<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVANEX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3674 94-3285348
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
40919 ENCYCLOPEDIA CIRCLE
FREMONT, CALIFORNIA 94538
(510) 897-4188
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WALTER ALESSANDRINI
CHIEF EXECUTIVE OFFICER
AVANEX CORPORATION
40919 ENCYCLOPEDIA CIRCLE
FREMONT, CALIFORNIA 94538
(510) 897-4188
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JUDITH M. O'BRIEN, ESQ. JEFFREY R. VETTER, ESQ.
ANN YVONNE WALKER, ESQ. SCOTT J. LEICHTNER, ESQ.
TERI A. LITTLE, ESQ. CYNTHIA E. GARABEDIAN, ESQ.
SHELDON J. QUAN, ESQ. FENWICK & WEST LLP
WILSON SONSINI GOODRICH & ROSATI TWO PALO ALTO SQUARE
PROFESSIONAL CORPORATION PALO ALTO, CALIFORNIA 94306
650 PAGE MILL ROAD (650) 494-0600
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM AMOUNT OF
AGGREGATE REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE (1)
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Common stock, $.001 par value per share..................... $96,600,000 $25,502.40
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as
amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROSPECTUS (Subject to Completion)
Issued December 3, 1999
Shares
[LOGO]
Avanex Corporation
COMMON STOCK
------------------------
AVANEX CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL
PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
------------------------
WE HAVE FILED AN APPLICATION FOR OUR COMMON STOCK TO BE QUOTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "AVNX."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
------------------------
PRICE $ A SHARE
------------------------
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS AVANEX
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total.................................................... $ $ $
</TABLE>
Avanex has granted the underwriters the right to purchase up to an additional
shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
, 2000
<PAGE> 3
[INSIDE FRONT COVER]
[The inside front cover page of the prospectus starts with the heading
"Next-Generation Optical Network." Underneath it is a subheading that reads "The
Avanex Solution . . ." followed by a large box. Inside the box is a diagram with
four rectangles, one on top of the other, with a single line between each two
adjacent rectangles. Inside the four rectangles are the following words:
"Communications Service Providers
Optical Systems Providers
[LOGO] Avanex(TM) Photonic Processors
Optical Component Manufacturers"
To the left of the rectangles are two ellipses, one on top of the other,
containing the following words:
"Network System Expertise
Optical Expertise"
There is an arrow pointing from the Avanex rectangle to the bottom of the
Optical Expertise ellipse, arrows from that ellipse pointing up to the Network
System Expertise ellipse and pointing to the right between the Optical Systems
Providers rectangle and the Avanex rectangle, and an arrow pointing from the
Network System Expertise ellipse to the right between the Communications Service
Providers rectangle and Optical Systems Providers rectangles.
Below the large box is the subheading ". . . Meeting Tomorrow's Network
Requirements." Below the subheading are three rectangles side-by-side containing
the words:
"Quality of Service
Flexibility
Scalability"
Below the boxes is the following text:
"Avanex photonic processors optimize optical network performance,
providing flexible, scalable and cost-effective optical transport
solutions that facilitate the deployment of next-generation, all-optical
network services."]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 6
Special Note Regarding Forward-Looking
Statements............................ 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Selected Financial Data............... 24
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ 25
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Business.............................. 33
Management............................ 44
Certain Transactions.................. 56
Principal Stockholders................ 61
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 65
Underwriters.......................... 67
Legal Matters......................... 69
Experts............................... 69
Additional Information................ 69
Index to Financial Statements......... F-1
</TABLE>
------------------------
We were incorporated in California in October 1997 and intend to
reincorporate in Delaware in December 1999. Our principal executive offices are
located at 40919 Encyclopedia Circle, Fremont, California 94538, and our
telephone number is (510) 897-4188. Our web site address is www.avanex.com. The
information on our web site is not incorporated by reference into this
prospectus. Avanex, PowerFilter, PowerMux, PowerShaper and The Photonics Center
are our trademarks. This prospectus also contains trademarks of other companies.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus.
In this prospectus, "Avanex," "we," "us" and "our" refer to Avanex
Corporation, a Delaware corporation, and our predecessor California corporation
and not to the underwriters. Unless otherwise indicated, all information
contained in this prospectus:
- assumes that the underwriters' over-allotment option is not exercised;
- except as noted in the financial statements, gives effect to the
conversion of all shares of preferred stock outstanding as of October 1,
1999 into 22,460,968 shares of common stock effective upon the closing of
this offering; and
- reflects the exercise of warrants to purchase 225,000 shares of common
stock prior to the closing of this offering.
3
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes appearing elsewhere in this
prospectus.
Avanex designs, manufactures and markets fiber optic-based products, known
as photonic processors, which are designed to increase the performance of
optical networks. Our photonic processors offer communications service providers
and optical systems manufacturers greater levels of performance and
miniaturization, reduced complexity and increased cost-effectiveness as compared
to current alternatives. We believe photonic processors will enable the
next-generation, all-optical network, which is necessary to support the
increasing demand for bandwidth.
The proliferation of the Internet and the increase in activities such as
electronic commerce, the transmission of large data files, Internet-based
businesses and telecommuting, have caused a significant increase in the volume
of traffic across the communications infrastructure. According to Ryan, Hankin &
Kent, a leading market research and consulting firm, Internet traffic will
increase from 350,000 tera bytes per month, or TBpM, at the end of 1999 to over
15 million TBpM in 2003. This market research suggests that, at the end of 1999,
the volume of Internet data traffic will have surpassed the volume of voice
traffic. In an effort to increase network capacity and performance, the
transport layer, or medium over which the data traffic is transmitted, is
currently being upgraded from electrical to optical transmission. Despite the
advances that have occurred in the existing communications infrastructure, there
are still many challenges to deploying a next-generation, optical network,
including:
- the need to prevent an optical signal from degrading by converting it
into an electrical signal and back into an optical signal at frequent
intervals across a network;
- the need to carry increased amounts of data in each wavelength of light;
- the high cost of the optical products needed for an optical network; and
- the difficulty in deploying large pieces of optical equipment.
Our PowerFilter and PowerMux products are designed to overcome the
technological challenges, such as chromatic dispersion and attenuation, and the
cost and deployment challenges inherent in optical networks. Our products are
designed to enable the transmission of more data in a wavelength of light, at
higher speeds and across greater distances in a network, than currently
available optical technologies. Our customers can also optimize the utilization
of limited network space because we miniaturize our products and combine
multiple components in a single package. We design our products to work within
existing network deployments, as well as in future optical networks. We believe
our photonic processors enable communications service providers and optical
systems manufacturers to cost-effectively maximize the capacity, or bandwidth,
of optical networks to facilitate next generation services and applications,
such as virtual private networking, or VPN, and business-to-business, or B2B,
electronic commerce.
Our objective is to be the leading provider of innovative, fiber
optic-based solutions that enable our customers to deploy and optimize fiber
optic networks. In order to achieve this objective, our strategy is to leverage
our technology leadership and expertise to develop new products and expand
customer relationships. We also intend to expand our manufacturing facilities,
automate our manufacturing processes and extend awareness of our brand. Our
marketing strategy is based on a push-pull approach. With our push approach, we
target optical systems manufacturers that can buy our products and then resell
them as part of their optical solutions. Using our pull approach, we target
communications service providers that can create demand for our products by
directly purchasing, or requiring that their systems incorporate, our products.
We believe this approach will drive demand for our products and help enable the
transition to the next-generation, all-optical network.
4
<PAGE> 6
THE OFFERING
Common stock offered........................ shares
Common stock to be outstanding after this
offering.................................... shares
Use of proceeds............................. We intend to use the net
proceeds for general corporate
purposes, including capital
expenditures and working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... AVNX
The above information is based on the number of shares of common stock
outstanding as of October 1, 1999 and excludes 799,400 shares of common stock
issuable upon exercise of outstanding options with a weighted-average exercise
price of $.11 per share, 19,565 shares of common stock issuable upon exercise of
an outstanding warrant with an exercise price of $5.75 per share and 180,486
shares of common stock reserved for future awards under our stock plans.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
OCTOBER 24, 1997 --------------------------
(INCEPTION) TO YEAR ENDED SEPTEMBER 30, OCTOBER 1,
JUNE 30, 1998 JUNE 30, 1999 1998 1999
---------------- ------------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................................. $ -- $ 510 $ -- $ 4,417
Gross profit (loss).......................... -- (21) -- 986
Stock compensation expense................... 362 3,464 323 6,107
Total operating expenses..................... 1,133 9,229 1,044 8,385
Loss from operations......................... (1,133) (9,250) (1,044) (7,399)
Net loss..................................... (1,137) (9,221) (1,037) (7,470)
Net loss attributable to common
stockholders............................... (1,137) (9,221) (1,037) (22,431)
Pro forma basic and diluted net loss per
common share (unaudited)................... $ (.59) $ (.92)
Weighted average shares used in computing pro
forma basic and diluted net loss per common
share (unaudited).......................... 15,576 24,402
</TABLE>
The following table presents our summary balance sheet data as of October
1, 1999. The pro forma as adjusted information reflects:
- the assumed exercise of warrants to purchase 225,000 shares of common
stock at an exercise price of $6.00 per share prior to this offering and
the subsequent conversion of all of our outstanding preferred stock as of
October 1, 1999 into an aggregate of 22,460,968 shares of common stock
upon completion of this offering; and
- our sale of shares of our common stock in this offering at an
assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and our estimated
offering expenses.
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $14,638 $
Working capital............................................. 14,174
Total assets................................................ 25,068
Long-term obligations, excluding current portion............ 1,433 1,433
Redeemable convertible preferred stock...................... 25,318
Total other stockholders' equity (deficit).................. (7,799)
</TABLE>
5
<PAGE> 7
RISK FACTORS
This offering and any investment in our common stock involve a high degree
of risk. You should carefully consider the risks described below and all of the
information contained in this prospectus before deciding whether to purchase our
common stock. If any of the following risks actually occur, our business,
financial condition and results of operations could be harmed. The trading price
of our common stock could decline, and you may lose all or part of your
investment in our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE NEVER BEEN PROFITABLE AND OUR FAILURE TO INCREASE OUR REVENUES
SIGNIFICANTLY WOULD PREVENT US FROM ACHIEVING AND MAINTAINING PROFITABILITY
We have incurred significant losses since inception and expect to continue
to incur losses in the future. We incurred net losses of $1.1 million in the
period from our inception on October 24, 1997 through June 30, 1998, $9.2
million in the fiscal year ended June 30, 1999 and $7.5 million in the quarter
ended October 1, 1999. As of October 1, 1999, we had an accumulated deficit of
$32.8 million. To date, we have not achieved profitability on a quarterly or
annual basis. Due to lack of cash generated from operations, we have funded our
operations through the sale of equity securities, bank borrowings and equipment
lease financing. We have a large amount of fixed expenses and we expect to
continue to incur significant and increasing manufacturing, sales and marketing,
product development and administrative expenses. As a result, we will need to
generate significantly higher revenues while containing costs and operating
expenses if we are ever to achieve profitability. Although our net revenue has
grown from zero in the quarter ended March 31, 1999 to $4.4 million in the
quarter ended October 1, 1999, we cannot be certain that our revenues will
continue to grow, or that we will ever achieve sufficient revenue levels to
achieve profitability.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AND ONLY RECENTLY BEGAN SHIPPING OUR
PRODUCTS, IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND TO FORECAST OUR PROSPECTS
As a result of our limited operating history, particularly our short
history of manufacturing products for sale, it is difficult to forecast our
revenues accurately, and we have limited meaningful historical financial data
upon which to plan future operating expenses. We began operations in October
1997. Until April 1999, we were a development stage company and our only
activities were research and development. We began shipping our PowerFilter and
PowerMux products to customers for evaluation in April 1999. Volume shipments
did not commence until the quarter ended October 1, 1999. We face the risks and
difficulties frequently encountered by early stage companies in a new and
rapidly evolving market. The revenue and income potential of our products and
business are, and the size of our market is, unproven. Our ability to sell
products and achieve success will depend on, among other things, the level of
demand for our products and our capacity to meet demand.
WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE
SIGNIFICANTLY AND THIS MAY CAUSE OUR STOCK PRICE TO DECLINE
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:
- fluctuations in demand for and sales of our products;
- cancellations of orders and shipment rescheduling;
- our ability to significantly expand our manufacturing capacity at our new
facility in Fremont, California, which commenced operations in November
1999;
- the ability of Concord Micro-Optics, Inc., or CMI, to timely produce and
deliver subcomponents from its facility in China in the quantity and of
the quality we require;
- the practice of companies in the communications industry to sporadically
place large orders with short lead times;
6
<PAGE> 8
- competitive factors, including introductions of new products and product
enhancements by potential competitors, entry of new competitors into our
market and pricing pressures;
- our ability to develop, introduce, manufacture and ship new and enhanced
products in a timely manner without defects;
- our ability to control expenses;
- availability of components for our products and increases in the price of
these components;
- mix of our products sold;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the
communications and related industries.
A high percentage of our expenses, including those related to
manufacturing, engineering, sales and marketing, research and development and
general and administrative functions, are essentially fixed in the short term.
As a result, if we experience delays in generating and recognizing revenue, our
quarterly operating results are likely to be seriously harmed. As we expand our
manufacturing capacity, we will incur expenses in one quarter relating to the
expansion and related yield issues that may not result in off-setting revenue
until a subsequent quarter. New product introductions can also result in a
mismatching of research and development expenses and sales and marketing
expenses that are incurred in one quarter with revenues that are not received
until a subsequent quarter when the new product is introduced. If growth in our
revenues does not outpace the increase in our expenses, our results of
operations could be seriously harmed.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results will not be meaningful. You should not rely
on our results for one quarter as any indication of our future performance. It
is likely that in future quarters our operating results may be below the
expectations of public market analysts or investors. If this occurs, the price
of our common stock would likely decrease.
OUR POWERFILTER PRODUCT CURRENTLY REPRESENTS NEARLY ALL OF OUR REVENUE AND A
SIGNIFICANT PORTION OF OUR FUTURE REVENUE DEPENDS ON THE COMMERCIAL SUCCESS OF
OUR POWERMUX PRODUCT
We currently offer only two products, PowerFilter and PowerMux. Sales of
our PowerFilter product accounted for 95% of our net revenue in the quarter
ended June 30, 1999 and 99% of our net revenue in the quarter ended October 1,
1999. We substantially depend on this product for our near-term revenue. Most
customers who have purchased PowerFilter products from us to date have purchased
them for evaluation purposes only and may not choose to purchase any additional
products for commercial use. Any decline in the price of, or demand for, our
PowerFilter product, or its failure to achieve broad market acceptance, would
seriously harm our business. In addition, we believe that our future growth and
a significant portion of our future revenue will depend on the commercial
success of our PowerMux product, which to date has only been shipped for
evaluation. If our target customers do not widely adopt, purchase and
successfully deploy our products, our revenues will not grow significantly and
our business will be seriously harmed.
WE RELY ON A LIMITED NUMBER OF CUSTOMERS, AND ANY DECREASE IN REVENUES FROM, OR
LOSS OF, THESE CUSTOMERS WITHOUT A CORRESPONDING INCREASE IN REVENUES FROM OTHER
CUSTOMERS WOULD HARM OUR OPERATING RESULTS
Our customer base is limited and highly concentrated. We began recognizing
revenues from sales of our products in the quarter ended June 30, 1999. In our
two quarters of product sales, three customers accounted for an aggregate of 94%
of our net revenue in the quarter ended June 30, 1999 and an aggregate of 95% of
our net revenue in the quarter ended October 1, 1999. MCI WorldCom accounted for
92% of our net revenue in the quarter ended October 1, 1999. We expect that the
majority of our revenues will continue to depend on sales of our products to a
small number of customers.
If current customers do not continue to place significant orders, we may
not be able to replace these orders. In addition, any downturn in the business
of existing customers could result in significantly decreased sales to these
customers, which could seriously harm our revenues and results of operations.
7
<PAGE> 9
Sales to any single customer may vary significantly from quarter to
quarter. Customers in the communications industry tend to order large quantities
of products on an irregular basis. They base these orders on a decision to
deploy their system in a particular geographic area and may not order additional
products until they make their next major deployment decision. This means that
customers who account for a significant portion of our net revenue in one
quarter may not place any orders in the succeeding quarter. These ordering
patterns can result in significant quarterly fluctuations in our operating
results.
WE MUST RAPIDLY EXPAND OUR MANUFACTURING CAPACITY OR WE WILL NOT BE ABLE TO
DELIVER OUR PRODUCTS TO OUR CUSTOMERS IN A TIMELY MANNER
We must devote significant resources in order to expand our manufacturing
capacity. We have no experience in rapidly increasing our manufacturing capacity
or in manufacturing products at high volumes, and we only commenced
manufacturing operations in the quarter ended June 30, 1999. We will be required
to hire, train and manage significant numbers of additional manufacturing
personnel in order to increase our production capacity. We also intend to have
some of our subcomponents and products manufactured by a third party contract
manufacturer located in China. Expanding our manufacturing capacity at different
facilities will be expensive and will require management's time. There are
numerous risks associated with rapidly increasing capacity, including:
- the inability to procure and install the necessary equipment;
- lack of availability of manufacturing personnel;
- difficulties in achieving adequate yields from new manufacturing lines;
and
- the inability to match future order volumes with capacity.
If we are unable to expand our manufacturing capacity in a timely manner or if
we do not accurately project demand, we will have excess capacity or
insufficient capacity, either of which will seriously harm our business.
Our planned manufacturing expansion and related capital expenditures are
being made in anticipation of a level of customer orders that may not be
realized or, if realized, may not be sustained over multiple quarters. If
anticipated levels of customer orders are not received, our gross margins will
decline and we will not be able to reduce our operating expenses quickly enough
to prevent a decline in our operating results.
BECAUSE WE EXPECT TO DEPEND ON A THIRD PARTY LOCATED IN CHINA TO MANUFACTURE
SUBCOMPONENTS AND PRODUCTS FOR US, WE MAY ENCOUNTER DIFFICULTIES IN OBTAINING A
SUFFICIENT AMOUNT OF HIGH QUALITY PRODUCTS
We have entered into a five-year agreement with CMI, a California-based
company, under which a subsidiary of CMI, located in Tianjin, China,
manufactures optical subcomponents for us. CMI has a limited history of
manufacturing optical subcomponents. As a result, CMI may not meet our
technological or delivery requirements. Any interruption in the operations of
CMI could harm our ability to meet our scheduled product deliveries to our
customers, which could cause the loss of existing or potential customers. In
addition, the products that CMI builds for us may be insufficient in quality or
in quantity to meet our needs. The inability of CMI to provide us with adequate
supplies of high-quality products in the future could cause a delay in our
ability to fulfill customer orders while we obtain a replacement manufacturer
and could seriously harm our business.
CMI manufactures limited quantities of subcomponents for us at a small
facility in Tianjin. We expect CMI to manufacture a significant portion of our
subcomponents and products in the future. Although CMI is building a larger
manufacturing facility in Tianjin, it will not be operational until at least the
quarter ending September 29, 2000. If this larger facility is not completed on
time, or at all, it may be more difficult to grow our business.
To successfully meet our overall production goals, we will also have to
coordinate effectively our operations in California and CMI's operations in
China. We have no experience in coordinating and managing production operations
that are located on different continents or in the transfer of manufacturing
operations from one facility to another. The geographic distance between our
headquarters in California and CMI's
8
<PAGE> 10
manufacturing facility in China will make it difficult for us to manage the
relationship and oversee operations there to assure product quality and timely
delivery. Our failure to successfully coordinate and manage multiple sites or to
transfer our manufacturing operations could seriously harm our overall
production.
Under the agreement with CMI, we have granted licenses to CMI to make in
China and the United States, and to use and sell worldwide, the licensed
subcomponents. We also granted them a license to use some of our technical
information and manufacturing process know-how in China and the United States.
These licenses are exclusive in China and non-exclusive elsewhere. As a result,
CMI can manufacture and sell optical subcomponents based on our technology to
third parties, including our potential competitors. Furthermore, unless the
license is terminated, we cannot use an additional manufacturer for these
subcomponents in China.
Because CMI's manufacturing facility is located in China, CMI will be
subject to the risk of political instability in China and the possible
imposition of restrictive trade regulations and tariffs. We will also be exposed
to risks of foreign currency exchange rate fluctuations and lack of adequate
protection of intellectual property under Chinese law.
BECAUSE WE DEPEND ON SINGLE OR LIMITED SOURCES OF SUPPLY WITH LONG LEAD TIMES
FOR SOME OF THE KEY COMPONENTS IN OUR PRODUCTS, WE COULD ENCOUNTER DIFFICULTIES
IN MEETING SCHEDULED PRODUCT DELIVERIES TO OUR CUSTOMERS
We currently purchase several key components used in our products from
single or limited sources of supply. These key components include filters,
lenses and specialty glass. We have no guaranteed supply arrangement with any of
these suppliers and we typically purchase our components through purchase
orders. We may fail to obtain these supplies in a timely manner in the future.
Any interruption or delay in the supply of any of these components, or the
inability to obtain these components from alternate sources at acceptable prices
and within a reasonable amount of time, would impair our ability to meet
scheduled product deliveries to our customers and could cause customers to
cancel orders. Lead times for components vary significantly and depend on
numerous factors, including the specific supplier, the size of the order,
contract terms and market demand for a component at a given time. For
substantial increases in production levels, suppliers may need
longer-than-normal lead times and some may need at least six months.
Furthermore, financial or other difficulties faced by these suppliers, or
significant changes in demand for these components, could limit the availability
of these components. In addition, a third party could acquire control of one or
more of our suppliers and cut off our access to raw materials or components.
Obtaining components from alternate suppliers is difficult because we must
qualify each new supplier, and this process is time-consuming and expensive.
OUR LENGTHY AND VARIABLE QUALIFICATION AND SALES CYCLE MAKES IT DIFFICULT TO
PREDICT THE TIMING OF A SALE OR WHETHER A SALE WILL BE MADE
Customers typically expend significant efforts in evaluating and qualifying
our products and manufacturing process. This evaluation and qualification
process frequently results in a lengthy sales cycle, typically ranging from
three to nine months and sometimes longer. While our customers are evaluating
our products and before they place an order with us, we may incur substantial
sales and marketing and research and development expenses, expend significant
management efforts, increase manufacturing capacity and order long-lead-time
supplies prior to receiving an order. Even after this evaluation process, it is
possible a potential customer will not purchase our products for deployment. In
addition, product purchases are frequently subject to unplanned processing and
other delays, particularly with respect to larger customers for which our
products represent a very small percentage of their overall purchase activity.
If we increase capacity and order supplies in anticipation of an order that
does not materialize, our gross margins will decline and we will have to carry
or write off excess inventory. Even if we receive an order, the additional
manufacturing capacity that we add to service the customer's requirements may be
underutilized in a subsequent quarter. Either situation could cause our results
of operations to be below the expectations of investors and public market
analysts, which could, in turn, cause the price of our common stock to decline.
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Our long sales cycles, as well as the practice of companies in the
communications industry to sporadically place large orders with short lead
times, may cause our revenues and operating results to vary significantly and
unexpectedly from quarter to quarter.
IF WE FAIL TO PREDICT OUR MANUFACTURING REQUIREMENTS ACCURATELY, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS
We currently use a rolling 12-month forecast based primarily on our
anticipated product orders and our limited product order history to determine
our requirements for components and materials. We provide these forecasts to CMI
and use them internally as well. It is very important that we accurately predict
both the demand for our products and the lead time required to obtain the
necessary components and raw materials. Lead times for materials and components
that we order vary significantly and depend on factors such as the specific
supplier, the size of the order, contract terms and demand for each component at
a given time. If we underestimate our requirements, both our company and CMI may
have inadequate manufacturing capacity or inventory, which could interrupt
manufacturing of our products and result in delays in shipments and revenues. If
we overestimate our requirements, we could have excess inventory of parts. We
also may experience shortages of components from time to time, which also could
delay the manufacturing of our products.
IF WE DO NOT ACHIEVE ACCEPTABLE MANUFACTURING YIELDS IN A COST-EFFECTIVE MANNER
OR ACHIEVE SUFFICIENT PRODUCT RELIABILITY, OUR OPERATING RESULTS COULD SUFFER
The manufacture of our products involves complex and precise processes.
Changes in our manufacturing processes or those of our suppliers, or their
inadvertent use of defective materials, could significantly reduce our
manufacturing yields and product reliability. Because the majority of our
manufacturing costs are relatively fixed, manufacturing yields are critical to
our results of operations. Lower than expected production yields could delay
product shipments and impair our gross margins. We may not obtain acceptable
yields in the future.
In some cases, existing manufacturing techniques, which involve substantial
manual labor, may not allow us to cost-effectively meet our production goals so
that we maintain acceptable gross margins while meeting the cost targets of our
customers. We will need to develop new manufacturing processes and techniques
that will involve higher levels of automation to increase our gross margins and
achieve the targeted cost levels of our customers. We may not achieve
manufacturing cost levels that will fully satisfy customer demands.
Because we plan to introduce new products and product enhancements
regularly, we must effectively transfer production information from our product
development department to our manufacturing group and coordinate our efforts
with those of our suppliers to rapidly achieve volume production. If we fail to
effectively manage this process or if we experience delays, disruptions or
quality control problems in our manufacturing operations, our shipments of
products to our customers could be delayed.
IT IS CRITICAL TO OUR SUCCESS TO ACHIEVE DESIGN-IN WINS IN OUR CUSTOMERS'
QUALIFICATION PROCESSES
In the communications industry, service providers and optical systems
manufacturers often undertake extensive qualification processes prior to placing
orders for large quantities of products such as ours because these products must
function as part of a larger system or network. Once they decide to use a
particular supplier's product or component, these potential customers design the
product into their system. Suppliers whose products or components are not
"designed in" are unlikely to make sales to that company until at least the
adoption of a future redesigned system. Even then, many companies may be
reluctant to design entirely new products into their new systems, as it could
involve significant additional redesign efforts. If we fail to achieve design-in
wins in our potential customer's qualification process, we will lose the
opportunity for significant sales to that customer for a lengthy period of time.
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IN ORDER TO BE SUCCESSFUL, WE MUST BE ABLE TO COMMIT TO DELIVER SUFFICIENT
QUANTITIES OF OUR PRODUCTS TO SATISFY MAJOR CUSTOMERS' NEEDS
Communications service providers and optical systems manufacturers
typically require that suppliers commit to provide specified quantities of
products over a given period of time. If we are unable to commit to deliver
sufficient quantities of our products to satisfy a customer's anticipated needs,
we will lose the order and the opportunity for significant sales to that
customer for a lengthy period of time. We are just beginning to receive orders
for significant quantities of products while simultaneously increasing our
manufacturing capacity. We would be unable to pursue many large orders if we do
not have sufficient manufacturing capacity to enable us to commit to provide
customers with specified quantities of products.
IF OUR CUSTOMERS DO NOT QUALIFY OUR MANUFACTURING LINES FOR VOLUME SHIPMENTS,
OUR OPERATING RESULTS COULD SUFFER
Customers generally will not purchase any of our products, other than
limited numbers of evaluation units, before they qualify our products, approve
our manufacturing process and approve our quality system. Our existing
manufacturing line, as well as each new manufacturing line, must pass through
various levels of approval with our customers. Customers may require that we be
registered under international quality standards, such as ISO 9001. Our products
may also have to be qualified to specific customer requirements. This customer
approval process determines whether the manufacturing line achieves the
customers' quality, performance and reliability standards. In order for CMI to
manufacture products or discrete components for us in the future, their
manufacturing line would also need to be qualified by our customers. Delays in
product qualification or ISO 9001 registration may cause a product to be dropped
from a long-term supply program and result in significant lost revenue
opportunity over the term of that program.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP PRODUCTS AND PRODUCT ENHANCEMENTS
THAT WILL ACHIEVE MARKET ACCEPTANCE
Our future success depends on our ability to anticipate market needs and
develop products that address those needs. Any failure to predict market needs
accurately or to develop new products or product enhancements in a timely manner
will substantially decrease market acceptance and sales of our products. In
addition, our products could quickly become obsolete as new technologies are
introduced and incorporated into new and improved products. In particular, we
anticipate that our PowerMux product, which incorporates our PowerFilter product
and additional functionality, will replace our PowerFilter product in most
applications. We must continue to develop state-of-the-art products and
introduce them in the commercial market quickly in order to be successful. We
plan to introduce our PowerShaper product, which is currently in the beta
testing stage, during the second half of the fiscal year ending June 30, 2000.
If the development of any future products takes longer than we anticipate, or if
we are unable to develop and introduce these products to the commercial market,
our revenues could suffer and we will not gain market share. Even if we are able
to develop and commercially introduce new products and enhancements, we cannot
assure you that the new products or enhancements will achieve widespread market
acceptance. Any failure of PowerMux, PowerShaper or our other future products to
achieve market acceptance could significantly harm our business.
COMPETITION MAY INCREASE, WHICH COULD CAUSE REDUCED SALES LEVELS AND RESULT IN
PRICE REDUCTIONS, REDUCED GROSS MARGINS OR LOSS OF MARKET SHARE
The markets we are targeting are new and rapidly evolving, and we expect
these markets to become highly competitive in the future. While we do not have
any direct competitors in the photonic processor market today, we anticipate
that other companies will expand into our market in the future, and introduce
competitive products. We also face indirect competition from public and private
companies providing products that address the same optical network problems that
our products address. The development of alternative solutions to optical
transmission problems by competitors, particularly systems companies who also
manufacture components, could significantly limit our growth.
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Some companies in the optical systems and component industry may compete
with us in the future, including Lucent Technologies, Nortel Networks, Alcatel,
Fujitsu, JDS Uniphase and E-Tek Dynamics. These are large public companies that
have longer operating histories and significantly greater financial, technical,
marketing and other resources than we have. As a result, these competitors are
able to devote greater resources to the development, promotion, sale and support
of their products. In addition, our competitors that have large market
capitalizations or cash reserves are much better positioned than we are to
acquire other companies in order to gain new technologies or products that may
displace our product lines. Any of these acquisitions could give our competitors
a strategic advantage. Many of our potential competitors have significantly more
established sales and customer support organizations than we do. In addition,
many of our competitors have much greater name recognition and have more
extensive customer bases, better developed distribution channels and broader
product offerings than our company. These companies can use their customer bases
and broader product offerings and adopt aggressive pricing policies to gain
market share. We expect to encounter potential customers that, due to existing
relationships with our competitors, are committed to the products offered by
these competitors. As a result, these potential customers may not consider
purchasing our products.
Existing and potential customers are also our potential competitors. These
customers may develop or acquire additional competitive products or technologies
in the future, which may cause them to reduce or cease their purchases from us.
In addition, customers who are also competitors may unfairly disparage our
products in order to gain a competitive advantage.
As a result of these factors, we expect that competitive pressures may
result in price reductions, reduced margins and loss of market share.
IF WE DO NOT SUBSTANTIALLY EXPAND OUR DIRECT AND INDIRECT SALES OPERATIONS, WE
MAY NOT BE ABLE TO INCREASE MARKET AWARENESS AND SALES OF OUR PRODUCTS
Our products and services require a long, involved sales effort targeted at
several departments within our prospective customers' organizations. Therefore,
our sales effort requires the prolonged efforts of executive personnel and
specialized system and application engineers working together with dedicated
salespersons in making sales. Because we have a small number of dedicated
salespersons, we need to hire additional qualified sales personnel and system
and application engineers. Competition for these individuals is intense, and we
might not be able to hire the type and number of sales personnel and system and
application engineers we need.
In addition, we believe that our future success depends significantly on
our ability to establish relationships successfully with a variety of
distribution partners, such as original equipment manufacturers, value-added
resellers and distributors, both domestically and internationally. To date, we
have entered into agreements with two distributors in Japan. These distributors
also sell products that compete with our products. We cannot be certain that we
will be able to reach agreement with additional distribution partners on a
timely basis or at all, or that our distribution partners will devote adequate
resources to selling our products. Even if we enter into agreements with
additional distribution partners, they may not result in increased product
sales.
If we are unable to expand our direct and indirect sales operations, we may
not be able to increase market awareness or sales of our products, which may
prevent us from increasing our revenues.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE RAPID AND WIDESPREAD TRANSITION TO
OPTICAL NETWORKS
The market for our products is relatively new. Future demand for our
products is uncertain and will depend to a great degree on the speed of the
widespread adoption of optical networks. If the transition occurs too slowly,
the market for our products and the growth of our business will be significantly
limited.
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IF THE INTERNET DOES NOT CONTINUE TO EXPAND AS A WIDESPREAD COMMUNICATION AND
COMMERCE MEDIUM, DEMAND FOR OUR PRODUCTS MAY DECLINE SIGNIFICANTLY
Our future success depends on the continued growth of the Internet as a
widely-used medium for commerce and communication and the continuing demand for
increased bandwidth over communications networks. If the Internet does not
continue to expand as a widespread communication medium and commercial
marketplace, the need for significantly increased bandwidth across networks and
the market for optical transmission products may not develop. As a result, it
would be unlikely that our products would achieve commercial success.
OUR MARKET IS NEW AND IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND
EVOLVING STANDARDS, AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR PRODUCTS
COULD BECOME OBSOLETE
The communications market is characterized by rapid technological change,
frequent new product introductions, changes in customer requirements and
evolving industry standards. In developing our products, we have made, and will
continue to make, assumptions with respect to which standards will be adopted
within our industry. If the standards that are actually adopted are different
from those that we have chosen to support, our products may not achieve
significant market acceptance. In addition, the introduction of products
embodying new technologies and the emergence of new industry standards could
render our existing products obsolete.
OUR PRODUCTS MAY HAVE DEFECTS THAT ARE NOT DETECTED UNTIL FULL DEPLOYMENT OF A
CUSTOMER'S SYSTEM
Our products are designed to be deployed in large and complex optical
networks and must be compatible with other components of the system, both
current and future. Our products can only be fully tested for reliability when
deployed in networks for long periods of time. Our customers may discover
errors, defects or incompatibilities in our products after they have been fully
deployed and operated under peak stress conditions. They may also have errors,
defects or incompatibilities that we find only after a system upgrade is
installed. If we are unable to fix errors or other problems, we could
experience:
- loss of customers;
- loss of or delay in revenues;
- loss of market share;
- loss or damage to our brand and reputation;
- inability to attract new customers or achieve market acceptance;
- diversion of development resources;
- increased service and warranty costs;
- legal actions by our customers; and
- increased insurance costs.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED
We continue to expand the scope of our operations domestically and
internationally and have increased the number of our employees substantially. We
have grown from no revenue in the quarter ended March 31, 1999 to $4.4 million
in the quarter ended October 1, 1999. At March 31, 1999, we had a total of 45
employees, and at October 1, 1999, we had a total of 132 employees. In addition,
we plan to hire a significant number of employees over the next several
quarters. We currently operate facilities in Fremont, California and in
Richardson, Texas, and CMI has recently begun manufacturing subcomponents for us
in China. The growth in employees and in revenue, combined with the challenges
of managing geographically-dispersed operations, has placed, and our anticipated
growth in future operations will continue to place, a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our financial and
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managerial controls, reporting systems and procedures, and will need to continue
to expand, train and manage our work force worldwide.
