As filed with the Securities and Exchange Commission on
Registration No.333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
LIGHTPATH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 3674 86-0708398
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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6820 Academy Parkway East, N.E., Albuquerque, New Mexico 87109
(505) 342-1100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Donald Lawson
Chief Executive Officer
LightPath Technologies, Inc.
6820 Academy Parkway East, N.E.
Albuquerque, New Mexico 87109
(505) 342-1100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Joseph Crabb, Esq.
Squire, Sanders & Dempsey L.L.P
40 North Central Avenue
Phoenix, AZ 85004
Telephone: (602) 528-4000
Facsimile: (602) 253-8129
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
the effective date of this Registration Statement. 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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
================================================================================
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If this Form is a post-effective amendment filed pursuant to Rule 462 (c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Maximum Proposed
Title of Securities Amount to be Aggregate Price Offering Registration
to be Registered Registered per Unit* Price Fee
- --------------------------------------------------------------------------------
Class A common stock,
$0.01 par value 2,011,934 $31.19 $62,752,221 $16,566.59
================================================================================
* For the purpose of calculating the registration fee required by Section 6(b)
of the Securities Act of 1933, as amended, pursuant to Rule 457 (c) under the
Securities Act, the average of the high and low prices for the Common Stock
as reported on the Nasdaq Small Cap Market on May 18, 2000.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE SELLING SHAREHOLDER MAY NOT SELL THESE SECURITIES PURSUANT TO THIS
REGISTRATION STATEMENT UNTIL THIS REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 23, 2000
PROSPECTUS
2,011,934 SHARES
OF CLASS A COMMON STOCK
LIGHTPATH TECHNOLOGIES, INC.
6820 Academy Parkway, N.E.
Albuquerque, New Mexico 87109
Telephone: (505) 342-1100
All of the 2,011,934 shares of Class A Common Stock being sold are being offered
and sold by certain of our shareholders on a delayed or continuous basis,
pursuant to the exercise of registration rights. We have agreed to bear all the
expenses of registration of the shares in this Prospectus.
Our Class A Common Stock is traded in the over-the counter market through the
Nasdaq SmallCap Market system under the symbol LPTHA. On May 18, 2000, the
closing price of the Class A Common Stock on the Nasdaq SmallCap Market system
was $30.25 per share.
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "risk factors" beginning at page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is May __, 2000.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the U.S. Securities and Exchange Commission. You may read and copy any document
that we have filed at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, DC, 20549. Please call the SEC at 1-800-SEC-0330 for further
information about the operation of its public reference facilities. Our SEC
filings are also available to you free of charge at the SEC's web site at
http://www.sec.gov.
Copies of publicly available documents that we have filed with the SEC can
also be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
We have filed a registration statement on Form S-3 with the SEC that covers
the resale of the common stock offered by this prospectus. This prospectus is a
part of that registration statement, but the prospectus does not include all of
the information included in the registration statement. You should refer to the
registration statement for additional information about us and the common stock
being offered in this prospectus. Statements that we make in this prospectus
relating to any documents filed as an exhibit to the registration statement or
any document incorporated by reference into the registration statement may not
be complete and you should review the referenced document itself for a complete
understanding of its terms.
The SEC allows us to "incorporate by reference" to the information we file
with them, which means that we can disclose important information to you in this
prospectus by referring you to those documents. The documents that have been
incorporated by reference are an important part of the prospectus, and you
should be sure to review that information in order to understand the nature of
any investment by you in the common stock. In addition to previously filed
documents that are incorporated by reference, documents that we file with the
SEC after the date of this prospectus will automatically update the registration
statement. The documents that we have previously filed and that are incorporated
by reference into this prospectus include the following:
+ our annual report on Form 10-KSB/A-2 for the fiscal year ended June 30,
1999;
+ our proxy statement relating to the 1999 Annual Meeting except that
information shown under "Security Ownership of Principal Stockholders and
Management" has been modified by certain recent events as described in this
prospectus on page 16;
+ our quarterly report on Form 10-QSB/A for the quarter ended September 30,
1999;
+ our quarterly report on Form 10-QSB for the quarter ended December 31,
1999;
+ our quarterly report on Form 10-QSB for the quarter ended March 31, 2000;
+ our current report on Form 8-K filed January 18, 2000;
+ our current report on Form 8-K filed December 20, 1999;
+ our current report on Form 8-K filed April 19, 2000;
+ our current report on Form 8-K/A filed May 19, 2000; and
+ the description of our Class A Common Stock included in our registration
statement on Form 8-A filed on January 13, 1996.
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All documents and reports filed by us pursuant to Sections 13 (a), 13 (c),
14 or 15 (d) of the Securities Exchange Act of 1934 after the date of this
prospectus and prior to the date that this offering is terminated will
automatically be incorporated by reference into this prospectus
We will provide you with copies of any of the documents incorporated by
reference, at no charge to you, however, we will not deliver copies of any
exhibits to those documents unless the exhibit itself is specifically
incorporated by reference. If you would like a copy of any document, please
write or call us at:
LightPath Technologies, Inc.
6820 Academy Parkway, N.E.
Albuquerque, New Mexico 87109
Attn: Investor Relations
Telephone: (505) 342-1100
You should only rely upon the information included in or incorporated by
reference into this prospectus or in any prospectus supplement that is delivered
to you. We have not authorized anyone to provide you with additional or
different information. You should not assume that the information included in or
incorporated by reference into this prospectus or any prospectus supplement is
accurate as of any date later than the date on the front of the prospectus or
prospectus supplement.
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PROSPECTUS SUMMARY
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE SELLING SHAREHOLDER MAY NOT SELL THESE SECURITIES PURSUANT TO THIS
REGISTRATION STATEMENT UNTIL THIS REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
LIGHTPATH TECHNOLOGIES, INC.
LightPath produces GRADIUM(R) glass, utilizes other optical materials and
specialized optical packaging concepts to produce products that manipulate
light, and performs research and development for optical solutions in the fiber
telecommunications and traditional optics markets.
WHAT IS GRADIUM GLASS? 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. We believe
that GRADIUM glass lenses provide advantages over conventional lenses for
certain applications. By reducing optical aberrations, we believe 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, GRADIUM glass can provide
more efficient light transmission and greater brightness, lower production
costs, and a simpler, smaller product. Although other researchers have likely
sought to produce optical quality lens material with properties similar to that
of GRADIUM glass, we are not aware of any other person or firm that has
developed a repeatable manufacturing process for producing such material on a
prescribable basis. To date, LightPath has been issued eighteen US patents for
GRADIUM glass products and currently has numerous filed patent applications
pending related to our GRADIUM glass materials composition, product design and
fabrication processes for production. Additional patent applications have been
filed or are in process for laser fusion techniques and fiberoptic
optomechanical switch technologies. We are continually developing new GRADIUM
glass materials with various refractive indexes and dispersion profiles and
products for the telecommunications field such as fiberoptic optomechanical
switches, multiplexers, interconnects and cross-connects.
TO WHAT INDUSTRIES ARE LIGHTPATH'S GRADIUM GLASS PRODUCTS BEING MARKETED?
We believe that GRADIUM glass and our other optical materials can potentially be
marketed for use in most optics and optoelectronics products. During 1998, we
restructured our internal organization and marketing focus with the intended
purpose of serving two distinct markets: optoelectronics and fiber
telecommunications, and traditional optics (e.g. lasers, medical equipment,
consumer optics, etc.).
Optoelectronics technologies consist of an overlap of photonics and
electronics and are key enablers of "Information Age" technologies, such as
fiber optic communications, optical data storage, laser printers, digital
imaging, and sensors for machine vision and environmental monitoring. Prior to
1998, we targeted various optoelectronic industry market niches as potential
purchasers of our GRADIUM glass products. During 1998, we began to develop
products for the emerging optoelectronics markets, specifically in the areas of
fiber telecommunications. With the resolution of fiber optic issues concerning
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packaging and alignment and utilizing advances made by LightChip, an affiliate,
in the area of WDM equipment, we began to produce and demonstrate a passive
optoelectronic product, the single mode fiber collimator assembly. During 1999
we expanded this product line with the goal of demonstrating to the
telecommunication optical components industry our ability to provide low cost
products and provide solutions to their telecom needs. For the nine months
ending March 31, 2000, the telecom product line represent approximately 30% of
our product sales.
For traditional optics, we initially emphasized laser products because our
management believed at that time that GRADIUM lenses could have a substantial
immediate commercial impact in laser products with a relatively small initial
financial investment. Generally, optical designers can substitute GRADIUM glass
components from our 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, we believe, and customers'
test results confirm, that GRADIUM glass has the ability to improve the current
standard of laser performance. One of our distributors, Permanova Lasersystems
AB of Sweden, qualified GRADIUM YAG lenses into systems produced by Rofin-Sinar
GmbH, a significant original equipment manufacturer (OEM) of high-powered CO2
and YAG lasers headquartered in Germany. Our growth strategy is to increase our
emphasis on 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 1999, LightPath and Rodenstock Prazisionsoptik GmbH (Rodenstock)
executed an agreement to transfer to Rodenstock the exclusive,
application-related utilization and distribution of GRADIUM lenses throughout
the whole of Europe. The agreement was for an initial five-year period. We
believe Rodenstock's one hundred years of experience in the field of advanced
optical systems and over 6,000 employees worldwide, will be a strong asset to
the expansion of our presence in Europe. We have established relationships with
eight foreign distributors. We believe these distributors will enable us to
establish and maintain a presence in foreign and domestic markets without
further investment in this product area. In addition to laser applications
through our printed and Internet on-line catalog, we offer a standard line of
GRADIUM glass lenses for commercial sales to optical designers developing
particular systems for OEMs or in-house products. For the nine months ending
March 31, 2000, the traditional optics product line represent approximately 70%
our of product sales.
HOW HAS LIGHTPATH DEVELOPED GRADIUM GLASS PRODUCTS? From our inception in
1985 until June 1996, we were classified as a development stage enterprise that
engaged in basic research and development. We believe that most of our product
sales made during this period were to persons evaluating the commercial
application of GRADIUM glass or using the products for research and development.
During fiscal year 1997, our operational focus begin to shift to commercial
product development and sales. We completed numerous prototypes for production
orders and received our first orders for catalog sales of standard lens
profiles. We also began to offer standard, computer-based profiles of GRADIUM
glass that engineers use for product design. During fiscal 1998, sales of lenses
to the traditional optics market continued with significant increases in sales
of lenses used in the YAG laser market, catalog and distributor sales, and
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lenses used in the wafer inspection markets. In fiscal year 1998, we also began
to explore the development of products for emerging markets such as
optoelectronics, photonics and solar energy due to the number of potential
customers' inquiries into the ability of GRADIUM glass to solve optoelectronic
problems, specifically in the areas of fiber telecommunications. Our resolution
of packaging and alignment issues, and advances made by LightChip, an affiliate,
with WDM equipment, led us in 1998 to develop a strategy for entering the
optoelectronic markets. Our first passive optoelectronic product, a single mode
fiber collimator assembly, or SMF assembly, was demonstrated in February 1998.
The SMF assembly is a key element in all fiber optic systems, including WDM
equipment. The SMF assembly straightens and makes parallel, diverging light as
it exits a fiber. Beginning in fiscal 1999, we began offering, and have
delivered for testing to potential customers, three product levels: the
collimating lens, the SMF assembly and the large beam collimating assembly. The
telecommunications collimator marketplace is currently estimated by industry
experts to have generated annual gross revenues of $125 million in 1999 with
projected growth to $256 million in five years.
The current focus of our development group has been to expand application
of GRADIUM products to the areas of fiberoptic optomechanical switches,
multiplexers, interconnects and cross-connects for the telecommunications field,
further refinement of the crown glass product line to supplement our existing
flint products, and further development of acrylic axial gradient material to
extend the range of existing product applications.
WHERE YOU CAN FIND US. LightPath was incorporated in Delaware in 1992. Our
corporate headquarters are located at 6820 Academy Parkway East N.E.,
Albuquerque, New Mexico, 87109 and our telephone number is (505) 342-1100.
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THE OFFERING
Securities Offered by the A maximum of 2,011,934 shares of Class A
Selling Shareholders ............. Common Stock are covered by this
prospectus. These shares are being
offered as follows:
a maximum of 2,011,934 shares of Class A
Common Stock issued to former
shareholders of Horizon Photonics, Inc.
(HPI) in connection with LightPath's
acquisition of HPI.
A description of the terms of the Class
A Common Stock is included in this
prospectus under "Selling Shareholders"
at page 15.
Common Stock Outstanding as of March 31, 2000
Class A Common Stock 13,753,365 shares(1)(3)
Class E-1 Common Stock 1,506,663 shares(2)
Class E-2 Common Stock 1,506,663 shares(2)
Class E-3 Common Stock 1,004,434 shares(2)
Use of Proceeds ................... We will not receive any of the proceeds
of sales of common stock by the selling
shareholders.
Risk Factors ...................... The shares of common stock offered
hereby involve a high degree of risk.
See "Risk Factors" on page 6.
Nasdaq SmallCap Market Symbols ... Class A Common Stock - "LPTHA"
Class B Warrants - "LPTHZ"
- ----------
(1) Does not include shares underlying options outstanding at March 31, 2000 to
purchase 1,189,204 shares of Class A Common Stock, (which includes 61,211
options pursuant to which the holders would receive, upon exercise, an
aggregate of 61,211 Class A shares, 91,817 shares of Class E-1, 91,817
shares of Class E-2 and 61,211 shares of Class E-3 Common Stock) which are
exercisable at option exercise prices ranging from $2.84 to $51.56 per
share and approximately 613,000 shares of Class A Common Stock reserved for
issuance upon future grants of options under LightPath's stock option
plans.
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(2) Each share of outstanding Class E-1 Common Stock, Class E-2 Common Stock
and Class E-3 Common Stock, collectively referred to as 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 with respect to each of
the three separate classes. The Class E shares will be redeemed by
LightPath in September 2000 for a nominal amount if such earnings levels
are not achieved by June 30, 2000.
(3) Does not include an aggregate of 4,625,224 shares of Class A Common Stock
consisting of (i) 29,670 shares of Class A common stock and 29,670 Class B
Warrants granted to the underwriter in connection with our initial public
offering; (ii) 2,768,458 Class B Warrants (iii) 58,297 shares of Class A
Common Stock issuable upon exercise of private placement warrants; (vi)
328,875 shares of Class A Common Stock issuable upon conversion of the 153
remaining shares of Series F Preferred Stock; (vii) 281,250 shares of Class
A Common Stock issuable upon exercise of a warrant and (viii) 1,207,158
shares issued to the former shareholders of HPI and 250,721 stock options
issued to employees of HPI as of the closing of the acquisition of HPI.
FORWARD-LOOKING STATEMENTS
Throughout this prospectus and the other documents incorporated by
reference into this prospectus we make certain "forward-looking" statements.
These are statements about future events, results of operation, business plans
and other matters. We use words such as "expect", "anticipate", "intend" or
other similar words to identify forward looking statements. These statements are
made based on our current knowledge and understanding. However, there can be no
assurances as to whether or not actual results will be consistent with these
statements. In fact, actual events or results could vary dramatically from these
statements as a result of among other factors:
+ Economic conditions, domestically and internationally
+ Technological developments
+ Industry trends
+ Risk factors described in this prospectus.
We have no obligation to update the forward-looking statements made in this
prospectus or incorporated by reference herein.
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RISK FACTORS
THE FOLLOWING SUMMARY SHOULD BE READ BY YOU TOGETHER WITH THE MORE DETAILED
INFORMATION INCLUDED AT OTHER SECTIONS OF THIS PROSPECTUS. IN ADDITION, YOU
SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER "RISK FACTORS" BEGINNING
AT PAGE 6 OF THIS PROSPECTUS. OUR FISCAL YEAR ENDS ON JUNE 30 AND REFERENCES TO
YEARS IN THIS PROSPECTUS REFER TO OUR FISCAL YEAR ENDED AS OF JUNE 30 OF THE
REFERENCED CALENDAR YEAR.
WE HAVE EXPERIENCED LOSSES IN PRIOR YEARS.
Our operations have never been profitable. We believe that our introduction
of products for the telecommunication market in 1999 may generate sales in
excess of amounts realized to date, although there can be no assurance in this
regard. We expect to continue operating at a deficit during the current fiscal
year and until such time, if ever, as our operations generate sufficient
revenues to cover our costs. The likelihood of our financial success must be
considered in light of the delays, uncertainties, difficulties and risks
inherent in a new business, many of which are beyond our ability to control.
These risks 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 our current estimates. There can
be no assurance that our revenues will increase significantly in the future or
that, even if they do increase, our operations will ever be profitable.
WE MAY BE UNABLE TO CONTINUE OPERATING AS A GOING CONCERN.
Our June 30, 1999 financial statements received a report from our
independent auditors that includes an explanatory paragraph regarding
uncertainty as to our ability to continue as a going concern. The factors cited
by the auditors as raising substantial doubt as to our ability to continue as a
going concern are our recurring losses from operations and resulting continued
dependence on external sources of capital. We may incur losses for the
foreseeable future due to the significant costs associated with the development,
manufacturing and marketing of our products and due to the continued research
and development activities that will be necessary to further refine our
technology and products and to develop products with additional applications.
WE ANTICIPATE THE NEED FOR ADDITIONAL FUTURE FINANCING IN ORDER TO FUND OUR
OPERATIONS AND PLANS FOR GROWTH.
There can be no assurance that the Company will generate sufficient
revenues to fund its future operations and growth strategies. At this time the
Company does not believe product sales will reach the level required to sustain
its operations and growth plans beyond the near term. We do not have any
commitments from others to provide additional financing in the future and there
can be no assurance that any such additional financing will be available if
needed or, if available, will be on terms favorable to us. In the event such
needed financing is not obtained, our operations will be materially adversely
affected and we 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.
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WE MAY HAVE DIFFICULTIES IN MANAGING GROWTH.
We will need to grow our product sales and manufacturing output
significantly in order to be successful. If we are unable to manage growth
effectively, it could have material adverse effects on our results of
operations, financial condition or liquidity. We cannot guarantee that we will
successfully expand or that any expansion will enhance our profitability. We
expect our planned growth will place a significant strain on our management and
operations. Our future growth will depend in part on the ability of our officers
and other key employees to implement and expand financial control systems and to
expand, train and manage our employee base and provide support to an expanded
customer base.
WE MAY HAVE ADVERSE IMPACT FROM ACQUISTIONS.
Our strategy includes the potential acquisition of complimentary
businesses, and integration of additional products, technologies and personnel.
We have limited experience in acquiring outside businesses. Acquisition of
businesses requires substantial time and attention of management personnel and
may require additional equity or debt financing. There can be no assurance that
we will be successful in identifying, consummating or integrating strategic
acquisitions.
Integration of newly established or acquired business can be disruptive.
There can be no assurance that we will be able to integrate such companies into
our business successfully. Financial consequences of our acquisitions may
include potentially dilutive issuances of equity securities; large one-time
expenses; higher fixed expenses which require a higher level of revenues to
maintain gross margins; the incurrence of debt and contingent liabilities; and
amortization expenses related to goodwill and other intangible assets.
OUR PRODUCTS ARE AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT ACHIEVE MARKET
ACCEPTANCE.
Through June 1996, our primary activities were basic research and
development of glass material properties. Our current line of GRADIUM products
have not generated sufficient revenues to sustain operations and our
telecommunications products are still in the introductory phase. While we
believe our existing products are commercially viable, we anticipate the need to
educate the optical components market in order to generate market demand and
market feedback may require us to further refine these products. Development of
additional product lines will require significant further research, development,
testing and marketing prior to commercialization. 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.
OUR PRODUCTS HAVE NOT BEEN DEMONSTRATED TO BE COMMERCIALLY SUCCESSFUL.
