Let's read the SEC filing again:
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As of the date hereof, our management, Molex, Polyvalor and McGill University collectively own approximately 60.35% of our outstanding common stock. They determine the composition of the Board of Directors and will be able to determine the outcome of corporate actions requiring stockholder approval. This ability may have the effect of delaying or preventing a change in control that may be favorable to other stockholders or causing a change of control that may not be favored by other stockholders. Under agreements with it, Molex will acquire the non-exclusive right to manufacture and sell certain jointly developed optical chip products in the event of a change in the control of the Company.
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i.e., even if someone else controls the company, Molex will have non-exclusive rights to manufacturing. Would an acquirer be likely to accept this condition?
Yes, an acquirer would most likely accept this condition as long as Lumenon's personnel were part and parcel of the acquisition. It is the brain-power, the intellectual property, that is most important here. We also have to ask if Molex would rather have an on-going, profitable, expanding relationship with Lumenon, or would they rather have $200 a share?
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Molex also has rights of first refusal with respect to any sale of stock by certain stockholders of the Company. Such rights of Molex may have the effect of delaying or preventing a change in control of the Company that may be favorable to stockholders other than Molex.
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This pertains to Molex, not the combined powers of majority directors. I didn't make it up. Molex has the power to prevent or delay a change of control.
You gloss over the word may in that sentence. Obviously Molex and Lumenon are tied together, for better or for worse, but as with most marriages there is no point in forcing the other party to do something against their will. If Lumenon does receive an offer, there is no way that Molex can block the offer, Molex can exercise their right of first refusal, or they can accept the offer. I'm certain that Molex stockholders would want the company to maximize their investment return on Lumenon's stock also.
The document goes on to say:
<<<Certain provisions of our corporate documents and state law may prevent or hinder a change of control. Certain provisions of our Certificate of Incorporation and By Laws and of Delaware law could make it more difficult for another party to acquire us or discourage another party from attempting to acquire us. For example, our Certificate of Incorporation and By-Laws permit us to issue preferred stock with rights senior to the common stock in respect of voting and dividend rights and rights upon liquidation without any further vote or action by stockholders, and provide for a classified Board of Directors. Although we have no present plans to issue preferred stock, the issuance of preferred stock could have the effect of delaying, deterring or preventing a change of control and could make it more difficult for holders of our common stock to take certain corporate actions, including the replacement of incumbent directors. >>>>
Under these conditions, is there any conceivable way Molex will not maintain control?
Actually this paragraph refers to a "poison pill" provision that many companies have to thwart an unwanted take-over attempt. This allows Lumenon to issue the preferred stock, not Molex. This does not allow Molex to "maintain control" at all; it allows Lumenon to fend off any unsuitable pursuer.
Their error was not merely in lowering their margins. It created an environment that would discourage other vendors' willingness to co-develop. Now, as I understand it, being designed-in takes time and isn't a process that would be entered into without some guarantee of success. What are the chances vendors would sign co-development agreements on the advanced channel products when they have no access to the current products --- the only proof they'd have of their quality and suitability?
What makes you think that OEMs do not have access to the current chips? To repeat my point: There is nothing in the molex agreement that precludes Lumenon designing other chips for others. And if Lumenon can do it faster, cheaper, and with a product that meets the OEMs specifications, why wouldn't they be getting the business, despite the teaming agreement with Molex?
Perhaps I misunderstand the process. Is it possible that Lumenon could sell anything over 500 a day to other vendors without having them designed-in with the OEM in question? Is it an off-the-shelf chip that can be used by anyone without being tweaked to their specifications? If so, then your assessment is correct and mine wrong. In which case LUMM could sell the additional products for the remaining months of the one-year period. At the end of that period, Molex regains control of all products, except, of course, the advanced channels.
Yes, it is possible for Lumenon to sell their DWDM offerings as off-the-shelf products. The packaged DWDM is basically a passive component that can be used by virtually anyone, providing it meets that company's specs.
Have I misunderstood their development schedule? If testing is commencing in July, how long will it take to be ready for shipping? And what benefit will this readiness be if Molex is taking all their current facility will be able to produce?
Yes, I believe you have misunderstood the development schedule. Delivery will commence in July, the testing by Molex has been done (but testing continues on an ongoing basis both by Molex and by Lumenon), as can be inferred from the press release announcing Molex's second closing: (bolding is mine)
Lumenon: Second Closing with Molex
ST. LAURENT, QUEBEC--(BUSINESS WIRE)--March 13, 2000--In May 19, 1999, Lumenon (OTC BB:LUMM) entered into a Teaming Agreement with Molex Incorporated.
This Agreement included $1,500,000 cash investment by Molex in Lumenon, in two phases. The first closing, for $750,000, took place on June 4, 1999. The second closing of $750,000, scheduled for 9 months after the first closing, was contingent upon Lumenon's progress in proving its technology and its ability to manufacture certain DWDM devices.
True, you can learn from your mistakes but if you've signed away significant control of your company, the learning is theoretical.
I'd be very interested to know who these other vendors are and I'd also be interested to know their opinions regarding Molex's 3-year agreement.
You will in time.
Even so, with the available information I believe you can drill down and get a fairly good estimate of possible revenues from other vendors. Let's not discuss the 40-channel and above possibilities until the 12, 16, and 32 are certified.
And why should I do all the work? There have been projections on revenue growth from many posters on the RB board, or the Yahoo Lumenon chat room, or from Groome Capital. Regardless of whose projections you look at, the obvious conclusion is that revenue will start to sky rocket in fiscal year 2002.
When you say,
The Molex agreement does not hinder Lumenon from dealing with other OEMs,
I take exception. All the above documentation shows just how much control Molex has and while it's not spelled out that other vendors can't enter co-development agreements, the circumstances certainly discourage it.
What you are reading, and putting too much emphasis on, in my opinion, are the SEC documents that were written almost four months ago. And a lot of your references are to the original Molex agreement. You have to realize that when those documents were drafted that Lumenon was a much smaller, weaker company that it is today. It has progressed much more quickly than even the management thought possible, or Molex for that matter. If Lumenon were only interested in serving Molex, and the terms of the original teaming agreement, there would be no need for a new factory; there would be no need for a Director of Strategic Planning; there would be no need for a NASDAQ listing; there would be no need to attend trade shows to talk with potential customers; in short they could abandon their dreams of greatness and just fulfill that teaming agreement. No, Pat, this company is now strong enough to forge ahead without Molex (not that Lumenon wants to abandon Molex). It is strong enough to have customers other than Molex and that will mean that the terms of engagement between Molex and Lumenon are most likely to be in a state of flux, and not written in stone. |