WE DEPEND ON A SINGLE APPLICATION SERVICE PROVIDER FOR INFORMATION SYSTEMS AND
SERVICES, AND IF THERE IS A SERVICE INTERRUPTION, WE MAY HAVE DIFFICULTY IN
MANAGING OUR BUSINESS
We rely on a single application service provider to provide an
Internet-based management information system and support for this system. This
company recently began providing information systems and services to us on a
regular basis and we are one of their few customers. All of our financial
records and ordering and data tracking information are stored on the third
party's computer system and are only accessible over the Internet. The Internet
has suffered from delays and outages in the past, which could make it difficult
for us to access our data. From time to time, we have experienced difficulties
and delays in accessing our data. Lack of direct control over our management
information system and delays in obtaining information when needed could harm
our business.
We do not have an agreement with this company requiring it to provide
services to us for any specified period, and they could terminate their
relationship with us on short notice. If we needed to qualify a new application
service provider, we might be unable to do so on a timely basis, or at all. The
services are provided on application and database servers located at offsite
data facilities and accessed via communications links from our facility. We
cannot be certain that the service provider will be able to manage a scalable
and reliable information technology infrastructure to support the growth of our
business. If they stop providing services to us or if there is a service
interruption, our ability to process orders, manufacture products, ship
products, prepare invoices and manage our day-to-day financial transactions
would be harmed, and our results of operations would suffer.
WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY
TO SELL OUR PRODUCTS COULD BE HARMED
Our future success depends upon the continued services of our executive
officers, particularly Walter Alessandrini, our Chief Executive Officer, and
Xiaofan (Simon) Cao, our Senior Vice President of Product Development, and other
key engineering, sales, marketing, manufacturing and support personnel. None of
our officers or key employees is bound by an employment agreement for any
specific term and these personnel may terminate their employment at any time. In
addition, we do not have "key person" life insurance policies covering any of
our employees.
We must hire a significant number of additional employees in the near
future, particularly engineering, sales and manufacturing personnel. Our ability
to continue to attract and retain highly skilled personnel will be a critical
factor in determining whether we will be successful in the future. Competition
for highly skilled personnel is intense, especially in the San Francisco Bay
Area. We may not be successful in attracting, assimilating or retaining
qualified personnel to fulfill our current or future needs. Our planned growth
will place a significant demand on our management and operational resources.
Many of the members of our management team have only been with us for a
relatively short period of time. For example, our Chief Executive Officer joined
us in March 1999, and four of our eight current executive officers have joined
us since then. Failure of the new management team to work effectively together
could seriously harm our business.
IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS, WE COULD INCUR SUBSTANTIAL COSTS
IN DEFENDING OURSELVES
Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received claims of this kind in the past, and we cannot assure you that
we will not receive claims of this kind in the future as we seek to hire
qualified personnel or that those claims will not result in litigation. We could
incur substantial costs in defending ourselves against these claims, regardless
of their merits or outcomes. In addition, defending ourselves from these claims
could divert the attention of our management away from our operations.
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IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WE MAY ENCOUNTER
DIFFICULTIES COMPETING IN OUR INDUSTRY
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We cannot assure you that the 25 U.S. patent applications and four foreign
patent applications that we have filed will be approved, that any patents that
may issue will protect our intellectual property or that any patents issued will
not be challenged by third parties. Furthermore, other parties may independently
develop similar or competing technology or design around any patents that may be
issued to us. We use various methods to attempt to protect our intellectual
property rights. However, we cannot be certain that the steps we have taken will
prevent the misappropriation of our intellectual property, particularly in
foreign countries, such as China, where the laws may not protect our proprietary
rights as fully as in the United States.
IF NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY BECOME UNAVAILABLE TO US OR
BECOME VERY EXPENSIVE, WE MAY BECOME UNABLE TO OPERATE OUR CURRENT BUSINESS
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third-party licenses will be available to us on commercially reasonable
terms, if at all. The inability to obtain any third-party license required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost, either of which could seriously harm our business, financial condition and
results of operations.
We license technology from Fujitsu that is critical to our PowerShaper
product. The license agreement is subject to termination upon the acquisition of
more than a 50% interest in us by certain major communications system suppliers.
Thus, if we are acquired by any of these specified companies, we will lose this
license. The existence of this license termination provision may have an
anti-takeover effect in that it would discourage those specified companies from
making a bid to acquire us.
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS,
WHICH COULD CAUSE US TO INCUR SIGNIFICANT COSTS AND COULD SERIOUSLY HARM OUR
BUSINESS
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We may be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. These claims and any
resulting lawsuit, if successful, could subject us to significant liability for
damages and invalidation of our proprietary rights. These lawsuits, regardless
of their success, would likely be time-consuming and expensive to resolve and
would divert management time and attention. Any potential intellectual property
litigation also could force us to do one or more of the following:
- stop selling, incorporating or using our products that use the challenged
intellectual property;
- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
- redesign the products that use the technology.
If we are forced to take any of these actions, our business may be
seriously harmed. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.
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ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION
We anticipate that, in the future, we will make strategic acquisitions of
complementary companies, products or technologies. While we have no current
agreements to do so, we may acquire businesses, products or technologies in the
future. In the event of any future acquisitions, we could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- incur debt;
- assume liabilities;
- incur expenses related to the amortization of goodwill and other
intangible assets; or
- incur large and immediate write-offs.
These acquisitions also involve numerous risks, including:
- problems combining the acquired operations, technologies or products;
- unanticipated costs or liabilities;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees, particularly those of the acquired
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAT COULD HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We intend to expand our international operations in the future, including
having some of our subcomponents manufactured in China. This expansion will
require significant management attention and financial resources to develop
successfully direct and indirect international sales and support channels and
manufacturing. We may not be able to establish or maintain international market
demand for our products. We currently have little or no experience in
manufacturing, marketing and distributing our products internationally.
In addition, international operations are subject to inherent risks,
including:
- greater difficulty in accounts receivable collection and longer
collection periods;
- difficulties and costs of staffing and managing foreign operations;
- the impact of recessions in economies outside the United States;
- unexpected changes in regulatory requirements;
- certification requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences; and
- political and economic instability.
While we expect our international revenues and expenses to be denominated
predominantly in U.S. dollars, a portion of our international revenues and
expenses may be denominated in foreign currencies in the future. Accordingly, we
could experience the risks of fluctuating currencies and could choose to engage
in currency hedging activities.
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IF WE ARE UNABLE TO RAISE ANY NEEDED ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO
GROW OUR BUSINESS
The development and marketing of new products and the expansion of our
manufacturing facilities and associated support personnel will require a
significant commitment of resources. In addition, if the market for photonic
processors develops at a slower pace than we anticipate or if we fail to
establish significant market share and achieve a significantly increased level
of revenue, we may continue to incur significant operating losses and utilize
significant amounts of capital. If cash from available sources is insufficient,
or if cash is used for acquisitions or other unanticipated uses, we may need to
raise additional capital. We cannot be certain that additional capital will be
available to us at all, or that, if it is available, it will be on terms
favorable to us. Any inability to raise additional capital when we require it
would seriously harm our business. Any additional issuance of equity or
equity-related securities will be dilutive to our stockholders.
WE FACE A NUMBER OF UNKNOWN RISKS ASSOCIATED WITH YEAR 2000 PROBLEMS THAT COULD
RESULT IN CLAIMS AGAINST US OR IMPAIR THE USE OF OUR PRODUCTS BY OUR CUSTOMERS
Our products are generally integrated into larger systems involving
sophisticated hardware and software products supplied by other vendors. Our
customers' systems involve different combinations of third party products. We
cannot evaluate whether all of their products are year 2000 compliant. We may
face claims based on year 2000 problems in other companies' products or based on
issues arising from the integration of multiple products within the overall
network. We may in the future be required to defend our products in legal
proceedings, which could be expensive regardless of the merits of these claims.
If our suppliers, vendors, distributors, customers or service providers
fail to correct their year 2000 problems, these failures could result in an
interruption in, or a failure of, our normal business activities or operations.
If a year 2000 problem occurs, it may be difficult to determine which party's
products have caused the problem. These failures could interrupt our operations
and damage our relationships with our customers. Due to the general uncertainty
inherent in the year 2000 problem resulting from the readiness of third party
suppliers and vendors, we are unable to determine at this time whether year 2000
failures could harm our business.
Our customers' purchasing plans could be affected by year 2000 issues if
they need to expend significant resources to fix their existing systems to
become year 2000 compliant. This situation may reduce funds available to
purchase our products. In addition, some customers may wait to consider
purchasing our products until after the year 2000, which may reduce our revenue
in the third and fourth quarters of the fiscal year ending June 30, 2000.
RISKS RELATED TO THE SECURITIES MARKETS AND THIS OFFERING
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AS SOON AS 90
DAYS AFTER THIS OFFERING BY OUR STOCKHOLDERS, INCLUDING OUR EXECUTIVE OFFICERS
AND DIRECTORS, AND THESE SALES COULD CAUSE OUR STOCK PRICE TO FALL
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future.
As of December 2, 1999, our executive officers, directors and substantially
all of our stockholders, who held an aggregate of 36,467,169 shares of our
common stock, or over 99.4% of our total outstanding shares, had executed
lock-up agreements that prevent them from selling or otherwise disposing of our
common stock for a period of 180 days from the date of this prospectus, without
the prior written approval of Morgan Stanley & Co. Incorporated. Assuming that
this prospectus will be dated February 14, 2000, these lock-up agreements will
expire on August 12, 2000, and an aggregate of 26,765,212 shares will be
eligible for sale, in some cases subject only to the volume, manner of sale and
notice requirements of Rule 144 under the Securities Act.
Notwithstanding the 180-day lock-up period, 25% of the shares, or 9,116,793
shares, subject to these lock-up restrictions, including 2,429,793 shares held
by our executive officers and directors, may be released from these restrictions
beginning 90 days from the assumed date of this prospectus, or May 14, 2000.
This
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release will occur if the last reported sale price of our common stock is at
least two times the initial public offering price per share for 20 of the 30
trading days preceding the 90th day after the date of this prospectus. Of these
shares to be released on May 14, 2000, 7,543,963 will be eligible for sale, in
some cases subject only to the volume, manner of sale and notice requirements of
Rule 144.
Sales of a substantial number of shares of our common stock after this
offering could cause our stock price to fall. In addition, the sale of these
shares could impair our ability to raise capital through the sale of additional
stock.
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE
Our management will have considerable discretion in the application of the
net proceeds of this offering, and you will not have the opportunity, as part of
your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate purposes that do not
increase our profitability or our market value. Pending application of the
proceeds, they may be placed in investments that do not produce income or that
lose value.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND A PUBLIC MARKET FOR OUR
SECURITIES MAY NOT DEVELOP OR BE SUSTAINED
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price at which the common stock will trade subsequent to the
completion of this offering. The initial public offering price will be
determined based on negotiations between us and the representatives of the
underwriters, based on factors that may not be indicative of future market
performance.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER THIS OFFERING
AND COULD DELAY OR PREVENT A CHANGE IN OUR CORPORATE CONTROL
We anticipate that our executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
% of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, would be able to influence
significantly all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions.
INVESTORS WILL EXPERIENCE IMMEDIATE DILUTION
The initial public offering price of our common stock is expected to be
substantially higher than the book value per share of our outstanding common
stock immediately after the offering. Accordingly, if you purchase our common
stock in this offering, you will incur immediate dilution of approximately
$ in the book value per share of our common stock from the price you
pay for our common stock. This calculation assumes that you purchased our common
stock for $ per share.
PROVISIONS OF OUR CHARTER DOCUMENTS, DELAWARE LAW AND LICENSES MAY HAVE
ANTI-TAKEOVER EFFECTS THAT COULD PREVENT A CHANGE IN CONTROL
Provisions of Delaware law and of our amended and restated certificate of
incorporation and bylaws could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. For a
further description of these provisions, see "Description of Capital Stock --
Delaware Law and Certain Provisions of Our Certificate of Incorporation and
Bylaws." In addition, if we are acquired by certain specified companies, our
license from Fujitsu would be subject to termination, which could discourage
those companies from making a bid to acquire us.
18
<PAGE> 20
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE, WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT
The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of Internet-related companies;
- announcements by us or our competitors of new products or of significant
acquisitions, strategic partnerships or joint ventures;
- any loss of a major customer;
- additions or departures of key personnel;
- any deviations in net revenues or in losses from levels expected by
securities analysts;
- future sales of common stock; and
- volume fluctuations, which are particularly common among highly volatile
securities of Internet-related companies.
19
<PAGE> 21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.
20
<PAGE> 22
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering will be approximately $ million, or $
million if the underwriters exercise their over-allotment option in full, after
deducting estimated underwriting discounts and commissions and after deducting
estimated offering expenses. The primary purposes of this offering are to obtain
additional equity capital, create a public market for our common stock and
facilitate future access to public markets.
We intend to use the net proceeds we receive from the offering for general
corporate purposes, including capital expenditures and working capital. Although
we may use a portion of the net proceeds to acquire technology or businesses
that are complementary to our business, there are no current plans in this
regard. Pending their use, we plan to invest the net proceeds in short-term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not intend
to pay any cash dividends in the foreseeable future. Our credit agreements
prohibit the payment of dividends without prior approval of the lenders.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of October 1, 1999.
The pro forma information reflects (1) the conversion of all shares of preferred
stock outstanding as of October 1, 1999 into 22,460,968 shares of common stock
on completion of this offering and (2) the exercise of warrants to purchase
225,000 shares of common stock at an exercise price of $6.00. The pro forma as
adjusted information also reflects our receipt of the net proceeds from the sale
of the shares of common stock in this offering, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
The outstanding share information excludes:
- 799,400 shares of common stock issuable on exercise of outstanding
options as of October 1, 1999 with a weighted average exercise price of
$.11 per share;
- 19,565 shares of common stock issuable upon exercise of an outstanding
warrant with an exercise price of $5.75 per share;
- 180,486 shares of stock available for issuance under our 1998 Stock Plan
as of October 1, 1999 and 7,000,000 shares of stock reserved for issuance
under our 1998 Stock Plan subsequent to October 1, 1999; and
- 550,000 shares of stock to be reserved for issuance under stock plans
that will become effective upon the closing of this offering.
You should read this table with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the related notes. See "Management -- Employee and Director Benefit Plans."
<TABLE>
<CAPTION>
OCTOBER 1, 1999
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Long-term obligations, excluding current portion......... $ 1,433 $ 1,433 $ 1,433
Redeemable convertible preferred stock, $.001 par value
per share, 25,400,000 shares authorized, 22,460,968
shares issued and outstanding, actual; no shares issued
and outstanding, pro forma and pro forma as adjusted..... 25,318 -- --
Other stockholders' equity (deficit):
Common stock, $.001 par value per share, 50,000,000
shares authorized, 13,720,114 shares issued and
outstanding, actual; 50,000,000 shares authorized,
36,406,082 shares issued and outstanding, pro forma;
300,000,000 shares authorized, shares issued
and outstanding, pro forma as adjusted.............. 14 36
Additional paid-in capital............................. 39,739 66,385
Shares to be repurchased for current terminations,
1,743,750 shares at October 1, 1999................. (35) (35) (35)
Notes receivable from stockholders..................... (579) (579) (579)
Deferred stock compensation............................ (14,149) (14,149) (14,149)
Accumulated deficit.................................... (32,789) (32,789) (32,789)
-------- -------- --------
Total other stockholders' equity (deficit).......... (7,799) 18,869
-------- -------- --------
Total capitalization.............................. $ 18,952 $ 20,302 $
======== ======== ========
</TABLE>
22
<PAGE> 24
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma net tangible book value per share of our
common stock after this offering. We calculate pro forma net tangible book value
per share by dividing the net tangible book value, tangible assets less total
liabilities, by the number of outstanding shares of common stock.
Our pro forma net tangible book value at October 1, 1999, was $18.9
million, or $.52 per share, based on 36,406,082 shares of our common stock
outstanding after giving effect to the conversion of all outstanding shares of
our preferred stock into common stock upon the closing of this offering and the
exercise of warrants to purchase 225,000 shares of common stock at an exercise
price of $6.00 per share prior to this offering.
After giving effect to the sale of the shares of common stock by us
at an assumed initial public offering price of $ per share, less the
estimated underwriting discounts and commissions and our estimated offering
expenses, our pro forma net tangible book value at October 1, 1999, would be
$ , or $ per share. This represents an immediate increase in the pro
forma net tangible book value of $ per share to existing stockholders and
an immediate dilution of $ per share to new investors, or approximately
of the assumed initial public offering price of $ per share. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at October 1,
1999................................................... $ .52
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new investors in this offering........ $
=====
</TABLE>
The following table shows on a pro forma basis at October 1, 1999, after
giving effect to the conversion of all outstanding shares of our preferred stock
into an aggregate of 22,460,968 shares of common stock upon the closing of this
offering and the exercise of warrants to purchase 225,000 shares of common stock
at an exercise price of $6.00 per share prior to this offering, the number of
shares of common stock purchased from us, the total consideration paid to us and
the average price paid per share by existing stockholders and by new investors
purchasing common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 36,406,082 % $27,305,000 % $.75
New investors.................
---------- ----- ----------- ------
Total.................... 100.0% $ $100.0%
========== ===== =========== ======
</TABLE>
The above information is based on shares outstanding as of October 1, 1999.
It excludes 799,400 shares of common stock reserved for issuance upon exercise
of outstanding options at October 1, 1999 with a weighted average exercise price
of $.11 per share, 19,565 shares of common stock issuable upon exercise of
outstanding an outstanding warrant with an exercise price of $5.75 per share;
and 730,486 shares available for issuance under our 1998 Stock Plan, 1999
Employee Stock Purchase Plan and 1999 Director Stock Option Plan.
23
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The statement of operations data set forth below
for the period from October 24, 1997 (inception) to June 30, 1998, and for the
year ended June 30, 1999, and the balance sheet data as of June 30, 1998 and
June 30, 1999 have been derived from our financial statements included elsewhere
in this prospectus, which have been audited by Ernst & Young LLP, independent
auditors. The statement of operations data for the quarters ended September 30,
1998 and October 1, 1999 and the balance sheet data at October 1, 1999 are
derived from unaudited financial statements included elsewhere in this
prospectus. In our opinion, all necessary adjustments, consisting only of normal
recurring adjustments, have been included to present fairly the unaudited
results when read in conjunction with the audited financial statements and the
related notes appearing elsewhere in this prospectus. The historical results are
not necessarily indicative of results to be expected for any future period. For
an explanation of the determination of the shares used to compute net loss per
share, see note 2 of notes to financial statements.
<TABLE>
<CAPTION>
PERIOD FROM QUARTER ENDED
OCTOBER 24, 1997 ---------------------------
(INCEPTION) TO YEAR ENDED SEPTEMBER 30, OCTOBER 1,
JUNE 30, 1998 JUNE 30, 1999 1998 1999
---------------- ------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................................. $ -- $ 510 $ -- $ 4,417
Cost of revenue.............................. -- 531 -- 3,431
------- ---------- -------- ----------
Gross profit (loss)........................ -- (21) -- 986
Operating expenses:
Research and development................... 515 4,086 473 950
Sales and marketing........................ 125 956 116 714
General and administrative................. 131 723 132 614
Stock compensation......................... 362 3,464 323 6,107
------- ---------- -------- ----------
Total operating expenses................ 1,133 9,229 1,044 8,385
------- ---------- -------- ----------
Loss from operations......................... (1,133) (9,250) (1,044) (7,399)
Other income (expense), net.................. (4) 29 7 (71)
------- ---------- -------- ----------
Net loss..................................... (1,137) (9,221) (1,037) (7,470)
Preferred stock accretion.................... -- -- -- (14,961)
------- ---------- -------- ----------
Net loss attributable to common
stockholders............................... $(1,137) $ (9,221) $ (1,037) $ (22,431)
======= ========== ======== ==========
Basic and diluted net loss per common
share...................................... $ -- $ (8.68) $ (6.36) $ (6.06)
Weighted-average shares used in computing
basic and diluted net loss per common
share...................................... -- 1,062 163 3,704
Pro forma basic and diluted net loss per
common share (unaudited)................... $ (.59) $ (.92)
Weighted-average shares used in computing pro
forma basic and diluted net loss per common
share (unaudited).......................... 15,576 24,402
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
--------------------------------- OCTOBER 1,
1998 1999 1999
---------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.... $2,874 $ 3,724 $14,638
Working capital...................................... 2,637 2,660 14,174
Total assets......................................... 3,339 6,816 25,068
Long-term obligations, excluding current portion..... 341 563 1,433
Redeemable convertible preferred stock............... 3,529 10,357 25,318
Total other stockholders' equity (deficit)........... (805) (6,534) (7,799)
</TABLE>
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our financial statements and related notes appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those presented under
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Avanex designs, manufactures and markets fiber optic-based products, known
as photonic processors, which are designed to increase the performance of
optical networks. We were founded in October 1997, and through April 1999, we
were primarily engaged in research and development activities and in hiring
additional employees. A substantial portion of our operating expenses during
this period was related to the design and development of our photonic processors
and the testing of prototype designs. We began making volume shipments of our
products during the quarter ended October 1, 1999.
Our revenues currently are derived from sales of two products, PowerFilter
and PowerMux. We commenced shipments of our PowerFilter in April 1999. To date,
we have generated nearly all of our limited product revenues from sales of
PowerFilter to a limited number of customers. Sales of PowerFilter accounted for
95% of our net revenue in the quarter ended June 30, 1999 and 99% of our net
revenue in the quarter ended October 1, 1999. We first shipped PowerMux in April
1999. In September 1999, we began shipping beta test units of our PowerShaper
product.
To date, we have generated a substantial portion of our revenues from a
limited number of customers. We have focused our initial sales and marketing
efforts primarily on large communications service providers and optical systems
manufacturers. In the fiscal quarter ended June 30, 1999, Osicom accounted for
33% of our net revenue, MCI Telecommunications accounted for 32% of net revenue
and Hitachi accounted for 29% of net revenue. Sales to MCI WorldCom accounted
for 92% of our total net revenue for the quarter ended October 1, 1999. While we
are seeking to diversify our customer base, we anticipate that our operating
results for any given period will continue to depend on a small number of
customers.
The market for photonic processors is new and evolving and the volume and
timing of orders are difficult to predict. A customer's decision to purchase our
products typically involves a commitment of its resources and a lengthy
evaluation and product qualification process. This initial evaluation and
product qualification process typically takes several months and includes
technical evaluation, integration, testing, planning and implementation into the
equipment design. Long sales and implementation cycles for our products, as well
as the practice of customers in the communications industry to sporadically
place large orders with short lead times, may cause our revenues, gross margins
and operating results to vary significantly and unexpectedly from quarter to
quarter.
We market and sell our products primarily through our direct sales and
marketing organization. To date, most of our direct sales have been in North
America. However, we have recently launched sales and marketing efforts
internationally through an independent sales representative in Italy and two
distributors in Japan.
We are engaged in continuing efforts to expand our manufacturing
capabilities. In November 1999, we moved from an approximately 14,000 square
foot facility to an approximately 54,000 square foot facility in Fremont,
California. We increased the number of our manufacturing employees from 36 as of
June 30, 1999 to 88 as of October 1, 1999. In addition, we have entered into a
contract manufacturing relationship with CMI to manufacture and supply fiber
optic subcomponents from its manufacturing facility in China. Currently, we
perform manufacturing, final assembly, testing, quality assurance, manufacturing
engineering, documentation control and repairs of our products at our Fremont
facility. In the quarter ending December 31, 1999, we expect to begin
transitioning some subcomponent assembly and testing functions from our Fremont
facility to
25
<PAGE> 27
CMI's facility in China. While we expect to realize lower costs as a result of
this transition, these cost reductions may not occur or CMI may not adequately
fulfill its obligations. The failure to obtain cost reductions or CMI's failure
to meet its obligations could harm our gross margins and operating results.
We generally recognize revenue when we ship products to our customers and
there are no significant uncertainties with respect to customer acceptance. We
accrue for estimated warranty costs at the time related revenue is recognized.
Currently, all of our product sales provide for pricing and payment in U.S.
dollars.
Our cost of revenue consists of raw material, direct labor and
manufacturing overhead. In addition, we rely on a single or limited source of
suppliers to manufacture some key components used in our products and, in the
past, the outsourcing of some subassemblies. A significant portion of our cost
of revenue is related to these temporary outsourcing arrangements.
Our gross margins will primarily be affected by the following factors:
- changes in our pricing policies and those of our competitors;
- mix of products sold;
- mix of sales channels through which our products are sold;
- mix of domestic and international sales;
- costs incurred in establishing additional manufacturing lines and
facilities; and
- changes in manufacturing volume.
We expect cost of revenue, as a percentage of revenue, to fluctuate from
period to period.
Research and development expenses consist primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers,
non-recurring engineering charges and prototype costs related to the design,
development, testing, pre-manufacturing and enhancement of our products. We
expense our research and development costs as they are incurred. We believe that
research and development is critical to our strategic product development
objectives. We further believe that, in order to meet the changing requirements
of our customers, we will need to fund investments in several development
projects in parallel. As a result, we expect our research and development
expenses to increase in dollar amount in the future.
Sales and marketing expenses consist primarily of marketing, sales,
customer service and application engineering support, as well as costs
associated with promotional and other marketing expenses. We intend to expand
our direct and indirect sales operations substantially, both domestically and
internationally, in order to increase market awareness of our products. We
expect that sales and marketing expenses will increase substantially in dollar
amount over the next year as we hire additional sales and marketing personnel,
initiate additional marketing programs to support our products and establish
sales offices in additional domestic and international locations. We also expect
to significantly expand our customer service and support organization.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, accounting, and human resources
personnel, allocated facilities, recruiting expenses, professional fees and
other corporate expenses. We expect general and administrative expenses to
increase in dollar amount as we add personnel and incur additional costs related
to the growth of our business and our operation as a public company.
Stock compensation expense is a result of us selling restricted common
stock or granting stock options to our employees or consultants with purchase or
exercise prices per share subsequently determined to be below the deemed fair
values per share of our common stock for accounting purposes at the dates of
purchase or grant. We are amortizing deferred stock compensation over the period
in which our right to repurchase restricted stock lapses or the vesting period
of the applicable options, which, in each case, is generally a maximum of four
years. As a result of options we have granted subsequent to October 1, 1999, we
expect to record a substantial amount of additional deferred stock compensation
in the quarter ending December 31, 1999.
26
<PAGE> 28
In connection with the sale of Series D preferred stock in September and
October 1999 to existing preferred stockholders, we recorded a non-cash charge
of $15.0 million in the quarter ended October 1, 1999 and will record an
additional $5.1 million in the quarter ending December 31, 1999 to accrete the
value of the Series D preferred stock to its fair value under applicable
accounting rules. This non-cash charge was recorded as an increase in
accumulated deficit with a corresponding credit to additional paid-in capital
and was recognized at the date of issuance, which was the period in which the
shares became eligible for conversion. We do not anticipate incurring any
additional preferred stock accretion charges in the future.
Despite growing revenue, we have not been profitable for any quarter since
October 24, 1997 (inception). As of October 1, 1999, we had an accumulated
deficit of $32.8 million. These losses have resulted primarily from our
activities to develop our products, to increase manufacturing capacity, to
promote brand recognition, to develop our sales channels and to establish our
management team. As of June 30, 1999, we had net operating loss carryforwards
for federal income tax purposes of approximately $5.8 million, which expire in
years 2013 through 2019.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for the quarters ended
September 30, 1998, December 31, 1998, March 31, 1999, June 30, 1999 and October
1, 1999. The information for each of these quarters is unaudited but has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this prospectus. In the opinion of management, all necessary
adjustments, consisting only of normal recurring adjustments, have been included
to present fairly the unaudited quarterly results when read in conjunction with
the audited financial statements and the related notes appearing elsewhere in
this prospectus. These operating results are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, OCTOBER 1,
1998 1998 1999 1999 1999
------------- ------------ --------- -------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenue.............................. $ -- $ -- $ -- $ 510 $ 4,417
Cost of revenue.......................... -- -- -- 531 3,431
------- ------- ------- ------- --------
Gross profit (loss)................. -- -- -- (21) 986
Operating expenses:
Research and development............... 473 954 1,432 1,227 950
Sales and marketing.................... 116 149 203 488 714
General and administrative............. 132 112 150 329 614
Stock compensation..................... 323 350 746 2,045 6,107
------- ------- ------- ------- --------
Total operating expenses....... 1,044 1,565 2,531 4,089 8,385
------- ------- ------- ------- --------
Loss from operations..................... (1,044) (1,565) (2,531) (4,110) (7,399)
Other income (expense), net.............. 7 (5) 21 6 (71)
------- ------- ------- ------- --------
Net loss................................. (1,037) (1,570) (2,510) (4,104) (7,470)
Preferred stock accretion................ -- -- -- -- (14,961)
------- ------- ------- ------- --------
Net loss attributable to common
stockholders........................... $(1,037) $(1,570) $(2,510) $(4,104) $(22,431)
======= ======= ======= ======= ========
</TABLE>
Net Revenue. Our first volume shipments of product began in the quarter
ended October 1, 1999. Net revenue for the quarter ended June 30, 1999 was
$510,000 and for the quarter ended October 1, 1999 was $4.4 million. Net revenue
increased primarily due to the sales of the PowerFilter product to MCI WorldCom
for deployment in its network. We shipped products and evaluation units to five
customers in the quarter ended June 30, 1999 and nine customers in the quarter
ended October 1, 1999.
Cost of Revenue. Cost of revenue for the quarter ended June 30, 1999 was
$531,000 and for the quarter ended October 1, 1999 was $3.4 million. As a
percentage of net revenue, cost of revenue for the quarter ended June 30, 1999
was 104%, compared to 78% for the quarter ended October 1, 1999. This decrease
in the
27
<PAGE> 29
percentage of cost of revenue over net revenue was primarily attributable to
fixed manufacturing costs being allocated over a larger revenue base.
Research and Development. Research and development expenses fluctuated from
$473,000 for the quarter ended September 30, 1998, to $954,000 for the quarter
ended December 31, 1998, $1.4 million for the quarter ended March 31, 1999, $1.2
million for the quarter ended June 30, 1999 and $950,000 for the quarter ended
October 1, 1999. In each of the quarters ended September 30, 1998, December 31,
1998 and March 31, 1999, research and development expenses increased in dollar
amount primarily due to the increase in personnel and related costs, prototype
expenses for our PowerMux and PowerShaper products and process development for
our PowerFilter product. In each of the quarters ended June 30, 1999 and October
1, 1999, research and development expenses decreased in dollar amount due to the
completion of a network testing model and lower process development and
prototyping costs for our PowerFilter and PowerMux products as these two
products were gradually transitioned to manufacturing.
Sales and Marketing. Sales and marketing expenses increased in each of the
five quarters ended October 1, 1999. These increases were primarily due to an
increase in the number of sales and marketing personnel, sales commissions,
marketing expenses and other customer-related costs.
General and Administrative. General and administrative expenses have
generally increased over the five quarters ended October 1, 1999. General and
administrative expenses increased in the quarters ended June 30, 1999 and
October 1, 1999 primarily due to an increase in the number of general and
administrative personnel and increased legal, accounting, recruiting and
facility costs incurred in connection with our growing business activities.
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:
- fluctuations in demand for and sales of our products;
- cancellations of orders and shipment rescheduling;
- our ability to significantly expand our manufacturing capacity at our new
facility in Fremont, California, which commenced operations in November
1999;
- the ability of CMI to timely produce and deliver subcomponents from its
facility in China in the quantity and of the quality we require;
- the practice of companies in the communications industry to sporadically
place large orders with short lead times;
- competitive factors, including introductions of new products and product
enhancements by potential competitors, entry of new competitors into our
market and pricing pressures;
- our ability to develop, introduce, manufacture and ship new and enhanced
products in a timely manner without defects;
- our ability to control expenses;
- availability of components for our products and increases in the price of
these components;
- mix of our products sold;
- costs related to acquisitions of technology or businesses; and
- general economic conditions, as well as those specific to the
communications and related industries.
A high percentage of our expenses, including those related to
manufacturing, engineering, sales and marketing, research and development and
general and administrative functions, are essentially fixed in the short term.
As a result, if we experience delays in generating and recognizing revenue, our
quarterly operating results are likely to be seriously harmed. As we expand our
manufacturing capacity, we will incur expenses in one quarter relating to the
expansion and related yield issues that may not result in off-setting revenue
until a
28
<PAGE> 30
subsequent quarter. New product introductions can also result in a mismatching
of research and development expenses and sales and marketing expenses that are
incurred in one quarter with revenues that are not received until a subsequent
quarter when the new product is introduced. If growth in our revenues does not
outpace the increase in our expenses, our results of operations could be
seriously harmed.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results will not be meaningful. You should not rely
on our results for one quarter as any indication of our future performance.
RESULTS OF OPERATIONS
Because we first began shipping our products in April 1999, we believe our
results of operations for the periods prior to that time are not meaningful, as
we were a development stage company. Our results of operations for these periods
primarily reflect research and development of our products.
For ease of reference, we refer to the period from October 24, 1997
(inception) through June 30, 1998 as fiscal 1998 and to the fiscal year ended
June 30, 1999 as fiscal 1999.
Net Revenue. We did not recognize any revenue until the quarter ended June
30, 1999. Net revenue for fiscal 1999 was $510,000 and for the quarter ended
October 1, 1999 was $4.4 million. In fiscal 1999, Oscicom accounted for 33% of
net revenue, MCI Telecommunications accounted for 32% of net revenue and Hitachi
accounted for 29% of net revenue. One customer, MCI WorldCom, accounted for 92%
of net revenue in the quarter ended October 1, 1999.