Our telecommunication products have not yet achieved broad commercial
acceptance. The traditional optics have been accepted commercially; however,
their benefits are not widely known. Although we are engaged in negotiations and
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discussions with potential customers, there can be no assurance that any such
discussions will lead to development of commercially viable products or
significant revenues, 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, we 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 us to develop a repeatable,
consistent process for producing lenses with variable refractive indices. We
must also satisfy industry-standard Bellcore Testing on telecommunication
products to meet customer requirements, as well as satisfy prospective customers
that we will be able to meet their demand for quantities of products, since we
may be the sole supplier and licensor. We do not have demonstrated experience as
a manufacturer and have limited financial resources. We may be unable to
accomplish any one or more of the foregoing to the extent necessary to develop
market acceptance of our 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 the benefits of
our products as sufficient to warrant such design expenditures.
WE DEPEND UPON KEY PERSONNEL.
Our inability to retain or attract key employees could have a material
adverse effect on our business and results of operations. Our operations depend,
to a great extent, upon the efforts of our CEO and President, Donald Lawson, who
conceived our strategic plan and who is substantially responsible for planning
and guiding our direction, and upon Mark Fitch, our Senior Vice President. We
also depend upon our ability to attract additional members to our management and
operations teams to support our expansion strategy. The loss of any of these key
employees would adversely affect our business. We have obtained a key employee
life insurance policy in the amount $1,000,000 on the life of Mr. Lawson. We had
sixty employees on March 31, 2000. Additional personnel will need to be hired if
we are able to successfully expand our operations. There can be no assurance
that we will be able to identify, attract and retain employees with skills and
experience necessary and relevant to the future operations of our business.
COMPETITION MAY ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL RESULTS.
The optical lens and telecommunication components markets are intensely
competitive and numerous companies offer products and services competitive to
those offered by us. Substantially all of these competitors have greater
financial and other resources than we do. We compete with manufacturers of
conventional spherical lens products and aspherical lens products, producers of
optical quality glass and other developers of gradient lens technology and
telecom product manufacturers. In the both the optical lens and
telecommunications componets markets, we are competing against, among others,
established international industry giants. Many of these companies also are
primary customers for optical and telecommunication components, and therefore
have significant control over certain markets for our products. We are also
aware of other companies that are attempting to develop radial gradient lens
technology. There may also be others of which we are not aware that are
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attempting to develop axial gradient lens technology similar to our technology.
There can be no assurance that existing or new competitors will not develop
technologies that are superior to or more commercially acceptable than our
existing and planned technologies and products.
WE HAVE LIMITED MARKETING AND SALES CAPABILITIES AND MUST MAKE SALES IN A
FRAGMENTED MARKET.
Our operating results will depend to a large extent on our ability to
educate the various industries utilizing telecommunication components and
optical glass about the advantages of our products to market products to the
participants within those industries. We currently have very limited marketing
capabilities and experience and have recently hired additional sales and
marketing personnel to develop additional sales and marketing programs and
establish sales distribution channels in order to achieve and sustain commercial
sales of our products. Although we have 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 our products. The markets
for optical lenses and telecommunication components are highly fragmented.
Consequently, we will need to identify and successfully target particular market
segments in which we believe we will have the most success. These efforts will
require a substantial, but unknown, amount of effort and resources.
The fragmented nature of the optical products market may impede our ability
to achieve commercial acceptance for our products. In addition, our success will
depend in great part on our ability to develop and implement a successful
marketing and sales program. There can be no assurance that any marketing and
sales efforts undertaken by us will be successful or will result in any
significant product sales.
WE ARE HIGHLY DEPENDENT ON OUR PATENTS AND PROPRIETARY TECHNOLOGY.
Our success will depend, in part, on our ability to obtain protection for
products and technologies under United States and foreign patent laws, to
preserve trade secrets, and to operate without infringing the proprietary rights
of others. There can be no assurance that patent applications relating to our
products or potential products will result in patents being issued, that any
issued patents will afford adequate protection or not be challenged,
invalidated, infringed or circumvented, or that any rights granted will afford
competitive advantages to us. 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 our product or technologies, or,
if patents are issued to, or licensed by, us, design around such patents. There
can be no assurance that patents owned or licensed and issued in one
jurisdiction will also issue in any other jurisdiction. Furthermore, there can
be no assurance that we can adequately preserve proprietary technology and
processes that we maintain as trade secrets. If we are unable to develop and
adequately protect our proprietary technology and other assets, our business,
financial condition and results of operations will be materially adversely
affected.
9
<PAGE>
OUR BUSINESS DEPENDS UPON THE EFFORTS OF THIRD PARTIES.
Our strategy for the research, development and commercialization of certain
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. We may also rely on
our collaborative partners to conduct research efforts, product testing and to
manufacture and market certain of our products. Although we believe 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 our control. There
can also be no assurance that we will be successful in establishing any such
collaborative arrangements or that, if established, the parties to such
arrangements will assist us in commercializing products. We currently have
development agreements with a mechanical switch manufacturer and an endoscope
manufacturer pursuant to which we have developed prototypes of products for use
in each of those areas. However, there can be no assurance that such agreements
will progress to a production phase or, if production commences, that we will
receive significant revenues from these relationships. We have a non-exclusive
agreement with a catalog company to distribute certain of its products. We have
formalized relationships with eight 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.
WE HAVE ONLY LIMITED MANUFACTURING CAPABILITIES.
We believe that our present manufacturing facilities, with the clean room
addition which was completed in October 1999, are sufficient for our planned
operations in fiscal 2000. We have acquired additional manufacturing space in
January 2000 to allow for expansion of our manufacturing capabilities. However,
we do not have substantial experience manufacturing products in quantities
sufficient to meet commercial demand. If we are unable to manufacture products
in sufficient quantities and in a timely manner to meet customer demand, our
business, financial condition and results of operations will be materially
adversely affected.
WE FACE PRODUCT LIABILITY RISKS.
The sale of our optical products will involve the inherent risk of product
liability claims by others. We do not currently maintain product liability
insurance coverage, although we do intend 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 us. Moreover, the
amount and scope of any coverage may be inadequate to protect us in the event
that a product liability claim is successfully asserted.
WE WILL RECOGNIZE A SUBSTANTIAL CHARGE TO INCOME UPON CONVERSION OF OUR CLASS E
COMMON STOCK.
In the event any shares of the Class E Common Stock held by stockholders
who are officers, directors, employees or consultants of the Company reach
targets to enable conversion into shares of Class A Common Stock, we will record
10
<PAGE>
compensation expense for financial reporting purposes during the period in which
the targets are reached and conversion appears probable. These targets will
expire in September 2000 based on the operating results as of June 30, 2000.
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 will not affect the total stockholders' equity, it may have a
material negative effect on the market price of our securities, particularly the
shares of Class A Common Stock. Additionally, since shares of Class E common
stock 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 may have a material adverse
effect on our earnings per share.
OUR STOCK PRICE IS VOLATILE.
Broad market fluctuations or fluctuations in our operations may adversely
affect the market price of our common stock. The market for our common stock is
volatile. The trading price of our common stock has been and will continue to be
subject to:
+ volatility in the trading markets generally and in our particular
market segment;
+ significant fluctuations in response to quarterly variations in
operating results;
+ announcements regarding our business or the business of our
competitors;
+ changes in prices of our or our competitors' products and services;
+ changes in product mix; and
+ changes in revenue and revenue growth rates for us as a whole or for
geographic areas, and other events or factors.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which we operate
or expect to operate could have an adverse effect on the market price of our
common stock. In addition, the stock market as a whole, as well as our
particular market segment, have from time to time experienced extreme price and
volume fluctuations which have particularly affected the market price for the
securities of many companies and which often have been unrelated to the
operating performance of these companies.
POTENTIAL CONTROL BY THE EXISTING MANAGEMENT AND SHAREHOLDERS.
If our management and shareholders act in concert, disposition of matters
submitted to shareholders or the election of the entire Board of Directors may
be hindered. We estimate that the principal stockholders beneficially owned
26.5% of the total combined voting power of all of the Common Stock outstanding
at April 14, 2000.
11
<PAGE>
SOME PROVISIONS IN OUR CHARTER DOCUMENTS AND BYLAWS MAY HAVE ANTI-TAKEOVER
EFFECTS.
Our Certificate of Incorporation and Bylaws contain some provisions that
could have the effect of discouraging a prospective acquirer from making a
tender offer, or which may otherwise delay, defer or prevent a change in
control.
ABSENCE OF DIVIDENDS TO SHAREHOLDERS.
Our Board has never declared a dividend on our common stock. We do not
anticipate paying dividends on the common stock in the foreseeable future. It is
anticipated that earnings, if any, will be reinvested in the expansion of our
business.
OUR CONVERTIBLE PREFERRED STOCK, WARRANTS AND OPTIONS MAY AFFECT OUR FUTURE
FINANCING.
The existence of our outstanding Convertible Preferred Stock, options or
warrants may adversely affect the terms on which we can obtain additional
financing. As of March 31, 2000, there was outstanding:
+ 2,768,458 Class B Warrants to purchase 2,768,458, shares of Class A
Common Stock;
+ the Unit Purchase Option to purchase an aggregate of 29,670 shares of
Class A Common Stock and 29,670 Class B Warrants;
+ 58,297 shares of Class A Common Stock issuable upon exercise private
placement warrants;
+ 328,875 shares of Class A Common Stock reserved for issuance to the
selling shareholders upon conversion of the 153 remaining shares
Series F Preferred stock;
+ 281,250 shares of Class A Common Stock issuable upon exercise of a
warrant held by Robert Ripp, our Chairman of the Board;
+ outstanding options to purchase an aggregate of 1,189,204 shares of
Class A Common Stock (which includes 61,211 options pursuant to which
the holders would receive, upon exercise, an aggregate of 61,211
shares of Class A, 91,817 shares of Class E-1, 91,187 shares of Class
E-2 and 61,211 shares of Class E-3 Common Stock);
+ approximately 613,000 shares of Class A Common Stock reserved for
issuance pursuant to future grants to be made under the Omnibus
Incentive Plan and Directors Stock Incentive Plan;
12
<PAGE>
+ in addition, 1,207,158 shares of Class A Common Stock issued to the
shareholders of HPI and 250,721 stock options to acquire shares of
Class A common stock granted to employees of HPI as of the April 14,
2000 closing;
+ in addition, 1,500,000 nonqualified stock options to purchase shares
of Class A Common Stock granted to the Chairman of the Board of the
Company on April 12, 2000.
For the life of such options, warrants and Convertible Preferred Stock, the
holders will have the opportunity to profit from a rise in the price of the
underlying common stock, with a resulting dilution in the interest of other
holders of common stock upon exercise or conversion. Further, the option and
warrant holders can be expected to exercise their options and warrants at a time
when we would, in all likelihood, be able to obtain additional capital by an
offering of our unissued common stock on terms more favorable to us than those
provided by such options or warrants.
The eligibility of the foregoing shares to be sold to the public, whether
pursuant an effective registration statement, Rule 144 or an exemption from the
registration requirements may have a material adverse effect on the market value
and trading price of the Class A Common Stock.
WE HAVE AGREED TO CERTAIN LIMITATIONS UPON POTENTIAL LIABILITY OF OUR DIRECTORS.
Our Certificate of Incorporation provides that directors will not be
personally liable for monetary damages to LightPath 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 by LightPath or its stockholders.
WE MUST MAINTAIN COMPLIANCE WITH CERTAIN CRITERIA IN ORDER TO MAINTAIN LISTING
OF OUR SHARES ON THE NASDAQ MARKET.
The Class A Common Stock and Class B Warrants are currently traded on the
Nasdaq SmallCap Market. Failure to meet the applicable quantitative and/or
qualitative maintenance requirements of Nasdaq could result in our securities
being delisted from Nasdaq, with the result that such securities may 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 our securities. Among other consequences, delisting from
Nasdaq may cause a decline in the stock price and difficulty in obtaining future
financing.
13
<PAGE>
WE MAY NOT HAVE ENOUGH FUNDS AVAILABLE TO REDEEM OUTSTANDING SHARES OF PREFERRED
STOCK.
In the event of automatic conversion of the Series F Preferred Stock, three
years after issuance LightPath has the right to redeem such preferred stock for
cash. In addition, a Liquidation Event, as defined in the applicable Certificate
of Designation, may require redemption of the Series F Preferred Stock for cash.
There can be no assurance that we will have adequate cash to effect such cash
redemptions in the future.
RISK THAT FORWARD-LOOKING STATEMENTS MAY NOT COME TRUE.
This prospectus and the documents incorporated herein by reference, contain
forward-looking statements that involve risks and uncertainties. We use words
such as "believe", "expect," "anticipate," "plan" or similar words to identify
forward-looking statements. Forward-looking statements are made based upon our
belief as of the date that such statements are made. These forward-looking
statements are based largely on our current expectations and are subject to a
number of risks and uncertainties, many of which are beyond our control. You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this prospectus. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us described above and elsewhere in this
prospectus.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The Proxy Statement for the 1999 Annual Meeting contained information
concerning the number of shares included in the Voting Trust that Leslie
Danziger, former Chairwoman of the Board of Directors, was entitled to vote. As
of September 16, 1999, Ms. Danziger was no longer the Chairwoman of the Board
and as a result the Voting Trust has dissolved by its terms. All shares
previously subject to the Voting Trust are now held directly by their beneficial
owners, each of whom (to LightPath's knowledge) independently votes and has the
power to dispose of such shares.
14
<PAGE>
SELLING SHAREHOLDERS
On April 14, 2000, we issued 1,207,158 shares of Class A Common Stock in
connection with our acquisition of Horizon Photonics, Inc. (HPI) pursuant to a
Merger Agreement of the same date. The number of shares of Class A Common Stock
issued to the former HPI shareholders is subject to post closing adjustment
based on the trading price of our Class A Common Stock during the period between
the acquisition closing date and the earlier to occur of the date such Class A
Common Stock is registered or May 29, 2000. The range of the aggregate number of
shares that could be issued is a minimum of 603,579 to a maximum of 2,011,934
shares of Class A Common Stock. This Prospectus covers the maximum number of
shares of Class A Common Stock that could be issued under the terms of the
Merger Agreement.
The following table provides information as of April 17, 2000, with respect
to the Class A Common Stock beneficially owned by each selling shareholder. For
purposes of the information set forth in this table, the number of shares
beneficially owned includes shares issuable upon the exercise of stock options
that are vested on April 17, 2000 or within sixty days thereafter.
TOTAL SHARES CLASS A COMMON STOCK
OUTSTANDING AS OF APRIL 17, 2000: 14,960,523
<TABLE>
<CAPTION>
Beneficially Owned After the Offering
-------------------------------------
Number of Shares Number of Percent of
Beneficially Owned Shares Percent of All Classes
Prior to the being Number Class A of Common
Offering (1) Offered of Shares Common Stock Stock
------------ ------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Robert Cullen 404,866 404,866 0 * *
Richard Sweeney 404,866 404,866 0 * *
Randall Niles 64,780(2) 16,195(2) 48,585(2) * *
Lucent Technologies, Inc. 381,231 381,231 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) Includes 48,585 shares issuable upon the exercise of options to purchase
Class A Common Stock that are vested on April 17, 2000 or vest within sixty
days thereafter. On April 25, 2000, options to purchase 48,585 shares were
exercised. Does not include options to purchase an additional 7,000 shares
which will vest over four years ending April 2004.
15
<PAGE>
USE OF PROCEEDS
Each of the selling shareholders will receive the net proceeds from the
sale of its shares of common stock. We will not receive any proceeds from these
sales.
DETERMINATION OF OFFERING PRICE
The selling shareholders may use this prospectus from time to time to sell
their shares of common stock at a price determined by the shareholder making
such sale. The price at which the common stock is sold may be based on market
prices prevailing at the time of sale, at prices relating to such prevailing
market prices, or at negotiated prices.
PLAN OF DISTRIBUTION
The common stock may be sold from time to time by the selling shareholders,
or by pledgees, donees, transferees or other successors in interest. Such sales
may be made on one or more exchanges or 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 common stock may
be sold in one or more of the following types of transactions:
(a) a block trade in which a selling shareholder will engage a
broker-dealer who will then attempt to sell the common stock, or 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 shareholders may arrange for other broker-dealers to participate in the
resales.
In connection with distributions of the common stock or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the common stock in the course of hedging the positions they assume with selling
shareholders. The selling shareholders may also sell common stock short and
redeliver the common stock to close out such short positions. The selling
shareholders may also enter into option or other transactions with
broker-dealers that require the delivery to the broker-dealer of the common
stock, which the broker-dealer may resell or otherwise transfer pursuant to this
prospectus. The selling shareholders may also loan or pledge common stock to a
broker-dealer and the broker-dealer may sell the common stock so loaned or, upon
a default, the broker-dealer may effect sales of the pledged common stock
pursuant to this prospectus.
16
<PAGE>
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholders 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 may be sold in an
unregistered transaction under Rule 144 rather than pursuant to this prospectus.
We will bear all of the costs and expenses of registering under the
Securities Act the sale of the common stock offered by this prospectus.
Commissions and discounts, if any, attributable to the sales of the common stock
will be borne by the selling shareholders.
We have agreed to indemnify the selling shareholders against certain
liabilities in connection with the offering of the common stock, including
liabilities arising under the Securities Act. The selling shareholders may agree
to indemnify any broker-dealer or agent that participates in transactions
involving sales of the common stock against various liabilities, including
liabilities arising under the Securities Act.
In order to comply with the securities laws of various states, if
applicable, sales of the common stock made in those states will only be made
through registered or licensed brokers or dealers. In addition, some states do
not allow the securities to be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with by us and the
selling shareholders.
Under applicable rules and regulations of the Exchange Act, any person
engaged in the distribution of the common stock may not simultaneously engage in
market-making activities with respect to our common stock for a period of up to
five business days prior to the commencement of such distribution. In addition
to those restrictions, each selling shareholder will be subject to the Exchange
Act and the rules and regulations under the Exchange Act, including, Regulation
M and Rule 10b-7, which provisions may limit the timing of the purchases and
sales of our securities by the selling shareholders.
DESCRIPTION OF SECURITIES
We have previously registered our Class A Common Stock under the Exchange
Act by filing a Form 8-A on January 13, 1996. Please refer to that registration
statement for a description of the rights, privileges and preferences of our
common stock.
LEGAL MATTERS
Certain legal matters have been passed upon for us by Squire, Sanders &
Dempsey L.L.P., Phoenix, Arizona.
17
<PAGE>
EXPERTS
Our financial statements as of June 30, 1999 and 1998, and for the years
then ended, have been incorporated by reference herein, in reliance upon the
report of KPMG 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 LLP covering the June 30, 1999, 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 Company'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.
HPI's financial statements as of March 31, 2000 and 1999, and for the years
then ended, have been incorporated by reference herein, in reliance upon the
report of Windes & McClaughry, Accountancy Corporation, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
INTERESTS OF NAMED EXPERTS AND COUNSEL
On October 13, 1997, James L. Adler, Jr. was appointed to serve as a
director of LightPath until the 2000 annual meeting of shareholders. Mr. Adler
is a partner of the law firm of Squire, Sanders & Dempsey L.L.P., which has
issued an opinion as to the validity of the shares offered by this prospectus
and also provides legal services to us on a regular basis. Mr. Adler holds
options under the Directors Stock Option Plan to purchase 40,176 shares of Class
A Common Stock at exercise prices ranging from $2.84 to $9.81. As of April 17,
2000, these shares represented less than 1% of the total outstanding shares of
Class A Common Stock.
INDEMNIFICATION
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
18
<PAGE>
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, the Securities Act, may be permitted to directors, officers and
controlling person of LightPath pursuant to the foregoing provisions, or
otherwise, we have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
19
<PAGE>
====================================== =======================================
NO DEALER, SALES PERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON LIGHTPATH TECHNOLOGIES, INC.
AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY 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 2,011,934 SHARES
SOLICITATION IN SUCH JURISDICTION. CLASS A COMMON STOCK
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION PROSPECTUS
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT
THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
TABLE OF CONTENTS
Page
----
Where You Can Find More
Information (ii)
Prospectus Summary 1
The Offering 4
Risk Factors 6
Security Ownership of Principal
Stockholders and Management 14
Selling Shareholders 15
Use of Proceeds 16
Determination of Offering Price 16
Plan of Distribution 16
Description of Securities 17
Legal Matters 17
Experts 18
Interest of Named Experts May 23, 2000
and Counsel 18
Indemnification 18
====================================== =======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE 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
LightPath:
Amount
------
SEC Registration Fee ................................. $16,566.59
Legal fees and expenses .............................. $20,000.00 (1)
Accounting fees and expenses ......................... $10,000.00 (1)
Printing expenses .................................... $ 1,000.00 (1)
----------
Total ................................................ $47,566.59
==========
- ----------
(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.
Exhibit Page Number or
Number Description Method of Filing
- ------ ----------- ----------------
5 Opinion and Consent of Squire, Sanders & Dempsey LLP *
10.1 Merger Agreement, dated April 14, 2000 among the
Registrant and Horizon Photonics, Inc. *
23.1 Consent of KPMG LLP *
23.2 Consent of Windes & McClaughry, Accountacy Corporation *
23.3 Consent of Squire, Sanders & Dempsey LLP Included in
Exhibit 5
24 Powers of Attorney See signature page
- ----------
* Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) It will file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(2) For purposes of determining any liability under the Securities Act, it
will treat each post-effective amendment as 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 include any
additional or changed material information on the plan of distribution.
(4) 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 15 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 Securities 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 Securities
Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, there unto duly
authorized, in the City of Albuquerque, State of New Mexico, on May 19, 2000.
LIGHTPATH TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Donald Lawson
----------------------------------------
Donald Lawson, Chief Executive Officer
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, constitutes
and appoints each of Robert Ripp 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 subsequent registration
statements and amendments thereto 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 Securities 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. Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ Robert Ripp Chairman of the Board May 19, 2000
- -----------------------
Robert Ripp
/s/ Donald E. Lawson CEO, President and Treasurer May 19, 2000
- ----------------------- (Principal Executive, Financial
and Accounting Officer)
/s/ James A. Adler, Jr. Director May 19, 2000
- -----------------------
James A. Adler, Jr.
/s/ Louis Leeburg Director May 19, 2000
- -----------------------
Louis Leeburg
/s/ Leslie A. Danziger Director May 19, 2000
- -----------------------
Leslie A. Danziger
/s/ Katherine Dietze Director May 19, 2000
- -----------------------
Katherine Dietze
II-3
OPINION & CONSENT-SQUIRE SANDERS & DEMPSEY
Squire, Sanders & Dempsey L.L.P.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Phone: (602) 528-4000
Facsimile: (602) 253-8129
May 19, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: LightPath Technologies, Inc.
Registration Statement on Form S-3 (Registration No. 333-________)
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 of up to 2,011,934 shares of the
Company's $.01 par value Class A Common Stock (the "Common Stock") 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 also examined all such
instruments, documents and records, and undertaken such further inquiry, as we
have deemed relevant and necessary for the basis of our opinion hereinafter
expressed. In such examination, we have assumed the genuineness and authority of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies. Our opinion is based solely on the General Corporation Law of the
State of Delaware.
Based upon the foregoing, it is our opinion that the shares of Common Stock,
when issued in compliance with the terms of that certain Merger Agreement dated
as of April 14, 2000 by and among the Company, LPI Merger Corporation and
Horizon Photonics, Inc., 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 Common Stock for offer and sale in such
states.
Respectfully submitted,
SQUIRE, SANDERS & DEMPSEY L.L.P.
MERGER AGREEMENT
among
LIGHTPATH TECHNOLOGIES, INC.,
HORIZON PHOTONICS, INC.
and
LPI MERGER CORPORATION
Dated April 14, 2000
<PAGE>
TABLE CONTENTS
Page
----
ARTICLE 1.................................................................... 5
1.1 The Merger........................................................... 5
1.2 Effect of the Merger................................................. 5
1.3 Consummation of the Merger........................................... 6
1.4 Articles of Incorporation and Bylaws; Directors and Officers......... 6
1.5 Conversion of Securities............................................. 6
1.6 Closing of Company Transfer Books.................................... 9
1.7 Exchange of Certificates............................................. 10
1.8 Dissenting Shares.................................................... 11
1.9 Tax Consequences..................................................... 11
1.10 Taking of Necessary Action; Further Action........................... 11
1.11 Stock Options........................................................ 12
1.12 Indemnification; Payment of Note..................................... 13
ARTICLE 2................................................................... 13
2.1 Organization and Qualification...................................... 13
2.2 Authority Relative to This Agreement................................. 13
2.3 Capital Structure.................................................... 14
2.4 SEC Filings; Financial Statements.................................... 14
2.5 Valid Issuance....................................................... 15
2.6 Accuracy of Information.............................................. 15
2.7 Title to Properties.................................................. 15
2.8 Accounts Receivable.................................................. 16
2.9 Employment Matters................................................... 16
2.10 Affiliate Transactions............................................... 16
2.11 Compliance with Laws; Permits; Certain Operations.................... 16
2.12 Non-Contravention; Consents.......................................... 17
2.13 Brokerage............................................................ 17
2.14 No Material Adverse Changes.......................................... 17
2.15 Legal Proceedings.................................................... 18
ARTICLE 3.................................................................... 18
3.1 Organization and Qualification....................................... 18
3.2 Authority Relative to this Agreement................................. 18
3.3 Capitalization....................................................... 19
3.4 Financial Statements................................................. 20
3.5 No Subsidiaries...................................................... 20
3.6 Absence of Undisclosed Liabilities................................... 20
3.7 No Material Adverse Changes.......................................... 21
3.8 Absence of Certain Developments...................................... 21
3.9 Title to Properties.................................................. 23
3.10 Accounts Receivable.................................................. 24
<PAGE>
3.11 Inventories.......................................................... 24
3.12 Tax Matters.......................................................... 24
3.13 Contracts and Commitments............................................ 27
3.14 Proprietary Rights................................................... 29
3.15 Litigation........................................................... 29
3.16 Brokerage............................................................ 30
3.17 Employment Matters................................................... 30
3.18 Employee Benefit Plans............................................... 30
3.19 Insurance............................................................ 32
3.20 Affiliate Transactions............................................... 32
3.21 Suppliers............................................................ 32
3.22 Officers and Directors; Bank Accounts................................ 33
3.23 Compliance with Laws; Permits; Certain Operations.................... 33
3.24 Disclosure........................................................... 33
3.25 Non-Contravention; Consents.......................................... 33
3.26 Stockholder Vote Required............................................ 34
ARTICLE 4.................................................................... 34
4.1 Conduct of Business Pending the Merger............................ 34
4.2 Notification; Updates to Disclosure Schedule...................... 37
ARTICLE 5.................................................................... 38
5.1 Shareholders Meeting................................................. 38
5.2 Expenses............................................................. 38
5.3 Additional Agreements................................................ 38
5.4 No Negotiations, etc................................................. 38
5.5 Notification of Certain Matters...................................... 39
5.6 Access to Information; Confidentiality............................... 39
5.7 Shareholder Claims................................................... 39
5.8 Consents............................................................. 39
5.9 State Securities Law Compliance...................................... 39
5.10 Notification; Updates to Parent Disclosure Letter.................... 40
5.11 Commercially Reasonable Efforts...................................... 40
5.12 Tax Matters.......................................................... 40
5.13 Indemnification...................................................... 41
5.14 Nasdaq SmallCap Market Listing....................................... 42
5.15 Employees............................................................ 42
5.16 Future Employment Incentives......................................... 42
5.17 Funding Commitment................................................... 43
ARTICLE 6.................................................................... 43
6.1 Conditions to Obligations of Each Party To Effect the Merger......... 43
6.2 Additional Conditions to Obligation of the Company................... 45
6.3 Additional Conditions to Obligations of Parent and the Merger Sub.... 47
ARTICLE 7.................................................................... 50
7.1 Termination.......................................................... 50
2
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7.2 Termination Procedures............................................... 51
7.3 Effect of Termination................................................ 52
ARTICLE 8.................................................................... 52
8.1 Amendment............................................................ 52
8.2 Waiver............................................................... 52
8.3 Public Statements.................................................... 52
8.4 Notices.............................................................. 52
8.5 Interpretation....................................................... 53
8.6 Severability......................................................... 53
8.7 Miscellaneous........................................................ 54
8.8 Non-survival of Representations and Warranties....................... 54
8.9 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.. 54
8.10 Fax Signatures....................................................... 54
SCHEDULES
Schedule 1.4 Officers and Directors of Surviving Corporation
Schedule 1.5(a) Shareholder Ownership
Schedule 1.12 Indemnification; Payment of Note
COMPANY DISCLOSURE SCHEDULES
Schedule 3.2 Authority Relative to this Agreement
Schedule 3.3(b) Company Options
Schedule 3.3(f) Registration of Securities
Schedule 3.6 Undisclosed Liabilities
Schedule 3.8 Certain Developments
Schedule 3.9(a) Liens
Schedule 3.9(b) Real Estate
Schedule 3.9(c) Leases
Schedule 3.11 Inventory
Schedule 3.12(d) Tax Returns
Schedule 3.13(a) Contracts
3
<PAGE>
Schedule 3.13(b) Breach of Contract
Schedule 3.14 Proprietary Rights
Schedule 3.18 Employee Benefit Plans
Schedule 3.19 Insurance
Schedule 3.20 Affiliate Transactions
Schedule 3.21 Suppliers
Schedule 3.22 Officers and Directors; Bank Accounts
Schedule 3.23 Compliance with Laws; Permits; Certain Operations
Schedule 3.25 Non-Contravention; Consents
Schedule 5.16 Future Employment Incentives
Schedule 5.17 Funding Commitment
EXHIBITS
Exhibit A Form of Employment Agreement
4
<PAGE>
MERGER AGREEMENT This MERGER AGREEMENT is dated April 14, 2000 (this
"Agreement"), by and among LightPath Technologies, Inc., a Delaware corporation
("Parent"), LPI Merger Corporation, a Delaware corporation wholly owned directly
by Parent (the "Merger Sub"), and Horizon Photonics, Inc., a California
corporation (the "Company").
RECITALS
I. Parent and the Company are parties to a letter of intent dated February
29, 2000 (the "Letter of Intent"), which contemplates the merger described in
Article 1 (the "Merger").
II. The respective boards of directors of the Merger Sub and the Company
have determined that it is advisable to consummate the Merger, as a result of
which all of the outstanding common stock, $.0001 par value per share, of the
Company ("Company Common Stock") will be converted into shares of the Class A
Common Stock, $.01 par value per share, of Parent ("Parent Class A Common
Stock") and the Company will be wholly owned directly by Parent; all on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows: ARTICLE 1
THE MERGER
The respective boards of directors of Parent, the Merger Sub and the
Company have, by resolutions duly adopted, approved the following provisions of
this Article 1 as the plan of merger required by the laws of the states of
California and Delaware in connection with the Merger:
1.1 The Merger. At the Effective Time (as defined in Section 1.3), in
accordance with this Agreement and applicable law, the Merger Sub shall be
merged with and into the Company, the separate existence of the Merger Sub
(except as may be continued by operation of law) shall cease, and the Company
shall continue as the surviving corporation under the name "Horizon Photonics,
Inc." as provided in the Amended Articles of Incorporation of the Company
pursuant to Section 1.4 of this Agreement. The Company, in its capacity as the
corporation surviving the Merger, sometimes is referred to herein as the
"Surviving Corporation."
1.2 Effect of the Merger. The Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, of each of the Merger Sub and the Company (collectively, the
"Constituent Corporations"); and all property, real, personal, and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
other choses in action, and all and every other interest of or belonging to or
due to each of the Constituent Corporations, shall be taken and deemed to be
transferred to and vested in the Surviving Corporation without further act or
5
<PAGE>
deed; and the Surviving Corporation shall be responsible and liable for all
liabilities and obligations of each of the Constituent Corporations.
1.3 Consummation of the Merger. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Squire, Sanders & Dempsey L.L.P., 40 North Central Avenue, Suite 2700,
Phoenix, Arizona 85004 at 10:00 a.m. on a date to be mutually agreed upon by
Parent and the Company, which date shall be no later than the third business day
following the satisfaction or waiver of the of the conditions set forth in
Article 6 of this Agreement (the "Scheduled Closing Time") and no later than the
Final Date (as defined in Section 7.1). The date on which the Closing actually
takes place is referred to in this Agreement as the "Closing Date." On the
Closing Date, the parties hereto will cause articles of merger relating to the
Merger to be delivered to the Secretaries of State of the states of California
and Delaware in such form as required by, and executed in accordance with, the
relevant provisions of applicable law. The Merger shall be effective at such
time as such articles of merger are duly filed with and accepted by the
Secretaries of State of the states of California and Delaware in accordance with
applicable law (the "Effective Time").
1.4 Articles of Incorporation and Bylaws; Directors and Officers. The
Articles of Incorporation and Bylaws of the Company, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation and Bylaws
of the Surviving Corporation immediately after the Effective Time and shall
thereafter continue to be its Articles of Incorporation and Bylaws until amended
as provided therein and under the applicable law. The directors and officers of
the Surviving Corporation immediately following the Effective Time shall be the
persons identified on Schedule 1.4 attached hereto.
1.5 Conversion of Securities; Cash Consideration. Subject to Sections
1.7(b) and 1.8, at the Effective Time, the following events shall occur by
virtue of the Merger and without any action on the part of the Merger Sub, the
Company or the holder of any of the following securities:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled
pursuant to Section 1.5(b)) shall, without any action on the part of the
holders thereof, automatically be canceled and extinguished and the total
number of outstanding shares of Company Common Stock shall be converted
into and become a right to receive (A) the total sum of $1,000,000, to be
paid by check or wire transfer of immediately available funds to one or
more bank accounts designated by the shareholders of Company (the "Cash
Consideration"), plus (B) an aggregate number of shares of Parent Class A
Common Stock determined as set forth in the following sentence (the "Share
Consideration"), payable to the shareholders of the Company (the
"Shareholders") on a PRO RATA basis in the manner reflected on Schedule
1.5(a) attached hereto. The actual aggregate number of shares of Parent
Class A Common Stock constituting the Share Consideration issued by Parent,
subject to subsequent adjustment as contemplated by Section 1.5(f) below,
will be a number of shares equal to the quotient of $35,200,000 DIVIDED BY
the average of the last reported sale price of the Parent Class A Common
Stock for the five (5) consecutive trading days ending on the trading day
prior to the Closing Date (the "Closing Price"). For purposes of this
6
<PAGE>
Agreement, "last reported sale price" shall be the closing sale price as
reported by the Nasdaq SmallCap Market or such other primary securities
market or exchange on which the Parent Class A Common Stock is listed or
traded on the date of determination.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time and held in the treasury of the
Company shall automatically be canceled and extinguished and no payment
shall be made with respect thereto.
(c) Each share of Merger Sub Common Stock, par value $.001 per share,
issued and outstanding immediately prior to the Effective Time shall
automatically be converted into and become one validly issued, fully paid
and nonassessable share of common stock, par value $.001 per share, of the
Surviving Corporation.
(d) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase
option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with the Company,
then the shares of Parent Class A Common Stock issued in exchange for such
shares of Company Common Stock will also be unvested and subject to the
same repurchase option, risk of forfeiture or other condition, and the
certificates representing such shares of Parent Class A Common Stock may
accordingly be marked with appropriate legends.
(e) Parent will use its best efforts to cause the Share Consideration
issued pursuant to this Agreement to be registered under the Securities Act
of 1933, as amended (the "Securities Act"), on Form S-3 or if the Company
is ineligible therefore, Form S-2 or S-1, or any successor form of any such
registration to such form, promulgated by the Securities and Exchange
Commission (the "SEC") and to be registered or qualified (or to have
established that an exemption from such registration or qualification is
available) under the "blue sky" laws of all states which the holders of
such shares reasonably request, as soon as practicable after the Effective
Time, subject to receipt by the Parent of any required audited financial
statements of the Company or other information pertaining to the Company
and its business, and Parent shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements for
so long as the Share Consideration remains outstanding.
(f) The Share Consideration given to the Shareholders shall be
adjusted, as set forth below, on the date that is the earlier of (i) the
date the registration statement referred to in Section 1.5(e) above is
declared effective or (ii) 45 days after the Closing Date (the
"Recalculation Date"):
(i) Should the average of the last reported sale price of the
Parent Class A Common Stock for the five (5) consecutive trading days
ending on the trading day prior to the Recalculation Date (the
"Recalculation Price") be less than the Closing Price, the actual
7
<PAGE>
aggregate number of shares of Parent Class A Common Stock constituting
the Share Consideration will be increased to the number of shares,
rounded to the nearest whole share, equal to the quotient of
$35,200,000 divided by the Recalculation Price; provided, however,
that if, on the Recalculation Date, the Recalculation Price has
dropped by an amount greater than forty percent (40%) as compared to
the Closing Price, then the actual aggregate number of shares of
Parent Class A Common Stock constituting the Share Consideration will
be increased only by 804,776 shares of Parent Class A Common Stock
(the "Downside Collar"). For example, if the Closing Price is $40 per
share, the total number of shares issued to the Shareholders on the
Closing Date would be 880,000 ($35,200,000 / $40). If on the
Recalculation Date the Recalculation Price is $24 (which would be 40%
less than the $40 Closing Price), then Parent would issue the
Shareholders an additional 586,667 shares so that the total number of
shares issued to the Shareholders would be 1,466,667 ($35,200,000 /
$24). If on the Recalculation Date the Recalculation Price is $20
(which would be greater than 40% less than the Closing Price), then
Parent, as a result of the Downside Collar, would only issue the
Shareholders an additional 586,667 shares so that the total number of
shares issued to the Shareholders would be 1,466,667 ($35,200,000 /
$24).
(ii) Should the Recalculation Price remain unchanged or have
increased by any amount less than or equal to fifty percent (50%) as
compared to the Closing Price, then the actual aggregate number of
shares of Parent Class A Common Stock constituting the Share
Consideration will remain unchanged, with such number determined as
set forth in Section 1.5(a) above.
(iii) Should the Recalculation Price have increased by more than
fifty percent (50%) as compared to the Closing Price, then the actual
aggregate number of shares of Parent Class A Common Stock constituting
the Share Consideration will be decreased to the number of shares,
rounded to the nearest whole share, that, based on the Recalculation
Price, create value in excess of 50% more than the Closing Price (the
"Upside Collar"); provided however, that in no event shall the number
of shares constituting the Share Consideration be decreased by more
than 50% of the number of shares constituting the Share Consideration
as of the Closing Date pursuant to Section 1.5(a), prior to giving
effect to any adjustment under this Section 1.5(f). For example, if
the Closing Price is $40 per share, the total number of shares issued
to the Shareholders on the Closing Date would be 880,000 ($35,200,000
/ $40). If on the Recalculation Date the Recalculation Price is $60,
then the total number of shares issued to the Shareholders would
remain at 880,000 because $60 would be a 50% increase of the $40
Closing Price. At a $60 Recalculation Price, the maximum aggregate
value of the Share Consideration would be $52,800,000 (880,000 x $60)
(the "Maximum Upside Value"). If on the Recalculation Date the
Recalculation Price is $65, then, as a result of the Upside Collar,
8
<PAGE>
the total number of shares issued to the Shareholders would be reduced
by the number of shares that is equal to the amount by which the
aggregate value of the Share Consideration exceeds the Maximum Upside
Value. In this case such aggregate value would be $57,200,000 (880,000
x $65) which would result in $4,400,000 of excess value above the
Maximum Upside Value ($57,200,000 - $52,800,000). Therefore, the
Shareholders would return to Parent 67,692 shares ($4,400,000 / $65),
thereby reducing the Share Consideration to 812,307 shares (880,000 -
67,692) which would not exceed the Maximum Upside Value. If on the
Recalculation Date the Recalculation Price is $140, then, as a result
of the Upside Collar and the limitations set forth above, the total
number of shares issued to the Shareholders would be reduced by the
lesser of (i) the number of shares that is equal to the amount by
which the aggregate value of the Share Consideration exceeds the
Maximum Upside Value, or (ii) fifty percent (50%) of the number of
shares constituting the Share Consideration as of the Closing Date. In
this example, the amount determined pursuant to clause (i) of the
previous sentence would be 502,857 shares (((880,000 x 140) -
52,800,000) / 140), and the amount determined pursuant to clause (ii)
of the previous sentence would be 440,000 shares (880,000 x 50%).
