunder. All of such expenses will be borne by the
Company:
Amount(1)
---------
Legal fees and expenses ......... $ 7,000.00
Accounting fees and expenses..... 5,000.00
Printing expenses ............... 2,000.00
----------
Total ...................... $14,000.00
==========
(1) Estimated
Item 15. 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.
II-1
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Page Number or
Exhibit Method of
Number Description Filing
------ ----------- ------
<S> <C> <C>
3.2 Certificate of Designation filed February 6, 1998 with *
the Secretary of State of the State of Delaware
4.1 Form of Warrant Agreement (1)
4.2 Form of Unit Purchase Option (2)
4.3 Form of Voting Trust Agreement dated among certain (1)
stockholders of the Registrant
4.4 Specimen Certificate for the Class A Common Stock (2)
4.5 Specimen Certificate for the Class A. Warrants (2)
4.6 Specimen Certificate for the Class B Warrants (2)
4.7 Form of Class G Warrants *
4.8 Form of Class H Warrants *
5.1 Opinion and Consent of Squire, Sanders & Dempsey LLP *
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors *
23.2 Consent of Ernst & Young LLP, Independent Auditors *
23.3 Consent of Squire, Sanders & Dempsey LLP Included in
Exhibit 5.1
24 Powers of Attorney See signature page
</TABLE>
* Filed herewith.
1. Previously filed as Exhibit 4.1 to registrant's registration statement on
Form SB-2 filed on December 7, 1995 (File No. 33-80119)(the "SB-2").
2. Previously filed as Exhibit to the SB-2.
II-2
<PAGE>
Item 17. 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 14 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.
(5) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) of Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference into this
registration statement 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.
II-3
<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 on Form S-3 Registration Statement and duly
authorized this Registration Statement to be signed on its behalf by the
undersigned, in the City of Albuquerque and State of New Mexico on March 12,
1998.
LIGHTPATH TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ LESLIE A. DANZIGER
-------------------------------------
Leslie A. Danziger
Chairman of the Board and
Chief Executive Officer
Special Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned,
constitutes and appoints each of Leslie A. Danziger and Donald E. Lawson, his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all pre and post-effective amendments (including all
amendments filed pursuant to Rule 462(b)) to this Form S-3 Registration
Statement, and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securites and Exchange Commission, granting such
attorney-in-fact and agents, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in person, hereby
ratifying and confirming all that such attorney-in-fact and agents may lawfully
do or cause to be done by virtue hereof. In accordance with the requirement of
the Securities Act of 1933, this Registration Statement was signed below by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ LESLIE A. DANZIGER Chairman of the Board (Principal March 12,1998
---------------------- Executive Officer)
Leslie A. Danziger
/s/ DONALD E. LAWSON President and Treasurer (Principal March 12,1998
-------------------- Financial and Accounting Officer)
Donald E. Lawson
/s/ James A. Adler, Jr. Director March 12,1998
-----------------------
James A. Adler, Jr.
/s/ Louis Leeburg Director March 12,1998
-----------------
Louis Leeburg
/s/ Milton Klein, M.D. Director March 12,1998
----------------------
Milton Klein, M.D.
/s/ Haydock H. Miller, Jr. Director March 12,1998
--------------------------
Haydock H. Miller, Jr.
</TABLE>
II-4
Exhibit 3.2
CERTIFICATE OF DESIGNATION OF SERIES C PREFERRED STOCK
OF LIGHTPATH TECHNOLOGIES, INC. Filed February 6, 1998
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is
LightPath Technologies, Inc., a Delaware corporation.
2. The certificate of incorporation of the Company authorizes the
issuance of five million (5,000,000) shares of preferred stock, $.01 par value
per share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one (1) or more
Series C and by resolution or resolutions to establish the designation and
number and to fix the relative rights and preferences of each series to be
issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series C issue of Preferred Stock:
RESOLVED, that five hundred (500) of the five million (5,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series C
Preferred Stock, $.01 par value per share, and shall possess the rights and
preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share and shall be designated as Series C Preferred
Stock (the "Series C Preferred Stock") and the number of shares constituting the
Series C Preferred Stock shall be five hundred (500). The Series C Preferred
Stock shall be offered at a purchase price of Ten Thousand Dollars ($10,000) per
share (the "Original Series C Issue Price"), with an eight percent (8%) per
annum accretion rate as set forth herein.
Section 2. Rank. The Series C Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series C Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Class A, Class E-1, Class E-2, and Class E-3 Common Stock, all at a $.01 par
value per share ("Common Stock"); (iii) prior to any class or series of capital
stock of the Company hereafter created not specifically ranking by its terms
senior to or on parity with any Series C Preferred Stock of whatever subdivision
(collectively, with the Common Stock, "Junior Securities"); and (iv) on parity
with the Series A Preferred Stock, Series B Preferred Stock and with any class
or series of capital stock of the Company hereafter created specifically ranking
by its terms on parity with the Series C Preferred Stock ("Parity Securities")
in each case as to distributions of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary (all such
distributions being referred to collectively as "Distributions").
Section 3. Dividends. The Series C Preferred Stock will bear no
dividends, and the holders of the Series C Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series C Preferred Stock.
Section 4. Liquidation Preference.
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(a) In the event of any liquidation, dissolution or winding up
of the Company ("Liquidation Event"), either voluntary or involuntary, the then
Holders of shares of Series C Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities but in parity with
any distribution to Parity Securities, an amount per share equal to the sum of
(i) the Original Series C Issue Price for each outstanding share of Series C
Preferred Stock and (ii) an amount equal to eight percent (8%) of the Original
Series C Issue Price, per annum, accruing daily, for the period that has passed
since the date that, in connection with the consummation of the purchase by
Holder of shares of Series C Preferred Stock from the Company, the escrow agent
first had in its possession funds representing full payment for the shares of
Series C Preferred Stock (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, and after payment in full of
the preferential amounts with respect to the Senior Securities, the assets and
funds available to be distributed among the Holders of the Series C Preferred
Stock and Parity Securities shall be insufficient to permit the payment to such
Holders of the full preferential amounts due to the Holders of the Series C
Preferred Stock and the Parity Securities, respectively, then the entire assets
and funds of the Company legally available for distribution shall be distributed
among the Holders of the Series C Preferred Stock and the Parity Securities, pro
rata, based on the respective liquidation amounts to which each such series of
stock is entitled by the Company's Certificate of Incorporation and any
certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of shall
be deemed to be a Liquidation Event as defined in Section 4(a); provided further
that (i) a consolidation, merger, acquisition, or other business combination of
the Company with or into any other publicly traded company or companies shall
not be treated as a Liquidation Event as defined in Section 4(a) but instead
shall be treated pursuant to Section 5(d) hereof, and (ii) a consolidation,
merger, acquisition, or other business combination of the Company with or into
any other non-publicly traded company or companies shall be treated as a
Liquidation Event as defined in Section 4(a). The Company shall not effect any
transaction described in subsection 4(c)(ii) unless it first gives thirty (30)
business days prior notice of such transaction during which time the Holder
shall be entitled to immediately convert any or all of its shares of Series C
Preferred Stock into Class A Common Stock at the Conversion Price, as defined
below, then in effect, which conversion shall not be subject to the conversion
restrictions set forth in Section 5(a).
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a Liquidation
Event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be reasonably
postponed until such cash distributions have been made, (ii) cancel such
transaction, in which event the rights of the Holders of Series C Preferred
Stock shall be the same as existing immediately prior to such proposed
transaction or (iii) agree, and shall require that any successor company
resulting from a Liquidation Event agrees, to make such distributions as quickly
after the closing of such Liquidation Event as reasonably practicable, upon the
same terms and in the same
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<PAGE>
amounts as the Company would have made if such distribution was made immediately
prior to the closing of such transaction.