Cost of Revenue. Cost of revenue for fiscal 1999 was $531,000 and for the
quarter ended October 1, 1999 was $3.4 million. Cost of revenue for fiscal 1999
included higher component and manufacturing costs associated with the lower
initial production volume, as well as overhead costs that were spread over a
relatively low number of units produced. In the quarter ended October 1, 1999,
cost of revenue increased in dollar amount due to a significant increase in
production volume, the costs of building our manufacturing organization and the
additional cost of outsourcing certain subassemblies. As a percentage of
revenue, cost of revenue for fiscal 1999 was 104% of net revenue and for the
quarter ended October 1, 1999 was 78% of net revenue.
Research and Development. Research and development expenses for fiscal 1998
were $515,000, or 45% of total operating expenses. Research and development
expenses for fiscal 1999 were $4.1 million, or 44% of total operating expenses.
Research and development expenses for the quarter ended October 1, 1999 were
$950,000, an increase of $477,000 or 101% over the comparable quarter ended
September 30, 1998. The increase in dollar amount in fiscal 1999 over fiscal
1998 was primarily due to the significant increase in personnel and related
costs, prototype expenses for PowerMux, PowerShaper and a network testing model
and process development for PowerFilter. The increase in dollar amount in the
quarter ended October 1, 1999 over the comparable quarter ended September 30,
1998 was due to an increase in personnel and related costs to support the
completion of the PowerMux development, the beta test phase of PowerShaper and
increasing the number of other development projects.
Sales and Marketing. Sales and marketing expenses for fiscal 1998 were
$125,000, or 11% of total operating expenses. Sales and marketing expenses for
fiscal 1999 were $956,000, or 10% of total operating expenses. Sales and
marketing expenses for the quarter ended October 1, 1999 were $714,000, an
increase of $598,000 or 516% over the comparable quarter ended September 30,
1998. These increases in dollar amount were primarily due to an increase in the
number of sales and marketing personnel, sales commissions, increased marketing
expenses and other customer-related costs.
General and Administrative. General and administrative expenses for fiscal
1998 were $131,000, or 12% of total operating expenses. General and
administrative expenses for fiscal 1999 were $723,000, or 8% of total operating
expenses. General and administrative expenses for the quarter ended October 1,
1999 were $614,000, an increase of $482,000 or 365% over the comparable quarter
ended September 30, 1998. These increases were primarily due to an increase in
the number of general and administrative personnel and increased legal,
accounting, recruiting and facility cost incurred in connection with our growing
business activities.
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Stock Compensation. Stock compensation expense for fiscal 1998 was
$362,000, or 32% of total operating expenses. Stock compensation expense for
fiscal 1999 was $3.5 million, or 38% of total operating expenses. Stock
compensation expense for the quarter ended October 1, 1999 was $6.1 million, an
increase of $5.8 million over the comparable quarter ended September 30, 1998.
Through the quarter ended October 1, 1999, we have recorded a total of $9.9
million of stock compensation expense, with an unamortized balance of $14.1
million on our October 1, 1999 balance sheet.
Other Income (Expense), Net. Other income (expense), net, consists
primarily of interest on our cash investments and interest expense related to
our financing obligations. Other income (expense) for fiscal 1998 was $(4,000),
for fiscal 1999 was $29,000 and for the quarter ended October 1, 1999 was
$(71,000), an increase in expense of $78,000 over the quarter ended September
30, 1998. This increase in expense was generated by larger interest charges on
capital lease obligations and bank debt in addition to an increase in interest
income on larger cash balances due to the proceeds from the sale of our
preferred stock in private financings.
LIQUIDITY AND CAPITAL RESOURCES
From inception on October 24, 1997 through October 1, 1999, we have
financed our operations primarily through private sales of approximately $25.3
million of our convertible preferred stock. We have also financed our operations
through bank borrowings as well as through equipment lease financing.
We had cash, cash equivalents and short-term investments of $3.7 million at
June 30, 1999, up from $2.9 million at June 30, 1998. Most of the increase came
from financing activities, offset by cash used in operations and, to a lesser
extent, the purchase of equipment. At October 1, 1999, we had cash, cash
equivalents and short-term investments of $14.6 million. The increase from June
30, 1999 was primarily due to the receipt of $15.0 million in proceeds from the
sale of preferred stock in September 1999.
We used $590,000 in cash for operations for fiscal 1998 and $5.4 million in
fiscal 1999. The increase was primarily due to an increase in our net loss from
$1.1 million in fiscal 1998 to $9.2 million in fiscal 1999, and, to a lesser
extent, inventory purchases and increased accounts receivable. This was offset
in part by increased accounts payable and non-cash charges in fiscal 1999. We
used $4.5 million in cash for operations in the quarter ended October 1, 1999,
primarily as a result of a proportionate increase in our net loss and an
increase in accounts receivable.
We used $301,000 in cash for investing activities in fiscal 1998,
specifically for the purchase of research and development equipment. In fiscal
1999, we used $2.8 million in cash for investing activities, reflecting an
investment in marketable securities and in production equipment, research and
development equipment, computers and facilities to support the expansion of our
operations. For the quarter ended October 1, 1999, we used $6.8 million in cash
for investing activities, which was primarily used for manufacturing expansion
and the purchase of marketable securities.
We generated $3.8 million in cash from financing activities in fiscal 1998,
$7.1 million in fiscal 1999 and $16.2 million in the quarter ended October 1,
1999, primarily from private sales of convertible preferred stock. In July 1999,
we obtained a revolving credit line from a financial institution, which allows
for maximum borrowings up to $3.8 million at an interest rate equal to the prime
rate plus .75%. During the quarter ended October 1, 1999, we drew down $2.1
million under this facility to pay off a previous $735,000 outstanding bank debt
in full and for working capital needs. This line of credit requires that we
comply with specified covenants. As of October 1, 1999, we were in compliance
with all of these covenants. We financed capital purchases primarily through
leases or equipment credit lines. In addition, at June 30, 1998 we had $123,000
in capitalized lease obligations outstanding, $768,000 at June 30, 1999 and $1.9
million at October 1, 1999.
As of October 1, 1999, we did not have any material commitments for capital
expenditures. However, we expect to incur capital expenditures as we expand our
manufacturing operations in the near future. Our capital requirements also
depend on market acceptance of our products, the timing and extent of new
product introductions and delivery, and the need for us to develop, market, sell
and support our products on a worldwide basis. From time to time, we may also
consider the acquisition of, or evaluate investments in,
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products and businesses complementary to our business. Any acquisition or
investment may require additional capital. Although we believe that the net
proceeds from this offering, together with our current cash balances, will be
sufficient to fund our operations for at least the next 12 months, we cannot
assure you that we will not seek additional funds through public or private
equity financing or from other sources within this time frame or that additional
funding, if needed, will be available on terms acceptable to us, or at all.
YEAR 2000 COMPLIANCE
Impact of the Year 2000 Computer Problem. The year 2000 computer problem
refers to the potential for system and processing failures of date-related data
as a result of computer-controlled systems using two digits rather than four to
define the applicable year. For example, computer programs that have
date-sensitive software may recognize a date represented as "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
State of Readiness of Our Products. The year 2000 problem does not directly
affect our passive optical products. However, our products are generally
integrated into larger networks involving sophisticated hardware and software
products supplied by other vendors. Each of our customers' networks involves
different combinations of third party products. We cannot evaluate whether all
of their products are year 2000 compliant. We may face disruption in our
business based on year 2000 problems in other companies' products or based on
issues arising from the integration of multiple products within the overall
network.
State of Readiness of Our Internal Systems. Our business may be affected by
year 2000 issues related to non-compliant internal systems developed by us or by
third-party vendors. We are in the process of implementing new enterprise
resource planning software, which we believe is year 2000 compliant. Although we
have not surveyed our third party vendors, we are not currently aware of any
year 2000 problem relating to any of our material internal systems. We have not
tested and do not plan to test our systems for year 2000 compliance. We do not
believe that we have any significant systems that contain embedded chips that
are not year 2000 compliant.
Our internal operations and business are also dependent upon the
computer-controlled systems of suppliers, customers, service providers and third
parties, including our Internet-based management information system. We believe
that, absent a systemic failure outside our control, such as a prolonged loss of
electrical or telephone service, year 2000 problems at these third parties will
not have a material impact on our operations.
If our suppliers, vendors, distributors, customers and service providers
fail to correct their year 2000 problems, these failures could result in an
interruption in, or a failure of, our normal business activities or operations.
If a year 2000 problem occurs, it may be difficult to determine which party's
products have caused the problem. These failures could interrupt our operations
and damage our relationships with our customers. Due to the general uncertainty
inherent in the year 2000 problem resulting from the readiness of third-party
suppliers and vendors, we are unable to determine at this time whether year 2000
failures could harm our business and our financial results.
Year 2000 issues could affect our customers' purchasing plans if they need
to expend significant resources to fix their existing systems to become year
2000 compliant. This situation may reduce funds available to purchase our
products. In addition, some customers may wait to purchase our products until
after the year 2000, which may reduce our revenue in the quarter ending December
31, 1999.
Cost. We do not anticipate that costs associated with remediating our
internal systems will be significant.
Risks. Failures of our internal systems to be year 2000 compliant could
temporarily prevent us from processing orders, issuing invoices and developing
products and could require us to devote significant resources to correcting
these problems. Due to the general uncertainty inherent in the year 2000
computer problem, resulting from the uncertainty of the year 2000 readiness of
third-party suppliers and vendors, we are unable to determine at this time
whether the consequences of year 2000 failures will have a material impact on
our business, results of operations or financial condition.
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Contingency Plans. We have not yet developed a contingency plan to address
any situation that may result if we are unable to solve our year 2000 issues,
and we do not anticipate the need to do so. If we are forced to use a
contingency plan, the failure to have one could harm our business.
Disclaimer. The discussion of our expectations relating to year 2000
compliance are forward-looking statements. Our ability to achieve year 2000
compliance and the level of associated incremental costs could be adversely
affected by, among other things, availability and cost of programming and
testing resources, third party suppliers' ability to modify software and other
unanticipated problems.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and does not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to adopt SFAS No. 133 in fiscal 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to our investment
portfolio and outstanding debt obligations. We typically do not attempt to
reduce or eliminate our market exposure on our investment securities because a
substantial majority of our investments are in fixed-rate short-term securities.
We do not have any derivative financial instruments. Due to the short-term
nature of our investments, we believe that there is no material risk. In
addition, substantially all of our outstanding indebtedness is either fixed-rate
debt or short-term variable-rate debt. Therefore, no quantitative tabular
disclosures are required.
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BUSINESS
OVERVIEW
Avanex designs, manufactures and markets fiber optic-based products, known
as photonic processors, which are micro-optic devices that perform optical
signal processing and are designed to increase the performance of optical
networks. Our photonic processors offer communications service providers and
optical systems manufacturers greater levels of performance and miniaturization,
reduced complexity and increased cost-effectiveness as compared to current
alternatives. We believe photonic processors will enable the next generation,
all-optical network, which is necessary to support the increasing demand for
bandwidth. Our photonic processors enable communications service providers and
optical systems manufacturers to cost-effectively maximize the capacity of
optical networks. Our products are designed to optimize optical network
performance, provide a flexible, scalable and cost-effective optical transport
solution, and facilitate the deployment of next generation service and
applications such as VPN and B2B electronic commerce.
Our objective is to be the leading provider of innovative fiber optic-based
solutions that enable our customers to deploy and optimize fiber optic networks.
In order to achieve this objective, our strategy is to leverage our technology
leadership and expertise to develop new products and expand customer
relationships. We also intend to expand our manufacturing facilities, automate
our manufacturing processes and extend awareness of our brand. Our marketing
strategy is currently based on a push-pull approach in which we target optical
systems manufacturers and communications service providers. We believe this
approach will drive demand for our products and help enable the transition to
the next-generation, all-optical network.
INDUSTRY BACKGROUND
INCREASE IN BANDWIDTH DEMAND
The proliferation of the Internet and the increase in activities such as
electronic commerce, the transmission of large data files, Internet-based
businesses and telecommuting have caused a significant increase in the volume of
traffic across the communications infrastructure. According to Ryan, Hankin &
Kent, a leading market research and consulting firm, Internet traffic will
increase from 350,000 tera bytes per month, or TBpM, at the end of 1999 to over
15 million TBpM in 2003. This market research suggests that, at the end of 1999,
the volume of Internet data traffic will have surpassed the volume of voice
traffic. With this increase in traffic, communications vendors have focused on
delivering improvements that provide more network bandwidth and increased
transmission speed. Consequently, the increase in performance of communications
networks, including the Internet, has attracted new users, more applications and
a greater demand for bandwidth. Thus, the need for additional network capacity
and performance has created a business environment in which network improvements
and increases in available bandwidth are constantly matched by advances in the
applications and services generating this demand.
EVOLUTION OF THE OPTICAL NETWORK
The communications infrastructure was originally built for voice traffic.
This voice network was designed using circuit-switched technology that provides
each data stream, such as a telephone call between two points, with a dedicated
channel, or circuit, for the duration of the call. This approach is efficient
for voice communications, which are low bit, or data, rate transmission among
fixed geographic locations, and symmetrical, or involving the exchange of
relatively equal amounts of information between parties. The circuit-switched
network approach, however, is inefficient for pure data transmissions, which are
characterized by large bursts of data traffic followed by long periods of
silence. This inefficiency is heightened by the fact that data traffic is often
asymmetrical and among multiple geographic locations.
In an effort to overcome the limitations of circuit-switched networks,
service providers have implemented various enhancements such as advanced
switching technology and equipment. In addition, the transport layer is being
upgraded from electrical to optical transmission. In contrast to electrical
transmission over copper wires, optical transmission technology transfers data
in the form of pulses of light along optical fibers, which
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are bundled together in fiber optic cable. Optical transmission provides
significantly greater quality and capacity than electrical transmission.
Meeting the demand for bandwidth by deploying additional fiber optic cable
is both costly and complicated. Furthermore, the costs associated with laying
the cable underground and the purchasing of rights-of-way increase significantly
when the fiber optic cable is deployed in metropolitan areas. Therefore,
additional enhancements to the communications infrastructure have been
developed, including dense wavelength division multiplexing, or DWDM, which
greatly increases the capacity of the existing fiber optic infrastructure. DWDM
allows as many as 160 light signals, or wavelength channels, to travel down a
single optical fiber as a composite optical signal.
Despite the improvements in the existing communications infrastructure, we
believe a transition to a next-generation, all-optical network must occur in
order to support increasing bandwidth demand.
TECHNOLOGICAL CHALLENGES OF THE TRANSITION TO AN ALL-OPTICAL NETWORK
High Cost and Under-utilization of Available Bandwidth. In order to
optimize their investments in the existing fiber optic infrastructure, service
providers require a low-cost solution that allows a large number of wavelength
channels carrying data to travel simultaneously over the same optical fiber.
Although DWDM technology provides a partial solution, this technology is
expensive and the number of wavelength channels that can be transmitted
simultaneously is relatively low. Additionally, current DWDM technology requires
that wavelength channels be transmitted with a large space between each channel.
Therefore, as depicted in the diagram below, bandwidth is under-utilized because
wavelength channels are not densely packed.
OPTICAL SIGNAL
Total Available Bandwidth
[Optical Signal Diagram]
[At the top of the diagram is the caption "Optical Signal". Across the top of
the diagram is a horizontal line with arrows at each end. The label above the
line is "Total Available Bandwidth." Beneath this line are three vertical boxes,
each bearing the label "Wavelength Channel," with an arch over each box. Beneath
these boxes is a horizontal line with the label "Bandwidth" beneath each
"Wavelength Channel" box and the label "Unused Bandwidth" beneath the space
between the "Wave Channel" boxes, which are under the arches.]
By utilizing a greater portion of the available bandwidth for data transmission,
communications service providers can increase the efficiency of their optical
networks.
The Necessity of Opto-electrical Conversion. Another technological
limitation of the current optical transmission system is the pervasiveness of
the process known as opto-electrical conversion. Opto-electrical conversion is
the conversion of the incoming optical signal into an electrical signal and back
into an outgoing
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optical signal. This conversion is required in order to regenerate the signal to
overcome the limitations of dispersion and attenuation and in order to drop data
from or add data to the composite optical signal.
- Chromatic dispersion. Chromatic dispersion occurs because different
wavelengths of optical signals transmitted over a single optical fiber
travel at different speeds. Because these wavelengths travel at different
speeds, the resulting wavelength delays distort the signal quality. This
signal distortion can only be avoided by regenerating the signal after it
has travelled a short distance.
- Attenuation. As optical signals travel over fiber, the signals degenerate
and are eventually lost due to a phenomenon known as attenuation. As
communications service providers attempt to send signals over even longer
distances, the attenuation worsens, and the signal is lost. Therefore,
the signal requires regeneration after traveling a short distance.
- Adding or Dropping of Data. As composite optical signals are transmitted
across the network, it is often necessary to have some data dropped off
from or added to this signal at a given location. This process is known
as add/drop multiplexing and is required because composite optical
signals contains data with different destinations. In order to remove
data from or add data to a composite optical signal, that signal must be
converted to an electrical signal and then reconverted back to a
composite optical signal, even if that signal does not otherwise require
regeneration at that location.
Opto-electrical conversion currently occurs at multiple points in the
network, and in different types of network equipment. This process is costly for
the following reasons:
- The equipment is specific to a particular bit rate, protocol and signal
format and therefore is neither scalable nor flexible enough to handle
other transmission speeds, protocols or signal formats.
- It requires expensive equipment throughout the network.
- The equipment occupies valuable space.
- The equipment consumes significant electrical power and generates excess
heat.
These costs increase as more wavelength channels are added to a single
optical fiber in DWDM systems because each channel of a DWDM system must undergo
this conversion process. Thus, opto-electrical conversion presents one of the
most significant technological challenges of the current communications
infrastructure.
COST CHALLENGES OF THE TRANSITION TO AN ALL-OPTICAL NETWORK
Deploying an all-optical network is costly because optical products are
more expensive to manufacture and deploy than electrical equipment. The cost of
developing optical technology and products is high due to the infancy of the
technology and its related industry. Because of the emerging nature of the
industry, manufacturing yields are low, which also results in additional costs.
Furthermore, once a product is developed and manufactured, it is often too
bulky, complex and inflexible to be cost-effective.
DEPLOYMENT CHALLENGES OF THE TRANSITION TO AN ALL-OPTICAL NETWORK
Users of optical systems require miniaturized products because their
systems are often deployed in locations where space is limited. Few optical
product manufacturers have the ability to manufacture miniaturized products that
consistently meet standard specifications. In order to develop an all-optical
network, an optical solutions provider must understand not only the optical
systems, but also the network in which these optical systems are to be deployed.
Traditionally, the optical component manufacturers have focused on developing
optical packaging expertise while systems manufacturers and service providers
have focused on developing network deployment and optical design expertise.
Despite the advances in optical technology, several challenges still exist,
which prevent the widespread deployment of existing optical solutions. As a
result of these limitations, the current network is a patchwork of various
solutions placed throughout the network operating on multiple protocols over
multiple layers on both optical and electrical signals.
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THE AVANEX SOLUTION
Avanex designs, manufactures and markets fiber optic-based products, known
as photonic processors, which are designed to deliver increased performance,
miniaturization, scalability, reduced complexity and lower cost as compared to
current alternatives. Our solutions bring photonic processing capabilities to
the transport layer of the network and significantly reduce the need for
opto-electrical conversion. Unlike existing component technologies, our photonic
processors perform optical signal processing, or change the signal according to
predetermined algorithms. Our photonic processors also differ from conventional
optical systems in that they do not require software and electronics. We believe
our photonic processors enable service providers and optical systems
manufacturers to cost-effectively maximize the bandwidth of optical networks.
Our solutions provide the following key benefits:
Optimize Optical Network Performance. Our photonic processors are designed
to maximize the capacity of optical fiber and the efficiency and reliability of
optical transmission. Our photonic processors are designed to enable the
transmission of data at smaller spacings between wavelength channels, at higher
bit rates and across greater distances than currently available solutions. These
design features enable the use of greater fiber optic bandwidth for the
transport of data than can be delivered with alternative DWDM solutions
available today. We also enable variable chromatic dispersion compensation,
which minimizes transmission errors and increases the distance an optical signal
can travel before being regenerated.
Provide a Flexible and Scalable Solution. Applying our expertise in
networking design, we have developed solutions that are flexible, modular and
designed to be easily deployed into existing and future networks. Our solution
is scalable because our photonic processors are designed to work equally well in
small and large optical networks, as well as facilitate easy upgrading of an
optical system to a higher number of channels. Our photonic processors provide
functionality that accommodates existing protocols, including SONET, IP and ATM.
Our photonic processors are designed to meet the demands placed on today's
network, but can be easily expanded to meet future demand.
Provide a Cost-Effective Optical Transport Solution. Our solutions are
designed to enable the transition to the next-generation, all-optical network
without the large capital investments or complex system design challenges
typically encountered in network deployment. The optical signal processing
capabilities of our photonic processors allow us to offer lower cost solutions
than those currently available. Through our micro-optic packaging, or
miniaturization, and integration, or the combination of multiple optical
components in a single package, our customers can use our products to optimize
the utilization of limited networking equipment space. Our photonic processors
also reduce the need for expensive opto-electrical conversion at numerous points
along the transmission path. In addition, our products are designed to be used
within the existing communications infrastructure as well as in the
next-generation, all-optical network, which protects existing infrastructure
investments and facilitates network development efforts.
Facilitate the Deployment of Next-Generation Services and Applications. Our
solutions bring processing capabilities for the first time to the transport
layer of the network. We believe these capabilities will enable our customers to
offer a new set of services and applications, including voice over IP, VPN and
B2B e-commerce. These new offerings could provide our customers with potential
new revenue streams and opportunities for further competitive differentiation.
THE AVANEX STRATEGY
Our objective is to be the leading provider of innovative, fiber
optic-based solutions that enable our customers to deploy and optimize fiber
optic networks. Key elements of our strategy include:
Leverage Technology Leadership and Expertise. We believe that we have a
unique combination of superior network design and system architecture knowledge
as well as advanced optical packaging technologies. We have filed 25 patent
applications in the United States and four patent applications internationally.
We intend to continue to focus our product development efforts on providing
fiber optic-based solutions that address the need for an unlimited number of
low-cost wavelengths, transported at very high data rates and at very long
distances. In developing new products, we intend to leverage our expertise in
designing
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solutions that are cost-effective, scalable and flexible. We plan to increase
our research and development efforts, including the expansion of The Photonics
Center in Richardson, Texas, as well as to evaluate externally-developed
technology opportunities as they become available.
Expand Existing and Develop New Customer Relationships. We currently
provide our photonic processors to customers in the communications industry,
including communications service providers such as MCI WorldCom and optical
systems manufacturers such as Hitachi, Osicom and Cerent, which recently agreed
to be acquired by Cisco Systems. We intend to leverage our existing
relationships with these and other existing customers and develop new
relationships with potential customers in the service providers and optical
systems manufacturers markets. We also intend to provide a range of optical
solutions that meet the demands of our target markets.
Expand Sales and Marketing Efforts. Our marketing strategy is based on a
push-pull approach. With our pull approach, we target communications service
providers who can create demand for our products by purchasing our products
directly or by requiring that the systems they purchase incorporate our
products. With our push approach, we target optical systems providers who can
buy our products and then resell them as a part of their optical solutions. We
plan to expand our North American direct sales team, which will include customer
representatives, a technical sales force and application engineers. We intend to
expand our international presence by increasing both our direct sales force and
establishing relationships with international distributors.
Expand Manufacturing Capabilities. We intend to continue to develop our
manufacturing and packaging expertise to enable us to consistently design,
develop and manufacture miniaturized, reliable and cost-effective products. We
intend to continue to invest in our manufacturing capabilities, as well as
expand our manufacturing facilities so that we can meet the needs of our target
markets. Our manufacturing is cell-based, or partitioned according to
similarities in responsibilities. We believe this type of manufacturing
organization allows us to expand our facilities more efficiently, both in terms
of cost and time. We are automating our testing process and plan to extend this
automation to other parts of the manufacturing process.
Enhance the Avanex Brand. We plan to enhance the Avanex brand throughout
the communications industry by engaging in a range of marketing programs to
position us as the leading provider of fiber optic-based solutions that power
the next generation, all-optical network. These activities will include
participation in industry conferences and trade shows, advertisements in print
publications, direct marketing and Internet-based marketing. We also plan to
build awareness through product demonstrations and customer education and
training at The Photonics Center.
TECHNOLOGY
Our optical signal processing technology is designed to solve the inherent
complexity of, and limitations on, bandwidth, speed and distance in conventional
network and long-haul optical transmission systems. Our products incorporate
several core optical technologies that we believe will enable the
next-generation, all-optical network. These include:
Integrated/Tuned Dielectric Filter. Integrated/tuned dielectric filter
technology allows certain wavelength channels, or optical signals, to pass
through multiple filters while reflecting unwanted optical signals. These
filters are used in DWDM systems to separate, or demultiplex, incoming optical
signals and combine, or multiplex, outgoing optical signals. These filters can
be tuned, or adjusted, to different frequencies, reducing the number of types of
filters needed in a DWDM system. This technology enables the placement of
multiple filters in a single package, reducing the size of the DWDM system and
signal loss.
Spectral Segmentation Technology. Traditional DWDM technology multiplexes
and demultiplexes wavelength channels individually. Our proprietary spectral
segmentation technology enables the multiplexing and demultiplexing of
wavelength channels in groups. This allows for more efficient and flexible
packaging and less degradation of the optical signal due to the need for fewer
subcomponents in the DWDM system. Our PowerMux product incorporates this
technology in the dense multiplexing and demultiplexing of wavelength channels
in a DWDM system.
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Variable Chromatic Dispersion Compensation Technology. Chromatic dispersion
occurs because different wavelengths of optical signals transmitted over a
single optical fiber travel at different speeds. Chromatic dispersion
deteriorates the quality of optical signals in high bit rate transmission
systems. The farther the optical signal travels, the more it gets distorted. Our
dispersion compensation technology, utilized in our PowerShaper product,
corrects for chromatic dispersion by compensating for the differences in
wavelength speed. Our technology allows one single product to function across
multiple wavelength channels and can compensate, or correct for, different
levels of chromatic dispersion.
PRODUCTS
Our photonic processors are designed to increase the performance of optical
networks. We believe our photonic processors represent a new category of optical
equipment in that they are neither components nor systems. Additionally, our
photonic processors differ from full optical systems in that they are
micro-optics-based devices that do not require software and electronics.
Our current product line consists of the PowerFilter, the PowerMux and the
PowerShaper. The following table sets forth these products as well as some of
our products in development and their capabilities:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION BENEFIT STATUS
------- ----------- ------- ------
<S> <C> <C> <C>
PowerFilter Integrated tunable wavelength - Reduced signal loss Shipping
filter multiplexer and
demultiplexer - Fewer types of filters
needed
PowerMux High density wavelength - Accommodates large number of Shipping
division multiplexer processor wavelength channels
- More efficient use of
bandwidth for data
transmission
- Low cost per wavelength
channel
PowerShaper Fixed and variable chromatic - Compact packaging Beta Testing
dispersion compensator
- Broadband chromatic
dispersion compensation
- Optimizes chromatic
dispersion compensation
PowerExchange Reconfigurable optical - Real time configuration of Beta Testing
add-drop multiplexer optical add-drop
multiplexing
SuperPowerShaper Variable chromatic slope - Extends the wavelength Beta Testing
dispersion compensator channels of high bit-rate
transmissions
</TABLE>
PowerFilter. One of the limitations of current optical filters is that too
much of the incoming optical signal is lost during the sequential filtering
process, a phenomenon known as insertion loss. Our PowerFilter technology is
designed to correct much of this inefficiency, increasing transmission distance
and improving system performance. The central piece of the filter technology is
a thin film dielectric filter-based device, which offers wavelength-tuning
capabilities. Wavelength tuning allows a single filter to filter multiple
wavelength channels. Our proprietary packaging schemes also consolidate filter
types and parts. This, in turn, provides an added advantage of cost savings on
materials.
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<PAGE> 40
PowerMux. PowerMux is a next generation DWDM product. It is capable of
multiplexing optical signals at smaller spacings between wavelength channels, at
higher bit rates and across greater distances than currently available
solutions. The PowerMux allows DWDM multiplexing and demultiplexing of optical
signals at the origin and destination of a transmission path, in addition to
offering optical add-drop multiplexing, known as OADM, at any point in the
transmission path. We believe this product allows our customers to use more
fiber optic bandwidth for the transport of data than can be delivered with
alternative DWDM equipment available today.
PowerShaper. PowerShaper, currently in the beta testing stage, is a
broadband chromatic dispersion compensation processor and is specifically
designed to correct the inherent bandwidth and distance limitations in optical
transmission systems resulting from chromatic dispersion. The PowerShaper can
act as a fixed or variable dispersion compensator, which will permit system
providers to optimize their network for improved network performance.
PowerShaper is designed to correct for chromatic dispersion by reshaping the
individual optical signals at the receiving end of the optical fiber and
preventing them from mixing and corrupting the transmission data.
We cannot assure you that we will be able to successfully introduce or
market products that are currently in the beta testing stage. We also cannot
assure you that these products will achieve market acceptance. Please see "Risk
Factors -- Our Success Depends Upon Our Ability to Develop Products and Product
Enhancements That Will Achieve Market Acceptance."
CUSTOMERS
Our target customer base includes communications service providers and
optical systems manufacturers. Customers who have placed orders for commercial
shipment include MCI WorldCom, Hitachi, Osicom, Lucent and Cerent, which
recently agreed to be acquired by Cisco Systems.
We began recognizing revenues from sales of our photonic processors in the
quarter ended June 30, 1999. In the fiscal year ended June 30, 1999, sales to
Osicom, MCI Telecommunications and Hitachi accounted for 33%, 32%, and 29% of
net revenue, respectively. In the quarter ended October 1, 1999, sales to MCI
WorldCom accounted for 92% of net revenue. We expect that the majority of our
revenues will continue to depend on sales of our photonic processors to a small
number of customers.
MARKETING, SALES AND CUSTOMER SUPPORT
We are implementing a marketing strategy that is based on a push-pull
approach. Using the pull approach, we target communications service providers,
who can create demand for our products by purchasing our products directly or by
requiring that their systems incorporate our products. Using the push approach,
we target optical systems providers, who can buy our products and then resell
them as a part of their optical solutions. Our marketing efforts are centered
around demonstration and education of our products' performance at trade shows
and The Photonics Center, continued publicity through paid advertising and
direct mail and Internet-based communication and promotion.
We sell and market our products through a combination of direct sales and
country-specific distributors. As of December 1, 1999, our direct sales
organization consisted of one sales representative operating in the United
States, one manufacturer's representative in Italy and two distributors in
Japan. The sales organization is supported by three customer service
representatives and one sales analyst.
We focus our direct sales efforts on service providers and optical systems
manufacturers. The direct sales account managers cover the market on an assigned
account basis and work as a team with account-oriented systems engineers. We
also have application engineers that provide our customers with assistance on
the evolution of their networks as it relates to the deployment of our products.
These engineers help in defining the features that are required for our products
to be successful in specific applications.
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<PAGE> 41
In order to further our international sales objectives, we have established
relationships with two distributors in Japan. These distributors have expertise
in deploying complex telecommunications equipment in their markets and provide
basic support required by our international customers.
We believe that support services are essential to the successful
installation and ongoing support of our products. We deliver these services
directly to major customers and indirectly through our international
distributors. As of October 1, 1999, we had two people in customer service and
support, located in our Fremont, California corporate headquarters.
THE PHOTONICS CENTER
To help market our technology and product performance and enable our
push-pull marketing strategy, we operate The Photonics Center, which is a 6,000
square foot facility located in Richardson, Texas. The Photonics Center is a
leading-edge customer testing, demonstration and training facility that enables
deployment of our products in a simulated network. As a result, we benefit from
immediate feedback from our current and potential customers about our photonic
processors. The Photonics Center also provides testing capabilities for the
development of products and prototypes. In addition, we believe that The
Photonics Center shortens our products' evaluation cycle with potential
customers because they receive initial evaluation information on our products
before these products are shipped to the customer location for full testing and
evaluation. This initial information gives the potential customer a better
understanding of the product before delivery to their location, which we believe
gives us an advantage in the sales process.
MANUFACTURING
We currently manufacture all of our products in our Fremont, California
facility. We intend to devote significant resources to expanding our
manufacturing capacity and expect to continue to hire significant numbers of new
manufacturing employees.
The manufacturing of photonic processors requires the use of a highly
skilled manual workforce performing critical functions such as optical assembly,
optical alignment, soldering and component integration. We invest significant
resources in training and maintaining the quality of our manufacturing work
force. Furthermore, we developed proprietary automated testing equipment for
consistency in testing results and for efficiency. We also have grouped our
manufacturing operations into several product-specific or customer-specific
cells. We believe this provides a highly flexible and efficient operating
capability, and is designed to meet customer expectations for high volume
capacity, high quality and on-time delivery.
If we are unable to expand our manufacturing capacity on a timely basis to
meet demand or if we do not accurately project demand, we will have excess
capacity or insufficient capacity, either of which will seriously harm our
business.
We emphasize quality assurance throughout the entire supply-chain and
manufacturing processes. We also install stringent quality control processes and
procedures, including incoming material inspection, in-process testing and
outgoing inspection.
We have entered into a five-year agreement with CMI under which a
subsidiary of CMI, organized under the laws of the People's Republic of China,
manufactures optical subcomponents for us in limited quantities at a small
facility in Tianjin, China. They are building a new, larger manufacturing
facility in Tianjin, which will not be operational until at least the quarter
ending September 29, 2000. We cannot assure you that this larger facility will
be completed on time or at all. Under the agreement with CMI, we have granted
licenses to CMI to make in China and the United States, and to use and sell
worldwide, the licensed components. We also granted them a license to use some
of our technical information and manufacturing process know-how in China and the
United States. These licenses are exclusive in China and non-exclusive
elsewhere. As a result, CMI can manufacture and sell optical components based on
our technology to third parties, including our potential competitors.
We expect CMI to build a significant portion of our subcomponents and
products in the future. These activities will extend to full production and
include activities such as material procurement, assembly, test and
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<PAGE> 42
control. We will design, specify and monitor all of the tests that are required
to meet our quality standards. We believe this arrangement with CMI will allow
us to operate without dedicating additional space to these manufacturing
operations and will conserve the working capital that would otherwise be
required for funding additional inventory. See "Risk Factors -- Because We
Expect to Depend on a Third Party Located in China to Manufacture Subcomponents
and Products for Us, We May Encounter Difficulties in Obtaining a Sufficient
Amount of High Quality Products."
We currently purchase several key components used in our photonic
processors from single or limited sources of supply. These key components
include filters, lenses and specialty glass. We have no guaranteed supply
arrangement with these suppliers. The inability to obtain sufficient quantities
of these components may result in delays or reductions in product shipments,
which would harm our business.