Therefore, the Shareholders would return to Parent 440,000 shares,
thereby reducing the Share Consideration to 440,000 shares (880,000 -
440,000).
(g) Notwithstanding the foregoing, the Board of Directors of Parent
may, in its sole and absolute discretion and without any liability of any
kind for failure to do so, waive the application of the adjustments set
forth in Section 1.5(f)(i) or (iii) above to allow for a number of shares
to be issued to the Shareholders in excess of the Downside Collar, or for
the Shareholders to be allowed to retain a number of shares that exceeds
the Upside Collar; provided however, in no event, shall the number of
additional shares of Parent Class A Common Stock issued pursuant to Section
1.5(f)(i) exceed 1,207,158 shares. In making the determination whether to
waive any such adjustments, in the manner provided above, the Board of
Directors of Parent may consider (without limitation) factors such as
current market conditions as of the Recalculation Date, potential business
opportunities and strategic relationships, management and employee
retention, product development and marketing opportunities and such other
factors as it may deem relevant. The parties acknowledge and agree that the
Board of Directors of Parent shall have no obligation to advise any party
of the basis for its decision whether to waive such adjustments.
1.6 Closing of Company Transfer Books. At the Effective Time, the
Shareholders shall cease to have any further rights as shareholders of the
Company, and the stock transfer books of the Company shall be closed and no
transfer of shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time shall thereafter be made. If, after the Effective
Time, valid certificates previously representing such shares are presented to
the Surviving Corporation or the Disbursing Agent (as defined in Section 1.7),
they shall be exchanged as provided in Section 1.7.
9
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1.7 Exchange of Certificates.
(a) At the Closing, the Shareholders and the Company shall deliver to
the Parent stock certificates evidencing all the Company Common Stock, each
in form suitable for transfer, endorsed in blank or with executed blank
stock transfer powers, along with stock book, stock transfer ledger, minute
book and any corporate seal of the Company. Upon the surrender and exchange
of a certificate theretofore representing shares of Company Common Stock,
each Shareholder shall be issued a certificate representing the number of
shares of Parent Class A Common Stock to which such person is entitled
pursuant to Section 1.5(a), and each such certificate shall bear a legend
stating that the shares represented by such certificate are subject to
recalculation pursuant to this Agreement, and the certificate theretofore
representing shares of Company Common Stock shall forthwith be canceled.
Until so surrendered and exchanged, each certificate theretofore
representing shares of Company Common Stock shall represent solely the
right to receive the Parent Class A Common Stock into which the shares it
theretofore represented shall have been converted and the pro-rata portion
of the $1,000,000 to be paid pursuant to Section 1.5(a), and the Surviving
Corporation shall not be required to pay the Shareholder thereof the Parent
Class A Common Stock to which such Shareholder otherwise would be entitled;
provided that procedures allowing for payment against lost or destroyed
certificates against receipt of customary and appropriate certifications
and indemnities shall be provided. Each Shareholder shall be issued new
Parent Class A Common Stock certificates within five (5) business days
following the Recalculation Date, evidencing the adjustment, if any, made
pursuant to Section 1.5(f) and such certificates will not bear the legend
regarding recalculation. All certificates of Parent Class A Common Stock
issued pursuant hereto, issued prior to their registration pursuant to
Section 1.5(e) above, shall bear the following legend:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, and have been taken for
investment purposes only and not with a view to the distribution
thereof, and, except as stated in an agreement between the holder of
this certificate, or its predecessor in interest, and the issuer
corporation, such securities may not be sold or transferred unless
there is an effective registration statement under said Act covering
such securities or such sale or transfer is exempt from the
registration and prospectus delivery requirements of said Act."
(b) No fractional shares of Parent Class A Common Stock shall be
issued in connection with the Merger, including but not limited to, any
shares issued as a result of a post-closing adjustment as provided in
Section 1.5(f), and no certificates for any such fractional shares shall be
issued. In lieu of such fractional shares, any fractional share interest in
Parent Class A Common Stock which a holder of Company Common Stock would
otherwise be entitled to receive in the Merger (after aggregating all
fractional shares of Parent Class A Common Stock that would otherwise be
issuable to such holder) shall be rounded up to the nearest whole share if
10
<PAGE>
such fraction is 0.5 or greater and shall be rounded down to the nearest
whole share if such fraction is less than 0.5.
1.8 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of Company Common Stock that, as of the Effective
Time, are or may become "dissenting shares" within the meaning of Section
1300(b) of the California Corporations Code (the "California Law") shall
not be converted into or represent the right to receive Parent Class A
Common Stock in accordance with Section 1.5, and the holder or holders of
such shares shall be entitled only to such rights as may be granted to such
holder or holders under applicable California Law; provided, however, that
if the status of any such shares as "dissenting shares" shall not be
perfected, or if any such shares shall lose their status as "dissenting
shares," then, as of the later of the Effective Time or the time of the
failure to perfect such status or the loss of such status, such shares
shall automatically be converted into and shall represent only the right to
receive (upon the surrender of the certificate or certificates representing
such shares) Parent Class A Common Stock in accordance with Section 1.5.
(b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of capital stock of the Company pursuant to
California Law and of any other demand, notice or instrument delivered to
the Company prior to the Effective Time pursuant to the California Law, and
(ii) the opportunity to participate in all negotiations and proceedings
with respect to any such demand, notice or instrument. The Company shall
not make any payment or settlement offer prior to the Effective Time with
respect to any such demand unless Parent shall have consented in writing to
such payment or settlement offer.
1.9 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the parties to this
Agreement agree to report the Merger and all related transactions consistently
therewith. The parties also agree to take such actions as may be reasonably
required to cause the Merger to be treated as a qualifying reorganization and to
take no action which would disqualify the Merger from reorganization status
under Section 368 of the Code. The parties to this Agreement hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
1.10 Taking of Necessary Action; Further Action. Parent and the Merger Sub,
on the one hand, and the Company, on the other hand, shall use all reasonable
efforts to take all such action (including, without limitation, action to cause
the satisfaction of the conditions of the other to effect the Merger) as may be
necessary or appropriate in order to effectuate the Merger as promptly as
possible. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation and Parent with full possession of all the rights,
privileges, immunities and franchises of the Constituent Corporations, the
officers and directors of the Surviving Corporation and Parent are fully
authorized in the name of the Constituent Corporations or otherwise to take, and
shall take, all such action.
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1.11 Stock Options.
(a) At the Effective Time, each option, whether vested or unvested (a
"Company Option"), that is then outstanding under any of the Company's
Stock Option Plans (collectively, the "Stock Plan") shall automatically and
without further action by the holder of a Company Option become fully
vested and shall be assumed by Parent in accordance with the terms (as in
effect on the date hereof) of the Stock Plan and the stock option
agreement, if any, by which such Company Option is evidenced. All rights
with respect to Company Common Stock under outstanding Company Options
shall thereupon be converted, subject to the provisions hereof, into rights
with respect to Parent Class A Common Stock. From and after the Effective
Time, (i) each Company Option assumed by Parent (collectively, the "Assumed
Options") may be exercised solely for shares of Parent Class A Common
Stock, (ii) the number of shares of Parent Class A Common Stock subject to
each such Assumed Option shall be equal to the number of shares of Parent
Class A Common Stock which the holder of such Assumed Option would have
received pursuant to Section 1.5, without giving effect to any post closing
adjustment to the Share Consideration pursuant to Section 1.5(f), in
exchange for the shares of Company Common Stock subject to such Assumed
Option if such Assumed Option had been exercised immediately prior to the
Effective Time, (iii) the per share exercise price for the Parent Class A
Common Stock issuable upon exercise of each such Assumed Option shall be
determined by dividing the exercise price per share of Company Common Stock
subject to such Assumed Option, as in effect immediately prior to the
Effective Time, by a fraction the numerator of which is the number of
shares of Parent Class A Common Stock subject to such Assumed Option
immediately after the Effective Time, and the denominator of which is the
number of shares of Company Common Stock subject to such Assumed Option
immediately prior to the Effective Time, and rounding the resulting
exercise price up to the nearest whole cent, and (iv) all restrictions on
the exercise of each such Assumed Option shall continue in full force and
effect and the term, exercisability, status as an incentive or nonqualified
option, and other provisions of such Company Option, except the vesting
schedule, shall otherwise remain unchanged; provided, however, that each
such Assumed Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction
effected by Parent after the Effective Time but without giving effect to
any post closing adjustment to the Share Consideration pursuant to Section
1.5(f). The Company and Parent shall take all action that may be necessary
(under the Stock Plan and otherwise) to effectuate the provisions of this
Section 1.11 and deliver documentation evidencing the Assumed Options to
the former holders of Company Options at the Closing or as soon as
practicable thereafter (but in no event more than 10 business days after
the Closing Date).
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(b) Parent has shares of Parent Class A Common Stock registered on
Form S-8 promulgated by the SEC, and Parent shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements for so long as such Assumed Options remain outstanding. With
respect to any Company employee or director who subsequent to the Merger
will be subject to the reporting requirements under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the securities of Parent beneficially owned by such person,
Parent shall administer the Assumed Options in a manner that complies with
the disinterested administration requirements of Rule 16b-3 promulgated by
the SEC under the Exchange Act.
1.12 Indemnification; Payment of Note. After the Effective Time, Parent
shall indemnify Robert R. Cullen and his spouse and Richard J. Sweeney
(collectively, the "Guarantors") for all obligations owed by the Guarantors
under the personal guaranties executed by Guarantors to secure those certain
building and equipment leases for the Company as disclosed on Schedule 1.12
attached hereto. At the Closing, as additional consideration for the Merger,
Parent shall, by check or wire transfer of immediately available funds, pay in
full to Robert R. Cullen, the principal amount of $250,000 plus all accrued
interest, to discharge that certain note owed by the Company to Robert R. Cullen
as disclosed on Schedule 1.12.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUB
Parent and the Merger Sub hereby represent and warrant to the Company that,
except as otherwise disclosed in Parent's Annual Report on Form 10-K for the
fiscal year ended June 30, 1999 (the "Parent's Latest 10-K") or Parent's
Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1999
(the "Parent's Latest 10-Q"), each of the following:
2.1 Organization and Qualification. Each of Parent and the Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite corporate power to
carry on its business as now conducted.
2.2 Authority Relative to This Agreement. Each of Parent and the Merger Sub
has the requisite corporate power and authority to enter into this Agreement and
to carry out its obligations hereunder. The execution and delivery of this
Agreement by Parent and the Merger Sub and the consummation by Parent and the
Merger Sub of the transactions contemplated hereby have been duly authorized by
Parent and by the Board of Directors and sole shareholder of the Merger Sub, and
no other corporate proceedings on the part of Parent or the Merger Sub are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by Parent and the Merger Sub and constitutes a
valid and binding obligation of each, enforceable in accordance with its terms.
Neither Parent nor the Merger Sub is subject to, or obligated under, any
provision of (a) their respective Certificates of Incorporation or Bylaws, (b)
any agreement, arrangement or understanding, (c) any license, franchise or
permit or (d) subject to compliance with the statutes referred to in the next
sentence, any law, regulation, order, judgment or decree, which would be
breached, or violated, or in respect of which a right of termination or
acceleration or any encumbrance on any of its or any of its subsidiaries' assets
would be created, by its execution, delivery and performance of this Agreement
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and the consummation by it of the transactions contemplated hereby, other than
any such breaches or violations which will not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of Parent and its subsidiaries, taken as a whole. Other than
authorizations, consents and approvals of or filings or registrations with the
Delaware General Corporation Law ("Delaware Law"), the SEC and other applicable
federal and state governmental authorities, no authorization, consent or
approval of, or filing with, any public body, court or authority is necessary on
the part of Parent or the Merger Sub for the consummation by Parent and the
Merger Sub of the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals and filings as to which the failure to
obtain or make would not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of Parent and
its subsidiaries, taken as a whole.
2.3 Capital Structure. The authorized capital stock of Parent consists of
(i) 40,000,000 shares of common stock, $.01 par value per share, of which (A)
34,500,000 shares have been designated as Class A Common Stock, 13,753,365
shares of which were issued and outstanding as of March 31, 2000 (the
"Capitalization Date"), (B) 2,000,000 shares have been designated as Class E-1
Common Stock, 1,508,267 shares of which were issued and outstanding as of the
Capitalization Date, (C) 2,000,000 shares have been designated as Class E-2
Common Stock, 1,508,267 shares of which were issued and outstanding as of the
Capitalization Date, and (D) 1,500,000 shares have been designated as Class E-3
Common Stock, 1,005,503 shares of which were issued and outstanding as of the
Capitalization Date and (ii) 5,000,000 shares of preferred stock, $.01 par value
per share, of which (A) 250 shares have been designated as Series A Preferred
Stock, of which no shares were outstanding as of the Capitalization Date, (B)
300 shares have been designated as Series B Preferred Stock, of which no shares
were outstanding as of the Capitalization Date, (C) 500 shares have been
designated as Series C Preferred Stock, of which no shares were outstanding as
of the Capitalization Date, (D) 100,000 shares have been designated as Series D
Preferred Stock, of which no shares were outstanding as of the Capitalization
Date, and (E) 500 shares have been designated as Series F Preferred Stock, 153
shares of which were issued and outstanding as of the Capitalization Date. All
outstanding shares of capital stock of Parent are validly issued, fully paid and
nonassessable and not subject to preemptive rights contained in Parent's charter
documents or in any contract or agreement to which Parent is a party. All
outstanding shares of the capital stock of each of Parent's subsidiaries are
validly issued, fully paid and nonassessable and are owned by Parent or one of
its subsidiaries free and clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances.
2.4 SEC Filings; Financial Statements.
(a) Parent has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a
form other than Form S-8) and definitive proxy statement filed by Parent
with the SEC between July 1, 1998 and the date of this Agreement (the
"Parent SEC Documents"). As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing): (i) each of the Parent SEC Documents complied
in all material respects with the applicable requirements of the Securities
Act or the Exchange Act (as the case may be); and (ii) as of their
respective dates, or as of the date of any amendment thereto, none of the
Parent SEC Documents contained any untrue statement of a material fact or
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omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) The audited financial statements and unaudited interim financial
statements of Parent included (or incorporated by reference) in the Parent
SEC Documents have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto), are accurate
and complete in all material respects and fairly present the consolidated
financial position of Parent as of the dates thereof and the consolidated
results of Parent's operations and the changes in Parent's consolidated
financial position for the periods then ended, in the case of the unaudited
interim financial statements subject to year-end audit adjustments which
will not, individually or in the aggregate, be material in magnitude. Such
unaudited interim financial statements reflect all adjustments necessary to
present a fair statement of the results for the interim periods presented.
2.5 Valid Issuance. Subject to Section 1.5(d), the Parent Class A Common
Stock to be issued in the Merger will be, when issued in accordance with the
provisions of this Agreement, validly issued, fully paid and nonassessable.
2.6 Accuracy of Information. No representation or warranty by Parent or the
Merger Sub in this Agreement, and no exhibit, document, statement, certificate
or schedule furnished or to be furnished to the Company pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading or necessary to provide the Company with adequate
information as to Parent and the Merger Sub and their affairs. There is no fact
which has not been disclosed to the Company that materially affects adversely or
could reasonably be anticipated to materially affect adversely the assets,
financial condition or operating results, customer, employee or supplier
relations, business condition or prospects, or financing arrangements of Parent
or the Merger Sub.
2.7 Title to Properties.
(a) Parent or one of Parent's subsidiaries owns good and marketable
title to each of the tangible properties and tangible assets reflected on
the balance sheet included in Parent's Latest 10-Q or acquired since the
date thereof, free and clear of all material liens and encumbrances, except
for (A) liens for current taxes not yet due and payable, (B) liens or
mortgages described in Parent's Latest 10-Q, (C) the properties subject to
the leases described in Parent's Latest 10-Q, (D) liens securing
indebtedness described in Parent's Latest 10-Q and (E) assets disposed of
since the date of the balance sheet included in Parent's Latest 10-Q in the
ordinary course of business.
(b) All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of Parent's and its subsidiaries'
businesses are in good condition and repair (except where the failure to be
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in such condition and repair, either individually or in the aggregate,
would not have a material adverse effect on Parent or any subsidiary of
Parent and except for ordinary wear and tear), and are usable in the
ordinary course of business. Parent and its subsidiaries own, or lease
under valid leases which afford peaceful and undisturbed possession of the
subject matter of the lease, all buildings, machinery, equipment and other
tangible assets necessary for the conduct of their businesses.
2.8 Accounts Receivable. Parent's and its subsidiaries' notes and accounts
receivable recorded on the balance sheet included in Parent's Latest 10-Q and
those arising since the date thereof are valid receivables (subject to a
reasonable allowance for doubtful accounts as set forth in Parent's Latest 10-Q)
arising from bona fide transactions entered into in the ordinary course of
business and are current and collectible in full in accordance with their terms,
subject to no valid counterclaims or setoffs.
2.9 Employment Matters. To the knowledge of Parent, (i) no key executive
employee of Parent or any subsidiary of Parent, and no group of Parent's or any
subsidiary's employees, has any plans to terminate his or its employment, (ii)
Parent and the subsidiaries have complied with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes, and (iii) Parent and its subsidiaries have no material labor
relations problems pending and their labor relations are satisfactory.
2.10 Affiliate Transactions. Except as set forth or incorporated by
reference in Parent's Latest 10-K or Parent's Latest 10-Q, no officer or
director of Parent or any subsidiary of Parent or any member of the immediate
family of any such officer or director, or any entity in which any of such
persons owns any beneficial interest (other than a publicly-held corporation
whose stock is traded on a national securities exchange or in the
over-the-counter market and less than five percent (5%) of the stock of which is
beneficially owned by any of such persons) (collectively "Insiders"), (a) has
any material agreement with Parent or any subsidiary of Parent (other than
normal employment arrangements) or any material interest in any property, real,
personal or mixed, tangible or intangible, used in or pertaining to the business
of Parent or any subsidiary of Parent, or (b) has been indebted to Parent in
amounts in excess of $60,000 in the aggregate at any time (other than for
purchases subject to usual trade terms, for ordinary travel and expense payments
and for other transactions in the ordinary course of business). For purposes of
the preceding sentence, the members of the immediate family of an officer or
director shall consist of the spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer or director.
2.11 Compliance with Laws; Permits; Certain Operations. Parent, each of
Parent's subsidiaries and their respective officers, directors, agents and
employees have complied in all material respects, and currently are in
compliance in all material respects, with all applicable laws and regulations of
foreign, federal, state and local governments and all agencies thereof which
affect the businesses or any owned or leased properties of Parent and its
subsidiaries and to which Parent or any of its subsidiaries may be subject, and
no claims have been filed against Parent or any of its subsidiaries alleging a
material violation of any such law or regulation. Parent and its subsidiaries
hold all material permits, licenses, certificates and other authorizations of
foreign, federal, state and local governmental agencies required for the conduct
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of their businesses. Parent has not received any notice or other communication
from any governmental authority regarding any actual or possible violation of,
or failure to comply with, any legal requirement, except where failure to comply
with such legal requirement has not had and could not reasonably be expected to
have a material adverse effect on Parent.