Section 5. Conversion. Subject to Section 4(c) herein, the record
Holders of this Series C Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert. The record Holder of the Series C
Preferred Stock shall be entitled to convert, subject to the Company's right of
redemption set forth in Section 6(a) and the conversion restrictions herein
below, any or all the aggregate principal amount of the Series C Preferred Stock
on or after the date that is four (4) months after the Last Closing Date, as
defined below, at the office of the Company or its designated transfer agent
(the "Transfer Agent"), into that number of fully-paid and non-assessable shares
of Class A Common Stock calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares of Class A Common Stock issued upon conversion of one
(1) share of Series C Preferred Stock =
(.08) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
o N= the number of days between (i) the date that, in connection with
the consummation of the initial purchase by Holder of shares of Series
C Preferred Stock from the Company, the escrow agent first had in its
possession funds representing full payment for the shares of Series C
Preferred Stock for which conversion is being elected, and (ii) the
applicable Date of Conversion (as defined in Section 5(b)(iv) below)
for the shares of Series C Preferred Stock for which conversion is
being elected, and
o Conversion Price = the lesser of (x) 100% of the average Closing Bid
Price, as that term is defined below, of the Company's Class A Common
Stock for the five (5) trading days ending on January 28, 1998, which
is $6.675 (the "Fixed Conversion Price"), or (y) 85% of the average
Closing Bid Price, as that term is defined below, of the Company's
Class A Common Stock for the five (5) trading days immediately
preceding the Date of Conversion, as defined below (the "Variable
Conversion Price"),
provided, however, that, unless otherwise indicated herein, beginning on the
date that is four (4) months following the Last Closing Date, as defined below,
the right of the Holder to convert into Class A Common Stock using the Variable
Conversion Price initially shall be limited to a maximum of twenty percent (20%)
of the aggregate principal amount of the Series C Preferred Stock issued to such
Holder, and for each one (1) month period which expires thereafter, the Holder
shall accrue the right to convert into Class A Common Stock an additional twenty
percent (20%) of the aggregate principal amount of the Series C Preferred Stock
issued to such Holder, (the number of shares that may be converted at any given
time using the Variable Conversion Price, in the aggregate, is referred to
hereinafter as the "Conversion Quota"); and provided, further, in the event that
the Holder elects not to convert its full Conversion Quota during any one (1)
month period, the unconverted amount shall be carried forward and added to the
Conversion Quota, and thereafter the Holder may, from time to time, convert any
portion of the Conversion Quota at the Variable Conversion Price; and provided,
further, that subsequent to the date that is nine (9) months following the Last
Closing Date,
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<PAGE>
there shall be no restrictions on the number of shares of Series C Preferred
Stock that may be converted into Class A Common Stock using the Variable
Conversion Price; and provided, further, that a Holder can convert one hundred
percent (100%) of the Series C Preferred Stock, or any portion thereof, into
Class A Common Stock using the Fixed Conversion Price on or after the date that
is four (4) months after the Last Closing Date whether or not the Fixed
Conversion Price is less than the Variable Conversion Price.
As used herein, "Last Closing Date" shall mean the date of the last
closing of a purchase and sale of the Series C Preferred Stock that occurs
pursuant to the offering of the Series C Preferred Stock by the Company.
For purposes hereof, any Holder which acquires shares of Series C
Preferred Stock from another Holder (the "Transferor") and not upon original
issuance from the Company shall be entitled to exercise its conversion right as
to the percentages of such shares specified under Section 5(a) in such amounts
and at such times such that the number of shares eligible for conversion by such
Holder at any time shall be in the same proportion that the number of shares of
Series C Preferred Stock acquired by such Holder from its Transferor bears to
the total number of shares of Series C Preferred Stock originally issued by the
Company to such Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price of the Company's Class A Common Stock on the Nasdaq Small Cap
Market, or if no longer traded on the Nasdaq Small Cap Market, the closing bid
price on the principal national securities exchange or the over-the-counter on
which the Class A Common Stock is so traded and if not available, the mean of
the high and low prices on the principal national securities exchange or the
over-the-counter system on which the Class A Common Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series C
Preferred Stock into full shares of Class A Common Stock, the Holder shall (i)
send via facsimile, on or prior to 11:59 p.m., New York City time (the
"Conversion Notice Deadline") on the Date of Conversion, a copy of the fully
executed notice of conversion ("Notice of Conversion") to the Company at the
office of the Company and to its designated transfer agent (the "Transfer
Agent") for the Series C Preferred Stock stating that the Holder elects to
convert, which notice shall specify the Date of Conversion, the number of shares
of Series C Preferred Stock to be converted, the applicable Conversion Price and
a calculation of the number of shares of Class A Common Stock issuable upon such
conversion (together with a copy of the front page of each certificate to be
converted) and (ii) surrender to a common courier for delivery to the office of
the Company or the Transfer Agent, the original certificates representing the
Series C Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed for transfer; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Class A Common Stock
issuable upon such conversion unless either the Preferred Stock Certificates are
delivered to the Company or its Transfer Agent as provided above, or the Holder
notifies the Company or its Transfer Agent that such certificates have been
lost, stolen or destroyed (subject to the requirements of subparagraph (i)
below). Upon receipt by the Company of a facsimile copy of a Notice of
Conversion, the Company shall immediately send, via facsimile, a confirmation of
receipt of the Notice of Conversion to Holder which shall specify that the
Notice of Conversion has been received and the name and telephone number of a
contact person at the Company whom the Holder should contact regarding
information related to the Conversion. In the case of a dispute as to the
calculation of the Conversion Rate, the Company shall promptly issue to the
Holder the number of Shares that are not disputed and shall submit the disputed
calculations to its outside accountant via facsimile within three (3) days of
receipt of Holder's Notice of Conversion.
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<PAGE>
The Company shall cause the accountant to perform the calculations and notify
the Company and Holder of the results no later than two business days from the
time it receives the disputed calculations. Accountant's calculation shall be
deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series C Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon surrender and cancellation of
the Preferred Stock Certificate(s), if mutilated, the Company shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However, the
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Series C Preferred Stock into Class A Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The
Company shall or shall cause the Transfer Agent to, no later than the close of
business on the second (2nd) business day (the "Deadline") after receipt by the
Company or the Transfer Agent of a facsimile copy of a Notice of Conversion and
receipt by Company or the Transfer Agent of all necessary documentation duly
executed and in proper form required for conversion, including the original
Preferred Stock Certificates to be converted (or after provision for security or
indemnification in the case of lost or destroyed certificates, if required),
issue and surrender to a common courier for either overnight or (if delivery is
outside the United States) two (2) day delivery to the Holder at the address of
the Holder as shown on the stock records of the Company a certificate for the
number of shares of Class A Common Stock to which the Holder shall be entitled
as aforesaid.
(iii) No Fractional Shares. If any conversion of the
Series C Preferred Stock would create a fractional share of Class A Common Stock
or a right to acquire a fractional share of Class A Common Stock, such
fractional share shall be disregarded and the number of shares of Class A Common
Stock issuable upon conversion, in the aggregate, shall be the next higher
number of shares.
(iv) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set forth in
such Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is sent via facsimile to the Company before 11:59 p.m., New York City
time, on the Date of Conversion, and (ii) that the original Preferred Stock
Certificates representing the shares of Series C Preferred Stock to be converted
are surrendered by depositing such certificates with a common courier, for
delivery to the Company or the Transfer Agent as provided above, as soon as
practicable after the Date of Conversion. The person or persons entitled to
receive the shares of Class A Common Stock issuable upon such conversion shall
be treated for all purposes as the record Holder or Holders of such shares of
Class A Common Stock on the Date of Conversion.