QUALITY
We have established a quality assurance plan to improve our company-wide
quality system to ensure that our customers' requirements are consistently met.
This system is based on the international standard ISO 9001. While we are not
currently registered as ISO 9001 compliant, we are currently working toward
obtaining ISO 9001 registration, which we believe will provide a further
competitive strength.
PRODUCT DEVELOPMENT
We have assembled a team of engineers and prototype production operators
with significant experience in optics, data networking and communications. We
believe our engineering team possesses expertise in the areas of optics,
micro-optic design, network system design and system-level software design. Our
product development efforts focus on enhancing our first generation of photonic
processors, developing additional optical network products and continuing to
develop next generation technology to support the growth in network bandwidth
requirements.
As of October 1, 1999, we had 26 people in our product development group.
We have made, and will continue to make, a substantial investment in research
and development. Our research and development expenses totaled $515,000 for the
period from October 24, 1997 (inception) through June 30, 1998, $4.1 million for
the fiscal year ended June 30, 1999 and $950,000 for the quarter ended October
1, 1999.
Our industry is characterized by very rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. While we have developed, and expect to continue to
develop, most new products and enhancements to existing products internally,
from time to time we may be required to license technology from third parties to
develop new products or product enhancements. These licenses may not be
available to us on commercially reasonable terms.
COMPETITION
The markets we are targeting are new and rapidly evolving, and we expect
these markets to become highly competitive in the future. While we do not have
any direct competitors in the photonic processor market today, we anticipate
that other companies will in the future expand into our markets and introduce
competitive products. We also face indirect competition from public and private
companies providing products that address the same fiber optic network problems
that our products address. The development of alternative solutions to optical
transmission problems by competitors, particularly systems companies who also
manufacture components, could significantly limit our growth.
Some companies in the optical systems and component industry may compete
with us in the future, including Lucent Technologies, Nortel Networks, Alcatel,
Fujitsu, JDS Uniphase and E-Tek Dynamics. These are large public companies that
have longer operating histories and significantly greater financial, technical,
marketing and other resources than we have. As a result, these competitors are
able to devote greater resources to the development, promotion, sale and support
of their products. In addition, our competitors that have large market
capitalizations or cash reserves are much better positioned than we are to
acquire other companies in order to gain new technologies or products that may
displace our product lines.
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<PAGE> 43
Any of these acquisitions could give our competitors a strategic advantage. Many
of our potential competitors have significantly more established sales and
customer support organizations than we do. In addition, many of our competitors
have much greater name recognition and have more extensive customer bases,
better developed distribution channels and broader product offerings than our
company. These companies can leverage their customer bases and broader product
offerings and adopt aggressive pricing policies to gain market share. We expect
to encounter potential customers that, due to existing relationships with our
competitors, are committed to the products offered by these competitors. As a
result, these potential customers may not consider purchasing our products.
Existing and potential customers are also our potential competitors. These
customers may develop or acquire additional competitive products or technologies
in the future, which may cause them to reduce or cease their purchases from us.
In addition, customers who are also competitors may unfairly disparage our
products in order to gain a competitive advantage.
As a result of these factors, we expect that competitive pressures may
result in price reductions, reduced margins and loss of market share.
INTELLECTUAL PROPERTY
Our success and ability to compete depend substantially upon our internally
developed technology. We have filed 25 U.S. patent applications and four foreign
patent applications. Our engineering teams have significant expertise in
photonic, micro-optic and systems-level design.
While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are essential to establishing and
maintaining a technology leadership position. We cannot assure you that others
will not develop technologies that are similar or superior to our technology.
We license technology from Fujitsu that is critical to our PowerShaper
product, which we expect to introduce in the second half of the fiscal year
ending June 30, 2000. The license agreement is subject to termination upon the
acquisition of more than a 50% interest in us by certain major communications
system suppliers. Thus, if we are acquired by any of these specified companies,
we will lose this important license. The existence of this license termination
provision may have an anti-takeover effect in that it would discourage those
specified companies from making a bid to acquire us.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our proprietary information. Despite these efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Policing unauthorized use
of our products is difficult, and there can be no assurance that the steps taken
by us will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as do
the laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
networking industry, and we expect that optical communications products may be
increasingly subject to third-party infringement claims as the number of
competitors in our industry segments grows and the functionality of products in
different industry segments overlaps. In addition, we believe that many of our
competitors in the communications business have filed or intend to file patent
applications covering aspects of their technology on which they may claim our
technology infringes. We can not make any assurances that other third parties
will not claim infringement by us with respect to our products and our
associated technology. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us, if at all. A
successful claim of product infringement against us and failure or inability by
us to license the infringed or similar technology could seriously harm our
business. Although we carry general liability insurance, our
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<PAGE> 44
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed.
EMPLOYEES
As of October 1, 1999, we had 132 full-time employees, 26 of whom were
engaged in product development, 88 in manufacturing, six in quality, six in
sales, marketing, application support and customer service, and six in finance,
administration and operations. None of our employees are represented by a labor
union. We have not experienced any work stoppages and we consider our relations
with our employees to be good.
Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement requiring service for any defined
period of time. The loss of the services of one or more of our key employees
could have a material adverse effect on our business, financial condition and
results of operations. Our future success also depends on our continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for these personnel is intense, particularly in the San
Francisco Bay Area where our headquarters are located, and we can not make any
assurances that we can retain our key personnel in the future.
FACILITIES
In September 1999, we leased one building in Fremont, California for our
corporate headquarters, totaling approximately 54,000 square feet, which
includes sales and marketing, research and development, administration and
manufacturing. This lease will expire in October 2009. Under the same lease, we
were granted a right of first refusal, which expires in April 2000, to lease an
adjacent building, approximately 91,000 square feet, at a predetermined rate. We
also lease approximately 6,000 square feet of office space in Richardson, Texas
for sales and the operation of The Photonics Center. This lease expires in
February 2006.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors as of November 1, 1999, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Walter Alessandrini......... 52 President, Chief Executive Officer and Director
Xiaofan (Simon) Cao......... 36 Senior Vice President, Product Development and Director
Paul Jiang.................. 41 Vice President, Manufacturing and Vendor Management
Jessy Chao.................. 32 Vice President, Finance, and Chief Financial Officer
Anthony Florence............ 57 Vice President, Corporate Marketing and Investor Relations
Peter Maguire............... 49 Vice President, Worldwide Sales
James Pickering............. 48 Vice President, Quality
Margaret Quinn.............. 46 Vice President, Human Resources and Administration
Todd Brooks................. 39 Director
Michael Goguen.............. 35 Director
Seth Neiman................. 45 Director
</TABLE>
Walter Alessandrini has served as one of our directors and as our President
and Chief Executive Officer since March 1999. Dr. Alessandrini was President and
Chief Executive Officer of Pirelli Cables and Systems North America LLC, a
manufacturer of cables and communications systems, from November 1996 to March
1999. From November 1990 to November 1996, he was President and Chief Executive
Officer of Union Switch & Signal Inc., a manufacturer of rail transportation
signaling and control systems. Dr. Alessandrini received a doctorate degree in
Mechanical Engineering from the University of Genoa, Italy.
Xiaofan (Simon) Cao, one of our co-founders, has served as one of our
directors since October 1997 and as our Senior Vice President, Product
Development since June 1998. He was our President and Chief Executive Officer
from October 1997 to June 1998. From October 1996 to October 1997, Dr. Cao
served as Vice President, Sales and Marketing of Oplink Communications, Inc., a
producer of components and modules for fiber optic networks. From May 1992 to
September 1996, Dr. Cao was a Senior Technical Service Manager for E-Tek
Dynamics, Inc., a producer of components and modules for fiber optic networks.
Dr. Cao received a B.S. degree in Physics from Zhongshan University, China, M.S.
degrees in Physics and Electrical Engineering from the University of Southern
California and Ph.D. degrees in Physics and Electrical Engineering from the
University of Southern California.
Paul Jiang, one of our co-founders, has served as our Vice President,
Manufacturing and Vendor Management since February 1998. Mr. Jiang was a Senior
Manager at E-Tek Dynamics, Inc. from January 1994 to January 1998. Mr. Jiang
received a B.S. degree in Optics from University of La Verne.
Jessy Chao, one of our co-founders, has served as our Vice President,
Finance and Chief Financial Officer since October 1999. He was our Director of
Finance and Business Operations from February 1998 to October 1999. Mr. Chao was
the Accounting and Finance Manager for E-Tek Dynamics, Inc. from September 1992
to January 1998. Mr. Chao received a B.S. degree in Accounting from San Jose
State University.
Anthony Florence has served as our Vice President, Corporate Marketing and
Investor Relations since November 1999. Mr. Florence was Vice President,
Corporate and Investor Relations, and Office of the Chairman at Ansaldo Signal
N.V., a company involved in the global signaling, automation and control systems
industry, from November 1996 to November 1999. From November 1993 to November
1996, Mr. Florence served as Vice President, Corporate Planning, Marketing and
Investor Relations for Union Switch & Signal Inc. Mr. Florence received a B.A.
degree in English from Wheeling College and an M.A. degree in English from the
University of Dayton.
Peter Maguire has served as our Vice President, Worldwide Sales since June
1999. Mr. Maguire was the Vice President, Sales for the IXC Market at Fujitsu
Network Communications, Inc., a manufacturer of fiber
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<PAGE> 46
optic communication equipment, from May 1999 to June 1999. From July 1992 to May
1999, he was Vice President, Sales for Pirelli Cables and Systems North America
LLC. Mr. Maguire received a B.S. degree in Business Administration and an M.B.A.
degree from American States University.
James Pickering has served as our Vice President, Quality since September
1999. Mr. Pickering was Vice President, Quality at Etec Systems, Inc., a
manufacturer of semiconductor mask-making equipment, from March 1997 to
September 1999. From December 1989 to March 1997, he was Vice President,
Customer Satisfaction at Union Switch & Signal Inc. Mr. Pickering received a
B.S. degree in Industrial Technology from Northeastern University and an M.B.A.
degree from Babson College.
Margaret Quinn has served as our Vice President, Human Resources and
Administration since October 1999. Ms. Quinn was a principal at HRMQ, a human
resources consulting company, from January 1999 to October 1999. From August
1997 to January 1999, she was Director of International Customer Support at
Nellcor Puritan Bennett Incorporated, a manufacturer of respiratory monitoring
systems. Ms. Quinn served as a human resources consultant at Nellcor Puritan
Bennett from October 1996 to August 1997. Prior to that, Ms. Quinn served as the
Director of Human Resources for Cyrix Corporation, a manufacturer of
microprocessors, from April 1992 to May 1996. Ms. Quinn received a B.A. degree
in Spanish Literature from Mills College.
Todd Brooks has served on our board of directors since February 1998. Mr.
Brooks has been a general partner at the Mayfield Fund, a venture capital firm,
since February 1999. From April 1995 to January 1999, Mr. Brooks served as a
managing principal with JAFCO America Ventures, a venture capital firm. Mr.
Brooks also served as an equity research analyst for Franklin-Templeton Funds,
an investment corporation, from August 1993 to April 1995. Mr. Brooks currently
serves as a director of several private companies. Mr. Brooks received a B.S.
degree from Texas A&M University, M.S. degrees in Electrical Engineering and
Chemical Engineering from the University of California at Berkeley and an M.B.A.
degree from the Harvard Business School.
Michael Goguen has served on our board of directors since February 1998. He
has held various positions at Sequoia Capital, a venture capital firm, since
July 1996 and has been a general partner since July 1997. From May 1995 to July
1996, Mr. Goguen was a Director of Software at Bay Networks, Inc., a computer
network system provider. Prior to that, Mr. Goguen was a Director of Software at
Centillion Network Inc. a network equipment manufacturing company, from August
1994 to May 1995. Mr. Goguen currently serves as a director of several private
companies. Mr. Goguen received a B.S. degree in Electrical Engineering from
Cornell University and an M.S. degree in Electrical Engineering from Stanford
University.
Seth Neiman has served on our board of directors since February 1998. Since
August 1994, he has held various positions at Crosspoint Venture Partners, a
venture capital firm, and has been a general partner of Crosspoint since January
1996. Mr. Neiman is also a director of Brocade Communications Systems, Inc.,
Foundry Networks, Inc., and several private companies. Mr. Neiman received a
B.A. degree in Philosophy from Ohio State University.
BOARD OF DIRECTORS
Our board of directors currently consists of five members. Upon completion
of this offering, our certificate of incorporation will provide for a classified
board of directors consisting of three classes of directors, each serving
staggered three-year terms. As a result, a portion of our board of directors
will be elected each year. To implement the classified structure, before the
consummation of the offering, two of the nominees to the board of directors will
be elected to a one-year term, two will be elected to two-year terms and one
will be elected to a three-year term. After that, directors will be elected for
three-year terms. Dr. Alessandrini and Mr. Goguen have been designated Class I
Directors, whose terms expire at the 2000 annual meeting of stockholders.
Messrs. Neiman and Brooks have been designated Class II Directors, whose terms
expire at the 2001 annual meeting of stockholders. Dr. Cao has been designated
the Class III Director, whose term expires at the 2002 annual meeting of
stockholders. This classification of the board of directors may delay or prevent
a change in control of our company or in our management. See "Description of
Capital Stock -- Delaware Law and Certain Provisions of Our Certificate of
Incorporation and Bylaws."
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Our board of directors appoints our executive officers on an annual basis
to serve until their successors have been elected and qualified. There are no
family relationships among any of our directors or officers.
BOARD COMMITTEES
Compensation Committee. We established a compensation committee in April
1999. The compensation committee currently consists of Messrs. Goguen and
Neiman. The compensation committee reviews and recommends to the board of
directors the compensation of all of our officers and directors, including stock
compensation and loans, and establishes and reviews general policies relating to
the compensation and benefits of our employees.
Audit Committee. We established an audit committee in December 1999. The
audit committee currently consists of Messrs. Brooks and Goguen. The audit
committee reviews our internal accounting procedures and consults with and
reviews the services provided by our independent accountants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Goguen and Neiman.
In December 1999, Dr. Alessandrini, our President and Chief Executive Officer,
resigned from the compensation committee. Other than Dr. Alessandrini, none of
the members of our compensation committee is currently or has been, at any time
since the time of our formation, one of our officers or employees. None of our
executive officers currently serves or in the past has served as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee. Mr. Goguen is
a general partner of Sequoia Capital, a holder of approximately 18.5% of our
outstanding stock that has purchased shares of our Series A preferred stock,
Series B preferred stock, Series C preferred stock and Series D preferred stock.
Mr. Neiman is a partner of Crosspoint Venture Partners, a holder of
approximately 18.5% of our outstanding stock that has purchased shares of our
Series A preferred stock, Series B preferred stock, Series C preferred stock and
Series D preferred stock. See "Certain Transactions." Prior to the formation of
the compensation committee, compensation decisions were made by our entire board
of directors. Dr. Alessandrini did not participate in decisions with respect to
his compensation.
DIRECTOR COMPENSATION
We do not currently compensate our directors in cash for their service as
members of the board of directors, although if expenses are incurred in
connection with attending board of directors and committee meetings these
expenses are reimbursed. Our 1999 Director Option Plan provides for the
automatic grant of non-statutory stock options to nonemployee directors. For
further information regarding the provisions of the 1999 Director Option Plan,
see "-- Employee and Director Benefit Plans."
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that
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indemnification under our bylaws covers at least negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in their capacity as an officer, director, employee or other
agent, regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification for judgments,
fines, settlement amounts and expenses, including attorneys' fees incurred by
the director, or executive officer in any action or proceeding, including any
action by or in our right, arising out of the person's services as a director or
executive officer, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
The limitation on liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty and
may reduce the likelihood of derivative litigation against our directors and
officers, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. A stockholder's investment in us may be
adversely affected to the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
EXECUTIVE COMPENSATION
The following table presents the compensation earned, awarded or paid for
services rendered to us in all capacities for the fiscal year ended June 30,
1999 by our Chief Executive Officer, our former acting Chief Executive Officer
and our three other most highly compensated executive officers who earned more
than $100,000 in salary and bonus during the fiscal year ended June 30, 1999. No
other executive officer earned more than $100,000 in salary and bonus during the
fiscal year ended June 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------------------
----------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS
---------------------------- -------- ------- ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
Walter Alessandrini........................ $ 74,038(1) $37,500(1) $ 26,604(2) $ --(3) --
President and Chief Executive Officer
Simon Cao.................................. 138,544 -- -- --(4) --
Senior Vice President, Product
Development
Paul Jiang................................. 125,381 -- -- --(5) --
Vice President, Manufacturing and Vendor
Management
Peter Maguire.............................. --(6) 100,000(6) -- -- --
Vice President, Worldwide Sales
William Lanfri............................. -- -- -- --(7) 75,000
Former Acting Chief Executive Officer
</TABLE>
- ------------
(1) Dr. Alessandrini joined us in March 1999. He is currently compensated at an
annual salary of $275,000 with an annual performance-based bonus of
$150,000.
(2) Represents relocation expenses paid to Dr. Alessandrini through June 30,
1999.
(3) In April 1999, Dr. Alessandrini purchased 3,477,059 shares of restricted
stock at $.08 per share through June 30, 1999. These shares are subject to
our right of repurchase that lapses over four years and lapses as to
one-fourth of his shares on March 22, 2000, with the repurchase right
lapsing ratably monthly after
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<PAGE> 49
that date. As of June 30, 1999, Dr. Alessandrini held 3,477,059 shares of
restricted common stock, which had an aggregate fair market value of
$521,559. Dividends, if any, paid on this stock will be subject to the same
escrow restrictions as the underlying shares.
(4) In January 1998, Dr. Cao purchased 1,800,000 shares of restricted stock at
$.001 per share. These shares are subject to our right of repurchase that
lapses over four years and lapsed as to one-fourth of his shares having
vested on January 13, 1999, with the repurchase right lapsing ratably
monthly after that date. As of June 30, 1999, Dr. Cao held 1,800,000 shares
of restricted common stock, which had an aggregate fair market value of
$270,000. Dividends, if any, paid on this stock will be subject to the same
escrow restrictions as the underlying shares.
(5) In February 1998, Mr. Jiang exercised an option to purchase 1,200,000 shares
of stock at $.001 per share, subject to our right to repurchase any unvested
shares in the event of the termination of his employment. These shares vest
over four years with one-fourth of his shares having vested on February 3,
1999 and the remaining shares vesting ratably monthly thereafter. As of June
30, 1999, Mr. Jiang held 1,500,000 shares of restricted common stock, which
had an aggregate fair market value of $225,000. Dividends, if any, paid on
this stock will be subject to the same escrow restrictions as the underlying
shares.
(6) Mr. Maguire joined us in June 1999. He is currently compensated at an annual
salary of $165,000. In connection with the start of his employment with us,
he received a $100,000 bonus. If he terminates his employment or if we
terminate his employment for cause, he must repay this bonus. However, the
amount of the bonus that must be repaid is reduced by $8,333 per full month
that he remains employed by us.
(7) In August 1998, Mr. Lanfri exercised an option to purchase 227,401 shares of
our common stock at an exercise price of $.02 per share, but the unvested
shares remained subject to our right of repurchase in the event of the
termination of his employment. In March 1999, Mr. Lanfri exercised an option
to purchase 75,000 shares of our common stock at an exercise price of $.04
per share. As of June 30, 1999, and in connection with Mr. Lanfri's
resignation as our acting Chief Executive Officer in March 1999, Mr. Lanfri
held 277,135 shares of fully vested common stock, which had an aggregate
fair market value of $41,570. Dividends, if any, paid on this vested stock
will go to Mr. Lanfri. The remaining 25,266 shares of common stock subject
to repurchase have been repurchased by us at their original exercise price.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information regarding stock options granted
during the fiscal year ended June 30, 1999 to our Chief Executive Officer,
former acting Chief Executive Officer and three other most highly compensated
executive officers. Options were granted with an exercise price per share equal
to the fair market value of our common stock on the date of grant, as determined
by our board of directors. In determining the fair market value on the date of
each grant, our board of directors considered a number of factors, including our
operating results and financial condition as of the date of grant, key
developments affecting our business and, where relevant, the most recent price
at which we sold our preferred stock in financing transactions with independent
investors.
The potential realizable value is based on the assumption that our common
stock appreciates at the annual rate shown, compounded annually, from the date
of grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect
projections or estimates of future stock price growth. Potential realizable
values are computed by:
- multiplying the number of shares of common stock underlying each option
by $ per share, the assumed initial public offering price per share;
- assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
- subtracting from that result the total option exercise price.
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<PAGE> 50
Actual gains, if any, on stock option exercises will be dependent on the
future performance of the common stock.
The percentage of total options granted is based on an aggregate of 712,700
options granted by us during the fiscal year ended June 30, 1999, to our
employees, including the executive officers listed in the table below. In
addition to the options granted during the fiscal year ended June 30, 1999, we
sold 6,804,460 shares of our common stock under restricted stock purchase
agreements during the fiscal year ended June 30, 1999. None of the executive
officers listed in the table below, other than William Lanfri, were issued
options to purchase our common stock in the fiscal year ended June 30, 1999. Dr.
Alessandrini purchased restricted shares of our common stock under the 1998
Stock Plan in the fiscal year ended June 30, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE FOR OPTION TERM
UNDERLYING TO EMPLOYEES PRICE PER EXPIRATION --------------------------
NAME OPTIONS GRANTED DURING PERIOD SHARE DATE 5% 10%
---- --------------- --------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Walter Alessandrini... -- -- $ -- -- $ -- $ --
Simon Cao............. -- -- -- -- -- --
Paul Jiang............ -- -- -- -- -- --
Peter Maguire......... -- -- -- -- -- --
William Lanfri........ 75,000 10.49% .04 12/07/08
</TABLE>
In December 1998, we granted Mr. Lanfri an option to purchase 75,000 shares
of our common stock. This option vested ratably over three months beginning on
January 1, 1999. In March 1999, this option fully vested and Mr. Lanfri
exercised this option.
AGGREGATE OPTION EXERCISES DURING LAST FISCAL YEAR
The following table presents information concerning option exercises by our
Chief Executive Officer, former acting Chief Executive Officer and three other
most highly compensated executive officers for the fiscal year ended June 30,
1999. None of the executive officers listed in the table below held unexercised
options at June 30, 1999. For a list of purchases of restricted shares of our
common stock by the executive officers listed in the table below, please see
"Certain Transactions."
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED
---- --------------- --------
<S> <C> <C>
Walter Alessandrini......................................... -- $ --
Simon Cao................................................... -- --
Paul Jiang.................................................. -- --
Peter Maguire............................................... -- --
William Lanfri.............................................. 277,135 4,043
</TABLE>
In June 1998, we granted Mr. Lanfri an option to purchase 227,401 shares of
our common stock. Of the shares subject to this option, 151,601 shares vested
ratably over six months beginning on August 1, 1998. The remaining 75,800 shares
subject to this option were designated by our board of directors as "bonus
shares." The bonus shares either were to vest in one lump sum on July 1, 2004 or
were to vest earlier at the sole discretion of our board of directors. In August
1998, Mr. Lanfri exercised this option to purchase 227,401 shares of our common
stock, but the unvested shares remained subject to our right of repurchase. Upon
Mr. Lanfri's resignation as our acting Chief Executive Officer in March 1999,
our board of directors accelerated the lapsing of our right of repurchase as to
50,534 shares of Mr. Lanfri's bonus shares and we repurchased from him, at the
original exercise price, the 25,266 shares that remained subject to repurchase.
See "-- Employment Agreements and Change-of-Control Arrangements" for a
description of Mr. Lanfri's employment agreement with us.
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<PAGE> 51
EMPLOYEE AND DIRECTOR BENEFIT PLANS
1998 STOCK PLAN
Our 1998 Stock Plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, directors and
consultants. The 1998 Stock Plan was adopted by our board of directors and
approved by our stockholders in January 1998. Our board of directors and
stockholders approved amendments to the 1998 Stock Plan to increase the number
of shares reserved under the 1998 Stock Plan in March 1999, July 1999, October
1999 and December 1999.
As of December 2, 1999, a total of 6,685,846 shares of our common stock
were available for future grant under the 1998 Stock Plan. This amount includes
amounts returned to the 1998 Stock Plan, and annual increases which will be
added to the 1998 Stock Plan, beginning on July 1, 2000, equal to the lesser of
4,000,000 shares, 4.9% of our outstanding shares or a lesser amount determined
by our board. The 1998 Stock Plan has 19,700,000 shares of our common stock
reserved for issuance, of which options to acquire 1,689,600 shares have been
issued and are outstanding as of December 2, 1999 and a total of 11,524,554
shares have been issued and are outstanding pursuant to the exercise of options
and stock purchase rights granted under the 1998 Stock Plan.
Administration. Our board of directors or a committee of our board of
directors administers the 1998 Stock Plan. The administrator of our 1998 Stock
Plan has the power to determine, among other things:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or stock purchase right;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
Options. The exercise price of all incentive stock options granted under
the 1998 Stock Plan must be at least equal to the fair market value of the
common stock on the date of grant. The exercise price of nonstatutory stock
options and stock purchase rights granted under the 1998 Stock Plan is
determined by the administrator, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, the exercise price must be at least
equal to the fair market value of our common stock on the date of grant. With
respect to any participant who owns stock representing more than 10% of the
voting power of all classes of our outstanding capital stock, the exercise price
of any incentive stock option granted must be at least equal 110% of the fair
market value on the grant date and the term of the incentive stock option must
not exceed five years. The term of all other options granted under the 1998
Stock Plan may not exceed 10 years.
During any fiscal year, each optionee may be granted options to purchase a
maximum of 1,000,000 shares. In addition, in connection with an optionee's
initial employment with us, the optionee may be granted an option covering an
additional 3,000,000 shares.
Options granted under the 1998 Stock Plan must generally be exercised
within three months after the end of the optionee's status as an employee,
director or consultant of ours, or within 12 months after the optionee's
termination by death or disability, but in no event later than the expiration of
the option's term.
Transferability of Options. Options and stock purchase rights granted under
the 1998 Stock Plan are generally not transferable by the optionee, and each
option and stock purchase right is exercisable during the lifetime of the
optionee only by the optionee.
Stock Purchase Rights. In the case of stock purchase rights, unless the
administrator determines otherwise, the restricted stock purchase agreement
shall grant us a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment or consulting relationship with us for
any reason, including death or disability. The purchase price for shares
repurchased under the restricted stock
50
<PAGE> 52
purchase agreement shall be the original price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to us. The repurchase
option shall lapse at a rate determined by the administrator.
Adjustments upon Merger or Asset Sale. The 1998 Stock Plan provides that in
the event of our merger with or into another corporation, or a sale of
substantially all of our assets, each option and stock purchase right shall be
assumed or an equivalent option substituted for by the successor corporation. If
the outstanding options and stock purchase rights are not assumed or substituted
for by the successor corporation, the optionees will become fully vested in and
have the right to exercise the options or stock purchase rights. If an option or
stock purchase right becomes fully vested and exercisable in the event of a
merger or sale of assets, the administrator must notify the optionee that the
option or stock purchase right is fully exercisable for a period of 15 days from
the date of the notice, and the option or stock purchase right will terminate
upon the expiration of the 15-day period.
Amendment and Termination of the 1998 Stock Plan. The administrator will
have the authority to amend, suspend or terminate the 1998 Stock Plan, as long
as this action does not affect any shares of common stock previously issued and
sold or any option previously granted under the 1998 Stock Plan. Unless earlier
terminated, the 1998 Stock Plan will terminate automatically 10 years from the
date of obtaining stockholder approval of the amended plan in December 1999.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
and approved by our stockholders in December 1999. A total of 350,000 shares of
our common stock has been reserved for issuance under the 1999 Employee Stock
Purchase Plan, plus automatic annual increases beginning on July 1, 2000 equal
to the lesser of 500,000 shares, 1% of the outstanding shares on that date or an
amount determined by our board of directors. As of the date of this prospectus,
no shares have been issued under the 1999 Employee Stock Purchase Plan.
Structure of the 1999 Employee Stock Purchase Plan. The 1999 Employee Stock
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, contains consecutive, six-month offering periods. The offering
periods generally start on the first trading day on or after February 1st and
August 1st of each year, except for the first offering period, which commences
on the first trading day on or after the effective date of this offering and
ends on the last trading day on or before July 31, 2000.
Eligibility. Employees are eligible to participate if they are customarily
employed by us or any of our participating subsidiaries for at least 20 hours
per week and more than five months in any calendar year. However, employees may
not be granted an option to purchase stock under the 1999 Employee Stock
Purchase Plan if they either:
- immediately after grant, own stock representing 5% or more of the total
combined voting power or value of all classes of our capital stock; or
- hold rights to purchase stock under our employee stock purchase plans
which accrue at a rate which exceeds $25,000 worth of stock for each
calendar year.
Purchases. The 1999 Employee Stock Purchase Plan permits participants to
purchase our common stock through payroll deductions of up to 10% of the
participant's "compensation." Compensation is defined as the participant's base
straight time gross earnings and commissions, exclusive of payments for shift
premium, bonuses, incentive compensation, incentive payments and other
compensation. The maximum number of shares a participant may purchase during
each offering period is 2,000 shares.
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<PAGE> 53
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the 1999 Employee Stock Purchase Plan is generally 85% of the
lower of the fair market value of the common stock either:
- at the beginning of the offering period; or
- at the end of the offering period.
Participants may end their participation at any time during an offering
period, and they will be paid their payroll deductions to date. Participation
ends automatically upon termination of employment with us.
Transferability of Rights. Rights granted under the 1999 Employee Stock
Purchase Plan are not transferable by a participant other than by will, the laws
of descent and distribution or as otherwise provided under the 1999 Employee
Stock Purchase Plan.
Merger or Asset Sale. The 1999 Employee Stock Purchase Plan provides that,
in the event we merge with or into another corporation or if there is a sale of
substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened and a new exercise date will be set.
Amendment and Termination of the 1999 Employee Stock Purchase Plan. The
1999 Employee Stock Purchase Plan will terminate in 2009. Our board of directors
has the authority to amend or terminate the 1999 Employee Stock Purchase Plan,
except that no action may impair any outstanding rights to purchase stock under
the 1999 Employee Stock Purchase Plan.
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in our 1999 Director
Option Plan. The 1999 Director Option Plan was adopted by our board of directors
and approved by our stockholders in December 1999, but it will not become
effective until the date of this offering. The 1999 Director Option Plan has a
term of 10 years, unless terminated sooner by our board of directors. A total of
200,000 shares of our common stock have been reserved for issuance under the
1999 Director Option Plan, plus automatic annual increases beginning on January
1, 2001 equal to the lesser of 100,000 shares, .25% of the outstanding shares on
that date or an amount determined by our board of directors.
Option Grants. The 1999 Director Option Plan generally provides for an
automatic initial grant of an option to purchase 26,667 shares of our common
stock to each non-employee director on the date which the later of the following
events occur:
- the effective date of the 1999 Director Option Plan; or
- the date when a person first becomes a non-employee director.
A non-employee director who owns, either directly or indirectly, our
securities representing 1% or more of our total voting power will not receive an
initial grant under the 1999 Director Option Plan and will only be eligible for
a subsequent grant when his or her ownership percentage drops below 1% of our
total voting power.
After the initial grant, each non-employee director will automatically be
granted subsequent options to purchase 6,667 shares of our common stock each
year on the date of our annual stockholders' meeting, if on such date he or she
has served on our board of directors for at least six months. Each initial
option grant and each subsequent option grant shall have a term of 10 years.
Each initial option grant will vest as to 25% of the shares subject to the
option on each anniversary of its date of grant. Each subsequent option grant
will fully vest on the anniversary of its date of grant. The exercise price of
all options will be 100% of the fair market value per share of our common stock
on the date of grant.
Options granted under the 1999 Director Option Plan must be exercised
within three months of the end of the optionee's tenure as a director of the
Company, or within 12 months after such director's termination by death or
disability, but in no event later than the expiration of the option's 10 year
term.
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<PAGE> 54
Transferability of Options. No option granted under the 1999 Director
Option Plan is transferable by the optionee other than by will or the laws of
descent and distribution, and each option is exercisable, during the lifetime of
the optionee, only by the optionee.
Merger, Asset Sale and Change of Control. The 1999 Director Option Plan
provides that in the event of our merger with or into another corporation, or a
sale of substantially all of our assets, the successor corporation shall assume
each option or substitute an equivalent option. If outstanding options are not
assumed or substituted for by the successor corporation, each option will become
fully exercisable for a period of thirty days from the date our board of
directors notifies the optionee of the option's full exercisability, after which
period the option shall terminate. In the event of a change of control each
outstanding option will become fully vested and exercisable.
Amendment and Termination of the 1999 Director Option Plan. The
administrator will have the authority to amend, suspend or terminate the 1999
Director Option Plan, so long as no action affects any shares of common stock
previously issued and sold or any option previously granted under the 1999
Director Option Plan. Unless terminated sooner, the 1999 Director Option Plan
will terminate automatically 10 years from the effective date of the plan.
401(K) PLAN
In November 1998, we adopted the Avanex Corporation 401(k) Profit Sharing
Plan, or our 401(k) Plan, which covers all of our eligible employees who have
completed three months of service and have attained age 21. The 401(k) Plan
excludes from participation all collectively bargained and non-resident alien
employees. The 401(k) Plan is intended to qualify under Section 401(a) of the
Internal Revenue Code of 1986 and the 401(k) Plan trust is intended to qualify
under Section 501(a) of the Internal Revenue Code. All contributions to the
401(k) Plan by eligible employees or by us, and the investment earnings thereon
are not taxable to such employees until withdrawn, and any contributions we may
make are expected to be deductible by us when made. Our eligible employees may
elect to reduce their eligible compensation by up to 15%, subject to statutorily
prescribed limits, and to have such compensation reductions contributed on their
behalf to the 401(k) Plan. The 401(k) Plan permits, but does not require, us to
make matching contributions to the 401(k) Plan. To date, we have not made any
matching contributions.
EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS
From time to time, we have entered into employment agreements with our
executive officers, including the executive officers listed in the "Summary
Compensation Table."
Walter Alessandrini. In March 1999, Walter Alessandrini accepted our offer
of employment. The offer letter provides that Dr. Alessandrini is entitled to
receive an annual salary of $275,000 and a bonus of $150,000 during his first
year of employment, to be paid based on the achievement of performance-based
milestones. His employment with us is on an at-will basis. In connection with
this offer letter, in April 1999, Dr. Alessandrini purchased, at a price of $.08
per share, 3,477,059 shares of our common stock, under a restricted stock
purchase agreement. These shares are subject to a right of repurchase that
lapses over a four-year period and as to one-fourth of these shares on March 22,
2000, with the repurchase right lapsing ratably monthly after that date. Any
shares as to which the repurchase right has not lapsed are subject to repurchase
by us in the event of the termination of his employment.