2.12 Non-Contravention; Consents. Neither the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Parent's or Merger Sub's certificate of incorporation or
bylaws, or (ii) any resolution adopted by Parent's or Merger Sub's
stockholders or board of directors or committee of such board of directors;
(b) contravene, conflict with or result in a violation of the terms or
requirements of, or give any governmental authority the right to revoke,
withdraw, suspend, cancel, terminate or modify, any material governmental
authorization that is held by Parent or Merger Sub or that otherwise
relates to Parent's business or to any of the assets owned or used by
Parent;
(c) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any material contract of
Parent or Merger Sub, or give any Person the right to (i) declare a default
or exercise any remedy under any such material contract, (ii) accelerate
the maturity or performance of any such material contract, or (iii) cancel,
terminate or modify any such material contract; or
(d) result in the imposition or creation of any lien or other
encumbrance upon or with respect to any asset owned or used by Parent or
Merger Sub (except for minor liens and encumbrances that will not, in any
case or in the aggregate, materially detract from the value of the assets
subject thereto or materially impair the operations of Parent or Merger
Sub).
2.13 Brokerage. There are no claims for investment banking fees, brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Parent, Merger Sub or any other subsidiary of
Parent for which the Company will be responsible.
2.14 No Material Adverse Changes. Since June 30, 1999, there has been no
material adverse change, and no event has occurred that will or that would
reasonably be expected to result in a material adverse change, in the
consolidated assets, financial condition, operating results, customer, employee,
supplier or franchise relations, business condition or prospects, or financing
arrangements of Parent.
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2.15 Legal Proceedings. Except as disclosed in Parent's Latest 10-K or
Parent's Latest 10-Q, there are no actions, suits, claims, proceedings, orders
or other investigations pending or threatened against Parent that challenges or
may have the effect or preventing, delaying, making illegal or otherwise
interfering with the Merger or any other transactions contemplated by this
Agreement or that could reasonably be expected to have a material adverse effect
on the business, properties, assets, condition (financial or otherwise) or
business prospects of Parent.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and the Merger Sub
that as of the date hereof, and again at the Effective Time (subject to any
changes permitted or contemplated hereby), except as otherwise disclosed in the
Company's disclosure schedules that have been delivered to Parent and the Merger
Sub simultaneously with the execution and delivery of this Agreement and as will
be updated as necessary and redelivered on the Closing Date (the "Company
Disclosure Schedules"), each of the following:
3.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California, and has the requisite corporate and other power and authority
(including all licenses, permits and authorizations) to own and operate its
properties and to carry on its business as now conducted and presently proposed
to be conducted and to perform its obligations under all contracts, instruments,
notes or other binding commitments to which it is or may become a party or by
which it or its assets is or may become bound. The copies of the Company's
Articles of Incorporation and Bylaws which have been furnished by the Company to
Parent prior to the date of this Agreement reflect all amendments made thereto
through the date hereof and are correct and complete. The Company is qualified
to do business and is in good standing as a foreign corporation in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be qualified. The Company has not conducted any business under or
otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name, trade name or other name.
3.2 Authority Relative to this Agreement. The Company has the requisite
corporate and other power and authority to enter into and perform this Agreement
and to carry out its obligations hereunder (it being understood that the
Company's obligations hereunder to effect the Merger is subject to the approval
of its shareholders as set forth in Section 3.26). The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company and, except for the approval of its shareholders as set
forth in Section 3.26, no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement and such transactions. This Agreement
has been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms.
Except as disclosed on Schedule 3.2 of the Company Disclosure Schedules, the
Company (as defined in Section 3.5(b)) is not subject to, or obligated under,
any provision of (a) its Articles of Incorporation or Bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit or (d)
subject to compliance with any of the statutes referred to in the next sentence,
any law, regulation, order, judgment or decree, which would be breached or
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violated, or in respect of which a right of termination or acceleration or any
encumbrance on any of its assets would be created, by its execution, delivery
and performance of this Agreement and the consummation by it of the transactions
contemplated hereby, and the Company has not taken any action that is
inconsistent in any material respect with any resolution adopted by the
Company's shareholders, its board of directors or any committee of its board of
directors. The books of account, stock records, minute books and other records
of the Company are accurate, up-to-date and complete in all material respects
and have been maintained in accordance with prudent business practices. Other
than in connection with or in compliance with the provisions of the California
Law and the SEC, no authorization, consent or approval of, or filing with, any
public body, court or authority is necessary on the part of the Company for the
consummation by the Company of the transactions contemplated by this Agreement.
3.3 Capitalization.
(a) The authorized capital stock of the Company consists of 915,405
shares of Company Common Stock, 510,000 shares of which are issued and
outstanding as of the date hereof, and 235,405 shares of convertible
preferred stock, 235,405 shares of which are issued and outstanding as of
the date hereof. All of the issued and outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable and not
subject to preemptive rights contained in the Company's charter documents
or in any contract or agreement to which the Company is a party.
(b) The Company has reserved 160,000 shares of Company Common Stock
for issuance under the Stock Plan, of which vested and unvested options to
purchase 119,000 shares are outstanding as of the date of this Agreement.
Schedule 3.3(b) of the Company Disclosure Schedules, under the caption
"Company Options," accurately sets forth, with respect to each Company
Option that is outstanding as of the date of this Agreement: (i) the name
of the holder of such Company Option; (ii) the total number of shares of
Company Common Stock that are subject to such Company Option and the number
of shares of Company Common Stock with respect to which such Company Option
is immediately exercisable; (iii) the date on which such Company Option was
granted and the term of such Company Option; (iv) the vesting schedule for
such Company Option; (v) the exercise price per share of Company Common
Stock purchasable under such Company Option; and (vi) whether such Company
Option has been designated an "incentive stock option" as defined in
Section 422 of the Code. The Company has no outstanding warrants to
purchase any capital stock of the Company.
(c) Except as specifically referred to in Sections 3.3(a) and (b)
above, there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company; (ii) outstanding
security, instrument or obligation that is or may become convertible into
or exchangeable for any shares of the capital stock or other securities of
the Company; (iii) contract or agreement under which the Company is or may
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become obligated to sell or otherwise issue any shares or its capital stock
or any other securities; or (iv) condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any person or
entity to the effect that such person or entity is entitled to acquire or
receive any shares of capital stock or other securities of the Company.
(d) All outstanding shares of capital stock of the Company and all
outstanding Company Options have been issued and granted in compliance with
(i) all applicable securities laws and other applicable laws and
regulations, and (ii) all requirements set forth in applicable contracts
and agreements.
(e) The Company has never repurchased, redeemed or otherwise
reacquired shares of capital stock or other securities of the Company.
(f) Except as disclosed on Schedule 3.3(f), the Company is not under
any obligation to register under the Securities Act any of its presently
outstanding securities or any securities that may be subsequently issued,
and no person or entity holds any right to participate in new issuances of
securities by the Company.
(g) The Company is not a party to or obligated under any agreement,
arrangement or understanding, contingent or otherwise, (i) involving the
repurchase or redemption of any amount of Company Common Stock, (ii)
requiring the Company to issue any amount of Company Common Stock to any
person at any time, or (iii) contemplating the issuance at any time of
shares of Company Common Stock or other consideration to any person as a
guarantee by the Company of a minimum market price for Company Common
Stock.
3.4 Financial Statements. The audited financial statements of the Company
for the nine-month period beginning April 1, 1999 and ending December 31, 1999
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) (the "Company's Interim Financial Statements"),
and the unaudited financial statements of the Company for the interim period
ended March 31, 2000, have been delivered to Parent and the Merger Sub and are
accurate and complete in all material respects and present fairly and accurately
the consolidated financial position of the Company as of the dates thereof and
the consolidated results of its operations and the changes in its consolidated
financial position for the periods then ended, in the case of the unaudited
interim financial statements subject to year-end audit adjustments which will
not, individually or in the aggregate, be material in magnitude. Such unaudited
interim financial statements reflect all adjustments necessary to present a fair
statement of the results for the interim periods presented.
3.5 No Subsidiaries. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity.
3.6 Absence of Undisclosed Liabilities. The Company does not have any
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due and regardless of when asserted)
arising out of transactions heretofore entered into, or any action or inaction,
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or any state of facts existing, including taxes with respect to or based upon
transactions or events heretofore occurring, except (a) obligations under
contracts or commitments described in Schedule 3.6 of the Company Disclosure
Schedules, or under contracts and commitments which are not required to be
disclosed thereunder (but not liabilities for breaches thereof), (b) liabilities
reflected on the balance sheet included in the Company's Interim Financial
Statements, (c) liabilities which have arisen after the date of the balance
sheet included in the Company's Interim Financial Statements in the ordinary
course of business (none of which is a material uninsured liability for breach
of contract, breach of warranty, tort, infringement, claim or lawsuit), and (d)
liabilities otherwise disclosed in the Company Disclosure Schedules.
3.7 No Material Adverse Changes. There has been no material adverse change,
and no event has occurred that will or that would reasonably be expected to
result in a material adverse change, in the consolidated assets, financial
condition, operating results, customer, employee, supplier or franchise
relations, business condition or prospects, or financing arrangements of the
Company, taken as a whole.
3.8 Absence of Certain Developments. Except as disclosed in Schedule 3.8 of
the Company Disclosure Schedules, since December 31, 1999, the Company has not:
(a) redeemed or purchased, directly or indirectly, any shares of its
capital stock, or declared, accrued, set aside or paid any dividends or
distributions with respect to any shares of its capital stock;
(b) other than upon the exercise of outstanding warrants or options,
issued or sold any of its equity securities, securities convertible into or
exchangeable for its equity securities, warrants, options or other rights
to acquire its equity securities, or its bonds or other securities;
(c) borrowed any amount or incurred, guaranteed or become subject to
any material liability, except current liabilities incurred in the ordinary
course of business;
(d) discharged or satisfied any material lien or encumbrance or paid
any material liability, other than current liabilities paid in the ordinary
course of business;
(e) mortgaged, pledged or subjected to, or otherwise permitted to
become subject to, any lien, charge or other encumbrance, any of the assets
of the Company with a fair market value in excess of $10,000, except liens
for current property taxes not yet due and payable;
(f) sold, assigned or transferred (including without limitation
transfers to any employees, shareholders or affiliates of the Company) any
tangible assets, except for fair value in the ordinary course of business,
or canceled any debts or claims;
(g) sold, assigned or transferred (including without limitation
transfers to any employees, shareholders or affiliates of the Company) any
patents, trademarks, trade names, copyrights, trade secrets or other
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intangible assets, except for fair value in the ordinary course of
business, or disclosed any proprietary confidential information to any
person other than Parent or the Merger Sub;
(h) suffered any extraordinary loss or waived any rights of material
value, whether or not in the ordinary course of business or consistent with
past practice;
(i) taken any other action or entered into any other transaction other
than in the ordinary course of business and in accordance with past custom
and practice, or entered into any transaction with any Insider (as defined
in Section 3.20);
(j) suffered any material theft, damage, destruction or loss of or to,
or any material interruption in the use of, any property or properties
owned or used by it, whether or not covered by insurance;
(k) made or granted any bonus or any wage, salary or compensation
increase, or made or granted any increase in any employee benefit plan or
arrangement, or amended or terminated any existing employee benefit plan or
arrangement or adopted any new employee benefit plan or arrangement, with
respect to any director, officer or consultant of the Company or, except in
the ordinary course of the Company's business and consistent with the
Company's historical compensation practices, any other employee or group of
employees;
(l) amended or waived any of its rights under, or permitted the
acceleration of vesting under, (i) any provision of its Stock Plan or (ii)
any provision of any agreement evidencing any outstanding Company Option;
(m) made any capital expenditures or commitments therefor (other than
any such expenditures or commitments made in the ordinary course of
business for leasehold improvements at, or the furnishing or equipping of,
the facilities operated by the Company as of the date of this Agreement)
that aggregate in excess of $10,000;
(n) made any loans or advances to, or guarantees for the benefit of,
any persons that aggregate in excess of $10,000;
(o) effected or been a party to any acquisition transaction,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(p) formed any subsidiary or acquired any equity interest or other
interest in any other entity;
(q) written off as uncollectible, or established any reserve with
respect to, any account receivable or other indebtedness in excess of a
total of $10,000;
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(r) changed any of its methods of accounting or accounting practices
in any material respect;
(s) made any tax election;
(t) commenced or settled any legal proceeding;
(u) waived or agreed to waive any applicable statute of limitations or
any similar statutory or judicial doctrine benefiting the Company;
(v) entered into any material transaction or taken any other material
action outside the ordinary course of business or inconsistent with its
past practices; or
(w) made charitable contributions or pledges which in the aggregate
exceed $10,000.
3.9 Title to Properties.
(a) The Company owns good and marketable title to each the tangible
properties and tangible assets reflected on the balance sheet included in
the Company's Interim Financial Statements or acquired since the date
thereof, free and clear of all liens and encumbrances, except for (A) liens
for current taxes not yet due and payable, (B) liens disclosed in Schedule
3.9(a) of the Company Disclosure Schedules, (C) the properties subject to
the leases disclosed in Schedule 3.10(c) of the Company Disclosure
Schedules and (D) assets disposed of since the date of the balance sheet
included in the Company's Interim Financial Statements in the ordinary
course of business consistent with past practices.
(b) (i) the real estate described in Schedule 3.9(b) of the Company
Disclosure Schedules and the demised leases described in Schedule 3.9(c) of
the Company Disclosure Schedules constitutes all of the real estate used or
occupied by the Company (the "Real Estate") and (ii) the Real Estate has
access, sufficient for the conduct of the Company's business as now
conducted or as presently proposed to be conducted, to public roads and to
all utilities, including electricity, sanitary and storm sewer, potable
water, natural gas and other utilities, used in the operations of the
Company.
(c) The leases described in Schedule 3.9(c) of the Company Disclosure
Schedules are in full force and effect, and the Company, as the case may
be, has a valid and existing leasehold interest under each such lease for
the term set forth therein. The Company has delivered to Parent complete
and accurate copies of each of the leases described under such caption and
none of such leases has been modified in any respect, except to the extent
that such modifications are disclosed by the copies delivered to Parent.
The Company is not in default, and no circumstances exist which could
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result in such default, under any of such leases; nor, to the best
knowledge of the Company, is any other party to any of such leases in
default.
(d) All of the buildings, machinery, equipment and other
tangible assets necessary for the conduct of the Company's business are
in good condition and repair (except where the failure to be in such
condition and repair, either individually or in the aggregate, would
not have a material adverse effect on the Company and except for
ordinary wear and tear), and are usable in the ordinary course of
business. The Company owns, or leases under valid leases which afford
peaceful and undisturbed possession of the subject matter of the lease,
all buildings, machinery, equipment and other tangible assets necessary
for the conduct of its business.
(e) The Company is not in violation of any applicable zoning
ordinance or other law, regulation or requirement relating to the
operation of any properties used in the operation of its business,
including without limitation applicable environmental protection and
occupational health and safety laws and regulations, and the Company
has not received any notice of any such violation, or of the existence
of any condemnation proceeding with respect to any properties owned or
leased by the Company.
3.10 Accounts Receivable. The Company's notes and accounts receivable
recorded on the balance sheet included in the Company's Interim Financial
Statements and those arising since the date thereof are valid receivables
(subject to a reasonable allowance for doubtful accounts as set forth in the
Company's Interim Financial Statements) arising from bona fide transactions
entered into in the ordinary course of business and are current and collectible
in full in accordance with their terms, subject to no valid counterclaims or
setoffs.
3.11 Inventories. Except as disclosed in Schedule 3.11 of the Company
Disclosure Schedules, the inventories of the Company recorded on the balance
sheet included in the Company's Interim Financial Statements, and the inventory
created or purchased since the date thereof, consists of a quantity and quality
usable and salable in the ordinary course of business, is not slow-moving as
determined in accordance with past practices, obsolete or damaged, is
merchantable and fit for its particular use, and is not defective.
3.12 Tax Matters.
(a) The Company has (i) filed all Tax Returns required to be filed by
any jurisdiction to which it is subject, (ii) paid in full on a timely
basis all Taxes due and claimed to be due by each such jurisdiction, (iii)
duly collected or withheld and timely paid all Taxes required to be
collected from others or deducted and withheld from any amounts paid to
employees or others, and (iv) properly completed and filed all sales tax
exemption certificates for sales where Tax was not charged. Such Tax
Returns accurately and completely set forth all relevant items and
accurately reflect the Tax Liabilities for such periods. No material Tax
deficiency or penalty has been asserted or, to Company's best knowledge,
threatened by any such jurisdiction against the Company. "Tax" or "Taxes"
means any federal, state, local, or foreign income, gross receipts,
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license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not. "Tax Return" or "Tax Returns" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) There is no audit of any Tax Return of the Company in progress.
The Company has no notice nor any knowledge of any threatened action, suit,
proceeding, investigation, audit, or claim for or relating to Taxes, there
are no matters under discussion with any governmental authorities with
respect to Taxes that could result in an additional amount of Taxes, and no
governmental authority has indicated that it intends to audit any Tax
Return of the Company.
(c) The Company has not (i) waived any statute of limitations with
respect to Tax obligations or agreed to any extension of time with respect
to a Tax assessment or deficiency, (ii) has been a party to any Tax
allocation or sharing agreement, (iii) has been a member of an affiliated
group (other than the affiliated group of which the Company is the common
parent) filing a consolidated federal income tax return, nor taken any
other action that could result in Liability for Taxes of an affiliated
group (other than the affiliated group of which the Company is the common
parent) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), including as a transferee or successor, by
contract, or otherwise, or (iv) is currently the beneficiary of any
extensions of time within which to file any Tax Return. "Liability" means
any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction, nor, to the best knowledge of
the Company, is there any material factual or legal basis for any such
claim.
(d) Schedule 3.12(d) of the Company Disclosure Schedules lists all
federal, state, local, and foreign income Tax Returns filed with respect to
the Company since January 1, 1998, and indicates those income Tax Returns
that have been audited and those that are currently the subject of an
audit. The Company has delivered to the Purchaser correct and complete
copies of all state, federal, and foreign income tax returns with respect
to all taxable periods for which the statute of limitations is still open,
and copies of all examination reports and statements of deficiencies that
have been assessed against or agreed to by the Company and that may have a
material effect on the tax liability of the Company for any present or
future taxable period or for any past taxable period for which the statute
of limitations is still open.
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(e) The Company has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
(f) The Company has not (i) agreed or consented at any time under
Section 341(f) of the Code to have the provisions of Section 341(f)(2) of
the Code apply to any disposition of any assets, (ii) agreed, nor is it
required, to make any adjustment under Section 481(a) of the Code by reason
of a change in accounting method or otherwise that will affect the
liability of the Company for Taxes, (iii) made an election, nor is it
required, to treat any asset as owned by another person pursuant to the
provisions of Section 168(f) of the Code or as tax-exempt bond financed
property or tax-exempt use property within the meaning of Section 168 of
the Code, (iv) made any of the foregoing elections nor is it required to
apply any of the foregoing rules under any comparable state or local tax
provision. The Company does not own any material assets that were financed
directly or indirectly with, or that directly or indirectly secure, debt
the interest on which is tax-exempt under Section 103(a) of the Code.
(g) The Company is not a party to any "Gain Recognition Agreements" as
such term is used in the Treasury Regulations promulgated under Section 367
of the Code.
(h) The Company has not made or become obligated to make, nor will the
Parent, Merger Sub, or the Company, as a result of any event connected with
any transaction contemplated herein and/or any termination of employment
related to such transaction, make or become obligated to make, any "excess
parachute payment," as defined in Section 280G of the Code (without regard
to subsection (b)(4) thereof).