(c) Automatic Conversion or Redemption. Each share of Series C
Preferred Stock outstanding on the date which is three (3) years after the Last
Closing Date or, if not a business day, the first business day thereafter
("Termination Date") automatically shall, at the option of the Company, either
(i) be converted ("Automatic Conversion") into Class A Common Stock on such date
at the Conversion Rate then in effect (calculated in accordance with the formula
in Section 5(a) above), and the Termination Date shall be deemed the Date of
Conversion with respect to such conversion for purposes of this Certificate of
Designation, or (ii) be redeemed ("Automatic Redemption") by the Company for
cash in an amount equal to the Stated Value (as defined in Section
5
<PAGE>
6(b)(i) below) of the shares of Series C Preferred Stock being redeemed. If the
Company elects to redeem, on the Termination Date, the Company shall send to the
Holders of outstanding Series C Preferred Stock notice (the "Automatic
Redemption Notice") via facsimile of its intent to effect an Automatic
Redemption of the outstanding Series C Preferred Stock. If the Company does not
send such notice to Holder on such date, an Automatic Conversion shall be deemed
to have occurred. If an Automatic Conversion occurs, the Company and the Holders
shall follow the applicable conversion procedures set forth in this Certificate
of Designation; provided, however, that the Holders are not required to send the
Notice of Conversion contemplated by Section 5(b). If the Company elects to
redeem, each Holder of outstanding Series C Preferred Stock shall send their
certificates representing the Series C Preferred Stock to the Company within
five (5) days of the date of receipt of the Automatic Redemption Notice from the
Company, and the Company shall pay the applicable redemption price to each
respective Holder within five (5) days of the receipt of such certificates. The
Company shall not be obligated to deliver the redemption price unless the
certificates representing the Series C Preferred Stock are delivered to the
Company, or, in the event one or more certificates have been lost, stolen,
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i). If
the Company elects to redeem under this Section 5(c) and the Company fails to
pay the Holders the redemption price within five (5) days of its receipt of the
certificates representing the shares of Series C Preferred Stock to be redeemed
as required by this Section 5(c), then an Automatic Conversion shall be deemed
to have occurred and, upon receipt of the Preferred Stock certificates, the
Company shall immediately deliver to the Holders the certificates representing
the number of shares of Class A Common Stock to which the Holders would have
been entitled upon Automatic Conversion.
(d) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock
Split, Stock Dividend, Etc. If, prior to the conversion of all of the Series C
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased.
(ii) Adjustment to Variable Conversion Price. If, at
any time when any shares of the Series C Preferred Stock are issued and
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Price for any conversion of the Series C Preferred Stock, then the
Variable Conversion Price shall be calculated giving appropriate effect to the
stock split, stock dividend, combination, reclassification or other similar
event for all five (5) trading days immediately preceding the Date of
Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc.
If, prior to the conversion of all Series C Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Class A Common Stock of the
Company shall be changed into the same or a different number of shares of the
same or another class or classes of stock or securities of the Company or
another entity or there is a sale of all or substantially all the Company's
assets or there is a change of control transaction not deemed to be a
liquidation pursuant to Section 4(c), then the Holders of Series C Preferred
Stock shall thereafter have the right to receive upon conversion of Series C
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Class A Common
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<PAGE>
Stock immediately theretofore issuable upon conversion, such stock, securities
and/or other assets which the Holder would have been entitled to receive in such
transaction had the Series C Preferred Stock been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Series C Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Price and of the number of
shares issuable upon conversion of the Series C Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities thereafter deliverable upon the exercise hereof. The Company shall
not effect any transaction described in this subsection 5(d)(iii) unless (a) it
first gives at least thirty (30) days prior notice of such merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event (during which time the Holder shall be entitled to convert its
shares of Series C Preferred Stock into Class A Common Stock) and (b) the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligations of the Company under this Certificate of Designation
including this subsection 5(d)(iii).
(iv) No Fractional Shares. If any adjustment under
this Section 5(d) would create a fractional share of Class A Common Stock or a
right to acquire a fractional share of Class A Common Stock, such fractional
share shall be disregarded and the number of shares of Class A Common Stock
issuable upon conversion shall be the next higher number of shares.
Section 6. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of
Conversion. If the Variable Conversion Price of the Company's Class A Common
Stock is less than the Fixed Conversion Price (as defined in Section 5(a)), at
the time of receipt of a Notice of Conversion pursuant to Section 5(b), the
Company shall have the right, in its sole discretion, to redeem in whole or in
part any Series C Preferred Stock submitted for conversion at the Redemption
Rate (as defined below), immediately prior to and in lieu of conversion
("Redemption Upon Receipt of Notice of Conversion"). If the Company elects to
redeem some, but not all, of the Series C Preferred Stock submitted for
conversion, the Company shall redeem from among the Series C Preferred Stock
submitted by the various shareholders for conversion on the applicable date, a
pro-rata amount from each such Holder so submitting Series C Preferred Stock for
conversion.
(i) Redemption Price Upon Receipt of a Notice of
Conversion. The redemption price of Series C Preferred Stock under this Section
6(a) shall be calculated as follows ("Redemption Rate"): 120% of the Stated
Value, where Stated Value shall have the same meaning as defined in Section
6(b)(i) below.
(ii) Mechanics of Redemption Upon Receipt of Notice
of Conversion. The Company shall effect each such redemption by giving notice of
its election to redeem, by facsimile, by 5:00 p.m. New York City time the next
business day following receipt of a Notice of Conversion from a Holder, and the
Company shall provide a copy of such redemption notice by overnight or two (2)
day courier, to (A) the Holder of the Series C Preferred Stock submitted for
conversion at the address and facsimile number of such Holder appearing in the
Company's register for the Series C Preferred Stock and (B) the Company's
Transfer Agent. Such redemption notice shall indicate whether the Company will
redeem all or part of the Series C Preferred Stock submitted for conversion and
the applicable redemption price.
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<PAGE>
(iii) Redemption Buy-In. If (i) subsequent to the
tender of a Notice of Conversion, but prior to its receipt of a Notice of
Redemption Upon Notice of Conversion, the Holder sells shares of Class A Common
Stock (the "Redemption Sold Shares") which such Holder anticipated receiving
upon such conversion, (ii) the Company effects a Redemption Upon Receipt of
Notice of Conversion with respect to such conversion, and (iii) the Holder
purchases (in an open market transaction), no later than the close of trading on
the trading day following its receipt of the Notice of Redemption Upon Notice of
Conversion, shares of Class A Common Stock to make delivery upon the sale of the
Redemption Sold Shares (a "Redemption Buy-In"), the Company shall pay such
Holder (in addition to the applicable Redemption Rate) the amount by which (x)
such Holder's total purchase price (including brokerage commission, if any) for
the shares of Class A Common Stock purchased in the Redemption Buy-In exceeds
(y) the net proceeds received by such Holder from the sale of the Redemption
Sold Shares. For example, if a Holder purchases shares of Class A Common Stock
having a total purchase price of $11,000 to cover a Redemption Buy-In with
respect to shares of Class A Common Stock sold for $10,000, the Company will be
required to pay such Holder $1,000. A Holder shall provide the Company written
notification (and trading records, if reasonably requested by the Company)
indicating any amounts payable to Holder pursuant to this Section.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date, the
Company shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series C Preferred
Stock; provided (i) the Company shall first provide thirty (30) days advance
written notice as provided in subparagraph 6(b)(ii) below (which can be given
beginning thirty (30) days prior to the date which is twelve (12) months and one
(1) day after the Last Closing Date), and (ii) that the Company shall only be
entitled to redeem Series C Preferred Stock having an aggregate Stated Value (as
defined below) of at least Three Hundred Seventy-five Thousand Dollars
($375,000). If the Company elects to redeem some, but not all, of the Series C
Preferred Stock, the Company shall redeem a pro-rata amount from each Holder of
the Series C Preferred Stock.