The offer letter also provided that we would loan Dr. Alessandrini up to
$300,000 in connection with the purchase of a home. For further discussion of
this loan, please see "Certain Transactions -- Loans to Executive Officers." The
offer letter also provides that if we terminate his employment with us without
cause then he will receive six months of salary and bonus and our right to
repurchase his shares under this offer letter will lapse as to a number of
shares equal to the greater of:
- one-fourth of these shares, if he is terminated before March 22, 2000; or
- an additional one-eighth of these shares if he is terminated on or after
March 22, 2000.
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<PAGE> 55
In addition, the offer letter provides that if he cannot serve as our Chief
Executive Officer for any period of time due to a legal restraint or litigation
in connection with a Confidentiality and Non-Competition Agreement that he
entered into with his previous employer, Pirelli Cables and Systems North
America, LLC, then we shall pay him up to $100,000 in salary in monthly
installments for up to six months during the period that he is not serving as
our Chief Executive Officer.
In October 1999, Dr. Alessandrini purchased 347,706 shares of our common
stock, at a price of $.58 per share, under a restricted stock purchase
agreement. These shares are subject to a right of repurchase that lapses over a
four-year period and as to one-fourth of his shares on March 22, 2000 with the
repurchase right lapsing ratably monthly after that date. Each of the restricted
stock purchase agreements relating to these purchases provides that, upon a
change of control, the lapsing of our right of repurchase will be accelerated so
that at least 50% of the common stock purchased under each restricted stock
purchase agreement will not be subject to our right of repurchase. In addition,
upon an involuntary termination of his employment without cause, upon or within
12 months of a change of control, our right of repurchase will lapse as to all
of the common stock subject to repurchase under each of his restricted stock
purchase agreements.
Simon Cao. On January 2, 1998, Simon Cao accepted our offer of employment.
Initially, Dr. Cao was entitled to receive an annual salary of $125,000. On
September 8, 1998, Dr. Cao agreed to amend his initial offer letter to increase
his annual salary to $140,000. In August 1999, our board of directors increased
his annual salary to $180,024. His employment with us is on an at-will basis. In
connection with this offer letter, in January 1998, Dr. Cao purchased, at a
price of $.001 per share, 1,800,000 shares of our common stock, under a
restricted stock purchase agreement. These shares are subject to a right of
repurchase that lapses over a four-year period and lapsed as to one-fourth of
these shares on January 13, 1999 with the repurchase right lapsing ratably
monthly after that date.
In August 1999, Dr. Cao purchased, at a price of $.15 per share, 600,000
shares of our common stock and in October 1999 purchased, at a price of $.58 per
share, 680,484 shares of our common stock, in each case under a restricted stock
purchase agreement. These shares are subject to a right of repurchase that
lapses over a four-year period and lapses as to one-fourth of the shares
purchased in August 1999, on June 17, 2000 and as to one-fourth the shares
purchased in October 1999, on October 8, 2000. The repurchase right lapses
ratably monthly after these dates. Each of the restricted stock purchase
agreements relating to these purchases provide that, upon a change of control,
the lapsing of our repurchase right will be accelerated so that at least 50% of
the common stock purchased under each restricted stock purchase agreement will
not be subject to our right of repurchase. In addition, upon an involuntary
termination of his employment without cause, upon or within 12 months of a
change of control, our right of repurchase will lapse as to all of the common
stock subject to repurchase under each of his restricted stock purchase
agreements.
Paul Jiang. In January 1998, Paul Jiang accepted our offer of employment.
His offer letter provided that he was entitled to receive an annual salary of
$115,000. On September 8, 1998, Mr. Jiang agreed to amend his initial offer
letter to increase his annual salary to $126,500. In August 1999, our board of
directors increased his annual salary to $140,000. His employment with us is on
an at-will basis. In connection with this offer letter, in January 1998, Mr.
Jiang was granted an option to purchase 1,200,000 shares of our common stock, at
an exercise price of $.001 per share, which he exercised in February 1998 under
a restricted stock purchase agreement. These shares are subject to a right of
repurchase that lapses over a four-year period and lapsed as to one-fourth of
these shares on February 3, 1999 with the purchase right lapsing ratably monthly
after that date.
In July 1999, Mr. Jiang purchased 300,000 shares of our common stock, at a
price of $.04 per share, under a restricted stock purchase agreement. These
shares are subject to a right of repurchase that lapses over a four year period
and lapsed as to one-fourth of the shares purchased on February 8, 1999 with the
purchase right lapsing ratably monthly after that date. In November 1999, Mr.
Jiang purchased 100,000 shares of our common stock, at a price of $4.00 per
share, under a restricted stock agreement. These shares are subject to a right
of repurchase that lapses over a four-year period and as to one-fourth of his
shares on November 22, 2000 with the repurchase right lapsing monthly after that
date. Each of the restricted stock purchase agreements relating to these
purchases provide that, upon a change of control, the lapsing of our repurchase
right will be
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<PAGE> 56
accelerated so that at least 50% of the common stock purchased under each
restricted stock purchase agreement will not be subject to our right of
repurchase. In addition, upon an involuntary termination of his employment
without cause, upon or within 12 months of a change of control, our right of
repurchase will lapse as to all of the common stock subject to repurchase under
each of his restricted stock purchase agreements.
Peter Maguire. In June 1999, Peter Maguire accepted our offer of
employment. His offer letter provided that he is entitled to receive an annual
salary of $165,000 and a bonus of $100,000 during his first year of employment.
If he terminates his employment or if we terminate his employment for cause, he
must repay this bonus. However, the amount of the bonus that must be repaid is
reduced by $8,333 per full month that he remains employed by us. His offer
letter provided that he receives a sales commission, to be negotiated annually,
equal to .5% of our sales made by June 30, 2000. This commission will be paid
upon the collection of the sales and on a quarterly basis. His employment with
us is on an at-will basis.
In connection with this offer letter, in July 1999, Mr. Maguire purchased
at a price of $.15 per share, 550,000 shares of our common stock, under a
restricted stock purchase agreement. These shares are subject to a right of
repurchase that lapses over a four-year period and lapses as to one-fourth of
the shares on June 28, 2000 with the repurchase right lapsing ratably monthly
after this date. The restricted stock purchase agreement relating to this
purchase provides that, upon a change of control, the lapsing of our repurchase
right will be accelerated so that at least 50% of the common stock purchased
under this restricted stock purchase agreement will not be subject to our right
of repurchase. In addition, upon an involuntary termination of his employment
without cause, upon or within 12 months of a change of control, our right of
repurchase will lapse as to all of the common stock subject to repurchase under
his restricted stock purchase agreement.
William Lanfri. In June 1998, William Lanfri entered into an employment
agreement with us to serve as our acting Chief Executive Officer. As
consideration for his services, Mr. Lanfri was granted an option to purchase
75,000 shares of our common stock, at a price of $.04 per share. These shares
vested ratably over a three-month period beginning on January 1, 1999. In March
1999, this option was fully vested and he purchased 75,000 shares of our common
stock.
In June 1998, Mr. Lanfri was granted an additional option to purchase
227,401 shares of our common stock. Of the shares subject to this option,
151,601 shares vested ratably over a six-month period beginning in August 1998.
The remaining 75,800 shares subject to this option were designated by our board
of directors as "bonus shares." The bonus shares either were to vest in one lump
sum on July 1, 2004 or were to vest earlier at the sole discretion of our board
of directors. Our board of directors intended to vest these bonus shares if Mr.
Lanfri met certain performance milestones. In August 1998, Mr. Lanfri exercised
this option to purchase 227,401 shares of our common stock, but unvested shares
remained subject to our right of repurchase upon termination of his employment.
Upon Mr. Lanfri's resignation as our acting Chief Executive Officer in March
1999, our board of directors accelerated the lapsing of our repurchase right as
to 50,534 shares of Mr. Lanfri's bonus shares and we repurchased from him the
remaining 25,266 shares of common stock that remained subject to repurchase.
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<PAGE> 57
CERTAIN TRANSACTIONS
Since our inception in October 1997, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
we were or are to be a party in which the amount involved exceeds $60,000, and
in which any director, executive officer, holder of more than 5% of our common
stock or any member of the immediate family of any of these people had or will
have a direct or indirect material interest other than compensation agreements
and other arrangements, which are described where required in "Management," and
the transactions described below.
SALES OF OUR COMMON STOCK AND PREFERRED STOCK
Common Stock. The following table summarizes the private placement
transactions in which we sold common stock to our directors, executive officers,
5% stockholders and persons and entities affiliated with them.
<TABLE>
<CAPTION>
SHARES OF
DATES OF PRICE PER COMMON
PURCHASER PURCHASE SHARE STOCK
--------- --------- --------- ---------
<S> <C> <C> <C>
Walter Alessandrini.............................. 4/30/99* $ .08 3,477,059
10/8/99* .58 347,706
Simon Cao........................................ 1/13/98 .001 1,800,000
8/4/99* .15 600,000
10/12/99 .58 680,484
Paul Jiang....................................... 2/4/98 .001 1,200,000
7/22/99* .04 300,000
11/26/99* 4.00 100,000
Peter Maguire.................................... 8/4/99* .15 550,000
William Lanfri................................... 8/31/98 .02 227,401
3/31/99 .04 75,000
Jessy Chao....................................... 2/5/98 .001 900,000
11/26/99* 4.00 100,000
James Pickering.................................. 10/1/99* .58 175,920
Anthony Florence................................. 11/19/99* 3.50 130,000
</TABLE>
- ------------
* The purchaser signed a secured full recourse promissory note as consideration
for this purchase. For a description of these promissory notes, please see
"-- Loans to Executive Officers."
Series A Preferred Stock. On February 10, 1998, we sold our Series A
preferred stock at a price of $.223 per share. Each share of Series A preferred
stock is convertible into one share of common stock. Purchasers included the
following directors, 5% stockholders and persons and entities affiliated with
them:
<TABLE>
<CAPTION>
SHARES OF SERIES A
PURCHASER PREFERRED STOCK
--------- ------------------
<S> <C>
Entities affiliated with Crosspoint Venture Partners...... 1,500,000
Entities affiliated with Sequoia Capital.................. 1,500,000
Entities affiliated with JAFCO America Ventures, Inc. .... 1,500,000
</TABLE>
Crosspoint Venture Partners is a holder of more than 5% of our stock. Seth
Neiman, one of our directors, is a partner of Crosspoint Venture Partners.
Sequoia Capital is a holder of more than 5% of our stock. Michael Goguen, one of
our directors, is a general partner of Sequoia Capital. JAFCO America Ventures,
Inc. is a holder of more than 5% of our stock.
56
<PAGE> 58
Series B Preferred Stock. On June 29, 1998, we sold Series B preferred
stock at a price of $.40 per share. Each share of Series B preferred stock is
convertible into one share of common stock. Purchasers included the following
directors, 5% stockholders and persons and entities affiliated with them:
<TABLE>
<CAPTION>
SHARES OF SERIES B
PURCHASER PREFERRED STOCK
--------- ------------------
<S> <C>
Entities affiliated with Crosspoint Venture Partners...... 2,085,000
Entities affiliated with Sequoia Capital.................. 2,085,000
Entities affiliated with JAFCO America Ventures, Inc...... 2,085,000
</TABLE>
Series C Preferred Stock. On February 19, 1999 and March 25, 1999, we sold
our Series C preferred stock, at a price of $.756 per share. Each share of
Series C preferred stock is convertible into one share of common stock.
Purchasers included the following officers, directors, 5% stockholders and
persons and entities affiliated with them:
<TABLE>
<CAPTION>
SHARES OF
SERIES C
DATES OF PREFERRED
PURCHASER PURCHASE STOCK
--------- -------- ---------
<S> <C> <C>
Entities affiliated with Crosspoint Venture
Partners............................................ 2/19/99 2,116,402
Entities affiliated with Sequoia Capital.............. 2/19/99 2,116,402
Entities affiliated with JAFCO America Ventures,
Inc. ............................................... 2/19/99 1,322,751
Entities affiliated with the Mayfield Fund............ 3/25/99 2,976,190
William Lanfri........................................ 2/19/99 264,550
</TABLE>
The Mayfield Fund is a holder of more than 5% of our stock. Todd Brooks,
one of our directors, is a general partner of the Mayfield Fund. William Lanfri
was our former acting Chief Executive Officer.
Series D Preferred Stock. On September 14, 1999 and October 15, 1999, we
sold our Series D preferred stock, at a price of $5.75 per share. Each share of
Series D preferred stock is convertible into one share of common stock.
Purchasers included the following officers, directors, 5% stockholders and
persons and entities affiliated with them:
<TABLE>
<CAPTION>
SHARES OF
SERIES D
DATES OF PREFERRED
PURCHASER PURCHASE STOCK
--------- -------- ---------
<S> <C> <C>
Entities affiliated with Crosspoint Venture
Partners............................................ 9/14/99 1,028,258
Entities affiliated with Sequoia Capital.............. 9/14/99 1,028,258
Entities affiliated with JAFCO America Ventures,
Inc. ............................................... 10/15/99 885,122
Entities affiliated with the Mayfield Fund............ 9/14/99 536,761
</TABLE>
EMPLOYMENT AGREEMENTS WITH FOUNDERS
We were founded in October 1997 by Simon Cao, Paul Jiang and Jessy Chao.
Jessy Chao. In February 1998, Jessy Chao accepted our offer of employment.
His offer letter provided that he was entitled to receive an annual salary of
$90,000. In September 1998, Mr. Chao agreed to amend his initial offer letter to
increase his annual salary to $99,000. His employment with us is on an at-will
basis. In connection with this offer letter, in February 1998, Mr. Chao was
granted an option to purchase 900,000 shares of our common stock, at an exercise
price of $.001 per share, which he exercised in February 1998 under a restricted
stock purchase agreement. These shares are subject to a right of repurchase that
lapses over a four-year period and lapsed as to one-fourth of these shares on
February 3, 1999 with the repurchase right lapsing ratably monthly after that
date.
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<PAGE> 59
In November 1999, Mr. Chao purchased 100,000 shares of our common stock, at
a price of $4.00 per share, under a restricted stock purchase agreement. These
shares are subject to a right of repurchase that lapses over a four-year period
and as to one-fourth of his shares on November 22, 1999 with the repurchase
right lapsing ratably monthly after that date. Each of the restricted stock
purchase agreements relating to these purchases provide that, upon a change of
control, the lapsing of our right of repurchase will be accelerated so that at
least 50% of the common stock purchased under each restricted stock purchase
agreement will not be subject to our right of repurchase. In addition, upon an
involuntary termination of his employment without cause, upon or within 12
months of a change of control our right of repurchase will lapse as to all of
the common stock subject to repurchase under his restricted stock purchase
agreements.
For a description of our employment agreements with Dr. Cao and Mr. Jiang,
please see "Employment Agreements and Change-of-Control Arrangements."
LOANS TO EXECUTIVE OFFICERS
Walter Alessandrini. In April 1999, in connection with Walter
Alessandrini's purchase of 3,477,059 shares of our common stock, we loaned Dr.
Alessandrini $278,165 under a secured full recourse promissory note with an
annual interest rate of 4.99% compounded semi-annually. Principal and interest
on the note become due and payable on April 30, 2003. The note also provides
that we may accelerate payment of the amounts outstanding under the loan in the
event he ceases to be an employee or consultant of ours.
In April 1999, in connection with his purchase of a home, we loaned Dr.
Alessandrini $300,000 under a secured full recourse loan with an annual interest
rate of 4.9%. Principal and interest on this note become due and payable on the
earlier of six months from that date on which he can sell shares of our common
stock for an amount equal to the principal and interest owed on the note, or the
termination of his employment with us.
In October 1999, in connection with Dr. Alessandrini's purchase of 347,706
shares of our common stock, we loaned Dr. Alessandrini $201,669 pursuant to a
secured full recourse promissory note which has an annual interest rate of 6.02%
compounded semi-annually. Principal and interest on the note become due and
payable on October 31, 2003. The note also provides that we may accelerate
payment of the amounts outstanding under the loan in the event he ceases to be
an employee or consultant of ours. The largest principal amount outstanding on
Dr. Alessandri's loans during the fiscal year ended June 30, 1999 was $578,165
and the principal amount outstanding on October 1, 1999 was $578,165.
Simon Cao. In August 1999, in connection with Simon Cao's purchase of
600,000 shares of our common stock, we loaned Dr. Cao $90,000 under a secured
full recourse promissory note with an annual interest rate of 5.96% compounded
semi-annually. Principal and interest on the note were to become due and payable
on August 4, 2003. The note also provides that we may accelerate payment of the
amounts outstanding under the loan in the event he ceases to be an employee or
consultant of ours. In August 1999, in consideration for his continued
employment with us, we agreed to forgive 25% of the principal and accrued
interest under the note on each one-year anniversary of August 4, 1999 for so
long as Dr. Cao remains our employee as of each anniversary.
In October 1999, in connection with Dr. Cao's purchase of 680,484 shares of
our common stock, we loaned Dr. Cao $394,681 under a secured full recourse
promissory note with an annual interest rate of 6.02% compounded semi-annually.
Principal and interest on the note become due and payable on October 12, 2003.
The note also provides that we may accelerate payment of the amounts outstanding
under the loan in the event he ceases to be an employee or consultant of ours.
No principal amounts were outstanding under Dr. Cao's loans during fiscal year
ended June 30, 1999 nor were any principal amounts outstanding under his loans
on October 1, 1999.
Paul Jiang. In July 1999, in connection with Paul Jiang's purchase of
300,000 shares of our common stock, we loaned Mr. Jiang $11,700 under a secured
full recourse promissory note with an annual interest rate of 5.69% compounded
semi-annually. Principal and interest on the note were to become due and payable
on July 22, 2003. The note also provides that we may accelerate payment of the
amounts outstanding under the loan in the event he ceases to be an employee or
consultant of ours. In July 1999, in consideration for his
58
<PAGE> 60
continued employment with us, we agreed to forgive 25% of the principal and
accrued interest under the note on each one-year anniversary of July 22, 1999
for so long as Mr. Jiang remains our employee as of each anniversary.
In November 1999, in connection with Mr. Jiang's purchase of 100,000 shares
of our common stock, we loaned Mr. Jiang $400,000 under a secured full recourse
promissory note with an annual interest rate of 6.2% compounded semi-annually.
Principal and interest on the note become due and payable on November 22, 2004.
The note also provides that we may accelerate payment of the amounts outstanding
under the loan in the event he ceases to be an employee or consultant of ours.
No principal amounts were outstanding under Mr. Jiang's loans during fiscal year
ended June 30, 1999. The principal amount outstanding under his loans on October
1, 1999 was $11,700.
Peter Maguire. In August 1999, in connection with Peter Maguire's purchase
of 550,000 shares of our common stock, we loaned him $82,500 under a secured
full recourse promissory note with an annual interest rate of 5.96% compounded
semi-annually. Principal and interest on the note become due and payable on
August 4, 2003. The note also provides that we may accelerate payment of the
amounts outstanding under the loan in the event he ceases to be an employee or
consultant of ours. No principal amounts were outstanding under Mr. Maguire's
loan during fiscal year ended June 30, 1999, nor were any principal amounts
outstanding under his loan on October 1, 1999.
Jessy Chao. In November 1999, in connection with Jessy Chao's purchase of
100,000 shares of our common stock, we loaned Mr. Chao $400,000 under a secured
full recourse promissory note with an annual interest rate of 6.2% compounded
semi-annually. Principal and interest on the note become due and payable on
November 22, 2004. The note also provides that we may accelerate payment of the
amounts outstanding under the loan in the event he ceases to be an employee or
consultant of ours. No principal amounts were outstanding under Mr. Chao's loan
during fiscal year ended June 30, 1999, nor were any principal amounts
outstanding under his loan on October 1, 1999.
James Pickering. In October 1999, in connection with James Pickering's
purchase of 175,920 shares of our common stock, we loaned him $102,034 under a
secured full recourse promissory note with an annual interest rate of 5.54%
compounded semi-annually. Principal and interest on the note become due and
payable on October 1, 2004. The note also provides that we may accelerate
payment of the amounts outstanding under the loan in the event he ceases to be
an employee or consultant of ours. No principal amounts were outstanding under
Mr. Pickering's loan during fiscal year ended June 30, 1999, nor were any
principal amounts outstanding under his loan on October 1, 1999.
Anthony Florence. In November 1999, in connection with Anthony Florence's
purchase of 130,000 shares of our common stock, we loaned him $455,000 under a
secured full recourse promissory note with an annual interest rate of 5.99%
compounded semi-annually. Principal and interest on the note become due and
payable on November 19, 2004. The note also provides that we may accelerate
payment of the amounts outstanding under the loan in the event he ceases to be
an employee or consultant of ours.
In November 1999, in connection with Mr. Florence's employment offer, we
loaned Mr. Florence $125,000 under an unsecured full recourse promissory note
with an annual interest rate of 5.57%. Principal and interest on the note become
due and payable on the earliest of six months from that date on which he can
sell shares of our common stock for an amount equal to the principal and
interest owed on the note, or May 19, 2001, or the termination of Mr. Florence's
employment with us. No principal amounts were outstanding under Mr. Florence's
loans during fiscal year ended June 30, 1999, nor were any principal amounts
outstanding under his loans on October 1, 1999.
OTHER TRANSACTIONS
In June 1999, in connection with Peter Maguire beginning his employment
with us, we paid him a bonus of $100,000. This bonus must be repaid if he
voluntarily terminates his employment with us or we terminate his employment for
cause. The amount of the bonus that must be repaid in this event is reduced by
$8,333 per full month that he remains employed with us.
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<PAGE> 61
INDEMNIFICATION
We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements and our certificate of
incorporation and bylaws require us to indemnify our directors and officers to
the fullest extent permitted by Delaware law. Please see
"Management -- Limitations on Directors' Liability and Indemnification."
CONFLICT OF INTEREST POLICY
We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. Our policy is to require that a majority of the independent and
disinterested outside directors on our board of directors approve all future
transactions between us and our officers, directors, principal stockholders and
their affiliates. These transactions will continue to be on terms no less
favorable to us than we could obtain from unaffiliated third parties.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of October 1, 1999, and as adjusted to reflect
the sale of common stock offered by this prospectus, by:
- each of the individuals listed in the "Summary Compensation Table;"
- each of our directors;
- each person, or group of affiliated persons, who is known by us to own
beneficially 5% or more of our common stock; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. As of October 1, 1999, no individual listed
in the table below owned any options or warrants to purchase any of our common
or preferred stock. Some of the shares held by our executive officers are
subject to our right of repurchase. For a description of this repurchase right,
please see "Management -- Employment Agreements and Change-of-Control
Arrangements" and "Certain Transactions."
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. This table also includes shares owned by a spouse as community
property. Percentage of ownership is based on 36,406,082 shares of common stock
outstanding on October 1, 1999 and shares of common stock
outstanding after completion of this offering. This table assumes no exercise of
the underwriters' over-allotment option, gives effect to the conversion of all
outstanding shares of preferred stock and reflects the exercise of warrants to
purchase 225,000 shares of common stock prior to the closing of this offering.
Unless otherwise indicated, the address of each of the individuals named below
is 40919 Encyclopedia Circle, Fremont, California 94538.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ----------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS
Entities affiliated with Crosspoint Venture
Partners(1)................................ 6,729,660 18.5% %
2925 Woodside Road
Woodside, CA 94062
Entities affiliated with Sequoia
Capital(2)............................ 6,729,660 18.5
3000 Sand Hill Road, Bldg. 4, Suite
280,
Menlo Park, CA 94025
Entities affiliated with JAFCO America
Ventures, Inc.(3)..................... 4,907,751 13.5
505 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Entities affiliated with the Mayfield
Fund(4)............................... 3,512,951 9.7
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ----------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Walter Alessandrini...................... 3,477,059 9.6% %
Simon Cao................................ 2,400,000 6.7
Paul Jiang............................... 1,500,000 4.1
Peter Maguire............................ 550,000 1.5
William Lanfri........................... 669,135 1.8
Todd Brooks(4)........................... 3,512,951 9.7
c/o the Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Michael Goguen(2)........................ 6,729,660 18.5
c/o Sequoia Capital
3000 Sand Hill Road, Bldg. 4, Suite
280
Menlo Park, CA 94025
Seth Neiman(1)........................... 6,729,660 18.5
c/o Crosspoint Venture Partners
2925 Woodside Road
Woodside, CA 94062
All directors and executive officers as a
group (11 persons).................... 25,975,250 71.4
</TABLE>
- ------------
(1) Represents 5,701,402 shares held by Crosspoint Venture Partners 1997 and
1,028,258 shares held by Crosspoint Venture Partners LS 1999. Mr. Neiman is
one of our directors and is a general partner of Crosspoint Venture
Partners. Mr. Neiman disclaims beneficial ownership of the shares held by
Crosspoint Venture Partners 1997 and Crosspoint Venture Partners LS 1999,
except to the extent of his pecuniary interest in these shares.
(2) Represents 5,738,461 shares held by Sequoia Capital VII; 412,306 shares held
by Sequoia Capital Franchise Fund; 250,862 shares held by Sequoia Technology
Partners VII, a California Limited Partnership; 116,400 shares held by SQP
1997; 100,345 shares held by Sequoia International Partners; 65,474 shares
held by Sequoia 1997 LLC and 45,812 shares held by Sequoia Capital Franchise
Partners. Mr. Goguen is one of our directors and is a general partner of
Sequoia Capital. Mr. Goguen disclaims beneficial ownership of the shares
held by Sequoia Capital VII, Sequoia Capital Franchise Fund, Sequoia
Technology Partners VII, Sequoia 1997 LLC and Sequoia Capital Franchise
Partners, except to the extent of his pecuniary interest in these shares.
(3) Represents 3,925,756 shares held by U.S. Information Technology No. 2
Investment Enterprise Partnership, 408,039 shares held by JAFCO Co., Ltd.,
143,489 shares held by JAFCO G6-(A) Investment Enterprise Partnership,
143,489 shares held by JAFCO G6-(B) Investment Enterprise Partnership,
143,489 shares held by JAFCO JS-3 Investment Enterprise Partnership and
143,489 held by JAFCO R-3 Investment Enterprise Partnership.
(4) Represents 3,337,304 shares held by Mayfield IX and 175,647 shares held by
Mayfield Associates Fund IV. Todd Brooks is one of our directors and is a
general partner of the Mayfield Fund. Mr. Brooks disclaims beneficial
ownership of the shares held by Mayfield IX and Mayfield Associates Fund IV,
except to the extent of his pecuniary interest in these shares.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be authorized to issue
300,000,000 shares of common stock, $.001 par value per share, and 10,000,000
shares of undesignated preferred stock, $.001 par value per share. The following
description of our capital stock does not purport to be complete and is subject
to and qualified by our certificate of incorporation and bylaws, which are
included as exhibits to the Registration Statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of October 1, 1999, there were 36,406,082 shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock, which were held of record by approximately 43
stockholders, and assuming the exercise of warrants to purchase 225,000 shares
of common stock prior to the closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably dividends, if any, as may be declared from time to
time by the board of directors out of funds legally available for that purpose.
See "Dividend Policy." In the event of our liquidation, dissolution or winding
up of Avanex, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon the closing of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. The effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control of Avanex without further action by the stockholders. We have no present
plans to issue any shares of preferred stock.
WARRANTS
At October 1, 1999, there were warrants outstanding to purchase a total of
225,000 shares of common stock and a warrant outstanding to purchase a total of
19,565 shares of Series D preferred stock. The warrant to purchase 19,565 shares
of Series D preferred stock will remain outstanding after the completion of this
offering and will become exercisable to purchase an aggregate of 19,565 shares
of common stock. It will expire on July 8, 2004, unless earlier exercised.
REGISTRATION RIGHTS
The holders of 23,346,090 shares of common stock, as converted, and the
holder of a warrant to purchase 19,565 shares of common stock, as converted, or
their permitted transferees are entitled to certain rights with respect to
registration of the shares under the Securities Act at any time after 180 days
following the closing of this offering. Under the terms of the agreements
between us and the holders of the registrable securities, by written consent of
more than 50% of the registrable securities then outstanding, the holders may
require on two occasions that we, at our expense, file a registration statement
under the Securities Act, with respect to the registrable securities, provided
that at least 30% of the registrable securities would be included in the
proposed registration or the anticipated public offering price of the proposed
registration would be at least $15.0 million. In addition, the holders of at
least 30% of the registrable securities then outstanding, at any time 12 months
after the closing of this offering and at our expense, may require that we
register their shares for
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<PAGE> 65
public resale on Form S-3 or similar short-form registration, provided that we
are eligible to use Form S-3 or similar short-form registration, and provided
further that the value of the securities to be registered is at least $1.0
million. Furthermore, in the event we elect to register any of our shares of
common stock after this offering for purposes of effecting any public offering,
the holders of registrable securities are entitled, at our expense, to include
their shares of common stock in the registration, subject to the right of the
underwriter to reduce the number of shares proposed to be registered in view of
market conditions.
DELAWARE LAW AND CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise and the removal of incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of increased protection of our potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging takeover or
acquisition proposals because, among other things, negotiation of these
proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless, with exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a business combination includes a merger, asset
or stock sale, or other transaction resulting in a financial benefit to the
interested stockholder. Generally, an interested stockholder is a person who,
together with affiliates and associates, owns, or within three years prior to
the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.
Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called only by the board of directors or certain of our officers. Our
certificate of incorporation and bylaws also provide that, beginning upon the
closing of this offering, our board of directors will be divided into three
classes, with each class serving staggered three-year terms, and that certain
amendments of the certificate of incorporation and of the bylaws require the
approval of holders of at least 66.7% of the voting power of all outstanding
stock. These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of Avanex.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Boston EquiServe,
LLP.
64
<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.
Upon completion of this offering, we will have outstanding shares
of common stock, assuming the issuance of shares of common stock
offered by us and no exercise of options after , and assuming no
exercise of the underwriters' over-allotment option. All of the shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act. If shares are purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act, their
sales of shares would be subject to the limitations and restrictions that are
described below.
As of December 2, 1999, the remaining 36,680,644 shares of common stock
held by existing stockholders were issued and sold by us in reliance on
exemptions from the registration requirements of the Securities Act. Of these
shares, 36,467,169 shares will be subject to lock-up agreements, described
below, on the date of this prospectus. On the date of this prospectus, shares
not subject to the lock-up agreements described below may be eligible for sale
pursuant to Rules 144, 144(k) or 701. In addition, holders of stock options
could exercise such options and sell certain of the shares issued upon exercise
as described below.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES ELIGIBLE
RELEVANT DATES FOR FUTURE SALE COMMENT
-------------- --------------- -------
<S> <C> <C>
On the date of this prospectus.......... Freely tradable shares sold in this offering
180 days after the date of this All shares subject to lock-up released;
prospectus (assuming this prospectus shares salable under Rules 144, 144(k) and
will be dated February 14, 2000)........ 26,765,212 701
</TABLE>
Some of the shares in the table above, including shares held by executive
officers and directors, listed as not being salable until 180 days after the
date of this prospectus may become salable as soon as the 90th day after the
date of this prospectus as described under "-- Lock-up Agreements" below.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
65
<PAGE> 67
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period requirements or other restrictions contained in
Rule 701.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject to
the reporting requirements of the Securities Exchange Act, along with the shares
acquired upon exercise of such options, including exercises after the date of
this prospectus. Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than "affiliates," as defined in Rule 144, subject only to the manner of
sale provisions of Rule 144 and by "affiliates" under Rule 144 without
compliance with its one-year minimum holding period requirement.
STOCK OPTIONS
As of December 2, 1999, there were a total of 1,689,600 shares of common
stock subject to outstanding options under our 1998 Stock Plan, 147,146 of which
were vested, and all of which are subject to lock-up agreements. Immediately
after the completion of the offering, we intend to file registration statements
on Form S-8 under the Securities Act to register all of the shares of common
stock issued or reserved for future issuance under our 1998 Stock Plan, as
amended, our 1999 Director Stock Option Plan and our 1999 Employee Stock
Purchase Plan. On the date 180 days after the effective date of the offering, a
total of 378,910 shares of common stock subject to outstanding options will be
vested. After the effective dates of these registration statements, shares
purchased upon exercise of options granted under the 1998 Stock Plan, as
amended, 1999 Director Stock Plan and 1999 Employee Stock Purchase Plan and
would be available for resale in the public market.
LOCK-UP AGREEMENTS
Our officers, directors and substantially all of our stockholders, who hold
an aggregate of approximately 36,467,169 shares of our common stock, have
agreed, subject to limited exceptions, not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock for a
period of 180 days after the date of this prospectus, without the prior written
consent of Morgan Stanley & Co. Incorporated.
If the reported last sale price of the common stock on the Nasdaq National
Market is at least twice the initial public offering price per share for 20 of
the 30 trading days ending on the last trading day preceding the 90th day after
the date of this prospectus, 25% of the shares of our common stock, or 9,116,793
shares, subject to the 180-day restriction described above will be released from
these restrictions. The release of these shares will occur on the later to occur
of:
- the 90th day after the date of this prospectus if we make our first
post-offering public release of our quarterly or annual earnings results
during the period beginning on the eleventh trading day after the date of
this prospectus and ending on the day prior to the 90th day after the
date of this prospectus, or
- on the second trading day following the first public release of our
quarterly or annual results occurring on or after the 90th day after the
date of this prospectus, if we do not make our first post-offering public
release as described in the preceding clause.
Morgan Stanley & Co. Incorporated may in its sole discretion choose to
release any or all of these shares from these restrictions prior to the
expiration of either the 90- or 180-day period.
66
<PAGE> 68
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., BancBoston
Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, have severally agreed to purchase, and we have agreed to sell
to them, severally the number of shares indicated below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Lehman Brothers Inc. .......................................
BancBoston Robertson Stephens Inc. .........................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total.............................................
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered by this prospectus, if any such shares are taken.
However, the underwriters are not required to take or pay for the shares covered
by the underwriters over-allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price listed on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the initial
public offering price. Any underwriter may allow, and such dealers may reallow,
a concession not in excess of $ a share to other underwriters or to
certain dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the initial public offering price listed on
the cover page of this prospectus, less underwriting discounts and commissions.
The underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent this option is exercised,
each underwriter will become obligated, subject to limited conditions, to
purchase approximately the same percentage of additional shares of common stock
as the number listed next to the underwriter's name in the preceding table bears
to the total number of shares of common stock listed next to the names of all
underwriters in the preceding table. If the underwriters' option is exercised in
full, the total price to the public would be $ , the total underwriters'
discounts and commissions would be $ and total proceeds to us would be
$ .
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "AVNX."
67
<PAGE> 69
Avanex and our directors, executive officers and substantially all of our
stockholders have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not, during
the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, whether
these shares or any such securities are then owned by the person or are
thereafter acquired, directly from us; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. This lock-up restriction
is subject, in specified circumstances, to earlier release. For a description of
the circumstances leading to this earlier release, please see "Shares Eligible
for Future Sale -- Lock-up Agreements."
The restrictions described in this paragraph do not apply to:
- the sale of shares to the underwriters;
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering if the syndicate repurchases previously distributed
shares of common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities and may
end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to approximately shares of common stock
offered by this prospectus to our directors, officers, employees, customers and
other business associates. There can be no assurance that any of the reserved
shares will be purchased. The number of shares of common stock available for
sale to the general public will be reduced to the extent these parties purchase
the reserved shares. Any reserved shares that are not so purchased will be
offered by the underwriters to the general public on the same basis as the other
shares offered by this prospectus.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price for the shares of common stock
offered by this prospectus will be determined by negotiations between us and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:
- our record of operations, our current financial position and future
prospects;
- the experience of our management;
- sales, earnings and certain of our other financial and operating
information in recent periods; and
- the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to ours.
The estimated initial public offering price range set forth on the cover page of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
68
<PAGE> 70
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the underwriters
by Fenwick & West LLP, Palo Alto, California. As of the date of this prospectus,
an investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, in addition to certain current individual members of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially own an aggregate of
278,946 shares of Avanex common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at June 30, 1998 and June 30, 1999, for the period from October 24,
1997 (inception) to June 30, 1998, and for the year ended June 30, 1999, as set
forth in their reports. We have included our financial statements in the
prospectus and elsewhere in the registration statement in reliance on their
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the shares of common stock in
this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule that were filed with the registration statement. Statements contained
in this prospectus about the contents of any contract or any other document that
is filed as an exhibit to the registration statement are not necessarily
complete, and we refer you to the full text of the contract or other document
filed as an exhibit to the registration statement. A copy of the registration
statement and the exhibits and schedule that were filed with the registration
statement may be inspected without charge at the public reference facilities
maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part of the
registration statement may be obtained from the SEC upon payment of the
prescribed fee. The Securities and Exchange Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with the requirements of the Securities Exchange Act will file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission. These periodic reports, proxy statements and other
information will be available for inspection and copying at the regional
offices, public reference facilities and web site of the Securities and Exchange
Commission referred to above.
69
<PAGE> 71
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 72
AVANEX CORPORATION
FOR THE PERIOD FROM OCTOBER 24, 1997 (INCEPTION) TO JUNE 30, 1998
AND FOR THE YEAR ENDED JUNE 30, 1999
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Financial Statements:
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Other Stockholders' Equity (Deficit)........... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Avanex Corporation
We have audited the accompanying balance sheets of Avanex Corporation as of
June 30, 1998 and 1999, and the related statements of operations, other
stockholders' equity (deficit), and cash flows for the period from October 24,
1997 (inception) to June 30, 1998 and the year ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Avanex Corporation at June
30, 1998 and 1999, and the results of its operations and its cash flows for the
period from October 24, 1997 (inception) to June 30, 1998 and the year ended
June 30, 1999, in conformity with generally accepted accounting principles.
Ernst & Young LLP
August 2, 1999
San Jose, California
F-2
<PAGE> 74
AVANEX CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY AT
------------------ OCTOBER 1, OCTOBER 1,
1998 1999 1999 1999
------- -------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 2,874 $ 1,756 $ 6,632
Short-term investments.................................... -- 1,968 8,006
Accounts receivable (net of allowance for doubtful
accounts of $30 at June 30, 1999 and $345 at October 1,
1999)................................................... -- 272 3,109
Inventory................................................. -- 626 1,261
Employee receivables and other current assets............. 37 468 1,282
------- -------- --------
Total current assets.................................... 2,911 5,090 20,290
Property and equipment, net................................. 408 1,671 3,359
Other assets................................................ 20 55 1,419
------- -------- --------
Total assets........................................ $ 3,339 $ 6,816 $ 25,068
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings..................................... $ -- $ 735 $ 2,088
Accounts payable.......................................... 97 990 2,274
Accrued compensation and related expenses................. 66 242 278
Other accrued expenses.................................... 44 258 872
Deferred revenue.......................................... -- -- 163
Current portion of capital lease obligations.............. 67 205 441
------- -------- --------
Total current liabilities............................... 274 2,430 6,116
Capital lease obligations................................... 56 563 1,433
Long-term debt.............................................. 285 -- --
Commitments
Redeemable convertible preferred stock, $0.001 par value,
21,800,000 shares authorized at June 30, 1998 and 1999 and
25,400,000 authorized at October 1, 1999, issuable in
series (stated at liquidation preference):
Series A, 4,600,000 shares designated, 4,530,080 shares
issued and outstanding at June 30, 1998 and 1999 and
October 1, 1999 (none pro forma)........................ 1,010 1,010 1,010 $ --
Series B, 6,350,000 shares designated, 6,296,744 shares
issued and outstanding at June 30, 1998 and 1999 and
October 1, 1999 (none pro forma)........................ 2,519 2,519 2,519 --
Series C, 10,850,000 shares designated, no shares issued
and outstanding at June 30, 1998; 9,032,169 shares
issued and outstanding at June 30 and October 1, 1999
(none pro forma)........................................ -- 6,828 6,828 --
Series D, 3,600,000 shares designated, no shares issued
and outstanding at June 30, 1998 and 1999; 2,601,975
shares issued and outstanding at October 1, 1999 (none
pro forma).............................................. -- -- 14,961 --
------- -------- -------- --------
Total redeemable convertible preferred stock............ 3,529 10,357 25,318 --
Other stockholders' equity (deficit):
Common stock, $0.001 par value, 50,000,000 shares
authorized (50,000,000 shares pro forma); 4,700,000
shares issued and outstanding at June 30, 1998;
12,094,194 shares issued and outstanding at June 30,
1999 and 13,720,114 shares issued and outstanding at
October 1, 1999 (36,181,082 shares pro forma)........... 5 12 14 36
Additional paid-in capital................................ 2,107 13,232 39,739 65,035
Shares to be repurchased for current terminations,
1,743,750 shares at October 1, 1999..................... -- -- (35) (35)
Notes receivable from stockholders........................ (6) (326) (579) (579)
Deferred compensation..................................... (1,774) (9,094) (14,149) (14,149)
Accumulated deficit....................................... (1,137) (10,358) (32,789) (32,789)
------- -------- -------- --------
Total other stockholders' equity (deficit).............. (805) (6,534) (7,799) $ 17,519
------- -------- -------- ========
Total liabilities and stockholders' equity
(deficit)......................................... $ 3,339 $ 6,816 $ 25,068
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 75
AVANEX CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 24, 1997 QUARTER ENDED
(INCEPTION) TO YEAR ENDED ----------------------------
JUNE 30, JUNE 30, SEPTEMBER 30, OCTOBER 1,
1998 1999 1998 1999
---------------- ----------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue........................... $ -- $ 510 $ -- $ 4,417
Cost of revenue....................... -- 531 -- 3,431
---------- ----------- ----------- -----------
Gross profit (loss)................... -- (21) -- 986
Operating expenses:
Research and development............ 515 4,086 473 950
Sales and marketing................. 125 956 116 714
General and administrative.......... 131 723 132 614
Stock compensation.................. 362 3,464 323 6,107
---------- ----------- ----------- -----------
Total operating expenses......... 1,133 9,229 1,044 8,385
---------- ----------- ----------- -----------
Loss from operations.................. (1,133) (9,250) (1,044) (7,399)
Other income (expense), net........... (4) 29 7 (71)
---------- ----------- ----------- -----------
Net loss.............................. (1,137) (9,221) (1,037) (7,470)
Preferred stock accretion............. -- -- -- (14,961)
---------- ----------- ----------- -----------
Net loss attributable to common
stockholders........................ $ (1,137) $ (9,221) $ (1,037) $ (22,431)
========== =========== =========== ===========
Basic and diluted net loss per common
share............................... $ -- $ (8.68) $ (6.36) $ (6.06)
========== =========== =========== ===========
Weighted-average shares used in
computing basic and diluted net loss
per common share.................... -- 1,062,097 163,036 3,704,042
========== =========== =========== ===========
Pro forma basic and diluted net loss
per common share (unaudited)........ $ (0.59) $ (0.92)
=========== ===========
Weighted-average shares used in
computing pro forma basic and
diluted net loss per common share
(unaudited)......................... 15,576,026 24,402,382
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 76
AVANEX CORPORATION
STATEMENT OF OTHER STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 24, 1997 (INCEPTION) TO OCTOBER 1, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHARES TO BE NOTES TOTAL
ADDITIONAL REPURCHASED FOR RECEIVABLE STOCKHOLDERS'
COMMON PAID-IN CURRENT FROM DEFERRED ACCUMULATED EQUITY
STOCK CAPITAL TERMINATIONS SHAREHOLDERS COMPENSATION DEFICIT (DEFICIT)
------ ---------- --------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 1,800,000 shares
of common stock to
founder..................... $ 2 $ -- $-- $-- $ -- $ -- $ 2
Issuance of 2,700,000 shares
of common stock upon exercise
of stock options.............. 3 6 -- (6) -- -- 3
Issuance of 200,000 shares of
common stock................ -- 1 -- -- -- -- 1
Issuance costs associated with
issuance of preferred
shares...................... -- (36) -- -- -- -- (36)
Deferred compensation......... -- 2,136 -- -- (2,136) -- --
Amortization of deferred
compensation................ -- -- -- -- 362 -- 362
Net loss...................... -- -- -- -- -- (1,137) (1,137)
--- ------- ---- ----- -------- -------- --------
Balance at June 30,
1998.................... 5 2,107 -- (6) (1,774) (1,137) (805)
Issuance of 7,419,460 shares
of common stock upon
exercise of stock options... 7 354 -- (342) -- -- 19
Issuance costs associated with
issuance of preferred
shares...................... -- (13) -- -- -- -- (13)
Repurchase of 25,266 shares of
common stock................ -- -- -- -- -- -- --
Forgiveness of stockholders'
notes receivable............ -- -- -- 22 -- -- 22
Issuance of common stock
options to consultants...... -- 539 -- -- -- -- 539
Deferred compensation......... -- 10,245 -- -- (10,245) -- --
Amortization of deferred
compensation................ -- -- -- -- 2,925 -- 2,925
Net loss...................... -- -- -- -- -- (9,221) (9,221)
--- ------- ---- ----- -------- -------- --------
Balance at June 30,
1999.................... 12 13,232 -- (326) (9,094) (10,358) (6,534)
Issuance costs associated with
issuance of preferred shares
(unaudited)................. -- (18) -- -- -- -- (18)
Issuance of 1,625,920 shares
of common stock upon
exercise of stock options
(unaudited)................. 2 284 -- (286) -- -- --
Shares to be repurchased for
current terminations,
1,743,750 shares
(unaudited)................. -- -- (35) 33 -- -- (2)
Issuance of warrants
(unaudited)................. -- 118 -- -- -- -- 118
Preferred stock accretion
(unaudited)................. -- 14,961 -- -- -- (14,961) --
Deferred compensation
(unaudited)................. -- 11,162 -- -- (11,162) -- --
Amortization of deferred
compensation (unaudited).... -- -- -- -- 6,107 -- 6,107
Net loss (unaudited).......... -- -- -- -- -- (7,470) (7,470)
--- ------- ---- ----- -------- -------- --------
Balance at October 1, 1999
(unaudited)............. $14 $39,739 $(35) $(579) $(14,149) $(32,789) $ (7,799)
=== ======= ==== ===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 77
AVANEX CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 24, 1997 QUARTER ENDED
(INCEPTION) TO YEAR ENDED --------------------------
JUNE 30, JUNE 30, SEPTEMBER 30, OCTOBER 1,
1998 1999 1998 1999
---------------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $(1,137) $(9,221) $(1,037) $(7,470)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 33 380 49 275
Non-cash charges, primarily stock
compensation expense...................... 364 3,464 323 6,131
Forgiveness of stockholders' notes
receivable................................ -- 22 -- --
Changes in operating assets and liabilities:
Accounts receivable....................... -- (272) -- (2,837)
Inventory................................. -- (626) (175) (635)
Employee receivables and other current
assets.................................. (37) (431) 1 (814)
Other assets.............................. (20) (35) (12) (1,270)
Accounts payable.......................... 97 893 139 1,284
Accrued compensation and related
expenses................................ 66 176 (3) 36
Other accrued expenses and deferred
revenue................................. 44 214 65 777
------- ------- ------- -------
Net cash used in operating
activities......................... (590) (5,436) (650) (4,523)
INVESTING ACTIVITIES
Purchases of short-term investments............ -- (3,968) -- (8,038)
Maturities of short-term investments........... -- 2,000 -- 2,000
Purchases of property and equipment............ (301) (863) (79) (747)
------- ------- ------- -------
Net cash used for investing
activities......................... (301) (2,831) (79) (6,785)
FINANCING ACTIVITIES
Payments on debt and capital lease
obligations.................................. (17) (135) (16) (907)
Proceeds from issuance of convertible notes
payable...................................... 50 -- -- --
Proceeds from short-term and long-term debt.... 285 450 34 2,150
Proceeds from issuance of common stock, net of
repurchases.................................. 4 19 -- (2)
Net proceeds from issuance of preferred
stock........................................ 3,443 6,815 -- 14,943
------- ------- ------- -------
Net cash provided by financing
activities......................... 3,765 7,149 18 16,184
------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................. 2,874 (1,118) (711) 4,876
Cash and cash equivalents at beginning of
period....................................... -- 2,874 2,874 1,756
------- ------- ------- -------
Cash and cash equivalents at end of period..... $ 2,874 $ 1,756 $(2,163) $ 6,632
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH
TRANSACTIONS
Equipment acquired under capital leases........ $ 140 $ 780 $ -- $ 1,216
======= ======= ======= =======
Conversion of notes payable to convertible
preferred stock.............................. $ 50 $ -- $ -- $ --
======= ======= ======= =======
Common stock issued for notes receivable....... $ 6 $ 343 $ -- $ 286
======= ======= ======= =======
Preferred stock accretion...................... $ -- $ -- $ -- $14,961
======= ======= ======= =======
Warrants issued in connection with securing a
line of credit............................... $ -- $ -- $ -- $ 118
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid.................................. $ 2 $ 117 $ 11 $ 101
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 78
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Avanex Corporation (the "Company") was incorporated on October 24, 1997 in
the state of California. The Company manufactures and markets fiber optic-based
products, known as photonic processors, which are designed to increase the
performance of optical networks.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements and related notes as of October 1,
1999 and for the quarters ended September 30, 1998 and October 1, 1999 are
unaudited, but include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation of its
financial position, operating results, and cash flows for the interim date and
periods presented. Results for the quarter ended October 1, 1999 are not
necessarily indicative of results for the entire fiscal year or future periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company classifies investments at the date of acquisition as
available-for-sale and considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. The
Company also considers all highly liquid investments with original maturities
greater than three months but less than one year when purchased to be short-term
investments. As of June 30, 1999, there are no investments with maturities
greater than 12 months. Cash equivalents at June 30, 1998 and 1999 consisted
primarily of money market funds. Short-term investments at June 30, 1999
consisted of commercial paper. Short-term investments are carried at cost, which
approximates fair value.
Both gross unrealized gains and losses as of June 30, 1999 and realized
gains and losses on sales of securities for the year ended June 30, 1999 were
not significant.
CONCENTRATION OF CREDIT RISK
Financial instruments, which subject the Company to potential credit risk,
consist of demand deposit accounts, money market accounts, short-term
investments and trade receivables. The Company maintains its demand deposit
accounts, money market accounts and short-term investments primarily with one
financial institution. The Company invests its excess cash principally in debt
securities. To date, the Company has not incurred losses related to these
investments. Management believes the financial risks associated with these
financial instruments are minimal.
For the year ended June 30, 1999, three customers each individually
accounted for over 10% of net revenue, for an aggregate of approximately 94% of
net revenue. One customer, representing 29% of revenue for the year ended June
30, 1999, is located in Japan. Outstanding receivables from these customers
approximated 98% of total gross accounts receivable at June 30, 1999. For the
quarter ended October 1, 1999, one customer individually accounted for over 92%
of net revenue. The outstanding receivable from this customer approximated 84%
of total gross receivables at October 1, 1999. International revenue was not
significant for the quarter ended October 1, 1999.
F-7
<PAGE> 79
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
REVENUE RECOGNITION
The Company generally recognizes product revenue when the product has been
shipped and there are no significant uncertainties with respect to customer
acceptance. The Company accrues for warranty costs at the time revenue is
recognized.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the useful lives of the assets, generally two to five
years.
EQUIPMENT UNDER CAPITAL LEASES
The Company leases certain of its equipment and other fixed assets under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments, including estimated bargain purchase options, or the fair value of the
assets under lease. Assets under capital leases are amortized over the shorter
of the lease term or useful life of the assets.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
STOCK-BASED COMPENSATION
Effective in the period ended June 30, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"). In accordance with the provisions of
FAS 123, the Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB Opinion No. 25") and related
interpretations in accounting for its stock option grants to employees.
Accordingly, deferred compensation is recognized for the difference between the
option price at the date of grant and the deemed fair value of the Company's
common shares at that date when the option exercise price is less than the fair
value of the common shares. Such deferred compensation is amortized over the
vesting period of each option, generally a maximum of four years. Option grants
to all others are accounted for under the fair value method prescribed by FAS
123.
INVENTORY
Inventory consists of raw materials, work-in-process and finished goods and
is stated at the lower of cost or market. Cost is computed on a currently
adjusted standard basis (which approximates actual costs on a first-in,
first-out basis).
INCOME TAXES
The Company uses the liability method to account for income taxes as
required by Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
COMPREHENSIVE INCOME
The Company reports comprehensive income (loss) in accordance with the
FASB's Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." The comprehensive net loss
F-8
<PAGE> 80
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
for the period ended June 30, 1998, the year ended June 30, 1999 and the quarter
ended October 1, 1999 does not differ from the reported net loss.
CONCENTRATIONS OF SUPPLY
The Company currently purchases several key parts and components used in
manufacture of its products from limited sources of supply.
CONCENTRATIONS OF SALES
The Company's PowerFilter product has accounted for substantially all of
the Company's net revenue for the year ended June 30, 1999 and the quarter ended
October 1, 1999.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses
for the period ended June 30, 1998, the year ended June 30, 1999 and the quarter
ended October 1, 1999 were none, $76,000 and $181,000, respectively, and are
included in sales and marketing expenses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of long-term debt obligations are estimated based on current
interest rates available to the Company for debt instruments with similar terms,
degrees of risk, and remaining maturities. The carrying values of these
obligations approximate their fair values.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY (DEFICIT)
If the offering contemplated by this prospectus is consummated, all of the
preferred stock outstanding will automatically be converted into common stock.
Unaudited pro forma stockholders' equity (deficit) at October 1, 1999, as
adjusted for the assumed conversion of preferred stock based on the shares of
preferred stock outstanding at October 1, 1999, is set forth on the balance
sheet.
SEGMENT INFORMATION
The Company has adopted the FASB's Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information." The Company operates in one segment, to manufacture and market
photonic processors.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which will be effective for the
Company's fiscal year ending June 30, 2001. This statement establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. The Company has not evaluated the impact of FAS 133; however, it believes
the adoption of FAS 133 will not have a material effect on the financial
position, results of operations, or cash flows as the Company has not entered
into any derivative contracts.
F-9
<PAGE> 81
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
2. NET LOSS PER SHARE
Basic and diluted net loss per common share has been computed using the
weighted-average number of shares of common stock outstanding during the period,
less the weighted-average number of shares of common stock that are subject to
repurchase. Pro forma basic and diluted net loss per common share, as presented
in the statements of operations, have been computed as described above and also
give effect, to the conversion of the convertible preferred stock (using the
if-converted method) from the original date of issuance. To date, the Company
has not had any issuances of shares or option grants for nominal consideration
as that term is used in the Securities and Exchange Commission's Staff
Accounting Bulletin No. 98.
The following table presents the calculation of basic and diluted net loss
per common share and pro forma basic and diluted net loss per common share (in
thousands, except share and per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM QUARTER ENDED
OCTOBER 24, 1997 YEAR ENDED ----------------------------
(INCEPTION) TO JUNE 30, SEPTEMBER 30, OCTOBER 1,
JUNE 30, 1998 1999 1998 1999
---------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders..................... $ (1,137) $ (9,221) $ (1,037) $ (22,431)
Basic and diluted:
Weighted-average shares of
common stock outstanding.... 2,884,739 8,567,081 6,995,892 12,025,790
Less: weighted-average shares
subject to repurchase....... (2,884,739) (7,504,984) (6,832,856) (8,321,748)
----------- ----------- ----------- -----------
Weighted-average shares used in
computing basic and diluted net
loss per common share.......... -- 1,062,097 163,036 3,704,042
=========== =========== =========== ===========
Basic and diluted net loss per
common share................... $ -- $ (8.68) $ (6.36) $ (6.06)
=========== =========== =========== ===========
Pro forma unaudited:
Shares used above.............. 1,062,097 3,704,042
Pro forma adjustment to reflect
weighted effect of the
assumed conversion of
preferred stock............. 14,513,929 20,698,340
----------- -----------
Weighted-average shares used in
computing pro forma basic
and diluted net loss per
common share................ 15,576,026 24,402,382
=========== ===========
Pro forma basic and diluted net
loss per common share....... $ (0.59) $ (0.92)
=========== ===========
</TABLE>
F-10
<PAGE> 82
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
3. BALANCE SHEET DETAILS
Inventory
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------ OCTOBER 1,
1998 1999 1999
---- ---- ----------
<S> <C> <C> <C>
Raw materials............................................... $-- $364 $ 353
Work-in-process............................................. -- 219 908
Finished goods.............................................. -- 43 --
---- ---- ------
$-- $626 $1,261
==== ==== ======
</TABLE>
Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------- OCTOBER 1,
1998 1999 1999
---- ------ ----------
<S> <C> <C> <C>
Software and computer equipment............................. $ 34 $ 211 $ 258
Equipment and machinery..................................... 344 1,713 3,543
Furniture and fixtures...................................... 63 160 246
---- ------ ------
441 2,084 4,047
Accumulated depreciation.................................... (33) (413) (688)
---- ------ ------
$408 $1,671 $3,359
==== ====== ======
</TABLE>
4. RELATED PARTY TRANSACTIONS
On May 20, 1999, the Company loaned $300,000 to an employee for the
purchase of a home. The promissory note, which bears interest at 4.9% per annum,
and accrued interest are payable in full to the Company on the earliest of the
close of the sale of the employee's home, a liquidity event of the Company, or
the termination of employment with the Company.
5. COMMITMENTS
The Company leases equipment under capital leases. The Company also leases
its office facility under an operating lease expiring on July 31, 2002, which
requires the Company to pay a portion of operating costs, including property
taxes, insurance, and maintenance. Payments due under capital leases and future
minimum
F-11
<PAGE> 83
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
lease payments under noncancelable operating leases having initial terms in
excess of one year as of June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending June 30,
2000........................................................ $ 335 $470
2001...................................................... 269 382
2002...................................................... 318 21
2003...................................................... 122 --
------ ----
Total minimum lease payments................................ 1,044 873
Amount representing interest................................ (276) --
------ ----
Present value of net minimum lease payments................. 768 $873
====
Less current portion........................................ 205
------
Long-term portion........................................... $ 563
======
</TABLE>
At June 30, 1998 and 1999, equipment amounting to approximately $140,000
and $920,000, respectively, was capitalized under capital leases. Related
accumulated amortization at June 30, 1998 and 1999 amounted to approximately
$12,000 and $290,000, respectively. The lease agreements are payable in monthly
installments through April 2000, bearing interest at 12% per annum, and are
fully secured by the related equipment.
The Company's rental expense under operating leases was approximately
$97,000 for the period from inception (October 24, 1997) through June 30, 1998
and $346,000 for the year ended June 30, 1999.
In May 1999, the Company entered into an equipment lease facility which
made available to the Company up to $500,000 of equipment lease financing at an
interest rate of 14.9% per annum. As of June 30, 1999, the Company had no
outstanding obligations under this facility. In July 1999, the maximum amount
was increased to $1,500,000. As of October 1, 1999, the Company had $1,216,000
in outstanding obligations under this facility.
In September 1999, the Company entered into a lease, effective in September
1999, for a new corporate headquarters and manufacturing facility which will
increase rental expense by approximately $920,000 per year through October 2009.
6. FINANCING ARRANGEMENTS
In July 1999, the Company secured a revolving line of credit from a
financial institution, which allows maximum borrowings up to $3,750,000. The
revolving credit agreement terminates October 1, 2000, at which time all
outstanding principal and interest are due. The line bears interest at the prime
rate plus 0.75%. At October 1, 1999, the Company had borrowings of $2,088,000
against this line. This line of credit requires the Company to comply with
specified covenants. As of October 1, 1999, the Company was in compliance with
all of these covenants.
In connection with this line of credit, the Company issued a warrant
agreement to the financial institution, which entitles the holder to purchase
19,565 shares of the Company's common stock with an aggregate purchase price
equal to $112,000, or approximately $5.75 per share. The warrants are
exercisable at anytime, and will expire upon the earlier of (i) the closing of
any acquisition of the Company or (ii) their expiration on July 8, 2004. The
value of the warrants was estimated using the Black-Scholes option pricing model
with the following assumptions: weighted-average risk-free interest rate of
5.5%, contractual life of 5
F-12
<PAGE> 84
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
years, volatility of 0.75 and no dividend yield. The Company calculated a value
of $118,000 and this amount is recorded as deferred interest and is being
amortized to interest expense over the term of the agreement.
This line of credit replaced a previous line of credit with another
financial institution under which the Company had borrowings outstanding as of
June 30, 1998 and 1999 of $285,000 and $735,000.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A, B, and C preferred stock have a liquidation preference of $0.223,
$0.40, and $0.756 per share, respectively, plus all declared but unpaid
dividends. Series A, B, and C preferred shareholders are entitled to
noncumulative dividends at the rate of $0.017, $0.032, and $0.06 per share, per
annum, respectively, when and if declared by the Board of Directors and in
preference and priority to common stock dividends. No dividends have been
declared or paid by the Company.
The holders of each share of Series A, B, and C preferred stock are
entitled to one vote for each share of common stock into which such share may be
converted. Currently, the preferred shareholders, voting as a separate class,
are entitled to elect three directors. The holders of Series A, B, and C
preferred stock have the right, at the option of the holder, at any time to
convert their shares into common stock on a one-for-one basis, subject to
adjustments for future dilution. Series A, B, and C preferred stock
automatically convert into common stock, at the then applicable conversion rate,
upon a public offering of the Company's common stock at a per share price of not
less than $4.00, with aggregate proceeds in excess of $10 million, or upon the
consent of the holders of a majority of the then outstanding shares of preferred
stock.
On December 31 of each year beginning December 31, 2004, at the option of a
majority of the preferred shareholders, a portion of the preferred stock must be
redeemed at the original purchase price. Additionally, in certain circumstances
upon the subsequent issuance of preferred stock, the Company may be required to
redeem a certain number of the preferred shares outstanding.
In September 1999, the Company issued 2,601,975 shares of Series D
redeemable convertible preferred stock ("Series D stock") at $5.75 per share
resulting in gross proceeds of approximately $15.0 million. The terms of the
Series D stock are substantially similar to those of the earlier series of
preferred stock, except that the liquidation preference is $5.75 per share and
the non-cumulative dividend rate is $0.288 per share, per annum, when and if
declared by the Board of Directors. In connection with this transaction, the
Company recorded a non-cash charge of $15.0 million to accrete the value of the
preferred stock to its fair value. This non-cash charge was recorded as an
increase in accumulated deficit with a corresponding credit to additional
paid-in capital and was recognized at the date of issuance which was the period
in which the shares became eligible for conversion.
In October 1999, the Company issued 885,122 shares of Series D redeemable
convertible preferred stock at $5.75 per share resulting in gross proceeds of
approximately $5.1 million. In connection with this transaction, the Company
will record a non-cash charge of $5.1 million to accrete the value of the
preferred stock to its fair value. This non-cash charge will be recorded as an
increase in accumulated deficit with a corresponding credit to additional
paid-in capital and will be recognized at the date of issuance which is the same
period in which the shares became eligible for conversion.
8. STOCKHOLDERS' EQUITY
Stock Option/Rights Plan
The Company adopted the 1998 Stock Plan (the "Plan"), under which officers,
employees, directors, and consultants may be granted Incentive Stock Options
("ISOs") and Nonstatutory Stock Options ("NSOs") to purchase shares of the
Company's common stock. Stock purchase rights may also be granted under the
Plan.
F-13
<PAGE> 85
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
The Plan permits ISOs and NSOs to be granted at an exercise price of not less
than 100% and 85%, respectively, of the fair value on the date of grant as
determined by the Board of Directors. Options that expire (generally ten years
from the grant date) or are canceled are returned to the Plan. The term of the
Plan is ten years. Options granted under the Plan are immediately exercisable
and are subject to repurchase by the Company until vested. Options may be
granted with different vesting terms as determined by the Board of Directors.
The options generally vest 25% upon completion of one year of service and 1/48
per month thereafter.
Stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE
FOR GRANT OF SHARES PRICE
---------- ---------- --------------
<S> <C> <C> <C>
Balance at inception (October 24, 1997)............... 10,200,000 -- --
Options granted....................................... (6,462,401) 6,462,401 $0.013
Options exercised................................... -- (2,700,000) 0.010
Options canceled.................................... -- -- --
---------- ---------- ------
Balance at June 30, 1998.............................. 3,737,599 3,762,401 0.020
Additional shares authorized........................ 1,500,000 -- --
Options granted..................................... (5,241,759) 5,241,759 0.081
Options exercised................................... -- (7,419,460) 0.048
Options canceled.................................... 50,766 (25,500) 0.066
---------- ---------- ------
Balance at June 30, 1999.............................. 46,606 1,559,200 0.077
---------- ---------- ------
Additional shares authorized........................ 1,000,000 -- --
Options granted..................................... (878,520) 878,520 0.302
Options exercised................................... -- (1,625,920) 0.176
Options canceled.................................... 1,756,150 (12,400) 0.374
---------- ---------- ------
1,924,236 799,400 $0.107
======
Shares to be repurchased for current terminations... (1,743,750) --
---------- ----------
Balance at October 1, 1999............................ 180,486 799,400
========== ==========
</TABLE>
Generally, options are exercisable upon grant. However, shares issued upon
exercise are subject to repurchase by the Company at the original grant price
upon termination of employment. Such repurchase rights expire over a vesting
period, generally four years. Shares subject to repurchase were 4,700,000 shares
as of June 30, 1998, 8,874,814 shares as of June 30, 1999 and 7,875,429 shares
as of October 1, 1999.
The weighted-average contractual life of options outstanding at June 30,
1999 was 9.6 years. The weighted-average estimated fair value of stock options
granted during 1998 and 1999 was $0.29 and $2.26, respectively. At October 1,
1999, the weighted-average estimated fair value of stock options granted from
July 1, 1999 through October 1, 1999 was $7.33.
For the period October 24, 1997 to June 30, 1998, the year ended June 30,
1999 and the quarter ended October 1, 1999, the Company recorded deferred stock
compensation of $2,136,000, $10,245,000 and $11,162,000, respectively,
representing the difference between the exercise price and the deemed fair value
for accounting purposes of the Company's common stock on the date such stock
options were granted. For the period October 24, 1997 to June 30, 1998, the year
ended June 30, 1999 and the quarter ended October 1,
F-14
<PAGE> 86
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
1999, the Company recorded amortization of deferred stock compensation of
$362,000, $2,925,000 and $6,107,000, respectively. At October 1, 1999, the
Company had $14,149,000 of remaining unamortized deferred compensation. Such
amount is included as a reduction of stockholders' equity (deficit) and is being
amortized over the vesting period of each respective option.
For the year ended June 30, 1999, the Company recorded stock compensation
cost of $539,000 related to common stock options granted to consultants. The
value of the options was estimated using the Black-Scholes option pricing model
with the following assumptions: weighted-average risk free interest rate of
5.75%, contractual life of ten years, volatility of 0.75 and no dividend yield.
Pro Forma Disclosures of the Effect of Stock-Based Compensation
Pro forma information regarding results of operations and net loss per
share is required by FAS 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options under
the fair value method of FAS 123. The fair value of these options was estimated
at the date of grant using the minimum value method with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
JUNE 30,
------------------ OCTOBER 1,
1998 1999 1999
------- ------- ----------
<S> <C> <C> <C>
Risk-free interest rate..................................... 5.5% 5.5% 5.5%
Dividend yield.............................................. -- -- --
Weighted-average expected life.............................. 5 years 5 years 5 years
</TABLE>
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. For the period
from October 24, 1997 (inception) to June 30, 1998, the year ended June 30,
1999, and the quarter ended October 1, 1999, the pro forma net loss was
$(1,039,000), $(8,618,000) and $(21,779,000), respectivley, and the pro forma
net loss per common share was $0.00, $(8.11) and $(5.88), respectively.
The pro forma impact of options on the net loss for the period from October
24, 1997 (inception) to June 30, 1998 and the year ended June 30, 1999 is not
representative of the effects on net income (loss) for future years, as future
years will include the effects of additional stock option grants.
Warrants
In December 1998, the Company issued warrants to three individuals in
connection with founding the Company. Each warrant agreement entitles the holder
to purchase 75,000 shares of the Company's common stock with an aggregate
purchase price equal to $1,350,000. The warrants are exercisable at any time,
and the warrants will expire upon the earlier of (i) the closing of any
acquisition of the Company or initial public offering or (ii) their expiration
on December 31, 2003. The Company has reserved 225,000 shares of common stock in
the event of the exercise of these warrants.