(i) There are no liens for Taxes (other than for current Taxes that
are not yet due and payable or are being contested in good faith) upon the
assets of the Company.
(j) There are no joint ventures, partnerships, limited liability
companies, or other arrangements or contracts to which the Company is a
party and that could be treated as a partnership for federal income tax
purposes.
(k) The Company does not have outstanding any "deferred gain"
resulting from any "deferred intercompany transaction," as both such terms
were used in Section 1.1502-13 of the Treasury Regulations as such was in
effect for taxable years beginning before July 12, 1995.
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(l) The Company does not have outstanding any "intercompany items" or
any "corresponding items" from any "intercompany transactions," as such
terms are used in Section 1.1503-13 of the Treasury Regulations as such is
in effect for taxable years beginning on or after July 12, 1995, that have
not previously been taken into account under the terms of such regulation.
(m) The Company does not currently have or in the past had any
"permanent establishment" in any foreign country, as such term is defined
in any applicable Tax treaty or convention between the United States and
such foreign country or has otherwise taken steps that have exposed, or
will expose, it to the taxing jurisdiction of a foreign country.
(n) The unpaid Taxes of the Company (A) did not, as of the most recent
fiscal month end prior to the date hereof, exceed the reserve for Tax
Liability (not including any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the
face of the most recent balance sheet (other than in any notes thereto)
that has been made available to the Purchaser and (B) will not, as of the
Closing Date, exceed such reserve in the Closing Balance Sheet.
3.13 Contracts and Commitments.
(a) Except as disclosed in Schedule 3.13(a) of the Company Disclosure
Schedules, the Company is not a party or bound to any of the following
contracts or agreements (collectively, the "Material Contracts"):
(i) collective bargaining agreement or contract with any labor
union;
(ii) bonus, pension, profit sharing, retirement, or other form
of deferred compensation plan;
(iii) hospitalization insurance or similar plan or practice,
whether formal or informal;
(iv) contract for the employment of any officer, individual
employee, or other person on a full-time or consulting
basis or relative to severance pay for any such person;
(v) agreement or indenture relating to the borrowing of money
in excess of $10,000 or to mortgaging, pledging or
otherwise placing a lien on any of the assets of the
Company;
(vi) guaranty of any obligation for borrowed money or otherwise,
other than endorsements made for collection;
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(vii) lease or agreement under which it is lessor of, or permits
any third party to hold or operate, any property, real or
personal, for an annual rental in excess of $10,000;
(viii) contract or group of related contracts with the same party
for the purchase of products or services, under which the
undelivered balance of such products and services has a
purchase price in excess of $10,000;
(ix) contract or group of related contracts with the same party
for the sale of products or services under which the
undelivered balance of such products or services has a
sales price in excess of $10,000;
(x) other contract or group of related contracts with the same
party continuing over a period of more than six months from
the date or dates thereof, either not terminable by it on
30 days' or less notice without penalty or involving more
than $10,000;
(xi) contract which prohibits the Company from freely engaging
in business anywhere in the world;
(xii) contract relating to the distribution of the Company's
products;
(xiii) franchise agreement;
(xiv) contract, agreement or understanding with any shareholder
who beneficially owns five percent (5%) or more of the
Company Common Stock or with any officer, director or
employee (other than for employment on customary terms);
(xv) license agreement or agreement providing for the payment or
receipt of royalties or other compensation by the Company
in connection with the proprietary rights as disclosed on
Schedule 3.14 of the Company Disclosure Schedules; or
(xvi) other agreement material to the Company's business or not
entered into in the ordinary course of business.
(b) Except as specifically disclosed on Schedule 3.13(b) of the
Company Disclosure Schedules, (i) no contract or commitment required to be
disclosed under such caption has been breached or canceled by the other
party; (ii) since the date of the balance sheet included in the Company's
Interim Financial Statements, no customer or supplier has indicated that it
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will stop or decrease the rate of business done with the Company, except
for changes in the ordinary course of the Company's businesses; (iii) the
Company has performed all obligations required to be performed by it in
connection with the contracts or commitments required to be disclosed under
such caption and is not in receipt of any claim of default under any
contract or commitment required to be disclosed under such caption; (iv)
the Company does not have any present expectation or intention of not fully
performing any obligation pursuant to any contract or commitment or
commitment set forth under such caption; and (v) the Company does not have
any knowledge of any breach or anticipated breach by any other party to any
contract or commitment set forth under such caption.
(c) Prior to the date of this Agreement, Parent has been supplied with
a true and correct copy of each written contract or commitment, and a
written description of each oral contract or commitment, disclosed on
Schedule 3.13 of the Company Disclosure Schedules, together with all
amendments, waivers or other changes thereto.
3.14 Proprietary Rights. Except as disclosed on Schedule 3.14 of the
Company Disclosure Schedules, there are no patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights, trade
secrets or other proprietary rights owned by the Company or necessary to the
conduct of the Company's business as now conducted. The Company owns and
possesses all rights, titles and interest, or a valid license, in and to the
proprietary rights set forth under such caption. The Company Disclosure
Schedules describes under such caption all proprietary rights which have been
licensed to third parties and all proprietary rights which are licensed from
third parties by the Company. The Company has taken all action deemed by it to
be reasonably necessary to protect the proprietary rights set forth under such
caption in the United States and all foreign countries reasonably related to the
Company's markets and business objectives. The Company has not received any
notice of, nor is it aware of any facts which indicate a likelihood of, any
infringement, misappropriation, or conflict from any third party with respect to
the proprietary rights which are listed under such caption; the Company, to its
best knowledge, has not infringed, misappropriated or otherwise conflicted with
any proprietary rights of any third parties, nor is it aware of any
infringement, misappropriation or conflict which will occur in the continued
operation of the Company; and no claim by any third party contesting the
validity of any proprietary rights listed under such caption has been made, is
currently outstanding, or to the best knowledge of the Company is threatened.
3.15 Litigation. There are no actions, suits, claims, proceedings, orders
or investigations pending or, to the Company's best knowledge, threatened
against the Company or otherwise affecting any of its properties or assets, or
that challenges or may have the effect of preventing, delaying, making illegal
or otherwise interfering with the Merger or any other transactions contemplated
by this Agreement, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or that could reasonably be expected to
have a material adverse effect on the business, properties, assets, condition
(financial or otherwise) or business prospects of the Company and there is no
basis known to the Company for any of the foregoing. There is no order, writ,
injunction, judgment or decree:
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(a) to which the Company or any of the assets owned or used by the
Company is subject, or
(b) to which any officer or employee of the Company is subject that
prohibits such officer or employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business. Except as
set forth under such caption, the Company has not received any opinion or
legal advice to the effect that the Company is exposed from a legal
standpoint to any liability or disadvantage which may be material to it or
its prospects.
3.16 Brokerage. There are no claims for investment banking fees, brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Company for which any other party will be
responsible.
3.17 Employment Matters. To the best knowledge of the Company, (i) no key
executive employee of the Company, and no group of the Company's employees, has
any plans to terminate his or its employment, (ii) the Company has complied with
all laws relating to the employment of labor, including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes, and (iii) the Company has no
material labor relations problems pending and its labor relations are
satisfactory.
3.18 Employee Benefit Plans.
With respect to the employee benefits provided to current and former
employees, officers and directors of the Company:
(a) The Company currently maintains only the employee pension benefit
plans, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), as are listed on Schedule
3.18(a) of the Company Disclosure Schedules (the "Pension Plans").
(b) The Company currently maintains only the employee welfare benefit
plans, as defined in Section 3(1) of ERISA (including but not limited to,
life insurance, medical, hospitalization, holiday, vacation, disability
dental and vision plans) as are listed on Schedule 3.18(b) of the Company
Disclosure Schedules (the "Welfare Plans").
(c) The Company currently maintains, or has entered into, only the
compensation programs and/or employment arrangements, (including but not
limited to, incentive compensation, bonus, stock option, stock purchase,
severance, sick pay, salary continuation, deferred compensation,
supplemental executive compensation plans, and employment and consulting
agreements) as are listed on Schedule 3.18(c) of the Company Disclosure
Schedules (the "Compensation Programs").
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(d) The Company does not contribute, has not contributed within the
last ten years, to any multiemployer plan, as defined in Sections 3(37) and
4001 of ERISA, and have not incurred any withdrawal liability within the
meaning of Section 4201 of ERISA.
(e) Each Pension Plan and Welfare Plan is in compliance with the
material requirements of ERISA; each Pension Plan which is intended to be
qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified or a request for such
determination has been timely filed with the Internal Revenue Service (and
to Company's best knowledge nothing has occurred between the date of the
last such determination and the Closing Date to cause the Internal Revenue
Service to revoke such determination).
(f) Any Pension Plan or any Welfare Plan designed to satisfy the
requirements of Section 125, Section 401, Section 401(k), Section 409,
Section 501(c)(9), Section 4975(e)(7), and/or Section 4980B of the Code,
complies with the material requirements of such section and applicable
regulations thereunder.
(g) Neither the Company nor any other employer that is, or at any
relevant time was, together with the Company, treated as a "single
employer" under Section 414 of the Code, has at any time on or after
January 1, 1998 maintained or contributed to a defined benefit plan as
defined in Section 3(35) of ERISA, that is or was subject to Title IV of
ERISA; and no accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, exists (whether or not waived) with respect to any
Pension Plan as of the date hereof.
(h) All amounts required to be paid by the Company with respect to
each Pension Plan, Welfare Plan and Compensation Program on or before the
Closing Date have been paid.
(i) None of the Pension Plans or the Company or any party in interest
or disqualified person has engaged in any non-exempt "prohibited
transactions" as defined in Section 406 of ERISA or Section 4975 of the
Code.
(j) Except as disclosed on Schedule 3.18(j) of the Company Disclosure
Schedules, no Pension Plan or Welfare Plan provides benefits, including
without limitation death or medical benefits (whether or not insured), with
respect to current or former employees beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law,
(ii) retirement benefits under a Pension Plan, (iii) death benefits under a
Welfare Plan, (iv) deferred compensation accrued on the books of the
Company, or (v) benefits the full cost of which is borne by the current or
former employee (or his or her beneficiary).
(k) No "leased employee," as that term is defined in Section 414(n) of
the Code, performs or has performed services for the Company.
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(l) No liability has been, or is expected by the Company to be,
incurred by the Company under Title IV (including, without limitation,
Section 4062) of ERISA with respect to any Pension Plan.
(m) No reportable event within the meaning of Title IV of ERISA has
occurred with respect to any Pension Plan.
(n) The Company has furnished Parent with correct and complete copies
of each Pension Plan, Welfare Plan, and Compensation Program, together with
any trust agreements, summary plan descriptions, employee informational
material, financial statements relating thereto and participant listings.
3.19 Insurance. Schedule 3.19 of the Company Disclosure Schedules lists and
briefly describes (including name of insurer, agent, coverage and expiration
date) each insurance policy maintained by, at the expense of or for the benefit
of the Company with respect to its properties and assets and describes any
material claims made thereunder. All of such insurance policies are in full
force and effect and the Company is not in default with respect to its
obligations under any of such insurance policies. Except as disclosed on
Schedule 3.19 of the Company Disclosure Schedules, the Company is the sole
beneficiary of each such policy. The insurance coverage of the Company is
customary for corporations of similar size engaged in similar lines of
businesses. The Company has not received any notice or other communication
regarding any actual or possible (a) cancellation or invalidation of any
insurance policy, (b) refusal of any coverage or rejection of any claim under
any insurance policy or (c) material adjustment in the amount of premiums
payable with respect to any insurance policy.
3.20 Affiliate Transactions. Except as disclosed on Schedule 3.20 of the
Company Disclosure Schedules, no officer or director of the Company or any
member of the immediate family of any such officer or director, or any entity in
which any of such persons owns any beneficial interest (other than a
publicly-held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than 5% of the stock of
which is beneficially owned by any of such persons) (collectively "Insiders"),
(a) has any agreement with the Company (other than normal employment
arrangements) or any interest in any property, real, personal or mixed, tangible
or intangible, used in or pertaining to the business of the Company, (b) has
been indebted to the Company in amounts in excess of $10,000 in the aggregate at
any time, (c) has at any time competed, directly or indirectly, with the
Company, or (d) has any claim or right against the Company (other than rights
under Company Options and rights to receive compensation for services performed
as an employee of the Company). For purposes of the preceding sentence, the
members of the immediate family of an officer or director shall consist of the
spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law of such officer or director.
3.21 Suppliers. Schedule 3.21 of the Company Disclosure Schedules lists the
five (5) largest suppliers of the Company (on a consolidated basis) for the
fiscal year (transaction period) ended March 31, 2000, and sets forth opposite
the name of each such supplier the total amount of purchases from such supplier
by the Company during such period.
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3.22 Officers and Directors; Bank Accounts. Schedule 3.22 of the Company
Disclosure Schedules lists all officers and directors of the Company and all of
the Company's accounts and safe deposit boxes at any bank or other financial
institution (designating each authorized signer).
3.23 Compliance with Laws; Permits; Certain Operations. The Company and its
officers, directors, agents and employees have complied in all material
respects, and currently are in compliance in all material respects, with all
applicable laws and regulations of foreign, federal, state and local governments
and all agencies thereof which affect the businesses or any owned or leased
properties of the Company and to which the Company may be subject, and no claims
have been filed against the Company alleging a violation of any such law or
regulation, except as disclosed on Schedule 3.23 of the Company Disclosure
Schedules. The Company has not given or agreed to give any money, gift or
similar benefit (other than incidental gifts of articles of nominal value, gifts
and prizes awarded pursuant to promotional programs approved by the Company's
management and non-extraordinary entertainment expenditures) to any actual or
potential customer, supplier, foreign or domestic governmental employee or any
other person in a position to assist or hinder the Company in connection with
any actual or proposed transaction. The Company holds all of the permits,
licenses, certificates and other authorizations of foreign, federal, state and
local governmental agencies required for the conduct of its business. Without
limiting the generality of the foregoing, the Company has not violated, or
received a notice or charge asserting any violation of, the Occupational Safety
and Health Act of 1970 or any other state or federal acts or laws (including
rules and regulations thereunder) regulating or otherwise affecting employee
health and safety or the environment.
3.24 Disclosure.
(a) Neither this Agreement nor any other agreement or instrument
executed in connection with the transactions contemplated hereby nor any of
the attachments or exhibits hereto nor the Company Disclosure Schedules
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading, and there is no
fact which has not been disclosed in writing to Parent of which any officer
or director of the Company is aware which materially affects adversely or
could reasonably be anticipated to materially affect adversely the
business, including operating results, assets, customer relations, employee
relations and business prospects, of the Company, taken as a whole.
3.25 Non-Contravention; Consents. Except as disclosed on Schedule 3.25 of
the Company Disclosure Schedules, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's Articles of Incorporation or Bylaws, or
(ii) any resolution adopted by the Company's shareholders, the Company's
board of directors or any committee of such board of directors;
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(b) contravene, conflict with or result in a violation of, or give any
governmental authority or other person or entity the right to challenge any
of the transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any legal requirement or any order,
writ, injunction, judgment or decree to which the Company, or any of the
assets owned or used by the Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any governmental authority the right to
revoke, withdraw, suspend, cancel, terminate or modify, any governmental
permit or authorization that is held by the Company that otherwise relates
to the Company's business or to any of the assets owned or used by the
Company;
(d) contravene, conflict with or result in a violation or breach of,
require consent under, or result in a default under, any provision of any
contract or agreement to which the Company is a party, or give any person
or entity the right to (i) declare a default or exercise any remedy under
any such contract or agreement, (ii) accelerate the maturity or performance
of any such contract or agreement, or (iii) cancel, terminate or modify any
such contract or agreement; or
(e) result in the imposition or creation of any lien or other
encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or
materially impair the operations of the Company).
Except as disclosed on Schedule 3.25 of the Company Disclosure Schedules,
the Company is not and will not be required to make any filing with or give any
notice to, or to obtain any consent from, any person or entity in connection
with (x) the execution, delivery or performance of this Agreement or any of the
other agreements referred to in this Agreement, or (y) the consummation of the
Merger or any of the other transactions contemplated by this Agreement.
3.26 Stockholder Vote Required. The affirmative vote of a majority of the
votes entitled to be cast by holders of the outstanding shares of Company Common
Stock (voting as a class) and Company convertible preferred stock (voting as a
class) are the only votes of the holders of any class or series of the Company's
capital stock necessary to approve this Agreement and the Merger under
California Law.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business Pending the Merger. The Company covenants and
agrees that, prior to the Effective Time, unless Parent shall otherwise consent
in writing (which consent shall not be unreasonably withheld) or as otherwise
expressly contemplated or permitted by this Agreement:
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(a) The business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course, on an
arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and past custom and practice; and
the Company shall maintain its facilities in good condition and repair and
in accordance with the Company's policies and procedures relating thereto
as in effect prior to the execution of this Agreement;
(b) The Company shall not, directly or indirectly, do or permit to
occur any of the following: (i) issue, sell, pledge, dispose of or encumber
(A) any additional shares of, or any options, warrants, conversion
privileges or rights of any kind to acquire any shares of, any of its
capital stock, except for issuances upon the exercise of options
outstanding on the date hereof, or (B) any of its assets, except for fair
value in the ordinary course of business; (ii) amend or propose to amend
its Articles of Incorporation or Bylaws; (iii) split, combine or reclassify
any outstanding shares of Company Common Stock or other securities of the
Company, or declare, set aside or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to shares of
Company Common Stock or other securities of the Company; (iv) redeem,
purchase or acquire or offer to acquire any shares of Company Common Stock
or other securities of the Company; (v) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership, joint venture or other business organization or
division or material assets thereof; (vi) incur or guarantee any
indebtedness for borrowed money or issue any debt securities except the
borrowing of working capital in the ordinary course of business and
consistent with past practice or (vii) enter into or propose to enter into,
or modify or propose to modify, any agreement, arrangement or understanding
with respect to any of the matters set forth in this Section 4.1(b);
(c) The Company shall not, directly or indirectly, (i) enter into or
modify any Material Contract, agreement or understanding to which the
Company is a party; (ii) enter into or modify any employment, severance or
similar agreements or arrangements with, or grant any bonuses, salary
increases, severance or termination pay to, any officers or directors or
consultants; (iii) make any capital expenditures, including any
capitalizable lease obligations, other than expenditures necessary to
maintain existing assets in good repair and other capital expenditures in
amounts not exceeding $10,000 in the aggregate; or (iv) in the case of
employees who are not officers or directors or consultants, grant or take
any action with respect to the granting of any salary increases, severance
or termination pay or increases in other benefits, other than grants or
such actions as are in the ordinary course of the Company's business and
are consistent with the Company's historic compensation practices, or grant
or take any actions with respect to the granting of any bonuses;
(d) The Company shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement
for the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
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employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(e) The Company shall use its best efforts to cause its current
insurance (or reinsurance) policies not to be canceled or terminated or
reduced in coverage amount or any of the coverage thereunder to lapse,
unless simultaneously with such termination, cancellation, reduction in
coverage amount or lapse, replacement policies providing coverage equal to
or greater than the coverage under the canceled, terminated, reduced or
lapsed policies for substantially similar premiums are in full force and
effect;
(f) The Company (i) shall use its best efforts to preserve intact its
business organization and good will, keep available the services of its
officers and employees as a group and maintain satisfactory relationships
with suppliers, distributors, customers and others having business
relationships with it; (ii) shall not take any action which would render,
or which reasonably may be expected to render, any representation or
warranty made by it in this Agreement or in any other agreement or
instrument executed in connection with the transactions contemplated hereby
untrue at, or at any time prior to, the Effective Time; (iii) shall notify
Parent of any emergency or other change in the normal course of its
business or in the operation of its properties and of any governmental or
third party complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency, change,
complaint, investigation or hearing would be material, individually or in
the aggregate, to the business, operations or financial condition of the
Company or to the Company's, Parent's or the Merger Sub's ability to
consummate the transactions contemplated by this Agreement; and (iv) shall
notify Parent if the Company shall discover that any representation or
warranty made by it in this Agreement was when made, or has subsequently
become, untrue;
(g) The Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(h) The Company will not waive or agree to waive any applicable
statute of limitations or any similar statutory or judicial doctrine
benefiting the Company;
(i) The Company shall not commence or settle any material legal action
or proceeding, provided, that the Company may settle any legal actions or
proceedings which were pending as of the date of the Company's Interim
Financial Statements so long as the consideration paid or agreed to be paid
by the Company in connection with such settlements does not exceed $10,000
in any individual case or $10,000 in the aggregate for all such settlements
(in the case of cash settlements) or cause the number of shares of Company
Common Stock issued and outstanding, after taking into account any shares
issued or canceled in connection with such settlement, to exceed the number
of shares of Company Common Stock issued and outstanding on the date of
this Agreement;
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(j) The Company shall cause its officers to report at Parent's request
(but in no event less frequently than weekly) to Parent concerning the
status of the Company's business; and
(k) Subject to the fiduciary obligations of its directors as advised
by counsel, the Company shall not, except as required by law, call any
meeting of its shareholders other than the meeting contemplated in Section
5.1.