(i) Redemption Price At Company's Election. The
"Redemption Price At Company's Election" shall be calculated as a percentage of
Stated Value, as that term is defined below, of the Series C Preferred Stock
redeemed pursuant to this Section 6(b), which percentage shall vary depending on
the date of Redemption at Company's Election (as defined below), and shall be
determined as follows:
<TABLE>
<CAPTION>
Date of Notice of Redemption at Company's Election % of Stated Value
-------------------------------------------------- -----------------
<S> <C>
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and 1 day to 36 months following Last Closing Date 115%
</TABLE>
For purposes hereof, "Stated Value" shall mean the Original Series C
Issue Price (as defined in Section 1) of the shares of Series C Preferred Stock
being redeemed pursuant to this Section 6(b), together with the accreted but
unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election.
The Company shall effect each such redemption by giving at least thirty (30)
days prior written notice ("Notice of Redemption At Company's Election") to (A)
the Holders of the Series C Preferred Stock selected for
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<PAGE>
redemption, at the address and facsimile number of such Holder appearing in the
Company's Series C Preferred Stock register and (B) the Transfer Agent, which
Notice of Redemption At Company's Election shall be deemed to have been
delivered three (3) business days after the Company's mailing (by overnight or
two (2) day courier, with a copy by facsimile) of such Notice of Redemption At
Company's Election. Such Notice of Redemption At Company's Election shall
indicate (i) the number of shares of Series C Preferred Stock that have been
selected for redemption, (ii) the date which such redemption is to become
effective (the "Date of Redemption At Company's Election") and (iii) the
applicable Redemption Price At Company's Election, as defined in subsection
(b)(i) above. Notwithstanding the above, Holder may convert into Class A Common
Stock pursuant to Section 5, prior to the close of business on the Date of
Redemption at Company's Election, any Series C Preferred Stock which it is
otherwise entitled to convert, including Series C Preferred Stock that has been
selected for redemption at the Company's election pursuant to this subsection
6(b); provided, however, that the Company shall still be entitled to exercise
its right to redeem upon receipt of a Notice of Conversion pursuant to Section
6(a).
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution; or
(ii) immediately available credit facilities, in the
full amount of the redemption price with a bank or similar financial
institution; or
(iii) an agreement with a standby underwriter willing
to purchase from the Company a sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not converted prior to
redemption; or
(iv) a combination of the items set forth in (i),
(ii) and (iii) above, aggregating the full amount of the redemption price.
If the foregoing conditions of this Section 6(c) are satisfied and the
Company complies with Section 6(d) hereof, then any shares of Series C Preferred
Stock called for by a Redemption at Company's Election shall cease to be
outstanding for all purposes hereunder (including the right to convert or to
accrete additional Premium or to exercise any other right or privilege
hereunder) on the Date of Redemption at Company's Election and shall instead
represent the right to receive the Redemption Price at Company's Election
without interest from and after the Date of Redemption at Company's Election.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being
redeemed under this Section 6 shall send their Series C Preferred Stock
Certificates so redeemed to the Company or its Transfer Agent, and the Company
shall pay the applicable redemption price to that Holder within five (5)
business days of the Date of Redemption at Company's Election. The Company shall
not be obligated to deliver the redemption price unless the Preferred Stock
Certificates so redeemed are delivered to the Company or its Transfer Agent, or,
in the event one (1) or more certificates have been lost, stolen, mutilated or
destroyed, unless the Holder has complied with Section 5(b)(i).
9
<PAGE>
(ii) If the Company elects to redeem pursuant to
Section 6(a) hereof, and the Company fails to pay Holder the redemption price
within the time frame as required by this Section 6(d), then the Company shall
issue shares of Class A Common Stock to any such Holder who has submitted a
Notice of Conversion in compliance with Section 5(b) hereof. The shares to be
issued to Holder pursuant to this provision shall be the number of shares
determined using a Conversion Price (as defined in Section 5 hereof) that equals
the lesser of (i) the Conversion Price on the date Holder sends its Notice of
Conversion to Company or Transfer Agent via facsimile or (ii) the Conversion
Price on the date the Transfer Agent issues Class A Common Stock pursuant to
this Section 6(d)(ii).
(e) Blackout Period. Notwithstanding the foregoing, the
Company may not either send out a redemption notice or effect a redemption
pursuant to Section 6(b) above during a Blackout Period (defined as a period
during which the Company's officers or directors would be prohibited from buying
or selling stock pursuant to the Securities Exchange Act of 1934, as amended,
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout
Period; provided, however, that no redemption shall be effected until at least
ten (10) days after the Company shall have given the Holder written notice that
the Blackout Period has been lifted.
Section 7. Voting Rights. The Holders of the Series C Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the
General Corporation Law of the State of Delaware ("Delaware Law"), and no Holder
of Series C Preferred Stock shall vote or otherwise participate in any
proceeding in which actions shall be taken by the Company or the shareholders
thereof or be entitled to notification as to any meeting of the shareholders.
Notwithstanding the above, the Company shall provide Holder with
notification of any meeting of the shareholders regarding any major corporate
events affecting the Company. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under Delaware Law the vote of the Holders of the
Series C Preferred Stock, voting separately as a class, is required to authorize
a given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series C Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series C Preferred Stock (except as otherwise may be
required under Delaware Law) shall constitute the approval of such action by the
class. To the extent that under Delaware Law the Holders of the Series C
Preferred Stock are entitled to vote on a matter with holders of Class A Common
Stock, voting together as one (1) class, each share of Series C Preferred Stock
shall be entitled to a number of votes equal to the number of shares of Class A
Common Stock
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<PAGE>
into which it is then convertible using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series C Preferred Stock also shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's
by-laws and applicable statutes.
Section 8. Protective Provision. So long as shares of Series C
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by Delaware Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series C Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of
the Series C Preferred Stock or any securities so as to affect adversely the
Series C Preferred Stock;
(b) create any new class or series of stock having a
preference over or on parity with the Series C Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series C Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series C Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series C Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series C Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series C Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series C Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the holding requirements set forth in Section 5(a) hereof), or
continue to hold their shares of Series C Preferred Stock, as amended.
Section 9. Status of Converted or Redeemed Stock. In the event any
shares of Series C Preferred Stock shall be converted or redeemed pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series C
Preferred Stock.
Section 10. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series C Preferred
Stock.
Section 11. Authorization and Reservation of Shares of Common Stock.
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<PAGE>
(a) Authorized and Reserved Amount. The Company shall have
authorized and reserved and keep available for issuance one million seven
hundred fifty thousand (1,750,000) shares of Class A Common Stock (the "Reserved
Amount") solely for the purpose of effecting the conversion of the Series C
Preferred Stock, and exercise of the warrants to acquire Class A Common Stock
(the "Common Warrants") issued or to be issued to the Holders. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock a sufficient number of shares of Class A Common
Stock to provide for the full conversion of all outstanding Series C Preferred
Stock, and issuance of the shares of Class A Common Stock in connection
therewith and the full exercise of the Common Warrants and issuance of the
shares of Class A Common Stock in connection therewith.
(b) Increases to Reserved Amount. Without limiting any other
provision of this Section 11, if the Reserved Amount for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Reservation Trigger Date") shall be less than one hundred twenty-five percent
(125%) of the number of shares of Class A Common Stock issuable upon conversion
of this Series C Preferred Stock, and exercise of the Common Warrants on such
trading days (a "Share Authorization Failure"), the Company shall immediately
notify all Holders of such occurrence and shall take action as soon as possible,
but in any event within sixty (60) days after a Reservation Trigger Date
(including, if necessary, seeking shareholder approval to authorize the issuance
of additional shares of Class A Common Stock) to increase the Reserved Amount to
one hundred fifty percent (150%) of the number of shares of Class A Common Stock
then issuable upon conversion of the Series C Preferred Stock, and exercise of
the Common Warrants.