F-15
<PAGE> 87
AVANEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND OCTOBER 1, 1999 IS
UNAUDITED)
Shares Reserved
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
OCTOBER 1,
1999
----------
<S> <C>
Stock option plan (the "1998 Plan"):
Outstanding................................................. 799,400
Reserved for future grants................................ 1,924,236
----------
2,723,636
Reserved for warrants....................................... 244,565
Conversion of preferred stock............................... 22,460,968
----------
Total common stock reserved for future issuance............. 25,429,169
==========
</TABLE>
9. INCOME TAXES
There has been no provision for U.S. federal, U.S. state or foreign income
taxes for any period as the Company has incurred operating losses since
inception for all jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1999
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 288 $ 2,330
Other..................................................... 32 480
----- -------
Total............................................. 320 2,810
Valuation allowance......................................... (320) (2,810)
----- -------
Net deferred tax assets..................................... $ -- $ --
===== =======
</TABLE>
Realization of the deferred tax assets is dependent upon future earnings,
if any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $320,000 and $2,490,000 in the period ended
June 30, 1998 and the year ended June 30, 1999.
As of June 30, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $5,828,000, which expire in years
2013 through 2019. The Company also had net operating loss carryforwards for
state income tax purposes of approximately $5,805,000 expiring in the year 2006.
Utilization of the Company's net operating loss may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. Such an annual limitation
could result in the expiration of the net operating loss before utilization.
F-16
<PAGE> 88
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 89
[INSIDE BACK COVER]
[The inside back cover starts with the heading "Avanex Photonic Processors"
followed by the Avanex logo and the word "Avanex(TM)." Down the left hand side
of the page are photographs of a PowerFilter, a PowerMux and a PowerShaper. To
the right of the corresponding photograph of the product is the following text:
"PowerFilter(TM) Optical Multiplexer/Demultiplexer
Features:
o Wavelength-tuning capabilities
o Improved system performance
o Reduced signal loss
o Fewer types of filters needed
PowerMux(TM) High Density Wavelength Division Multiplexer Processors
Features:
o Accommodates large number of wavelength channels
o High bandwidth utilization
o Low cost per wavelength channel
PowerShaper(TM) Chromatic Dispersion Compensation Processor (In beta
test)
Features:
o Fixed or tunable dispersion compensation
o Compact packaging
o Broadband dispersion compensation"
There follows the subheading "The Photonics Center(TM)," with a photograph of a
person in front of a rack of optical equipment. To the right of the photograph
is the following text:
"The Photonics Center(TM) at Avanex provides:
o A leading-edge customer demonstration and training center
o A simulated optical network that demonstrates deployment of Avanex
optical process technology
o Testing capabilities for development of products or prototypes
o Application training for customers"]
<PAGE> 90
[Inside Back Cover Art]
<PAGE> 91
[LOGO]
AVANEX
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Avanex Corporation in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $25,502.40
NASD filing fee............................................. $10,160.00
Nasdaq National Market listing fee.......................... *
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Directors and Officers Insurance............................ *
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
----------
Total............................................. *
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VIII of our amended and restated certificate of incorporation
provides for the indemnification of directors and officers to the fullest extent
permissible under Delaware law.
Article VI of our bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of Avanex if such person acted in
good faith and in a manner reasonably believed to be in and not opposed to our
best interest, and, with respect to any criminal action or proceeding, the
indemnified party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with our directors and
executive officers, in addition to indemnification provided for in our bylaws,
and intend to enter into indemnification agreements with any new directors and
executive officers in the future. The indemnification agreements may require us,
among other things, to indemnify our directors and officers against certain
liability that may arise by reason of their status or service as directors and
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors and
officers' insurance, if available on reasonable terms.
Reference is also made to Section 7 of the form of Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of Avanex
against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, we have issued unregistered securities to a limited number
of persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, or any public offering, and
we believe that each transaction was exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
II-1
<PAGE> 93
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
(1) From inception through October 1, 1999, (the most recent practicable
date) we granted stock options and restricted stock purchase rights to
acquire an aggregate of 12,582,680 shares of our common stock at
prices ranging from $0.001 to $0.58 to employees, consultants and
directors pursuant to our 1998 Stock Plan, as amended.
(2) From inception through October 1, 1999, we issued an aggregate of
11,745,380 shares of our common stock to employees, consultants and
directors pursuant to the exercise of options and restricted stock
purchase rights granted under our 1998 Stock Plan, as amended, for
aggregate consideration of $650,326.34.
(3) On January 13, 1998, we sold 1,800,000 shares of common stock to an
employee in exchange for $1,000.00 in cash and $800.00 in transferred
technology.
(4) On February 10, 1998, we sold 4,530,080 shares of Series A Preferred
Stock for $0.223 per share to a group of private investors for an
aggregate purchase price of $1,010,208.
(5) On February 19, 1998, we granted a right to purchase an aggregate of
200,000 shares of common stock to a consultant in consideration for
past services rendered for an aggregate value of $1,000.00.
(6) On June 29, 1998, we sold 6,296,744 shares of Series B Preferred Stock
for $0.40 per share to a group of private investors for an aggregate
purchase price of $2,518,698.
(7) On December 31, 1998, we issued warrants to purchase 75,000 shares of
our common stock at an exercise price of $6.00 a share to each of
Simon Cao, Haiguang Lu, and Lee Wang.
(8) On February 19, 1999 and March 25, 1999, we sold 9,032,169 shares of
Series C Preferred Stock for $0.756 per share to a group of private
investors for an aggregate purchase price of $6,828,320.
(9) On July 8, 1999, in connection with a Revolving Credit and Security
Agreement, we issued a warrant to purchase 19,565 shares of Series D
Preferred Stock at an exercise price of $5.75 to Comerica
Bank -- California.
(10) On September 14 and October 15, 1999, we sold 3,487,097 shares of
Series D Preferred Stock for $5.75 per share to a group of private
investors for an aggregate purchase price of $20,050,807.75.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of prospectus included herein.
II-2
<PAGE> 94
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
2.1+ Agreement and Plan of Merger of Avanex Corporation (a
Delaware Corporation) and Avanex Corporation (a California
Corporation)
3.1+ Amended and Restated Certificate of Incorporation to be
filed after effectiveness of this Registration Statement
filed , 19
3.2 Amended and Restated Bylaws of the Registrant
4.1+ Specimen Common Stock Certificate
4.3 Warrant to Purchase the Stock of the Registrant held by
Comerica Bank-California
4.4 Warrants to Purchase the Stock of the Registrant held by Lee
Wang, Haiguang Lu, and Simin Cai
5.1+ Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between Registrant and
each of its directors and officers
10.2 1998 Stock Plan, as amended, and forms of agreement
thereunder
10.3 1999 Employee Stock Purchase Plan
10.4 1999 Director Option Plan
10.5 Founder's Stock Purchase Agreement between the Registrant
and Simon Xiaofan Cao dated January 13, 1998
10.6 Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Walter Alessandrini dated October 8, 1999
10.7 Restricted Stock Purchase Agreement between the Registrant
and Walter Alessandrini dated March 26, 1999
10.7.1+ Security Agreement and Promissory Note between the
Registrant and Walter Alessandrini dated March 26, 1999
10.8 Form of Restricted Stock Purchase Agreement, including
Security Agreement and Promissory Note
10.8.1+ Schedule of Purchasers to form of Restricted Stock Purchase
Agreement
10.9 Series A Preferred, Series B Preferred and Series C
Preferred Stock Purchase Agreement dated February 10, 1998
10.10 First Amended and Restated Series A Preferred, Series B
Preferred, and Series C Preferred Stock Purchase Agreement
dated February 1999
10.11 Series D Preferred Stock Purchase Agreement dated September
14, 1999
10.12 Second Amended and Restated Co-Sale Agreement dated
September 14, 1999
10.12.1 Second Amended and Restated Voting Agreement dated September
14, 1999
10.12.2 Second Amended and Restated Shareholder Rights Agreement
dated September 14, 1999
10.13 Revolving Credit and Security Agreement between Comerica
Bank-California and the Registrant dated July 8, 1999
10.14 Quick Start Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated February 17, 1998
10.15 Senior Loan and Security Agreement No. 053-6193 between
Phoenix Leasing Incorporated and the Registrant dated
November 5, 1998
10.16 Master Lease No. S7280 dated June 2, 1999, between Finova
Capital Corporation and the Registrant
</TABLE>
II-3
<PAGE> 95
<TABLE>
<S> <C>
10.17 Security Agreement dated September 16, 1999 between Comerica Bank-California and the Registrant
10.18 Employment Letter between the Registrant and Walter Alessandrini dated March 2, 1999
10.19+ Secured Promissory Note held by the Registrant for Walter Alessandrini dated March 2, 1999
10.20 Employment Letter between the Registrant and Simon Cao dated January 2, 1998
10.21 Employment Letter between the Registrant and Paul Jiang dated September 8, 1998
10.22 Employment Agreement between the Registrant and William Lanfri dated July 1, 1998
10.23+ Employment Letter between the Registrant and Peter Maguire dated June 18, 1999
10.24+* Patent License Agreement between Fujitsu Limited and the Registrant dated July 15, 1998
10.25 Lease between the Registrant and Stevenson Business Park LLC for Building B of 40915 Encyclopedia
Circle, Fremont, California dated September 8, 1999
10.26+ Assignment of Sublease between Registrant and Pathnet for 405 International Parkway, Richardson,
Texas dated September 17, 1998
10.27 Amendment to Sublease for 405 International Parkway, Richardson, Texas dated January 1998
10.28 Master Lease for 405 International Parkway, Richardson, Texas dated January 1, 1990
10.29+ Intellectual Property Security Agreement between Registrant and Comerica Bank-California dated July
8, 1999
10.30+* License and Supply Agreement between Registrant and Concord Micro-Optics, Inc. dated May 24, 1999
10.31+ International Distributor Agreement between the Registrant and Hakuto Co., Ltd. dated November 1999
10.32+ Professional Services Agreement between the Registrant and AristaSoft Corporation dated July 7,
1999
21.1+ List of subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2+ Consent of Counsel (See Exhibit 5.1)
24.1 Power of Attorney (See page II-6)
27.1 Financial Data Schedule for quarter ended October 1, 1999
27.2 Financial Data Schedule for the year ended June 30, 1999
27.3 Financial Data Schedule for the period from October 24, 1997 (inception) to June 30, 1998
</TABLE>
- -------------
+ To be filed by amendment.
* Confidential treatment requested.
II-4
<PAGE> 96
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Avanex Corporation is filed
as part of this Report and should be read in conjunction with the Financial
Statements of Avanex Corporation.
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<C> <S>
II Valuation and Qualifying Accounts
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the Underwriters at the closing specified
in the Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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 of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by director,
officer or controlling person in connection with the securities being registered
hereunder, 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.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on the 3rd day of December, 1999.
AVANEX CORPORATION
By: /s/ WALTER ALESSANDRINI
--------------------------------------
Walter Alessandrini,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jessy Chao and Brian Kinard and each of
them, his attorneys-in-fact, each with the power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WALTER ALESSANDRINI President and Chief Executive December 3, 1999
- ------------------------------------------------ Officer (Principal Executive
Walter Alessandrini Officer) and Director
/s/ JESSY CHAO Vice President, Finance and December 3, 1999
- ------------------------------------------------ Chief Financial Officer
Jessy Chao (Principal Financial and
Accounting Officer)
/s/ XIAOFAN CAO Senior Vice President, Product December 3, 1999
- ------------------------------------------------ Development and Director
Xiaofan Cao
/s/ TODD BROOKS Director December 3, 1999
- ------------------------------------------------
Todd Brooks
/s/ MICHAEL GOGUEN Director December 3, 1999
- ------------------------------------------------
Michael Goguen
/s/ SETH NEIMAN Director December 3, 1999
- ------------------------------------------------
Seth Neiman
</TABLE>
II-6
<PAGE> 98
SCHEDULE II
AVANEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM OCTOBER 24, 1997 (INCEPTION) TO JUNE 30, 1998, YEAR ENDED JUNE 30,
1999
AND QUARTER ENDED OCTOBER 1, 1999
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT CHARGED BALANCE AT
BEGINNING OF TO COSTS AND DEDUCTIONS- END OF
PERIOD EXPENSES WRITE-OFFS PERIOD
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
October 24, 1997 (inception) to June 30,
1998.................................... $ -- $ -- $ -- $ --
Year ended June 30, 1999.................. -- 30,000 -- 30,000
Quarter ended October 1, 1999
(unaudited)............................. 30,000 315,000 -- 345,000
</TABLE>
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
2.1+ Agreement and Plan of Merger of Avanex Corporation (a
Delaware Corporation) and Avanex Corporation (a California
Corporation)
3.1+ Amended and Restated Certificate of Incorporation to be
filed after effectiveness of this Registration Statement
filed , 19
3.2 Amended and Restated Bylaws of the Registrant
4.1+ Specimen Common Stock Certificate
4.3 Warrant to Purchase the Stock of the Registrant held by
Comerica Bank-California
4.4 Warrants to Purchase the Stock of the Registrant held by Lee
Wang, Haiguang Lu, and Simin Cai
5.1+ Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between Registrant and
each of its directors and officers
10.2 1998 Stock Plan, as amended, and forms of agreement
thereunder
10.3 1999 Employee Stock Purchase Plan
10.4 1999 Director Option Plan
10.5 Founder's Stock Purchase Agreement between the Registrant
and Simon Xiaofan Cao dated January 13, 1998
10.6 Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Walter Alessandrini dated October 8, 1999
10.7 Restricted Stock Purchase Agreement between the Registrant
and Walter Alessandrini dated March 26, 1999
10.7.1+ Security Agreement and Promissory Note between the
Registrant and Walter Alessandrini dated March 26, 1999
10.8 Form of Restricted Stock Purchase Agreement, including
Security Agreement and Promissory Note
10.8.1+ Schedule of Purchasers to form of Restricted Stock Purchase
Agreement
10.9 Series A Preferred, Series B Preferred and Series C
Preferred Stock Purchase Agreement dated February 10, 1998
10.10 First Amended and Restated Series A Preferred, Series B
Preferred, and Series C Preferred Stock Purchase Agreement
dated February 1999
10.11 Series D Preferred Stock Purchase Agreement dated September
14, 1999
10.12 Second Amended and Restated Co-Sale Agreement dated
September 14, 1999
10.12.1 Second Amended and Restated Voting Agreement dated September
14, 1999
10.12.2 Second Amended and Restated Shareholder Rights Agreement
dated September 14, 1999
10.13 Revolving Credit and Security Agreement between Comerica
Bank-California and the Registrant dated July 8, 1999
10.14 Quick Start Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated February 17, 1998
10.15 Senior Loan and Security Agreement No. 053-6193 between
Phoenix Leasing Incorporated and the Registrant dated
November 5, 1998
10.16 Master Lease No. S7280 dated June 2, 1999, between Finova
Capital Corporation and the Registrant
</TABLE>
<PAGE> 100
<TABLE>
<S> <C>
10.17 Security Agreement dated September 16, 1999 between Comerica Bank-California and the Registrant
10.18 Employment Letter between the Registrant and Walter Alessandrini dated March 2, 1999
10.19+ Secured Promissory Note held by the Registrant for Walter Alessandrini dated March 2, 1999
10.20 Employment Letter between the Registrant and Simon Cao dated January 2, 1998
10.21 Employment Letter between the Registrant and Paul Jiang dated September 8, 1998
10.22 Employment Agreement between the Registrant and William Lanfri dated July 1, 1998
10.23+ Employment Letter between the Registrant and Peter Maguire dated June 18, 1999
10.24+* Patent License Agreement between Fujitsu Limited and the Registrant dated July 15, 1998
10.25 Lease between the Registrant and Stevenson Business Park LLC for Building B of 40915 Encyclopedia
Circle, Fremont, California dated September 8, 1999
10.26+ Assignment of Sublease between Registrant and Pathnet for 405 International Parkway, Richardson,
Texas dated September 17, 1998
10.27 Amendment to Sublease for 405 International Parkway, Richardson, Texas dated January 1998
10.28 Master Lease for 405 International Parkway, Richardson, Texas dated January 1, 1990
10.29+ Intellectual Property Security Agreement between Registrant and Comerica Bank-California dated July
8, 1999
10.30+* License and Supply Agreement between Registrant and Concord Micro-Optics, Inc. dated May 24, 1999
10.31+ International Distributor Agreement between the Registrant and Hakuto Co., Ltd. dated November 1999
10.32+ Professional Services Agreement between the Registrant and AristaSoft Corporation dated July 7,
1999
21.1+ List of subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2+ Consent of Counsel (See Exhibit 5.1)
24.1 Power of Attorney (See page II-6)
27.1 Financial Data Schedule for quarter ended October 1, 1999
27.2 Financial Data Schedule for the year ended June 30, 1999
27.3 Financial Data Schedule for the period from October 24, 1997 (inception) to June 30, 1998
</TABLE>
- -------------
+ To be filed by amendment.
* Confidential treatment requested.
<PAGE> 1
EXHIBIT 1.1
DRAFT
11/18/99
____________ SHARES
AVANEX CORPORATION
COMMON STOCK, $__ PAR VALUE
UNDERWRITING AGREEMENT
____________, 1999
<PAGE> 2
____________, 1999
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Avanex Corporation, a Delaware corporation (the "COMPANY"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"UNDERWRITERS") _________ shares of its Common Stock, $____ par value (the "FIRM
SHARES"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional _________ shares of its Common Stock,
$____ par value (the "ADDITIONAL SHARES") if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES." The shares of Common
Stock, $____ par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.
Morgan Stanley & Co. Incorporated and its affiliates ("MORGAN STANLEY")
has agreed to reserve a portion of the Shares to be purchased by it under this
Agreement for sale to the Company's directors, officers, employees and business
associates and other parties related to the Company (collectively,
"PARTICIPANTS"), as set forth in the Prospectus under the heading "Underwriters"
(the "DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan Stanley
2
<PAGE> 3
pursuant to the Directed Share Program are referred to hereinafter as the
"DIRECTED SHARES." Any Directed Shares not orally confirmed for purchase by any
Participant by the end of the business day on which this Agreement is executed
will be offered to the public by the Underwriters as set forth in the
Prospectus.
1. Representations and Warranties. The Company represents and
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder and (iii) the
Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph
do not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company.
(d) The Company has no subsidiaries and does not own any equity
interest in any other corporation, partnership, limited liability company
or other entity.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
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<PAGE> 4
(g) The shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully paid
and non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company that is material to the Company, any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company is a party or to which any of the
properties of the Company is subject that are required to be described in
the Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described or
filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder except for the omission
of price range and other information derived therefrom to the extent such
information was omitted from the initial filing of the registration
statement.
(m) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be required to register as an
"investment company" as such term is defined in the Investment Company Act
of 1940, as amended.
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<PAGE> 5
(n) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL
LAWS"), (ii) has received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not, singly or
in the aggregate, have a material adverse effect on the Company.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities
to third parties) which would, singly or in the aggregate, have a material
adverse effect on the Company.
(p) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except such as have been validly waived.
(q) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company
has not incurred any material liability or obligations, direct or
contingent, nor entered into any material transaction not in the ordinary
course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (3) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company, except in each case as described in the Prospectus.
(s) The Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned
by them which is material to the business of the Company, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company; and any real property and buildings
held under lease by the Company are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the
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<PAGE> 6
use made and proposed to be made of such property and buildings by the
Company, in each case except as described in the Prospectus.
(t) The Company owns or possesses, or can acquire on reasonable
terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names currently employed
by them in connection with the business now operated by it, and the
Company has not received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse affect on the Company.
(u) No material labor dispute with the employees of the Company,
except as described in the Prospectus, or, to the knowledge of the
Company, is imminent; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any its
principal suppliers, manufacturers or contractors that could reasonably be
expected to have a material adverse effect on the Company.
(v) The Company is insured by the insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged; the
Company has not been refused any insurance coverage sought or applied for;
and the Company has no reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a material adverse
effect on the Company, except as described in the Prospectus.
(w) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business, and the Company has not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the Company,
except as described in the Prospectus.
(x) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general or
specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(y) The Company has reviewed its operations to evaluate the extent
to which the business or operations of the Company will be affected by the
Year 2000 Problem
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<PAGE> 7
(that is, any significant risk that computer hardware or software
applications used by the Company and its subsidiaries will not, in the
case of dates or time periods occurring after December 31, 1999, function
at least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000); as a result of such review, (i) the Company has
no reason to believe, and does not believe, that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem
that are of a character required to be described or referred to in the
Registration Statement or Prospectus which have not been accurately
described in the Registration Statement or Prospectus and (B) the Year
2000 Problem will have a material adverse effect on the condition,
financial or otherwise, or on the earnings, business or operations of the
Company, or result in any material loss or interference with the business
or operations of the Company; and (ii) the Company reasonably believes,
after due inquiry, that the suppliers, vendors, customers or other
material third parties used or served by the Company are addressing or
will address the Year 2000 Problem in a timely manner, except to the
extent that a failure to address the Year 2000 Problem by any supplier,
vendor, customer or material third party would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings,
business or operations of the Company.
(z) As of the date the Registration Statement became effective,
the Common Stock was authorized for listing on the Nasdaq National Market
upon official notice of issuance.
(aa) All of the outstanding shares of Common Stock, and all
securities convertible into or exercisable or exchangeable for Common
Stock, are subject to valid, binding and enforceable agreements
(collectively, the "LOCK-UP AGREEMENTS") in substantially the form
attached as Exhibit A.
(bb) The Company represents and warrants to Morgan Stanley that (i)
the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply,
with any applicable laws or regulations of foreign jurisdictions in which
the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share
Program, and that (ii) no authorization, approval, consent, license,
order, registration or qualification of or with any government,
governmental instrumentality or court, other than such as have been
obtained, is necessary under the securities laws and regulations of
foreign jurisdictions in which the Directed Shares are offered outside the
United States.
(cc) The Company has not offered, or caused Morgan Stanley and its
affiliates to offer, Shares to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or
type of business with the Company, or (ii) a trade journalist or
publication to write or publish favorable information about the Company or
its products.
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<PAGE> 8
2. Agreements to Sell and Purchase. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $__.__ a share (the "PURCHASE PRICE").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder; (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof as described in the
Registration Statement or of which the Underwriters have been advised in
writing; (C) the grant of options to purchase Common Stock pursuant to the 1998
Stock Plan and the 1999 Director Option Plan (collectively, the "PLANS"); and
(D) the issuance by the Company of shares of Common Stock pursuant to the 1999
Employee Stock Purchase Plan.
3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$__.__ a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected by
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<PAGE> 9
you at a price that represents a concession not in excess of $__.__ a share
under the Public Offering Price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $__.__ a share, to any
Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be
made to the Company in Federal or other funds immediately available in New York
City against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on ____________, 2000,
or at such other time on the same or such other date, not later than
____________, 2000, as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than ____________, 2000, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations
of the Company to sell the Shares to the Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the condition that the Registration Statement shall
have become effective not later than 1:30 p.m. (New York City time) on the date
hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act; and
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<PAGE> 10
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations
of the Company, from that set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and that
makes it, in your judgment, impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati P.C., outside counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material
adverse effect on the Company;
(ii) the Company has no subsidiaries and does not own any
equity interest in any other corporation, partnership, limited
liability company or other equity;
(iii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
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<PAGE> 11
(v) the Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement, will
be validly issued, fully paid and non-assessable, and the issuance
of such Shares will not be subject to any preemptive or similar
rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or, to the
best of such counsel's knowledge, any agreement or other instrument
binding upon the Company that is material to the Company, or, to the
best of such counsel's knowledge, any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale
of the Shares;
(viii) the statements (A) in the Prospectus under the captions
"Description of Capital Stock," "Shares Eligible for Future Sale"
and "Underwriters" and (B) in the Registration Statement in Items 14
and 15, in each case insofar as such statements constitute summaries
of the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(ix) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the
Company is a party or to which any of the properties of the Company
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required;
(x) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be required to
register as an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended; and
(xi) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein
as to which such counsel need not express any
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<PAGE> 12
opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder, (B) has no reason to believe that (except for
financial statements and schedules and other financial and
statistical data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need
not express any belief) the Prospectus contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of ________________, intellectual property counsel to the Company,
dated the Closing Date, with respect to certain intellectual property
matters, to the effect that:
(i) the Company owns all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade
names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by it or necessary for
the conduct of its business, and such counsel is not aware of any
claim to the contrary or any challenge by any other person to the
rights of the Company with respect to the foregoing other than those
identified in the Prospectus;
(ii) such counsel is not aware of any legal actions, claims
or proceedings pending or threatened against the Company alleging
that the Company is infringing or otherwise violating any patents or
trade secrets owned by others other than those identified in the
Prospectus;
(iii) such counsel has reviewed the descriptions of patents
and patent applications under the captions "Risk Factors--We may not
be able to protect our proprietary technology" and
"Business--Intellectual Property" in the Registration Statement and
Prospectus, and, to the extent they constitute matters of law or
legal conclusions, these descriptions are accurate and fairly and
completely present the patent situation of the Company;
(iv) after review of the file history and patent attorney's
file with respect to the security of patent protection on the
Company's technology for each patent or patent application described
in the Prospectus as being owned by the Company or necessary for the
conduct of its business, such counsel is aware of nothing that
causes such counsel to believe that, as of the date of the
Registration Statement became effective and as of the date of such
opinion, the description of patents and patent applications under
the captions "Risk Factors--We may not be
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<PAGE> 13
able to protect our proprietary technology" and
"Business--Intellectual Property" in the Registration Statement and
Prospectus contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made
therein, in light of the circumstances under which they were made,
not misleading, including without limitation, any undisclosed
material issue with respect to the subsequent validity or
enforceability of such patent or patent issuing from any such
pending patent application; and;
(v) [Additional opinions to follow pending due diligence
investigation.]
(e) The Underwriters shall have received on the Closing Date an
opinion of Fenwick & West LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5(c)(v),
5(c)(vi), 5(c)(viii) (but only as to the statements in the Prospectus
under "Description of Capital Stock" and "Underwriters") and 5(c)(xi)
above.
With respect to Section 5(c)(xi) above, Wilson Sonsini Goodrich &
Rosati P.C. and Fenwick & West LLP may state that their opinion and belief
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without independent
check or verification, except as specified.
The opinion of Wilson Sonsini Goodrich & Rosati P.C. described in
Section 5(c) above shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Ernst & Young LLP, Independent Accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(g) The Lock-Up Agreements, each substantially in the form of
Exhibit A hereto, between you and the shareholders, officers and directors
of the Company relating to sales and certain other dispositions of shares
of Common Stock or certain other securities, delivered to you on or before
the date hereof, shall be in full force and effect on the Closing Date.
(h) The Shares shall have received approval for listing, upon
official notice of issuance, on the Nasdaq National Market.
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<PAGE> 14
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance and sale of the Additional
Shares.
6. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will
furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending
14
<PAGE> 15
____________, 2000 that satisfies the provisions of Section 11(a) of the
Securities Act and the rules and regulations of the Commission thereunder.
(f) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission
or any national securities exchange.
(g) The Company will apply the proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will use its best efforts to obtain and maintain
in effect the quotation of the Shares on the Nasdaq National Market and
will take all necessary steps to cause the Shares to be included on the
Nasdaq National Market as promptly as practicable and to maintain such
inclusion for a period of three years after the date hereof or until such
earlier date as the Shares shall be listed for regular trading privileges
on another national securities exchange approved by you.
(i) The Company will comply with all registration, filing and
reporting requirements of the Securities Exchange of 1934, as amended (the
"EXCHANGE ACT"), which may from time to time be applicable to the Company.
(j) The Company will comply with all provisions of all
undertakings contained in the Registration Statement.
(k) Prior to the Closing Date, the Company will not, directly or
indirectly, issue any press release or other communication and will not
hold any press conference with respect to the Company, or its financial
condition, results of operations, business, properties, assets, or
prospects or this offering, without your prior written consent.
(l) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under
this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing any
Blue Sky or Legal Investment memorandum in connection with the offer and
sale of the Shares under state securities laws and all expenses in
connection with the qualification of the Shares for offer and sale under
state securities laws as provided in Section 6(d) hereof, including
15
<PAGE> 16
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with
the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred
in connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc., (v) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all
costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with
the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in connection
with the road show presentations with the prior approval of the Company,
travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered
in connection with the road show, (ix) to pay all fees and disbursements
of counsel incurred by the Underwriters in connection with the Directed
Share Program and stamp duties, similar taxes or duties or other taxes, if
any, incurred by the Underwriters in connection with the Directed Share
Program, and (x) all other costs and expenses incident to the performance
of the obligations of the Company hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 7 entitled "Indemnity and Contribution",
and the last paragraph of Section 9 below, the Underwriters will pay all
of their costs and expenses, including fees and disbursements of their
counsel, stock transfer taxes payable on resale of any of the Shares by
them and any advertising expenses connected with any offers they may make.
(m) That in connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted to the
extent required by the National Association of Securities Dealers, Inc.
(the "NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Morgan Stanley will notify
the Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer restrictions
upon such securities for such period of time.
(n) The Company agrees: (i) to enforce the terms of each Lock-Up
Agreement and (ii) issue stop-transfer instructions to the transfer agent
for the Common Stock with respect to any transaction or contemplated
transaction that would constitute a breach of or default under the
applicable Lock-Up Agreement. In addition, without the prior written
consent of Morgan Stanley, the Company agrees: (i) not to amend or
terminate, or waive any right under, any Lock-Up Agreement, or take any
other action that would directly or indirectly have the same effect as an
amendment or termination, or waiver of any right under, any Lock-Up
Agreement, that would permit any holder of shares of Common Stock, or
securities convertible into or exercisable or exchangeable for Common
Stock, to
16
<PAGE> 17
(1) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock other
than the exercise of options granted under the Plans or the purchase of
shares of Common Stock under the 1999 Employee Stock Purchase Plan or (2)
enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common
Stock, whether any such transaction described in clause (1) or (2) above
is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, or (ii) not to consent to any of the foregoing.
(o) The Company agrees to place a restrictive legend on any shares
of Common Stock acquired pursuant to the exercise, after the date hereof
and prior to the expiration of the 180-day period after the date of the
Prospectus, of any option granted under the Plans, which legend shall
restrict the transfer of such shares prior to the expiration of such
180-day period. In addition, the Company agrees that, without the prior
written consent of Morgan Stanley, it will not release any stockholder or
option holder from the market standoff provision imposed by the Company
pursuant to the Plans earlier than 180 days after the date of the initial
public offering of the Shares.
(p) The Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program.
7. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from
and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement and
17
<PAGE> 18
each person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Company to such
Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 7(a) or 7(b), such
person (the "INDEMNIFIED PARTY") shall promptly notify the person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party, upon request of the indemnified party, shall
retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is
understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel)
for all such indemnified parties and that all such fees and expenses shall
be reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated, in the case of parties
indemnified pursuant to Section 7(a), and by the Company, in the case of
parties indemnified pursuant to Section 7(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement
is entered into more than 30 days after receipt by such indemnifying party
of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to
the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional
18
<PAGE> 19
release of such indemnified party from all liability on claims that are
the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 7(a)
or 7(b) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 7(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Shares (before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus, bear
to the aggregate Public Offering Price of the Shares. The relative fault
of the Company on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that
does not take account of the equitable considerations referred to in
Section 7(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within
19
<PAGE> 20
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of the Company, its
officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Shares.
8. Directed Share Program Indemnification.
(a) The Company agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("MORGAN STANLEY ENTITIES"), from and against any and all
losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) (i) caused by any
untrue statement or alleged untrue statement of a material fact contained
in any material prepared by or with the consent of the Company for
distribution to Participants in connection with the Directed Share Program
or caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) caused by the failure of any Participant to
pay for and accept delivery of Directed Shares which, immediately
following the effectiveness of the Registration Statement, were subject to
a properly confirmed agreement to purchase; or (iii) related to, arising
out of, or in connection with the Directed Share Program, other than
losses, claims, damages or liabilities (or expenses relating thereto) that
are finally judicially determined to have resulted from the bad faith or
gross negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental
investigation) shall be instituted involving any Morgan Stanley Entity in
respect of which indemnity may be sought pursuant to Section 8(a), the
Morgan Stanley Entity seeing indemnity, shall promptly notify the Company
in writing and the Company, upon request of the Morgan Stanley Entity,
shall retain counsel reasonably satisfactory to the Morgan Stanley Entity
to represent the Morgan Stanley Entity and any others the Company may
designate in such proceeding and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
Morgan Stanley Entity shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of
20
<PAGE> 21
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Company shall not, in
respect of the legal expenses of the Morgan Stanley Entities in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Morgan Stanley Entities. Any such
separate firm for the Morgan Stanley Entities shall be designated in
writing by Morgan Stanley. The Company shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the
plaintiff, the Company agrees to indemnify the Morgan Stanley Entities
from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time a Morgan
Stanley Entity shall have requested the Company to reimburse it for fees
and expenses of counsel as contemplated by the second and third sentences
of this paragraph, the Company agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by the
Company of the aforesaid request and (ii) the Company shall not have
reimbursed the Morgan Stanley Entity in accordance with such request prior
to the date of such settlement. The Company shall not, without the prior
written consent of Morgan Stanley, effect any settlement of any pending or
threatened proceeding in respect of which any Morgan Stanley Entity is or
could have been a party and indemnity could have been sought hereunder by
such Morgan Stanley Entity, unless such settlement includes an
unconditional release of the Morgan Stanley Entities from all liability on
claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 8(a)
is unavailable to a Morgan Stanley Entity or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then the
Company in lieu of indemnifying the Morgan Stanley Entity thereunder,
shall contribute to the amount paid or payable by the Morgan Stanley
Entity as a result of such losses, claims, damages or liabilities (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Morgan Stanley Entities on
the other hand from the offering of the Directed Shares or (ii) if the
allocation provided by clause 8(c)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(c)(i) above but also the relative fault
of the Company on the one hand and of the Morgan Stanley Entities on the
other hand in connection with any statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Morgan Stanley Entities on the other hand in
connection with the offering of the Directed Shares shall be deemed to be
in the same respective proportions as the net proceeds from the offering
of the Directed Shares (before deducting expenses) and the total
underwriting discounts and commissions received by the Morgan Stanley
Entities for the Directed Shares, bear to the aggregate Public Offering
Price of the Directed Shares. If the loss, claim, damage or liability is
caused by an untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact, the relative fault
of the Company on the one hand and the Morgan Stanley Entities on the
other hand shall be determined by reference
21
<PAGE> 22
to, among other things, whether the untrue or alleged untrue statement or
the omission or alleged omission relates to information supplied by the
Company or by the Morgan Stanley Entities and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it
would not be just or equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Morgan Stanley
Entities were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in Section 8(c). The amount paid or payable by
the Morgan Stanley Entities as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal
or other expenses reasonably incurred by the Morgan Stanley Entities in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Morgan Stanley Entity
shall be required to contribute any amount in excess of the amount by
which the total price at which the Directed Shares distributed to the
public were offered to the public exceeds the amount of any damages that
such Morgan Stanley Entity has otherwise been required to pay. The
remedies provided for in this Section 8 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(e) The indemnity and contribution provisions contained in this
Section 8 shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by
or on behalf of any Morgan Stanley Entity or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Directed Shares.