(1) The Company shall not make or amend any federal, state, or local
Tax election, agree to waive or extend any statute of limitations, or
resolve or agree to resolve any audit or proceeding relating to Taxes.
4.2 Notification; Updates to Disclosure Schedule.
(a) During the period subsequent to the execution of this Agreement
and prior to the Effective Time (the "Pre-Closing Period"), the Company
shall promptly notify Parent in writing of:
(i) the discovery by the Company of any event, condition, fact
or circumstance that occurred or existed on or prior to the
date of this Agreement and that caused or constitutes an
inaccuracy in or breach of any representation or warranty
made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that
would cause or constitute an inaccuracy in or breach of any
representation or warranty made by the Company in this
Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or
discovery of such event, condition, fact or circumstance,
or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of the Company;
and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth
in Sections 6.1, 6.2 or 6.3 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.2(a) requires any change in the Company
Disclosure Schedules, or if any such event, condition, fact or circumstance
would require such a change assuming the Company Disclosure Schedules were
dated as of the date of the occurrence, existence or discovery of such
event, condition, fact or circumstance, then the Company shall promptly
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deliver to Parent an update to the Company Disclosure Schedules specifying
such change. No such update shall be deemed to supplement or amend the
Company Disclosure Schedules for the purpose of (i) determining the
accuracy of any of the representations and warranties made by the Company
in this Agreement, or (ii) determining whether any of the conditions set
forth in Sections 6.1, 6.2 or 6.3 has been satisfied.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Shareholders Meeting. The Company shall call and hold a meeting of its
Shareholders (the "Company Shareholders' Meeting) to submit this Agreement, the
Merger and related matters for the consideration and approval of the Company's
Shareholders or, in the alternative, obtain the unanimous written consent of its
Shareholders. In the case of a Company Shareholders' Meeting, the Company
Shareholders' Meeting will be called, held and conducted, and any proxies will
be solicited, in compliance with applicable law.
5.2 Expenses. Each party to this Agreement shall bear their own costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
5.3 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using reasonable efforts to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, including, but
not limited to, any submissions of information requested by governmental
authorities.
5.4 No Negotiations, etc. The Company shall not, directly or indirectly,
through any officer, director, agent or otherwise, solicit, initiate or
encourage submission of any inquiry, proposal or offer from any person or entity
(including any of its or their officers or employees) other than Parent relating
to any liquidation, dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the assets of, or any
equity interest in, the Company or other similar transaction or business
combination involving the Company, or, unless the Company's Board of Directors
receives a written opinion from the Company's outside counsel stating that there
would be a material risk of liability on the part of the members of the
Company's Board of Directors to the Company's shareholders for failure to do so,
participate in any discussions or negotiations regarding, or furnish to any
other person any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by, or consider, entertain or accept any proposal or offer from, any
other person or entity to do or seek any of the foregoing. The Company shall
promptly notify Parent and the Merger Sub if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is made and shall
promptly provide Parent with such information regarding such proposal, offer,
inquiry or contact as Parent may request.
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5.5 Notification of Certain Matters. Each party shall give prompt notice to
each other party of (a) the occurrence or failure to occur of any event,
conditions, fact or circumstance which occurrence or failure would be likely to
cause any representation or warranty on its part contained in this Agreement to
be untrue or inaccurate at, or at any time prior to, the Effective Time, and (b)
any material failure of such party, or any officer, director, shareholder,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder.
5.6 Access to Information; Confidentiality. Parent and its attorneys,
accountants, consultants and representatives shall continue to have access to
the books and records of the Company and such other information pertaining to
the business and assets of the Company as Parent shall reasonably request, and
the Company and its attorneys, accountants, consultants and representatives
shall continue to have access to the books and records of Parent and such other
information pertaining to the business and assets of Parent as the Company shall
reasonably request, and each of Parent and the Company shall provide the other
with reasonable access to its officers and other personnel, as provided in Part
5, paragraph (c) of the Letter of Intent. The terms of [Part 5, paragraph (b)]
of the Letter of Intent shall apply, in the event of a termination of this
Agreement, to information obtained as a result of such access and assistance.
5.7 Shareholder Claims. The Company shall not settle or compromise any
claim brought by any present, former or purported holder or owner of any
securities of the Company in connection with the Merger without the prior
written consent of Parent.
5.8 Consents. As promptly as practicable after the execution of this
Agreement, each party to this Agreement (a) shall make all filings (if any) and
give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
consents (if any) required to be obtained (pursuant to any applicable law,
regulation, contract or agreement, or otherwise) by such party in connection
with the Merger and the other transactions contemplated by this Agreement.
Parent shall (upon request) promptly deliver to the Company a copy of each such
filing made, each such notice given and each such consent obtained by Parent or
Merger Sub during the period subsequent to the date hereof and prior to the
Effective Time; and the Company shall (upon request) promptly deliver to Parent
a copy of each such filing made, each such notice given and each such consent
obtained by the Company during the period subsequent to the date hereof and
prior to the Effective Time.
5.9 State Securities Law Compliance. Parent shall use commercially
reasonable efforts to (a) qualify, prior to the Effective Time, the Parent Class
A Common Stock to be issued pursuant to the Merger under state "blue sky" laws
of every jurisdiction of the United States in which (i) any registered
shareholder of the Company has an address on the records of the Company as of
the date of this agreement, and (ii) an exemption from the qualification
requirements under such laws is unavailable with respect to the issuance of
Parent Class A Common Stock in the Merger, and (b) qualify, prior to the
Effective Time, the Assumed Options under the state "blue sky" laws of every
jurisdiction of the United States in which (i) the records of the Company, as of
the date of this Agreement, indicate that a holder of such Assumed Options
resides, and (ii) an exemption from the qualification requirements under such
laws is unavailable.
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5.10 Notification. (a) During the Pre-Closing Period, Parent shall promptly
notify the Company in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of
this Agreement and that caused or constituted an inaccuracy in or
breach of any representation or warranty made by Parent in this
Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or
warranty made by Parent in this Agreement if (A) such
representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact
or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the
date of this Agreement;
(iii) any breach of any covenant or obligation of Parent; and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Sections
6.1, 6.2 or 6.3 impossible or unlikely.
5.11 Commercially Reasonable Efforts. During the Pre-Closing Period, (a)
the Company shall use all commercially reasonable efforts to cause the
conditions set forth in Sections 6.1 and 6.3 to be satisfied on a timely basis,
and (b) Parent and Merger Sub shall each use all commercially reasonable efforts
to cause the conditions set forth in Sections 6.1 and 6.2 to be satisfied on a
timely basis.
5.12 Tax Matters. Prior to the Closing:
(a) The Company shall give the Parent and its authorized
representatives full access to all properties, books, records and Tax
Returns of or relating to the Company, whether in the possession of the
Company, or third-party representatives in order that the Parent may have
full opportunity to make such investigations as it shall desire to make of
the affairs of the Company. The Company shall ensure that all third-party
representatives of the Company, including without limitation accountants
and attorneys, fully cooperate and be available to the Parent in connection
with such investigation.
(b) The Company shall terminate all tax allocation agreements and tax
sharing agreements with respect to the Company and shall ensure that such
agreements are of no further force or effect as to the Company on and after
the Closing and there shall be no further liability of the Company under
any such agreements.
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5.13 Indemnification.
(a) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless the present and former officers,
directors and employees of the Company (collectively, the "Indemnified
Parties") against all losses, expenses, claims, damages, liabilities or
amounts that are paid in settlement of (with approval of Parent and the
Surviving Corporation), or otherwise in connection with, any claim, action,
suit, proceeding or investigation (a "Claim"), based in whole or in part on
the fact that such person is or was such a director, officer or employee
and arising out of actions or omissions occurring at or prior to the
Effective Time, in each case to the fullest extent permitted under the
General Corporation Law of the State of Delaware (the "DGCL"), (and shall
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
the DGCL, upon receipt from the Indemnified Party to whom expenses are
advanced of the undertaking to repay such advances contemplated by Section
145(e) of the DGCL).
(b) Any Indemnified Party wishing to claim indemnification under this
Section 5.14, upon learning of any such Claim, shall notify Parent and the
Surviving Corporation (although the failure so to notify Parent and the
Surviving Corporation shall not relieve the Surviving Corporation from any
liability that it may have under this Section 5.14, except to the extent
such failure materially prejudices such party), and shall deliver to the
Surviving Corporation the undertaking contemplated by Section 145(e) of the
DGCL. Parent and the Surviving Corporation shall have the right to assume
the defense thereof and the Surviving Corporation, including its
affiliates, shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except
that if Parent and the Surviving Corporation elect not to assume such
defense or there is a conflict of interest between, or different defenses
exist for Parent and the Surviving Corporation and the Indemnified Parties,
the Indemnified Parties may retain counsel satisfactory to them (and
reasonably satisfactory to Parent) and the Surviving Corporation shall pay
all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided, however,
that (i) the Surviving Corporation, including its affiliates, shall not, in
connection with any one such action or proceeding or separate but
substantially similar actions or proceedings arising out of the same
general allegations, be liable for the fees and expenses of more than one
separate firm of attorneys at any time for all Indemnified Parties except
to the extent that local counsel, in addition to such parties' regular
counsel, is necessary or desirable in order to effectively defend against
such action or proceeding, (ii) Parent, the Surviving Corporation and the
Indemnified Parties will cooperate in the defense of any such matter, and
(iii) the Surviving Corporation, including its affiliates, shall not be
liable for any settlement effected without Parent's prior written consent,
which consent will not be unreasonably withheld or delayed, and provided,
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further, however, that the Surviving Corporation, including its affiliates,
shall not have any obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and not subject to further appeal,
that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. No Indemnified Party
shall consent to entry of judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release, in form and substance
reasonably satisfactory to such Indemnified Party, from all liability in
respect of such claim or litigation for which such Indemnified Party would
be entitled to indemnification hereunder.
(c) This Section 5.14 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties referred to herein, their heirs
and personal representatives and shall be binding on Parent and Merger Sub
and the Surviving Corporation and their respective successors and assigns.
5.14 Nasdaq SmallCap Market Listing. Parent shall use all reasonable
efforts to cause the shares of Parent Class A Common Stock to be issued in the
Merger and the shares of Parent Class A Common Stock to be reserved for issuance
under the Assumed Options to be approved for listing on the Nasdaq SmallCap
Market, subject to official notice of issuance, as soon as practicable after the
Closing Date.
5.15 Employees; Employment Agreements.
(a) Following the Effective Time, the Surviving Corporation shall
honor in accordance with their terms all employee benefit plans disclosed
by the Company under the caption "Employee Benefit Plans" in the Company
Disclosure Schedules, and all accrued benefits vested thereunder. Parent
agrees to provide, after the Effective Time, or cause the Surviving
Corporation to provide, employees of the Company, not otherwise covered by
collective bargaining agreements, with employee benefits in the aggregate
substantially no less favorable than those benefits provided to Parent's
similarly situated employees for a period ending on the first anniversary
of the Effective Time.
(b) Parent shall enter into an employment agreement (the "Employment
Agreement"), the form of which is attached hereto as Exhibit A, with each
of Robert R. Cullen and Richard J. Sweeney.
5.16 Future Employment Incentives. In addition to the treatment of the
Company's Stock Plan under Section 1.11(a) above, at the Closing the officers
and employees of the Surviving Corporation (or, in the event of a subsequent
merger, consolidation or other restructuring, the officers and employees of the
business formerly conducted by the Company prior to the Effective Time) will be
allocated stock options for not less than 146,000 shares of Parent Class A
Common Stock representing eight percent (8%) of the total number of shares
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reserved under the Amended LightPath Technologies, Inc. Omnibus Incentive Plan
dated November 12, 1997 (the "Omnibus Plan") as disclosed on Schedule 5.16;
provided that such number of available option shares shall be increased, as
necessary, from time to time following the Merger to provide for an allocation
of eight percent (8%) of any increase in option shares under the Omnibus Plan or
any successor thereto. All such stock options will be granted and managed in
accordance with existing policies of Parent and the Omnibus Plan. The parties
acknowledge and agree that if and to the extent that Parent is required to
obtain any shareholder approval of an amendment to its existing stock option
plans in order to implement the provisions of this Section 5.16 (including,
without limitation, any amendment increasing the number of shares available for
grant thereunder), the stock options contemplated hereby may be granted subject
to and contingent upon receipt of such shareholder approval.
5.17 Funding Commitment; Facility. Following the Closing Date, the Parent
shall fund $5,250,000 to the Surviving Corporation to provide for facility
expansion, equipment acquisitions, recruitment and retention of key personnel,
product development and strategic supply arrangements in accordance with the
budget set forth on Schedule 5.17, which budget has been approved by the
Parent's board of directors and which budget shall be implemented in accordance
with Parent's existing policies and procedures. Following the Closing Date, the
Parent currently intends to continue operations of the Surviving Corporation at
the Company's current facility located in Walnut, California for the foreseeable
future.
ARTICLE 6
CONDITIONS
6.1 Conditions to Obligations of Each Party To Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) this Agreement (including without limitation the plan of merger
contained herein) and the Merger shall have been approved and adopted by
the requisite vote or unanimous written consent of the Shareholders as may
be required by law and by any applicable provisions of the Company's
Articles of Incorporation and Bylaws;
(b) the materials distributed with respect to the Company
Shareholders' Meeting shall not contain any untrue statement of a material
fact and shall not omit any statement required to be contained therein or
necessary to make any statement contained therein, in the light in which
made, not misleading;
(c) there shall have been no law, statute, rule or regulation,
domestic or foreign, enacted or promulgated which would make consummation
of the Merger illegal;
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(d) no injunction or other order entered by a United States (state or
federal) court of competent jurisdiction shall have been issued and remain
in effect which would prohibit consummation of the Merger;
(e) there shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic
or foreign, (i) challenging or seeking to make illegal, or to delay or
otherwise directly or indirectly to restrain or prohibit, the consummation
of the Merger, or seeking to obtain material damages in connection with the
Merger, (ii) seeking to prohibit direct or indirect ownership or operation
by Parent of all or a material portion of the business or assets of the
Company or of Parent and its subsidiaries, or to compel Parent or any of
its subsidiaries or the Company to dispose of or to hold separately all or
a material portion of the business or assets of Parent and its subsidiaries
or of the Company, as a result of the Merger, (iii) seeking to impose or
confirm limitations on the ability of Parent effectively to exercise
directly or indirectly full rights of ownership of any shares of Company
Common Stock on all matters properly presented to the Company's
shareholders, (iv) seeking to require direct or indirect divestiture by
Parent of any shares of Company Common Stock or any shares of the Surviving
Corporation to be issued in the Merger, (v) seeking or causing any material
diminution in the direct or indirect benefits expected to be derived by
Parent a result of the transactions contemplated by this Agreement, (vi)
invalidating or rendering unenforceable any material provision of this
Agreement (including without limitation any of the exhibits or attachments
hereto) or the Letter of Intent, (vii) which otherwise might materially
adversely affect the Company or Parent and its subsidiaries, or (viii)
otherwise relating to the Letter of Intent or the Merger;
(f) there shall not be any action taken, or any injunction issued, or
any order, statute, rule or regulation proposed, enacted, promulgated,
issued or deemed applicable to the Merger by any federal, state or foreign
court, government or governmental authority or agency, which may, directly
or indirectly, result in any of the consequences referred to in (f) above;
(g) there shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the Nasdaq SmallCap
Market, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by
United States authorities on the extension of credit by lending
institutions, (iii) a commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, (iv) any limitation by any governmental authority on, or any
other event which, in the sole judgment of Parent, might affect the
extension of credit by banks or other lending institutions in the United
States, or (v) in the case of any of the foregoing existing at the date
hereof, a material acceleration or worsening thereof;
(h) the Company shall have obtained each consent and approval
necessary in order that the Merger and the transactions contemplated herein
not constitute a breach or violation of, or result in a right of
termination or acceleration or any encumbrance on any of the Company's
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assets pursuant to the provisions of, any agreement, arrangement or
understanding or any license, franchise or permit;
(i) there shall have been no damage, destruction or loss of or to any
property or properties owned or used by the Company, whether or not covered
by insurance, which in the aggregate has a material adverse effect on the
Company, taken as a whole;
(j) the principal terms of this Agreement and the Merger shall have
been approved and adopted by the Company's shareholders in accordance with
all applicable laws and regulations and the Company's Articles of
Incorporation and Bylaws; and
(k) no party hereto shall have terminated this Agreement as permitted
herein;
6.2 Additional Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is also subject to the following conditions:
(a) the representations and warranties of Parent and the Merger Sub
set forth in Article 2 shall be true and correct in all material respects
as of the Effective Time as if made at and as of the Effective Time, and
each of Parent and the Merger Sub shall in all material respects have
performed each obligation and agreement and complied with each covenant to
be performed and complied with by it hereunder at or prior to the Effective
Time. A representation or warranty that is expressly subject to a
materiality limitation shall not be subject to a further materiality
limitation as a result of the use of the phrase "in all material respects"
in the preceding sentence;
(b) Parent shall have furnished to the Company a certificate in which
Parent shall certify that Parent has no reason to believe that the
conditions set forth in Section 6.2(a) have not been fulfilled;
(c) Parent shall have furnished to the Company (i) a copy of the text
of the resolutions by which the corporate action on the part of Parent and
the Merger Sub necessary to approve this Agreement and the Merger were
taken, (iii) certificates executed on behalf of Parent and the Merger Sub
by their respective corporate secretaries or one of their respective
assistant corporate secretaries certifying to the Company, in each case,
that such copy is a true, correct and complete copy of such resolutions and
that such resolutions were duly adopted and have not been amended or
rescinded, and (iii) an incumbency certificate executed on behalf of Parent
and the Merger Sub by their respective corporate secretaries or one of
their respective assistant corporate secretaries certifying, in each case,
the signature and office of each officer executing this Agreement or any
other agreement, certificate or other instrument executed pursuant hereto;
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(d) the Company shall have received a letter addressed to the Company
from Squire, Sanders & Dempsey L.L.P. based on customary reliance and
subject to customary qualifications, to the effect that:
(i) Each of Parent and the Merger Sub is a corporation validly
existing with the corporate authority to own, pledge,
mortgage and operate its properties, to lease any
properties it operates under lease, to conduct its business
as it is presently conducted and in good standing under the
laws of the State of Delaware.
(ii) Parent has the corporate power to consummate the
transactions on its part contemplated by this Agreement.
Parent has duly taken all requisite corporate action to
authorize this Agreement; and this Agreement has been duly
executed and delivered by Parent and constitutes the valid
and binding obligation of Parent.