(c) Reduction of Reserved Amount Under Certain Circumstances.
Prior to complete conversion of all Series C Preferred Stock the Company shall
not reduce the number of shares required to be reserved for issuance under this
Section 11 without the written consent of all Holders except for a reduction
proportionate to a reverse stock split effected for a business purpose other
than affecting the obligations of Holder under this Section 11, which reverse
stock split affects all shares of Class A Common Stock equally. Following
complete conversion of all the Series C Preferred Stock, the Company may, with
fifteen (15) days prior written notice to Holder, reduce the Reserved Amount to
one hundred twenty-five percent (125%) of the number of shares of Class A Common
Stock issuable upon the full exercise of the Common Warrants; provided, however,
that the Reserved Amount shall continue to be subject to increase pursuant to
Section 11 hereof.
(d) Allocation of Reserved Amount. Each increase to the
Reserved Amount shall be allocated pro rata among the Holders based on the
number of Series C Preferred Stock, and Common Warrants held by each Holder at
the time of the establishment of or increase in the Reserved Amount. In the
event a Holder shall sell or otherwise transfer any of such Holder's Series C
Preferred Stock, or Common Warrants, each transferee shall be allocated a pro
rata portion of such transferor's Reserved Amount. Any portion of the Reserved
Amount which remains allocated to any person or entity which does not hold any
Series C Preferred Stock shall be allocated to the remaining Holders, pro rata
based on the number of Series C Preferred Stock, and Common Warrants then held
by such Holders.
Section 12. Failure to Satisfy Conversions.
(a) Conversion Failure Payments. If, at any time, (x) a Holder
submits a Notice of Conversion (or is deemed to submit such notice pursuant to
Section 5(d) hereof), and the Company fails for any reason to deliver, on or
prior to the expiration of the Deadline ("Delivery
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<PAGE>
Period") for such conversion, such number of shares of Class A Common Stock to
which such Converting Holder is entitled upon such conversion, or (y) the
Company provides notice to Holder at any time of its intention not to issue
shares of Class A Common Stock upon exercise by Holder of its conversion rights
in accordance with the terms of this Certificate of Designation (each of (x) and
(y) being a "Conversion Failure"), then the Company shall pay to such Holder
damages in an amount equal to the lower of:
(i) "Damages Amount" X "D" X .005, and
(ii) the highest interest rate permitted by
applicable law, where:
"D" means the number of days beginning the date of the Conversion
Failure through and including the Cure Date with respect to such Conversion
Failure;
"Damages Amount" means the Original Series C Issue Price for each share
of Series C Preferred Stock subject to conversion plus all accrued and unpaid
interest thereon as of the first day of the Conversion Failure.
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
shares of Series C Preferred Stock submitted for conversion and (ii) with
respect to a Conversion Failure described in clause (y) of its definition, the
date the Company undertakes in writing to issue Class A Common Stock in
satisfaction of all conversions of Series C Preferred Stock in accordance with
the terms of this Certificate of Designation.
The payments to which a Holder shall be entitled pursuant to this
Section are referred to herein as "Conversion Failure Payments." The parties
agree that the damages caused by a breach hereof would be difficult or
impossible to estimate accurately. A Holder may elect to receive accrued
Conversion Failure Payments in cash or to convert all or any portion of such
accrued Conversion Failure Payments, at any time, into Class A Common Stock at
the lowest Conversion Price in effect during the period beginning on the date of
the Conversion Failure through the Cure Date for such Conversion Failure. In the
event a Holder elects to receive any Conversion Failure Payments in cash, it
shall so notify the Company in writing no later than three (3) business days
after the Deadline and failure to so notify the Company, shall entitle the
Company, in its sole discretion, to elect to make such Conversion Failure
Payments in cash, Class A Common Stock or some combination of the two. In the
event a Holder elects to convert all or any portion of the Conversion Failure
Payments, such Holder shall indicate on a Notice of Conversion such portion of
the Conversion Failure Payments which such Holder elects to so convert in
accordance with this Section 12(a) and such conversion shall otherwise be
effected in accordance with provisions of Section 5.
(b) Buy-In Cure. Unless a Conversion Failure described in
clause (y) of Section 12(a) hereof has occurred with respect to such a Holder,
if (i) the Company fails for any reason to deliver during the Delivery Period
shares of Class A Common Stock to a Holder upon a conversion of the Series C
Preferred Stock and (ii) after the applicable Delivery Period with respect to
such conversion, a Holder purchases (in an open market transaction or otherwise)
shares of Class A Common Stock to make delivery upon a sale by a Holder of the
shares of Class A Common Stock (the "Sold Shares") which such Holder anticipated
receiving upon such conversion (a "Buy-In"), the Company shall pay such Holder
(in addition to any other remedies available to Holder) the amount by which (x)
such Holder's total purchase price (including brokerage commission, if any) for
the shares of Class A Common Stock so purchased exceeds (y) the net proceeds
received by such Holder
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<PAGE>
from the sale of the Sold Shares. For example, if a Holder purchases shares of
Class A Common Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to shares of Class A Common Stock sold for $10,000, the Company
will be required to pay such Holder $1,000. A Holder shall provide the Company
written notification indicating any amounts payable to Holder pursuant to this
Section 12.
(c) Adjustment to Conversion Price. If a Holder has not
received certificates for all shares of Class A Common Stock within five (5)
business days following the expiration of the Delivery Period with respect to a
conversion of any portion of any of such Holder's Series C Preferred Stock for
any reason, then the Conversion Price for the affected Series C Preferred Stock
shall thereafter be the lesser of (i) the Fixed Conversion Price on the
Conversion Date specified in the Notice of Conversion which resulted in the
Conversion Failure and (ii) the lowest Conversion Price in effect during the
period beginning on, and including, such Conversion Date through and including
the Cure Date. If there shall occur a Conversion Failure of the type described
in clause (y) of Section 12(a), then the Fixed Conversion Price with respect to
any conversion thereafter shall be the lowest Conversion Price in effect at any
time during the period beginning on, and including, the date of the occurrence
of such Conversion Failure through and including the Cure Date. The Conversion
Price shall thereafter be subject to further adjustment for any events described
in Section 5(d).
Section 13. Events of Default.
(a) Holder's Option to Demand Prepayment. Upon the occurrence
of an Event of Default (as herein defined), each Holder shall have the right to
elect at any time and from time to time prior to the cure by Borrower of such
Event of Default to have all or any portion of such Holder's then outstanding
Series C Preferred Stock prepaid by the Company for an amount equal to the
Holder Demand Prepayment Amount (as herein defined).
(i) The right of a Holder to elect prepayment shall
be exercisable upon the occurrence of an Event of Default by such Holder in its
sole discretion by delivery of a Demand Prepayment Notice (as herein defined) in
accordance with the procedures set forth in this Section 13. Notwithstanding the
exercise of such right, the Holder shall be entitled to exercise all other
rights and remedies available under the provisions of this Certificate of
Designation and at law or in equity.
(ii) A Holder shall effect each demand for prepayment
under this Section 13 by giving at least two (2) business days prior to written
notice (the "Demand Prepayment Notice") of the date which such prepayment is to
become effective (the "Effective Date of Demand of Prepayment"), the Series C
Preferred Stock selected for prepayment and the Holder Demand Prepayment Amount
to the Borrower at the address and facsimile number provided in the stock
records of the Company, which Demand Prepayment Notice shall be deemed to have
been delivered on the business day after the date of transmission of Holder's
facsimile (with a copy sent by overnight courier to the Borrower) of such
notice.
(iii) The Holder Demand Prepayment Amount shall be
paid to a Holder whose Series C Preferred Stock are being prepaid within one (1)
business day following the Effective Date of Demand of Prepayment; provided,
however, that the Borrower shall not be obligated to deliver any portion of the
Holder Demand Prepayment Amount until one (1) business day following either the
date on which the Series C Preferred Stock being prepaid are delivered to the
office of the Borrower or the Transfer Agent, or the date on which the Holder
notifies the Borrower or the
14
<PAGE>
Transfer Agent that such Series C Preferred Stock have been lost, stolen or
destroyed and delivers the documentation required in accordance with Section
5(b)(i) hereof.
(b) Holder Demand Prepayment Amount. The "Holder Demand
Prepayment Amount" means the greater of: (a) 1.3 times the Stated Value of the
Series C Preferred Stock for which demand is being made, plus all accrued and
unpaid interest thereon and accrued and unpaid Conversion Failure Payments (if
any) through the date of prepayment and (b) the product of (1) the highest price
at which the Class A Common Stock is traded on the date of the Event of Default
(or the most recent highest closing bid price if the Class A Common Stock is not
traded on such date) divided by the Conversion Price in effect as of the date of
the Event of Default, and (2) the sum of the Stated Value and all accrued and
unpaid Conversion Failure Payments (if any) through the date of prepayment.
(c) Events of Default. An "Event of Default" means any one of
the following:
(i) a Conversion Failure described in Section 12(a)
hereof;
(ii) a Share Authorization Failure described in
Section 11(b) hereof, if such Share Authorization Failure continues uncured for
ninety (90) days after the Reservation Trigger Date;
(iii) the Company fails, and such failure continues
uncured for three (3) business days after the Company has been notified thereof
in writing by a Holder, to satisfy the share reservation requirements of Section
11 hereof;
(iv) the Company fails to maintain an effective
registration statement as required by Section 2, Section 3 and Section 6 of the
Registration Rights Agreement, between the Company and the Holder(s) (the
"Registration Rights Agreement") except where such failure lasts no longer than
three (3) consecutive trading days and is caused solely by failure of the
Securities and Exchange Commission to timely review the customary submission of
or respond to the customary requests of the Company;
(v) for three (3) consecutive trading days or for an
aggregate of ten (10) trading days in any nine (9) month period, the Class A
Common Stock (including any of the shares of Class A Common Stock issuable upon
conversion of the Series C Preferred Stock, and exercise of the Common Warrants)
is (i) suspended from trading on any of NASDAQ SmallCap, NMS, NYSE, AMEX or the
OTC Bulletin Board, or (ii) is not qualified for trading on at least one of
NASDAQ SmallCap, NMS, NYSE, AMEX or the OTC Bulletin Board;
(vi) the Company fails, and such failure continues
uncured for three (3) business days after the Company has been notified thereof
in writing by a Holder, to remove any restrictive legend on any certificate for
any shares of Class A Common Stock issued to a Holder upon conversion of any
Series C Preferred Stock, or exercise of any Common Warrant as and when required
by this Certificate of Designation, the Common Warrants, the Subscription
Agreement, between the Company and the Holder(s) (the "Subscription Agreement")
or the Registration Rights Agreement;
(vii) the Company breaches, and such breach continues
uncured for three (3) business days after the Company has been notified thereof
in writing by a Holder, any significant
15
<PAGE>
covenant or other material term or condition of this Certificate of Designation,
the Subscription Agreement, the Common Warrants or the Registration Rights
Agreement;
(viii) any representation or warranty of the Company
made herein or in any agreement, statement or certificate given in writing
pursuant hereto or in connection herewith (including, without limitation, the
Subscription Agreement and Registration Rights Agreement), shall be false or
misleading in any material respect when made;
(ix) the Company or any subsidiary of the Company
shall make an assignment for the benefit of its creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such receiver or trustee shall otherwise be
appointed; or
(x) bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Company or any subsidiary of the Company (and such proceedings shall continue
unstayed for thirty (30) days).
(d) Failure to Pay Damages Amount. If the Company fails to pay
the Holder Demand Prepayment Amount within five (5) business days of its receipt
of a Demand Prepayment Notice, then such Holder shall have the right, at any
time and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 5) all or any portion of the Holder Demand
Prepayment Amount, into shares of Class A Common Stock at the then current
Conversion Price, provided that if the Company has not delivered the full number
of shares of Class A Common Stock issuable upon such conversion within five (5)
business days after the Company receives written notice of such conversion, the
Conversion Price with respect to such Holder Demand Prepayment Amount shall
thereafter be deemed to be the at the lowest Conversion Price in effect during
the period beginning on the date of the Event of Default through the date on
which the Company delivers to the Holder the full number of freely tradable
shares of Class A Common Stock issuable upon such conversion. In the event the
Company is not able to pay all amounts due and payable with respect to all
Series C Preferred Stock subject to Holder Demand Prepayment Notices, the
Company shall pay the Holders such amounts pro rata, based on the total amounts
payable to such Holder relative to the total amounts payable to all Holders.
Signed on February 6, 1998
/s/Donald E. Lawson
-----------------------------------
Donald E. Lawson, President
16
Exhibit 4.7
Class G Warrant
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE DOCUMENTS AS
EXHIBIT F.
Warrant to Purchase
_______ shares
Class G Warrant to Purchase Common Stock
of
LIGHTPATH TECHNOLOGIES, INC.
THIS CERTIFIES that ________________ or any subsequent holder hereof
("Holder"), has the right to purchase from LIGHTPATH TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), up to _______________ fully paid and
nonassessable shares of the Company's Class A common stock, $.01 par value per
share ("Common Stock"), subject to adjustment as provided herein, at a price
equal to the Exercise Price as defined in Section 3 below, at any time beginning
on the Date of Issuance (defined below) and ending at 5:00 p.m., New York, New
York time, on February 6, 2001 (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common
Stock of LightPath Technologies, Inc. (this "Warrant") is issued and all rights
hereunder shall be held subject to all of the conditions, limitations and
provisions set forth herein.
1. Date of Issuance.
-----------------
This Warrant shall be deemed to be issued on February 6, 1998 ("Date of
Issuance").
2. Exercise.
---------
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby upon surrender of this Warrant, with the Exercise Form attached hereto as
Exhibit A (the "Exercise Form") duly completed and executed, together with the
full Exercise Price (as defined below) for each share of Common Stock as to
which this Warrant is exercised, at the office of the Company, 6820 Academy
Parkway East NE, Albuquerque, New Mexico 87109; Attention: President, Telephone
No. (505) 342-1100, Telecopy No. (505) 342-1111, or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form sent to the Company and its Transfer Agent by
facsimile (such surrender and payment of the Exercise Price hereinafter called
the "Exercise of this Warrant").
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<PAGE>
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
----------------------------------
The Exercise Price shall equal $ 6.675 per share ("Exercise Price").
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes of
this Section 3(ii), the "Market Price" shall be defined as the average
closing bid price of the Common Stock for the five (5) trading days
prior to the Date of Exercise of this Warrant (the "Average Closing
Price"), as reported by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") Small Cap Market, or if the
Common Stock is not traded on the Nasdaq Small Cap Market, the Average
Closing Price in any other over-the-counter market; provided, however,
that if the Common Stock is listed on a stock exchange, the Market
Price shall be the Average Closing Price on such exchange for the five
(5) trading days prior to the date of exercise of the Warrants. If the
Common Stock is/was not traded during the five (5) trading days prior
to the Date of Exercise, then the closing price for the last publicly
traded day shall be deemed to be the closing price for any and all (if
applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
2
<PAGE>
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such issuance (x) be immediately transferable in the United States free of any
restrictive legend, including without limitation under Rule 144; (y) be then
registered pursuant to an effective registration statement filed pursuant to
that certain Registration Rights Agreement dated on or about February 6, 1998 by
and among the Company and certain investors; or (z) otherwise be registered
under the Securities Act of 1933, as amended.