(iii) The Merger Sub has the corporate power to consummate the
transactions on its part contemplated by this Agreement.
The Merger Sub has duly taken all requisite corporate
action to authorize this Agreement and the articles of
merger contemplated in Section 1.3; and this Agreement and
such articles of merger have been duly executed and
delivered by the Merger Sub and constitute valid and
binding obligations of the Merger Sub.
(iv) No actions are required to be taken in order to make the
Merger effective which have not been taken on or prior to
the delivery of such letter except the delivery of the
articles of merger contemplated in Section 1.3 to the
Secretary of State of the States of California and Delaware
in accordance with California Law and Delaware Law,
respectively.
(v) Neither the execution and delivery by either Parent or the
Merger Sub of this Agreement, nor the consummation by
either Parent or the Merger Sub of the transactions
contemplated hereby (a) violates or contravenes any of the
organizational documents of either Parent or Merger Sub;
(b) violates or contravenes any applicable law; (c) to
counsel's knowledge, violates or contravenes any order,
writ, injunction or decree of any court or governmental
instrumentality; (d) results in the breach of, or
constitutes a default under, or requires any consent under,
any Material Contract; (e) results in the creation or
imposition of any lien, mortgage, security interest, charge
or encumbrance under any Material Contract; or (f) except
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to the extent already obtained, requires the consent or
approval of, or any filing or registration with, the
shareholders of Parent or Merger Sub or any Governmental
Authority.
(vi) There are no judgments, orders, injunctions, or other
restraints issued or filed against either Parent or the
Merger Sub, nor is there any pending or, to the counsel's
knowledge, threatened litigation, arbitration proceeding or
governmental or administrative proceedings against or
involving either of Parent or the Merger Sub.
(vii) Neither Parent or the Merger Sub is an "investment company"
registered or required to be registered under the
Investment Company Act of 1940, as amended (the "1940 Act")
nor is either of Parent or the Merger Sub "controlled" by
such a company, within the meaning of the 1940 Act.
(viii) Neither Parent or the Merger Sub is a "holding company" or
a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" within the meaning of
The Public Utility Holding Company Act of 1935, as amended;
(e) the Company shall not have discovered any fact or circumstance
existing as of the date of this Agreement which has not been publicly
disclosed by Parent as of the date of this Agreement regarding the
business, assets, properties, condition (financial or otherwise), results
of operations or prospects of Parent and its subsidiaries which is,
individually or in the aggregate with other such facts and circumstances,
materially adverse to Parent and its subsidiaries taken as a whole, or to
the value of the shares of Parent Class A Common Stock.
6.3 Additional Conditions to Obligations of Parent and the Merger Sub. The
obligations of Parent and the Merger Sub to effect the Merger are also subject
to the following conditions:
(a) the representations and warranties of the Company set forth in
Article 3 of this Agreement shall be true and correct in all material
respects as of the Effective Time as if made at and as of the Effective
Time, and the Company shall in all material respects have performed each
obligation and agreement and complied with each covenant to be performed
and complied with by it hereunder at or prior to the Effective Time. A
representation or warranty that is expressly subject to a materiality
limitation shall not be subject to a further materiality limitation as a
result of the use of the phrase "in all material respects" in the preceding
sentence;
(b) the Company shall have furnished to Parent a certificate, executed
by an appropriate executive officer, certifying that the representations
and warranties made by the Company in this Agreement are true and correct
as of the Effective Time and that the Company has complied with all of the
covenants of the Company set forth in this Agreement;
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(c) the Company shall have furnished to Parent (i) a copy of the text
of the resolutions by which the board of Directors and shareholders of the
Company approved this Agreement (including, without limitation, the plan of
merger contained herein) and the Merger; (ii) a certificate executed on
behalf of the Company by its corporate secretary certifying to Parent that
such copy is a true, correct and complete copy of such resolutions and that
such resolutions were duly adopted and have not been amended or rescinded;
and (iii) an incumbency certificate executed on behalf of the Company by
its corporate secretary certifying the signature and office of each officer
executing this Agreement or any other agreement, certificate or other
instrument executed pursuant hereto;
(d) Parent shall have received a letter addressed to Parent from the
law firm of Allen Matkins Leck Gamble & Mallory LLP, based on customary
reliance and subject to customary qualifications, to the effect that:
(i) The Company is a corporation validly existing with the
corporate authority to own, pledge, mortgage and operate
its properties, to lease any properties it operates under
lease, to conduct its business as it is presently conducted
and is in good standing under the laws of the State of
California.
(ii) The authorized capital of the Company consists of shares of
capital stock, designated "Common Stock," having a par
value of $.0001 per share, of which the number of shares
indicated in such letter are outstanding, all of which were
duly authorized, validly issued, fully paid and
non-assessable, with no personal liability attaching to the
ownership thereof, and have not been issued in violation of
any preemptive rights under California Law or any Material
Contract.
(iii) The Company has the corporate power to consummate the
transactions on its part contemplated by this Agreement;
the Company has duly taken all requisite corporate action
to authorize this Agreement and each document constitutes
the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its
terms, and the articles of merger contemplated in Section
1.3; and this Agreement and such articles of merger have
been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company.
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(iv) No actions are required to be taken in order to make the
Merger effective which have not been taken on or prior to
the delivery of such letter except the delivery of the
articles of merger contemplated in Section 1.3 to the
Secretary of State of the States of California and Delaware
in accordance with California Law and Delaware Law,
respectively.
(v) Neither the execution and delivery by the Company of this
Agreement, nor the consummation by the Company of the
transactions contemplated hereby (a) violates or
contravenes any of the Company's organizational documents;
(b) violates or contravenes any applicable law; (c) to
counsel's knowledge, violates or contravenes any order,
writ, injunction or decree of any court or governmental
instrumentality; (d) results in the breach of, or
constitutes a default under, or requires any consent under,
any Material Contract; (e) results in the creation or
imposition of any lien, mortgage, security interest, charge
or encumbrance under any Material Contract; or (f) except
to the extent already obtained, requires the consent or
approval of, or any filing or registration with, the
Shareholders or any Governmental Authority.
(vi) There are no judgments, orders, injunctions, or other
restraints issued or filed against the Company, nor is
there any pending or, to the counsel's knowledge,
threatened litigation, arbitration proceeding or
governmental or administrative proceedings against or
involving the Company.
(vii) The Company is not an "investment company" registered or
required to be registered under the Investment Company Act
of 1940, as amended (the "1940 Act") nor is the Company
"controlled" by such a company, within the meaning of the
1940 Act.
(viii) The Company is not a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of a
"holding company" within the meaning of The Public Utility
Holding Company Act of 1935, as amended;
(e) Parent shall not have discovered any fact or circumstance existing
as of the date of this Agreement which has not been publicly disclosed by
the Company as of the date of this Agreement regarding the business,
assets, properties, condition (financial or otherwise), results of
operations or prospects of the Company which is, individually or in the
aggregate with other such facts and circumstances, materially adverse to
the Company taken as a whole, or to the value of the shares of Company
Common Stock;
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(f) Parent shall have entered into an Employment Agreement with each
of Robert R. Cullen and Richard J. Sweeney;
(g) the Company shall not have received written objections to the
Merger pursuant to applicable California Law covering more than 5% of the
shares of Company Common Stock outstanding immediately prior to the
Effective Time;
(h) on the Closing Date, the Board of Directors of Parent shall have
received from Carmichael & Company LLC a written update, dated as of such
date, confirming that, from a financial point of view, the consideration to
be offered to the Shareholders of the Company in the Merger contemplated
hereby is fair to Parent; and
(i) the Parent shall have received a waiver by Lucent Technologies,
Inc. of its right of first refusal relating to the Merger.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Subject to the provisions hereof, this Agreement may be
terminated prior to the Effective Time:
(a) by Parent, if there has been a material breach by the Company or
any of the Designated Persons of any covenant or agreement of the Company
or any of the Designated Persons set forth in this Agreement or in any
other agreement or instrument delivered to Parent, which breach has not
been cured within 30 days of the date on which written notice of such
breach was first given to the Company or which is not capable of being
cured by the Scheduled Closing Time;
(b) by the Company, if there has been a material breach by Parent of
any covenant or agreement of Parent in this Agreement, which breach has not
been cured within 30 days of the date on which written notice of such
breach was first given to Parent or which is not capable of being cured by
the Scheduled Closing Time;
(c) by Parent, if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6.1 or 6.3 by the
Scheduled Closing Time has become impossible (other than as a result of any
failure on the part of Parent or Merger Sub to comply with or perform any
covenant or obligation of Parent or Merger Sub set forth in this
Agreement);
(d) by the Company, if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 6.1 or 6.2 by the
Scheduled Closing Time has become impossible (other than as a result of any
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failure on the part of the Company or any of the Designated Persons to
comply with or perform any covenant or obligation set forth in this
Agreement or in any other agreement or instrument delivered to Parent);
(e) by Parent, at or after the Scheduled Closing Time, if any
condition set forth in Section 6.1 or 6.3 has not been satisfied by the
Scheduled Closing Time (other than as a result of any failure on the part
of Parent or Merger Sub to comply with or perform any covenant or
obligation of Parent or Merger Sub set forth in this Agreement);
(f) by the Company, at or after the Scheduled Closing Time, if any
condition set forth in Section 6.1 or 6.2 has not been satisfied by the
Scheduled Closing Time (other than as a result of any failure on the part
of the Company or any of the Designated Persons to comply with or perform
any covenant or obligation set forth in this Agreement or in any other
agreement or instrument delivered to Parent);
(g) by Parent, if the Closing has not taken place on or before the
Final Date (other than as a result of any failure on the part of Parent to
comply with or perform any covenant or obligation of Parent set forth in
this Agreement);
(h) by the Company, if the Closing has not taken place on or before
the Final Date (other than as a failure on the part of the Company or any
of the Designated Persons to comply with or perform any covenant or
obligation set forth in this Agreement or in any other agreement or
instrument delivered to Parent); or
(i) by the mutual consent of Parent and the Company.
As used herein, the Final Date shall be April 14, 2000, except that if a
temporary, preliminary or permanent injunction or other order by any Federal or
state court that would prohibit or otherwise restrain consummation of the Merger
shall have been issued and shall remain in effect on April 14, 2000, and such
injunction shall not have become final and nonappealable, either party, by
giving the other written notice thereof on or prior to April 14, 2000, may
extend the time for consummation of the Merger up to and including the earlier
of the date such injunction shall become final and nonappealable or May 31,
2000, so long as such party shall, at its own expense, use its best efforts to
have such injunction dissolved.
7.2 Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 7.1(a), Section 7.1(c), Section 7.1(e) or Section 7.1(g),
Parent shall deliver to the Company a written notice stating that Parent is
terminating this Agreement and setting forth a brief description of the basis on
which Parent is terminating this Agreement. If the Company wishes to terminate
this Agreement pursuant to Section 7.1(b), Section 7.1(d), Section 7.1(f) or
Section 7.1(h), the Company shall deliver to Parent a written notice stating
that the Company is terminating this Agreement and setting forth a brief
description of the basis on which the Company is terminating this Agreement.
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7.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 7.1, all further obligations of the parties under this Agreement shall
terminate. If this Agreement is terminated pursuant to Section 7.1 as a result
of the inaccuracy of any representation or warranty of Parent or the Merger Sub
set forth in Article 2 or the inaccuracy of any representation or warranty of
the Company set forth in Article 3, the party making such inaccurate
representation or warranty shall be subject to liability for the termination of
this Agreement as a result thereof only if and to the extent that any
Responsible Officer (as defined below) of such party had actual knowledge of
such inaccuracy. For purposes hereof, "Responsible Officer" of any party shall
mean the chairman of the board of directors, the chief executive officer, the
chief operating officer, the chief financial officer, any executive vice
president, the treasurer or the secretary of such party.
ARTICLE 8
GENERAL PROVISIONS
8.1 Amendment. This Agreement may not be amended except by an instrument in
writing approved by the parties to this Agreement and signed on behalf of each
of the parties hereto; provided, however, that, after approval of the Merger by
the shareholders of the Company, no amendment may be made which changes the
amount into which each share of Company Common Stock will be converted in the
Merger or effects any change which would materially and adversely affect the
shareholders of the Company without the further approval of the shareholders of
the Company.
8.2 Waiver. At any time prior to the Effective Time, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of any other party hereto or (b) waive compliance with any of the agreement of
any other party or with any conditions to its own obligations, in each case only
to the extent such obligations, agreements and conditions are intended for its
benefit. No failure on the part of any party hereto to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
party hereto in exercising any power, right, privilege or remedy under this
agreement, shall operate as a waiver of such power, right, privilege or remedy,
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or future exercise thereof or of any other power,
right, privilege or remedy. No party hereto shall be deemed to have waived any
claim arising out of this Agreement, or any power, right, privilege or remedy
under this Agreement, unless the waiver of such claim, power, right, privilege
or remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party, and any such waiver shall not be applicable
or have any effect except in the specific instance in which it was given.
8.3 Public Statements. Except as required by applicable law, no party shall
make any public announcement or statement with respect to the Merger, this
Agreement or any related transaction without the approval of the other parties,
which approval will not be unreasonably withheld. Moreover, each party agrees to
consult with the other parties prior to issuing any such public announcement or
statement.
8.4 Notices. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by telex, by
telecopier, or by registered or certified mail (postage prepaid and return
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receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by it by like notice):
If to Parent or
the Merger Sub: LightPath Technologies, Inc.
6820 Academy Parkway East, N.E.
Albuquerque, New Mexico 87109
Attn.: Chief Executive Officer
With a copy to: Squire, Sanders & Dempsey L.L.P.
40 N. Central Avenue
Phoenix, Arizona 85004
Telecopy: (602) 253-8129
Attn.: Joseph M. Crabb, Esq.
If to the Company: Horizon Photonics, Inc.
679 Brea Canyon Road
Walnut, California 91789
Telecopy: (909) 444-0025
Attn.: Chief Executive Officer
With a copy to: Allen Matkins Leck Gamble & Mallory LLP
18400 Von Karman, Fourth Floor
Irvine, California 92612
Telecopy: (949) 553-8354
Attn: Gregory W. Preston, Esq.
All such notices and other communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if delivered by mail; when
answered back, if telexed; and when receipt acknowledged, if telecopied.
8.5 Interpretation. When a reference is made in this Agreement to
subsidiaries of Parent, the word "subsidiary" means any "majority-owned
subsidiary" (as defined in Rule 12b-2 under the Exchange Act) of Parent;
provided, however, that the Company shall in no event and at no time be
considered a subsidiary of Parent for purposes of this Agreement. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. References to
Sections and Articles refer to sections and articles of this Agreement unless
otherwise stated. Words such as "herein," "hereinafter," "hereof," "hereto,"
"hereby" and "hereunder," and words of like import, unless the context requires
otherwise, refer to this Agreement (including the exhibits and attachments
hereto). As used in this Agreement, the masculine, feminine and neuter genders
shall be deemed to include the others if the context requires.
8.6 Severability. If term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
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in no way be affected, impaired or invalidated and the parties shall negotiate
in good faith to modify this Agreement to preserve each party's anticipated
benefits under this Agreement.
8.7 Miscellaneous. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties, with respect to the subject matter hereof; (b) is not
intended to confer upon any other person any rights or remedies hereunder; (c)
shall not be assigned by operation of law or otherwise, except that Parent and
the Merger Sub may assign all or any portion of their rights under this
Agreement to any wholly owned subsidiary, but no such assignment shall relieve
Parent and the Merger Sub of their obligations hereunder, and except that this
Agreement may be assigned by operation of law to any corporation with or into
which Parent may be merged; and (d) shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of
Delaware, without giving effect to any principles of conflict of laws or choice
of law; provided, however, that the Letter of Intent shall remain in full force
and effect notwithstanding the execution and delivery of this Agreement and
nothing in this Agreement shall supersede any of the provisions of the Letter of
Intent. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
8.8 Non-survival of Representations and Warranties. The representations and
warranties of the parties set forth herein shall terminate as of the Effective
Time.
8.9 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.
This Agreement (including the documents and the instruments referred to herein)
(a) constitutes the entire agreement among the parties and supercedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, other than the confidentiality provision
of the Letter of Intent, which should survive the execution and delivery of this
Agreement and (b) except as provided in Sections 5.15 and 5.17, is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder. The parties acknowledge that no party shall have the right to acquire
or shall be deemed to have acquired shares of common stock of the other party
pursuant to the Merger until consummation thereof.
8.10 Fax Signatures This Agreement and any other document or instrument
relating hereto may be executed by a party's signature transmitted by facsimile
("fax"), and copies of this Agreement and any such document or instrument
executed and delivered by means of faxed signatures shall have the same force
and effect as copies hereof executed and delivered with original signatures. All
parties hereto may rely upon faxed signatures as if such signatures were
originals. Any party executing and delivering this Agreement and any such
document or instrument by fax shall promptly thereafter deliver a counterpart
signature page of this Agreement and the fully executed original or counterpart
original of any such document or instrument containing said party's original
signature. All parties hereto agree that a faxed signature may be introduced
into evidence in any proceeding arising out of or related to this Agreement or
any such document or instrument as if it were an original signature.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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MERGER AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, Parent, the Merger Sub and the Company have caused this
Agreement to be executed on the date first written above by their respective
officers thereunder duly authorized.
LIGHTPATH TECHNOLOGIES, INC.
By: /s/ Donald Lawson
------------------------------------
Name: Donald Lawson
Title: President and CEO
LPI MERGER CORPORATION
By: /s/ Donald Lawson
------------------------------------
Name: Donald Lawson
Title: President
HORIZON PHOTONICS, INC.
By: /s/ Robert Cullen
------------------------------------
Name: Robert Cullen
Title: President
<PAGE>
Schedules to the Merger Agreement have been omitted. The Company undertakes to
furnish supplementally a copy of any omitted schedule to the Securities and
Exchange Commission upon request.
SCHEDULES
Schedule 1.4 Officers and Directors of Surviving Corporation
Schedule 1.5(a) Shareholder Ownership
Schedule 1.12 Indemnification; Payment of Note
Schedule 3.2 Authority Relative to this Agreement
Schedule 3.3(b) Company Options
Schedule 3.3(f) Registration of Securities
Schedule 3.6 Undisclosed Liabilities
Schedule 3.8 Certain Developments
Schedule 3.9(a) Liens
Schedule 3.9(b) Real Estate
Schedule 3.9(c) Leases
Schedule 3.11 Inventory
Schedule 3.12(d) Tax Returns
Schedule 3.13(a) Contracts
Schedule 3.13(b) Breach of Contract
Schedule 3.14 Proprietary Rights
Schedule 3.18 Employee Benefit Plans
Schedule 3.19 Insurance
Schedule 3.20 Affiliate Transactions
Schedule 3.21 Suppliers
Schedule 3.22 Officers and Directors; Bank Accounts
Schedule 3.23 Compliance with Laws; Permits; Certain Operations
Schedule 3.25 Non-Contravention; Consents
Schedule 5.16 Future Employment Incentives
Schedule 5.17 Funding Commitment
CONSENT OF KPMG LLP
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 heading "Experts" in the prospectus.
Our report dated August 10, 1999, except for note 5 which is as of December 14,
1999, 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 LLP
Albuquerque, New Mexico
May 19, 2000
CONSENT OF WINDES & McCLAUGHRY ACCOUNTANCY CORPORATION
The Board of Directors
Horizon Photonics, Inc.
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of LightPath
Technologies, Inc. of our report dated May 3, 2000, relating to the financial
statements of Horizon Photonics, Inc., which appears in the Current Report on
Form 8-K/A-1 of LightPath Technologies, Inc. dated May 17, 2000. We also consent
to the references to us under the headings "Experts" in such Prospectus.
/s/ WINDES & McCLAUGHRY ACCOUNTANCY CORPORATION
Long Beach, California
May 17, 2000