4. Transfer and Registration.
--------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about February 6, 1998 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
--------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding year) then, in
any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be
3
<PAGE>
changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
assets (a "Corporate Change"), then this Warrant shall be exerciseable into such
class and type of securities or other assets as Holder would have received had
Holder exercised this Warrant immediately prior to such Corporate Change;
provided, however, that Company may not affect any Corporate Change unless it
first shall have given thirty (30) days notice to Holder hereof of any Corporate
Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 5 shall have the net
effect of increasing the Exercise Price. The number of shares of Common Stock
subject hereto shall increase proportionately with each decrease in the Exercise
Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
---------------------
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
----------------------
The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued, fully
paid, nonassessable and not subject to preemptive rights, rights of first
refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
-------------------------
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with
reasonably satisfactory evidence that the conditions of (a) above regarding
registration or exemption have been satisfied, Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
(10) days, and shall deliver to the assignee(s) designated by Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of shares.
4
<PAGE>
9. Benefits of this Warrant.
-------------------------
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
10. Applicable Law.
---------------
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Delaware,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
----------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
------------------
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to Attention:
President, 6820 Academy Parkway East NE, Albuquerque, New Mexico 87109,
Telephone No. (505) 342-1100, Telecopy No. (505) 342-1111. Notices or demands
pursuant to this Warrant to be given or made by the Company to or on Holder
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, to the address of
Holder set forth in the Company's records, until another address is designated
in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of February, 1998.
LIGHTPATH TECHNOLOGIES, INC.
By:
------------------------------
Donald E. Lawson, President
5
<PAGE>
EXHIBIT A
EXERCISE FORM FOR CLASS G WARRANT
TO: LIGHTPATH TECHNOLOGIES, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Class A Common Stock (the "Common Stock") of
LIGHTPATH TECHNOLOGIES, INC., a Delaware corporation (the "Company"), evidenced
by the attached warrant (the "Warrant"), and herewith makes payment of the
exercise price with respect to such shares in full, all in accordance with the
conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
- ------------------------------------------------------------------------
Signature
- -----------------------------------------------------------------------
Print Name
- ------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- ------------------------------------------------------------------------
6
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Class A Common Stock of
LIGHTPATH TECHNOLOGIES, INC., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated:
------------------------------
Signature
Fill in for new registration of Warrant:
- -----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
7
Exhibit 4.8
Form of Class H Warrant
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE DOCUMENTS AS
EXHIBIT F.
Warrant to Purchase
___________ shares
Class H Warrant to Purchase Common Stock
of
LIGHTPATH TECHNOLOGIES, INC.
THIS CERTIFIES that ________________or any subsequent ("Holder")
hereof, has the right to purchase from LIGHTPATH TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), not more than fully paid and nonassessable shares
of the Company's Class A Common Stock, $.01 par value ("Common Stock"), at a
price equal to the Exercise Price as defined in Section 3 below, subject to
adjustment as provided herein, at any time on or before 5:00 p.m., Atlanta,
Georgia time, on February 6, 2003.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
-----------------
This Warrant shall be deemed to be issued on February 6,1998 ("Date of
Issuance").
2. Exercise.
---------
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto duly completed and
executed, together with the full Exercise Price (as defined in Section 3) for
each share of Common Stock as to which this Warrant is exercised, at the office
of the Company, LightPath Technologies, Inc., 6820 Academy Parkway East NE,
Albuquerque, New Mexico 87109, Attention: President, Telephone No. (505)
342-1100, Telecopy No. (505) 342-1111, or at such other office or agency as the
Company may designate in writing, by overnight mail, with an advance copy of the
Exercise Form attached as Exhibit A ("Exercise Form") sent by facsimile to the
Company and its Transfer Agent (such surrender and payment of the Exercise Price
hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company and its Transfer Agent, provided that
the original Warrant and Exercise Form are received by the Company within five
(5) business days thereafter. The original Warrant and Exercise Form must be
received within five (5) business days of the Date of Exercise, or the exercise
may, at the Company's option, be considered void. Alternatively, the Date of
Exercise
1
<PAGE>
shall be defined as the date the original Exercise Form is received by the
Company, if Holder has not sent advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full, the
Holder shall be entitled to receive a new Warrant or Warrants (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant
in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such shares of Common Stock. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company.
3. Payment of Warrant Exercise Price.
----------------------------------
The Exercise Price ("Exercise Price") shall equal $6.675 ("Initial
Exercise Price") or, if the Date of Exercise is more than one (1) year after the
Date of Issuance, the lesser of (i) the Initial Exercise Price or (ii) the
"Lowest Reset Price", as that term is defined below. The Company shall calculate
a "Reset Price" on each anniversary date of the Date of Issuance which shall
equal one hundred percent (100%) of the average Closing Price of the Company's
Common Stock for the five (5) trading days ending on such anniversary date of
the Date of Issuance. The "Lowest Reset Price" shall equal the lowest Reset
Price determined on an anniversary date of the Date of Issuance preceding the
Date of Exercise, taking into account, as appropriate, any adjustments made
pursuant to Section 5 hereof.
For purposes hereof, the term "Closing Price" shall mean the closing
bid price on the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") Small Cap Market or OTC Bulletin Board, or if no longer traded
on the Nasdaq Small Cap Market or OTC Bulletin Board, the closing price on the
principal national securities exchange or the over-the-counter system on which
the Common Stock is so traded and, if not available, the mean of the high and
low prices on the principal national securities exchange or the National
Securities Exchange on which the Common Stock is so traded.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: surrender of this Warrant at the principal
office of the Company together with notice of cashless election, in which event
the Company shall issue Holder a number of shares of Common Stock computed using
the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes of
this Section 3(ii), the "Market Price" shall be defined as the average
closing price of the Common Stock for the five (5) trading days prior
to the Date of Exercise of this Warrant (the "Average Closing Price"),
as reported by Nasdaq or if the Common Stock is not traded on Nasdaq,
the Average Closing Price in the over-the-counter market; provided,
however, that if the Common Stock is listed on a stock exchange, the
Market Price shall be the Average Closing Price on such exchange. If
the Common Stock is/was not traded during the five (5) trading days
prior to the Date of Exercise, then the closing price for the last
publicly traded day shall be deemed to be the closing price for any and
all (if applicable) days during such five (5) trading day period.
2
<PAGE>
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
4. Transfer and Registration.
--------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and the Holder of this Warrant shall be entitled to receive
a new Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitute "Registrable Securities" under that certain
Registration Rights Agreement dated on or about February 6, 1998 by and between
the Company and Swartz Investments, LLC and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
--------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been Exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute to
Holders of Common Stock cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or preceding year) then, in any such case, the
Holder of this Warrant shall be entitled to receive, upon exercise of this
Warrant, with respect to each share of Common Stock issuable upon such Exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which such Holder would have been entitled to receive with respect to each such
share of Common Stock as a result of the happening of such event had this
Warrant been Exercised immediately prior to the record date or other date fixing
shareholders to be affected by such event (the "Determination Date") or, in lieu
thereof, if the Board of Directors of the Company should so determine at the
time of such distribution, a reduced Exercise Price determined by multiplying
the Exercise Price on the Determination Date by a fraction, the numerator of
which is the result of such Exercise Price reduced by the value of such
distribution applicable to one share of Common Stock (such value to be
determined by the Board in its discretion) and the denominator of which is such
Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the
3
<PAGE>
Company shall be changed into the same or a different number of shares of the
same or another class or classes of stock or securities or other assets of the
Company or another entity or there is a sale of all or substantially all the
Company's assets (a "Corporate Change"), then this Warrant shall be assumed by
the acquiring entity or any affiliate thereof and thereafter this Warrant shall
be exerciseable into such class and type of securities or other assets as the
Holder would have received had the Holder exercised this Warrant immediately
prior to such Corporate Change; provided, however, that Company may not affect
any Corporate Change unless it first shall have given thirty (30) days notice to
the Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, as it may be reset from time to time, until the occurrence of
an event stated in subsection (a), (b) or (c) of this Section 5 and thereafter
shall mean said price as adjusted from time to time in accordance with the
provisions of said subsection. No such adjustment under this Section 5 shall be
made unless such adjustment would change the Exercise Price at the time by $.01
or more; provided, however, that all adjustments not so made shall be deferred
and made when the aggregate thereof would change the Exercise Price at the time
by $.01 or more. No adjustment made pursuant to any provision of this Section 5
shall have the effect of increasing the total consideration payable upon
Exercise of this Warrant in respect of all the Common Stock as to which this
Warrant may be exercised. Notwithstanding anything to the contrary contained
herein, the Exercise Price shall not be reduced to an amount below the par value
of the Common Stock.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
the Holder of this Warrant shall, upon Exercise of this Warrant, become entitled
to receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
---------------------
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, the Holder hereof may purchase only a whole number of shares of Common
Stock. If, on Exercise of this Warrant, the Holder hereof would be entitled to a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion shall be the next higher number
of shares.
7. Reservation of Shares.
----------------------
The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for
Exercise and payment of the Exercise Price of this Warrant. The Company
covenants and agrees that upon Exercise of this Warrant, all shares of Common
Stock issuable upon such Exercise shall be duly and validly issued, fully paid,
nonassessable and not subject to preemptive rights, rights of first refusal or
similar rights of any person or entity.
8. Restrictions on Transfer.
-------------------------
(a) Registration or Exemption Required. This Warrant and the
Common Stock issuable on Exercise hereof have not been registered under the
Securities Act of 1933, as amended, and may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of in the absence of registration or
the availability of an exemption from registration under said Act. All shares of
Common Stock issued upon Exercise of this Warrant shall bear an appropriate
legend to such effect, if applicable.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of
4
<PAGE>
warrants to be assigned to each assignee. The Company shall effect the
assignment within ten days, and shall deliver to the assignee(s) designated by
Holder a Warrant or Warrants of like tenor and terms for the appropriate number
of shares.
(c) Investment Intent. The Warrant and Common Stock issuable
upon conversion are intended to be held for investment purposes and not with an
intent to distribution, as defined in the Act.
9. Benefits of this Warrant.
-------------------------
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and the Holder of this Warrant any legal or
equitable right, remedy or claim under this Warrant and this Warrant shall be
for the sole and exclusive benefit of the Company and the Holder of this
Warrant.
10. Applicable Law.
---------------
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Georgia,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
----------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
------------------
Notices or demands pursuant to this Warrant to be given or made by the Holder of
this Warrant to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company,
LightPath Technologies, Inc., 6820 Academy Parkway East NE, Albuquerque, New
Mexico 87109, Attention: President, Telephone No. (505) 342-1100, Telecopy No.
(505) 342-1111. Notices or demands pursuant to this Warrant to be given or made
by the Company to or on the Holder of this Warrant shall be sufficiently given
or made if sent by certified or registered mail, return receipt requested,
postage prepaid, and addressed, Attn: Holder, address: c/o Swartz Investments,
LLC, 200 Roswell Summit, Suite 285, 1080 Holcomb Bridge Road, Roswell, Georgia
30076, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
____ day of February, 1998.
LIGHTPATH TECHNOLOGIES, INC.
By:
-----------------------
Print Name:
-----------------------
Title:
-----------------------
5
<PAGE>
EXHIBIT A
EXERCISE FORM FOR CLASS H WARRANT
TO: ___________________.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of LIGHTPATH TECHNOLOGIES, INC., a
Delaware corporation, evidenced by the attached Class H Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any of such Common Stock, except in accordance with the provisions of
Section 8 of the Warrant, and consents that the following legend may be affixed
to the stock certificates for the Common Stock hereby subscribed for, if such
legend is applicable:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any
provincial or state securities law, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of until either (i) a
registration statement under the Securities Act and applicable
provincial or state securities laws shall have become effective with
regard thereto, or (ii) an exemption from registration under the
Securities Act or applicable provincial or state securities laws is
available in connection with such offer, sale or transfer."
The undersigned requests that stock certificates for such shares be
issued, and a warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Registered Holder and delivered to
the undersigned at the address set forth below:
Dated:
- ------------------------------------------------------------------------
Signature of Registered Holder
- ------------------------------------------------------------------------
Name of Registered Holder (Print)
- ------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
6
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of LIGHTPATH TECHNOLOGIES, INC.
evidenced by the attached Class H Warrant and does hereby irrevocably constitute
and appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated:
------------------------------
Signature
Fill in for new Registration of Warrant:
- -----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
Exhibit 5.1
Opinion and Consent of Squire, Sanders, & Dempsy LLP
March 12, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: LightPath Technologies, Inc.
Dear Ladies and Gentlemen:
This firm is counsel for LightPath Technologies, Inc., a Delaware
corporation (the "Company"). As such, we are familiar with the Certificate of
Incorporation, as amended, and Bylaws of the Company, as well as resolutions
adopted by its Board of Directors authorizing the issuance and sale of 1,750,000
shares of the Company's $.01 par value Common Stock (the "Common Stock"),
issuable upon conversion of outstanding shares of Series C Preferred Stock and
upon exercise of outstanding Class G Warrants and Class H Warrants and 8,490
shares of Class A Common Stock (collectively referred to as the "Securities"),
which are the subject of a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended. We have acted as
counsel for the Company with respect to certain matters in connection with the
sale of the Securities and in preparation of the required filings with the
Securities and Exchange Commission. In addition, we have examined such documents
and undertaken such further inquiry as we consider necessary for rendering the
opinions hereinafter set forth below:
Based upon the foregoing, it is our opinion that the Securities, when
issued will be validly issued, fully paid and nonassessable.
We acknowledge that we are referred to under the heading "Legal
Matters" in the Prospectus which is part of the Registration Statement and we
hereby consent to the use of our name in such Registration Statement. We further
consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and with the state regulatory agencies in such states as may require
such filing in connection with the registration of the Securities for offer and
sale in such states.
Respectfully yours,
/s/ SQUIRE, SANDERS & DEMPSEY L.L.P.
SQUIRE, SANDERS & DEMPSEY L.L.P.
Exhibit 23.1
Consent of KPMG Peat Marwick LLP, Independent Auditors
The Board of Directors
LightPath Technologies, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the headings "Incorporation of Certain Documents by
Reference" and "Experts" in the prospectus.
Our report dated August 1, 1997, contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and is dependent
on external sources of capital, which raise substantial doubt about its ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Albuquerque, New Mexico
March 11, 1998
Exhibit 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of LightPath Technologies, Inc. for the
registration of 1,758,490 shares of its Class A common stock and to the
incorporation by reference therein of our report dated August 2, 1996, with
respect to the statements of operations, stockholders' equity (deficiency in net
assets), and cash flows of LightPath Technologies, Inc. for the year ended June
30, 1996, included in the Annual Report (Form 10KSB) for the year ended June 30,
1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Tucson, Arizona
March 12, 1998