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
22
<PAGE> 23
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 9 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you and
the Company for the purchase of such Firm Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
23
<PAGE> 24
12. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
AVANEX CORPORATION
By:______________________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
Acting severally on behalf
of themselves and the
several Underwriters named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:_____________________________________
Name:
Title:
24
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER SHARES TO BE PURCHASED
- ----------- ----------------------
<S> <C>
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
---------
TOTAL
</TABLE>
<PAGE> 26
EXHIBIT A
[FORM OF LOCK-UP LETTER]
November __, 1999
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Avanex Corporation, a California corporation, or
its Delaware successor (the "Company"), providing for the public offering (the
"Public Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of shares (the "Shares") of Common Stock of the Company (the
"Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise; provided, however, that if the last reported sale price of the Common
Stock per share is at least twice the price per share of the Common Stock sold
in the Public Offering for 20 out of the 30 consecutive trading days ending on
the trading day immediately preceding the 90th day after the date of the
Prospectus, then the foregoing restrictions shall be earlier released with
respect to the undersigned's pro rata share (calculated based on the number of
shares of Common Stock held by the undersigned or held on an as-converted to
Common Stock basis, in the case of convertible preferred stock, options or
warrants held by the undersigned) of 25% of the aggregate number of shares of
Common Stock subject to lock-up restrictions with the Underwriters on the later
to occur of (a) the 90th day after the date of the Prospectus if the Company
makes its first post-offering public release of its quarterly or annual earnings
results during the period beginning on the eleventh trading day after the date
of the Prospectus and ending on the day prior to the 90th day after the date of
the Prospectus, or (b) the second trading day after the first public release of
the Company's quarterly or annual results occurring on or after the 90th day
after the date of the Prospectus if the Company does not make its first
post-offering public release as set forth in the foregoing clause (a). The
foregoing sentence
<PAGE> 27
shall not apply to (a) the sale of any Shares to the Underwriters pursuant to
the Underwriting Agreement or (b) transactions relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the Public Offering. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
-----------------------------------------
(Signature)
-----------------------------------------
(Name)
-----------------------------------------
-----------------------------------------
(Address)
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
AVANEX CORPORATION
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I CORPORATE OFFICES......................................................................1
1.1 REGISTERED OFFICE.................................................................1
1.2 OTHER OFFICES.....................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS..............................................................1
2.1 PLACE OF MEETINGS.................................................................1
2.2 ANNUAL MEETING....................................................................1
2.3 SPECIAL MEETING...................................................................1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS..................................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS...................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................................3
2.7 QUORUM............................................................................3
2.8 ADJOURNED MEETING; NOTICE.........................................................4
2.9 VOTING............................................................................4
2.10 WAIVER OF NOTICE..................................................................4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........................4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.......................5
2.13 PROXIES...........................................................................5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................6
2.15 CONDUCT OF BUSINESS...............................................................6
ARTICLE III DIRECTORS............................................................................6
3.1 POWERS............................................................................6
3.2 NUMBER............................................................................6
3.3 CLASSES OF DIRECTORS..............................................................7
3.4 RESIGNATION AND VACANCIES.........................................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................................8
3.6 REGULAR MEETINGS..................................................................8
3.7 SPECIAL MEETINGS; NOTICE..........................................................8
3.8 QUORUM............................................................................9
3.9 WAIVER OF NOTICE..................................................................9
3.10 ADJOURNED MEETING; NOTICE.........................................................9
3.11 CONDUCT OF BUSINESS...............................................................9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................................9
3.13 FEES AND COMPENSATION OF DIRECTORS...............................................10
3.14 REMOVAL OF DIRECTORS.............................................................10
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE IV COMMITTEES...........................................................................10
4.1 COMMITTEES OF DIRECTORS..........................................................10
4.2 COMMITTEE MINUTES................................................................11
4.3 MEETINGS AND ACTION OF COMMITTEES................................................11
ARTICLE V OFFICERS..............................................................................12
5.1 OFFICERS.........................................................................12
5.2 APPOINTMENT OF OFFICERS..........................................................12
5.3 REMOVAL AND RESIGNATION OF OFFICERS..............................................12
5.4 CHAIRMAN OF THE BOARD............................................................12
5.5 CHIEF EXECUTIVE OFFICER..........................................................13
5.6 PRESIDENT........................................................................13
5.7 VICE PRESIDENT...................................................................13
5.8 SECRETARY........................................................................13
5.9 CHIEF FINANCIAL OFFICER..........................................................14
5.10 ASSISTANT SECRETARY..............................................................14
5.11 AUTHORITY AND DUTIES OF OFFICERS.................................................15
ARTICLE VI INDEMNITY............................................................................15
6.1 THIRD PARTY ACTIONS..............................................................15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION....................................16
6.3 SUCCESSFUL DEFENSE...............................................................16
6.4 DETERMINATION OF CONDUCT.........................................................16
6.5 PAYMENT OF EXPENSES IN ADVANCE...................................................16
6.6 INDEMNITY NOT EXCLUSIVE..........................................................16
6.7 INSURANCE INDEMNIFICATION........................................................17
6.8 THE CORPORATION..................................................................17
6.9 EMPLOYEE BENEFIT PLANS...........................................................17
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES......................17
ARTICLE VII RECORDS AND REPORTS.................................................................17
7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................17
7.2 INSPECTION BY DIRECTORS..........................................................18
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................18
ARTICLE VIII GENERAL MATTERS....................................................................18
8.1 CHECKS...........................................................................18
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.................................19
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...........................................19
8.4 SPECIAL DESIGNATION ON CERTIFICATES..............................................19
8.5 LOST CERTIFICATES................................................................20
8.6 CONSTRUCTION; DEFINITIONS........................................................20
8.7 DIVIDENDS........................................................................20
8.8 FISCAL YEAR......................................................................20
8.9 SEAL.............................................................................21
8.10 TRANSFER OF STOCK................................................................21
8.11 STOCK TRANSFER AGREEMENTS........................................................21
8.12 REGISTERED STOCKHOLDERS..........................................................21
ARTICLE IX AMENDMENTS...........................................................................21
ARTICLE X DISSOLUTION...........................................................................22
ARTICLE XI CUSTODIAN............................................................................22
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES......................................22
11.2 DUTIES OF CUSTODIAN..............................................................23
ARTICLE XII LOANS TO OFFICERS...................................................................23
</TABLE>
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<PAGE> 5
BYLAWS
OF
AVANEX CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be 1209 Orange Street, in
the City of Wilmington, County of New Castle, State of Delaware, 19801. The name
of the registered agent of the Corporation at such location is The Corporation
Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors shall
be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
(i) board of directors, (ii) the chairman of the board, (iii) the president, or
(iv) the chief executive officer.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to
<PAGE> 6
be transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the chairman of the board, the
president, any vice president, or the secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The officer receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the provisions of
Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time
requested by the person or persons who called the meeting, not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the request.
If the notice is not given within twenty (20) days after the receipt of the
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 3 shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.6 of these Bylaws not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notice shall specify the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his or her intent to bring such business before such meeting. To be timely,
such stockholder's notice must be delivered to or mailed and received by the
secretary of the Corporation not less than 90 days prior to the anniversary of
the day on which notice of the prior year's annual meeting was mailed to
stockholders. To be in proper form, a stockholder's notice to the secretary
shall set forth:
(i) the name and address of the stockholder who intends to
make the nominations or propose the business, and, as
the case may be, the name and address of the person or
persons to be nominated or the nature of the business to
be proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at
such meeting and, if applicable, intends to
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<PAGE> 7
appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice or
introduce the business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee
and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations
are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as
would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed,
or intended to be proposed by the board of directors;
and
(v) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation. An affidavit of the secretary or an assistant secretary or of the
transfer agent of the Corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting, or
(ii) the stockholders entitled to vote thereat, present in person or represented
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the
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<PAGE> 8
statutes or of the certificate of incorporation, a different vote is required,
in which case such express provision shall govern and control the decision of
the question.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Sections 2.12 and 2.14 of
these Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Except as otherwise provided in this Section 2.11, any action required
by this chapter to be taken at any annual or special meeting of stockholders of
a Corporation, or any action that may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice, and
without a vote if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
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<PAGE> 9
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action that is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, effective upon the listing of the Common
Stock of the Corporation on the Nasdaq Stock Market and the registration of any
class of securities of the Corporation pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the stockholders of the Corporation
may not take action by written consent without a meeting but must take any such
actions at a duly called annual or special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting
(if permitted), or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of
such record date shall be governed by the provisions of Section 213 of the
General Corporation Law of Delaware.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him or her by a written proxy,
signed by the stockholder and filed with the secretary of the Corporation, but
no such proxy shall be voted or acted upon after 3 years from its date, unless
the proxy expressly provides for a longer period. A proxy shall be deemed signed
if the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
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<PAGE> 10
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stock ledger shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his or her absence by the president, or in his or her
absence by a vice president, or in the absence of the foregoing persons by a
chairman designated by the board of directors, or in the absence of such
designation by a chairman chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his or her absence the chairman of the meeting
may appoint any person to act as secretary of the meeting. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and conduct of business.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
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<PAGE> 11
3.2 NUMBER
The authorized number of directors of the Corporation shall be five (5).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 CLASSES OF DIRECTORS
At such time as a Registration Statement regarding the sale of the
Corporation's Common Stock to the public is declared effective by the Securities
and Exchange Commission, the Directors shall be divided into three classes
designated as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. At the first annual meeting of stockholders following
the closing of the Initial Public Offering, the term of office of the Class I
Directors shall expire and Class I Directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class II Directors
shall expire and Class II Directors shall be elected for a full term of three
years. At the third annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class III Directors shall
expire and Class III Directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, Directors shall be elected
for a full term of three years to succeed the Directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
Corporation. Stockholders may remove directors with or without cause. Any
vacancy occurring in the board of directors with or without cause may be filled
by a majority of the remaining members of the board of directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a meeting
of stockholders, and each director so elected shall hold office until the
expiration of the term of office of the director whom he has replaced.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors
elected by all of the stockholders having the right to
vote as a single class may be filled by a majority of
the directors then in office, although less than a
quorum, or by a sole remaining director.
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<PAGE> 12
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more
directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a
majority of the directors elected by such class or
classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
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<PAGE> 13
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least 4 days before the time of
the holding of the meeting. If the notice is delivered personally, by telephone,
by electronic mail or by telegram, it shall be delivered personally or by
telephone or to the telegraph company at least 48 hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.11 CONDUCT OF BUSINESS
Meetings of the board of directors shall be presided over by the
chairman of the board, if any, or in his or her absence by the chief executive
officer, or in their absence by a chairman chosen at the meeting. The secretary
shall act as secretary of the meeting, but in his or her absence the chairman
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<PAGE> 14
of the meeting may appoint any person to act as secretary of the meeting. The
chairman of any meeting shall determine the order of business and the procedures
at the meeting.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, the board of directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.14 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. If at any time a class
or series of shares is entitled to elect one or more directors, the provisions
of this Article 3.14 shall apply to the vote of that class or series and not to
the vote of the outstanding shares as a whole.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the Corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the Corporation, shall have and may
exercise
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all the powers and authority of the board of directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the
board resolution establishing the committee, the Bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of
adjournment), Section 3.11 (conduct of business) and 3.12 (action without a
meeting), with such changes in the context of those Bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of committees may
also be called by resolution of the board of directors and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these Bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the Corporation shall be a chief executive officer, one
or more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be appointed by the board of directors, subject to the rights,
if any, of an officer under any contract of employment. The board of directors
may appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these Bylaws or
as the board of directors may from time to time determine. Any vacancy occurring
in any office of the Corporation shall be filled by the board of directors or
may be filled by the officer, if any, who appointed such officer.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
another officer, by such other officer.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.4 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him or her
by the board of directors or as may be prescribed by these Bylaws. If there is
no chief executive officer, then the chairman of the board shall also be the
chief executive
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officer of the Corporation and shall have the powers and duties prescribed in
Section 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and the officers of the Corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a Chairman of the Board at all meetings of the Board of Directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the
authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
5.6 PRESIDENT
Subject to such supervisory powers as may be given by these Bylaws or
the Board of Directors to the Chairman of the Board or the Chief Executive
Officer, if there be such officers, the president shall have general
supervision, direction and control of the business and supervision of other
officers of the Corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws. In the event a Chief
Executive Officer shall not be appointed, the President shall have the duties of
such office.
5.7 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. The vice presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them respectively by the board
of directors, these Bylaws, the chief executive officer or the chairman of the
board.
5.8 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the Corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall
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show the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these Bylaws.
5.9 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the Corporation with such depositaries as may
be designated by the board of directors. He or she shall disburse the funds of
the Corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his or her transactions as treasurer and of the financial condition of
the Corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these Bylaws.
5.10 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
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5.11 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer, employee or
agent of Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
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6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer, employee
or agent is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall
be made (1) by the board of Directors or the Executive Committee by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) or if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he or she is not entitled to be indemnified
by the Corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another while holding such office.
6.7 INSURANCE INDEMNIFICATION
The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of this Article
VI.
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6.8 THE CORPORATION
For purposes of this Article VI, references to "the Corporation" shall
include, in addition to the resulting Corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger that, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
and subject to the provisions of this Article VI (including, without limitation
the provisions of Section 6.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advance of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
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Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, any vice
president, the chief financial officer, the secretary or assistant secretary of
this Corporation, or any other person authorized by the board of directors or
the chief executive officer or a vice president, is authorized to vote,
represent, and exercise on behalf of this Corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this Corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General
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Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock a statement that the
Corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and or
rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his or her legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a Corporation and a natural
person.
8.7 DIVIDENDS
The directors of the Corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock.
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
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8.9 SEAL
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The Corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other Bylaws of the Corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
Corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
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ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the Corporation that the Corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the Corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the Corporation shall be dissolved.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the Corporation is insolvent, to be
receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to
elect successors to directors whose terms have expired
or would have expired upon qualification of their
successors; or
(ii) the business of the Corporation is suffering or is
threatened with irreparable injury because the directors
are so divided respecting the management of the affairs
of the Corporation that the required vote for action by
the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the Corporation has abandoned its business and has
failed within a reasonable time to take steps to
dissolve, liquidate or distribute its assets.
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11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the Corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiaries, including any officer or employee who is a Director of the
Corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
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<PAGE> 1
EXHIBIT 4.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHER
WISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Avanex Corporation, a California corporation
Number of Shares: [see below]
Class of Stock: Series D Preferred
Initial Exercise Price: [see below]
Issue Date: July 8, 1999
Expiration Date: July 8, 2004
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, COMERICA BANK-CALIFORNIA ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
The Warrant price shall be equal to the price per share at which the company
after the date hereof sells its equity securities in an offering or series of
related offerings in which the net proceeds to the company is not less than Five
Million Dollars ($5,000,000.00) (such offering being the "Series D Round", and
the price per share at which the company sells such securities being the "Series
D Round Price"); provided that if the Series D Round is not completed on or
before November 30, 1999, the Warrant Price shall be (i) the Series D Round
price (if known upon exercise hereof) or (ii) the lowest price per share at
which the company has sold any shares of its Series C Preferred Stock ("Series
C"), whichever is less, and the shares shall be Preferred Series C. Holder may
purchase a number of Shares under this Warrant equal to the quotient derived by
dividing $112,500 by the Warrant Price in effect on the date of such purchase.
ARTICLE 1: EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 Alternative Stock Appreciation Right. At Holder's option, the
Company shall pay the fair market value of the Shares issuable upon conversion
of this Warrant pursuant to Section 1.2 in cash in lieu of such Shares.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly
1
<PAGE> 2
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any Acquisition the
successor entity shall assume the obligations of this Warrant, and this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 Purchase Right. Notwithstanding the foregoing, at the election of
Holder, the Company shall purchase the unexercised portion of this Warrant for
cash upon the closing of any Acquisition for an amount equal to (a) the fair
market value of any consideration that would have been received by Holder in
consideration of the Shares had Holder exercised the unexercised portion of this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2: ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including,
2
<PAGE> 3
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The provisions
of this Section 2.2 shall similarly apply to successive reclassifications.
exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth in the Company's Articles of Incorporation, as amended from time to time.
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged. Notwithstanding the foregoing, nothing in
this Section 2.5 shall require any adjustment to the Warrant Price or the number
of shares issuable upon exercise of this Warrant beyond that which would be
afforded pursuant to the Articles of Incorporation which, provide for anti
dilution protection for preferred shares.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3: REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than the fair market value of the Shares as of the
date of this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (d) offer
3
<PAGE> 4
holders of registration rights the opportunity to participate in an underwritten
public offering of the company's. securities for cash, then, in connection with
each such event, the Company shall give Holder (1) at least 10 days prior
written notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) above; (2) in the
case of the matters referred to in (c) above at least 10 days prior written
notice of the date when the same will take place (and specifying the date on
which the holders of common stock will be entitled to exchange their common
stock for securities or other property deliverable upon the occurrence of such
event); and (3) in the case of the matter referred to in (d) above, the same
notice as is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights of
"Registrable Securities" set forth in the First Amended and Restated Shareholder
Rights Agreement dated February 19, 1999, as may be amended from time to time.
ARTICLE 4: MISCELLANEOUS.
4.1 Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first class registered or certified mail,
4
<PAGE> 5
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time. Notice to Holder pursuant to this Section 4.5 shall be deemed to
be effective notice to any assignee or transferee of Holder pursuant to any
assignment or transfer of this Warrant for which the Company's prior written
consent was not obtained.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
By: /s/ WALTER ALESSANDRINI
-------------------------------
Name: WALTER ALESSANDRINI
-----------------------------
Title: CEO
----------------------------
By: /s/ JESSY CHAO
-------------------------------
Name: JESSY CHAO
-----------------------------
Title: DIRECTOR OF FINANCE
----------------------------
5
<PAGE> 6
APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby irrevocably elects to purchase _____ shares of
the Series D Preferred Stock of Avanex Corporation pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
----------------------------------
(Name)
----------------------------------
----------------------------------.
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
----------------------------------
(Signature)
----------------------------------
(Date)
6
<PAGE> 1
EXHIBIT 4.4
WARRANT PURCHASE AGREEMENT
Haiguang Lu (the "Purchaser") hereby purchases from Avanex Corporation, a
California corporation (the "Seller"), and the Seller hereby sells to the
Purchaser, a warrant in the form attached hereto as Exhibit A (the "Warrant")
for the purchase price of $10.00.
The Purchaser represents and warrants that it is acquiring the Warrant for
investment purposes only and not with a view to the distribution of the
Warrant, as such term is defined under the Securities Act of 1933, as amended
(the "1933 Act"). The Purchaser understands and acknowledges that the Warrant
constitutes a "restricted security" as such term is defined under the 1933 Act
and may not be sold or otherwise transferred unless registered under the 1933
Act or unless an appropriate exemption from registration shall then exist.
The Purchaser acknowledges receipt of the Warrant, and the Seller
acknowledges receipt from Purchaser of cash or a check in the amount of $10.00.
This Warrant Purchase Agreement is executed effective as of this 31st day
of Dec., 1998.
PURCHASER
/s/ HAIGUANG LU
--------------------------
Name (print): Haiguang Lu
SELLER:
AVANEX CORPORATION
a California corporation
By: /s/ SIMON CAO
-----------------------
Name: Simon Cao
Title: Sr. VP
<PAGE> 2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT.
Warrant to Purchase
75,000 Shares
of Common Stock
Dated 12/31, 1998
WARRANT TO PURCHASE COMMON STOCK
OF
AVANEX CORPORATION
Void after 12/31, 2003
This certifies that, for value received, HAIGUANG LU or his or her
registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from AVANEX CORPORATION (the "Company"), a California
corporation, Seventy-Five Thousand (75,000) shares of the Common Stock of the
Company, as constituted on the date hereof (the "Warrant Issue Date"), upon
surrender hereof, at the principal office of the Company referred to below, with
the subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at 5:00 p.m., Pacific Standard
Time, on 12/31, 2003 (the "Term"), and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $6.00 per share of Common Stock as adjusted from time to time
pursuant to Section 10 hereof (the "Exercise Price").
3. Exercise of Warrant.
(a) Manner of Exercise. This Warrant is exercisable by the Holder in
whole or in part, but not for less than twenty thousand (20,000) shares at a
time (or if the maximum number of shares purchasable upon exercise of this
Warrant is less than 20,000, this Warrant shall be exercisable for such lesser
number of shares which may then constitute the maximum number purchasable), at
any time, or from time to time, during the term hereof as described in Section
1 above, by the surrender of this
<PAGE> 3
Warrant and the Notice of Exercise annexed hereto duly completed and executed
on behalf of the Holder, at the office of the Company (or such other office or
agency of the Company as it may designated by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company). Unless
Holder is exercising the conversion right set forth in Section 3(c), Holder
shall also deliver to the Company a check for the aggregate Exercise Price for
the shares of Common Stock being purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within twenty (20) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the remaining number of shares for which
this Warrant may then be exercised.
(c) Net Exercise Conversion Right. In lieu of exercising this
Warrant as specified in Section 3(a), Holder may from time to time convert this
Warrant, in whole or in part, into a number of Shares determined by dividing
(y) the aggregate fair market value of the shares of Common Stock or other
securities otherwise issuable upon exercise of this Warrant minus the aggregate
Warrant Price of such shares of Common Stock by (z) the fair market value of
one shares of Common Stock. The fair market value of the shares of Common Stock
shall be determined pursuant to Section 3(d).
(d) Fair Market Value. The Board of Directors of the Company shall
determine fair market value of the Company's Common Stock in its reasonable
good faith judgment. The foregoing notwithstanding, if Holder advises the Board
of Directors in writing that Holder disagrees with such determination, then the
Company and Holder shall promptly agree upon a reputable investment banking
firm to undertake such valuation. If the valuation of such investment banking
firm is greater than that determined by the Board of Directors, then all fees
and expenses of such investment banking firm shall be paid by the Company. In
all other circumstances, such fees and expenses shall be paid by Holder.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional share shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of loss, theft, or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
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<PAGE> 4
6. Rights of Stockholders. Subject to Sections 8 and 10 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised and
the shares of Common Stock purchasable upon the exercise hereof (the "Warrant
Shares") shall have been issued, as provided herein.
7. Compliance with Securities Laws. This Warrant may not be transferred
or assigned in whole or in part without compliance with all applicable federal
and state securities laws by the transferor and the transferee (including the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the Company).
(a) The Holder of this Warrant, by acceptance thereof, acknowledges
that this Warrant and the shares of Common Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances that will not
result in a violation of any federal securities laws, including without
limitation the Securities Act of 1933, as amended (the "Act"), any state
securities laws or any applicable securities law of foreign jurisdictions, or
any rules or regulations promulgated thereunder. Upon exercise of this Warrant,
the Holder shall, if requested by the Company, confirm in writing in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
(b) Without in any way limiting the representations set forth in (a)
above, the Holder further agrees not to make any disposition of all or any
portion of this Warrant or any Warrant Shares unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 7, and the satisfaction of the following conditions: (i) the Holder
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably requested by the
Company, the Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such securities under the Act.
(c) This Warrant and all shares issuable hereunder shall bear the
following legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
-3-
<PAGE> 5
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT."
(ii) Any legend required by applicable state law.
8. Reservation of Stock. The Company covenants that during the Term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to provide sufficient reserves of shares of the Common
Stock issuable upon the exercise of the Warrant. The Company further covenants
that all shares that may be issued upon the exercise of rights represented by
this Warrant and payment of the Exercise Price, all as set forth herein, will be
free from all taxes, liens, and charges in respect to the issue thereof (other
than taxes in respect to any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
9. Amendments and Waivers. Any term of this Warrant may be amended and
the observance of any term of this Warrant may be waived (either generally or in
a particular instance and either retroactively or prospectively) only with the
written consent of the Company and the Holder. No waivers of or exceptions to
any term, condition or provision of this Warrant, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
10. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) Reclassification, etc. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under the Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 10.
(b) Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased and the number of securities issuable upon exercise proportionately
increased in the case of a split or subdivision.
-4-
<PAGE> 6
or the Exercise Price of such securities shall be proportionately increased and
the number of securities issuable upon exercise proportionately decreased in the
case of a combination.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If, while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon the exercise of this
Warrant, and without payment of any additional consideration thereof, the amount
of such other or additional stock or other securities or property (other than
cash) of the Company which such holder would hold on the date of such exercise
had it been the holder of record of the security receivable upon exercise of
this Warrant on the date hereof and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares
and/or all other additional stock available by it as aforesaid during such
period, giving effect to all adjustments called for during such period by the
provisions of this Section 10.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 10, the Company shall, upon
the written request of any holder of this Warrant, furnish or cause to be
furnished to such holder a certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all of the provisions of this Section 10 and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of this Warrant against impairment.
11. Expiration of Warrant Upon Occurrence of Certain Events.
(a) Upon the closing of any Acquisition or Initial Public Offering,
this Warrant shall expire.
(b) Definitions. For the purpose of this Section 11 the following
definitions shall apply:
(i) "Acquisition" means any sale, license, or other disposition
of all or substantially all of the assets (including intellectual property) of
the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
-5-
<PAGE> 7
(ii) "Initial Public Offering" means the Company's initial firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company to the public.
12. Successors and Assigns. The terms and provisions of this Warrant shall
inure to the benefit of and be binding upon the Company and Holder and their
respective permitted successors and assigns.
13. Attorneys' Fees. If any action of law or equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
14. Governing Law. This Warrant shall be governed by the laws of the State
of California.
15. Notices. All notices required under this Warrant and shall be deemed
to have been given or made for all purposes (i) upon personal delivery, (ii)
upon confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail to either party hereto at the address
set forth below or at such other address as either party may designate by notice
pursuant to this Section 15.
If to the Company: Avanex Corporation
4601 Albae Avenue
Fremont, CA 94538
Attn: President
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Judith O'Brien
If to the Holder: Haiguang Lu
141 Beverly Street
Mountain View, CA 94043
16. Captions. The Section and subsection headings of this Warrant are
inserted for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
-6-
<PAGE> 8
IN WITNESS HEREOF, AVANEX CORPORATION has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: 12/31, 1998
AVANEX CORPORATION
By: /s/ SIMON CAO
-------------------------------
Simon Cao
2/9/99
*WARRANT*
-7-
<PAGE> 9
NOTICE OF EXERCISE
To: AVANEX CORPORATION
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ___________ shares of the
Common Stock of Avanex Corporation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
shares in the manner specified in Section 3(c) of the Warrant. This conversion
is exercised with respect to __________ of the Shares covered by the Warrant.
[STRIKE VERSION OF PARAGRAPH 1 THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
----------------------------------
(Name)
----------------------------------
----------------------------------
(Address)
3. In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of any federal securities laws, including without
limitation the Securities Act of 1933, as amended, any state securities laws or
any applicable securities laws of foreign jurisdictions or any rules or
regulations promulgated thereunder.
----------------------------------
(Signature)
- ----------------------------
(Date)
-8-
<PAGE> 10
WARRANT PURCHASE AGREEMENT
Simin Cai (the "Purchaser") hereby purchases from Avanex Corporation, a
California corporation (the "Seller"), and the Seller hereby sells to the
Purchaser, a warrant in the form attached hereto as Exhibit A (the "Warrant")
for the purchase price of $10.00.
The Purchaser represents and warrants that it is acquiring the Warrant for
investment purposes only and not with a view to distribution of the Warrant, as
such term is defined under the Securities Act of 1933, as amended (the "1933
Act"). The Purchaser understands and acknowledges that the Warrant constitutes
a "restricted security" as such term is defined under the 1933 Act and may not
be sold or otherwise transferred unless registered under the 1933 Act or unless
an appropriate exemption from registration shall then exist.
The Purchaser acknowledges receipt of the Warrant, and the Seller
acknowledges receipt from Purchaser of cash or a check in the amount of $10.00.
This Warrant Purchase Agreement is executed effective as of this 31st day
of December, 1998.
PURCHASER:
/s/ SIMIN CAI
----------------------------------------
Name (print): Simin Cai
SELLER:
AVANEX CORPORATION
A California corporation
By: /s/ SIMON CAO
------------------------------------
Name: Simon Cao
Title: Sr. VP
Date: 3-3-99
<PAGE> 11
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE
ACT.
Warrant to Purchase
75,000 Shares
of Common Stock
Dated ______, 1998
WARRANT TO PURCHASE COMMON STOCK
OF
AVANEX CORPORATION
Void after Dec. 31st, 2003
This certifies that, for value received, SIMIN CAI or his or her
registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from AVANEX CORPORATION (the "Company"), a California
corporation, Seventy-Five Thousand (75,000) shares of the Common Stock of the
Company, as constituted on the date hereof (the "Warrant Issue Date"), upon
surrender hereof, at the principal office of the Company referred to below, with
the subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at 5:00 p.m., Pacific Standard
Time, on Dec. 31st, 2003 (the "Term"), and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $6.00 per share of Common Stock as adjusted from time to time
pursuant to Section 10 hereof (the "Exercise Price").
3. Exercise of Warrant.
(a) Manner of Exercise. This Warrant is exercisable by the Holder in
whole or in part, but not for less than twenty thousand (20,000) shares at a
time (or if the maximum number of shares purchasable upon exercise of this
Warrant is less than 20,000, this Warrant shall be exercisable for such lesser
number of shares which may then constitute the maximum number purchasable), at
anytime, or from time to time, during the term hereof as described in Section
1 above, by the surrender of this
<PAGE> 12
Warrant and the Notice of Exercise annexed hereto duly completed and executed on
behalf of the Holder, at the office of the Company (or such other office or
agency of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company). Unless Holder
is exercising the conversion right set forth in Section 3(c), Holder shall also
deliver to the Company a check for the aggregate Exercise Price for the shares
of Common Stock being purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the share of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within twenty (20) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the remaining number of shares for which
this Warrant may then be exercised.
(c) Net Exercise Conversion Right. In lieu of exercising this Warrant
as specified in Section 3(a), Holder may from time to time convert this Warrant,
in whole or in part, into a number of Shares determined by dividing (y) the
aggregate fair market value of the shares of Common Stock or other securities
otherwise issuable upon exercise of this Warrant minus the aggregate Warrant
Price of such shares of Common Stock by (z) the fair market value of one shares
of Common Stock. The fair market value of the shares of Common Stock shall be
determined pursuant to Section 3(d).
(d) Fair Market value. The Board of Directors of the Company shall
determine fair market value of the Company's Common Stock in its reasonable good
faith judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then the
Company and Holder shall promptly agree upon a reputable investment banking firm
to undertake such valuation. If the valuation of such investment banking firm is
greater than that determined by the Board of Directors, then all fees and
expenses of such investment banking firm shall be paid by the Company. In all
other circumstances, such fees and expenses shall be paid by Holder.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional share shall be issued upon the exercise of this Warrant.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant
and, in the case of loss, theft, or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
-2-
<PAGE> 13
6. Rights of Stockholders. Subject to Sections 8 and 10 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance,
or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised
and the shares of Common Stock purchasable upon the exercise hereof (the
"Warrant Shares") shall have been issued, as provided herein.
7. Compliance with Securities Laws. This Warrant may not be transferred
or assigned in whole or in part without compliance with all applicable federal
and state securities laws by the transferor and the transferee (including the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the Company).
(a) The Holder of this Warrant, by acceptance thereof, acknowledges
that this Warrant and the shares of Common Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances that will not
result in a violation of any federal securities laws, including without
limitation the Securities Act of 1933, as amended (the "Act"), any state
securities laws or any applicable securities law of foreign jurisdictions, or
any rules or regulations promulgated thereunder. Upon exercise of this Warrant,
the Holder shall, if requested by the Company, confirm in writing in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
(b) Without in any way limiting the representations set forth in (a)
above, the Holder further agrees not to make any disposition of all or any
portion of this Warrant or any Warrant Shares unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 7, and the satisfaction of the following conditions: (i) the Holder
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably requested by the
Company, the Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such securities under the Act.
(c) This Warrant and all shares issuable hereunder shall bear the
following legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
-3-
<PAGE> 14
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT."
(ii) Any legend required by applicable state law.
8. Reservation of Stock. The Company covenants that during the Term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to provide sufficient reserves of shares of the Common
Stock issuable upon the exercise of the Warrant. The Company further covenants
that all shares that may be issued upon the exercise of rights represented by
this Warrant and payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens, and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously or
otherwise specified herein). The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
9. Amendments and Waivers. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and the Holder. No waivers of or exceptions to
any term, condition or provision of this Warrant, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
10. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) Reclassification, etc. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 10.
(b) Split Subdivision or Combination of Shares. If the Company at any
time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased and the number of securities issuable upon exercise proportionately
increased in the case of a split or subdivision
-4-
<PAGE> 15
or the Exercise Price of such securities shall be proportionately increased and
the number of securities issuable upon exercise proportionately decreased in
the case of a combination.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If, while this Warrant, or any portion hereof, remains outstanding
and unexpired the holders of the securities as to which purchase rights under
this Warrant exist at the time shall have received, or, on or after the record
date fixed for the determination of eligible Stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock or
other securities or property (other than cash) of the Company by way of
dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
the exercise of this Warrant, and without payment of any additional
consideration thereof, the amount of such other or additional stock or other
securities or property (other than cash) of the Company which such holder would
hold on the date of such exercise had it been the holder of record of the
security receivable upon exercise of this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by the provisions of this Section 10.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 10, the Company shall, upon
the written request of any holder of this Warrant, furnish or cause to be
furnished to such holder a certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all of the provisions of this Section 10
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holders of this Warrant against impairment.
11. Expiration of Warrant Upon Occurrence of Certain Events.
(a) Upon the closing of any Acquisition or Initial Public Offering,
this Warrant shall expire.
(b) Definitions. For the purpose of this Section 11 the following
definitions shall apply:
(i) "Acquisition" means any sale, license, or other disposition
of all or substantially all of the assets (including intellectual property) of
the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
-5-
<PAGE> 16
(ii) "Initial Public Offering" means the Company's initial firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company to the public.
12. Successors and Assigns. The terms and provisions of this Warrant
shall inure to the benefit of and be binding upon the Company and Holder and
their respective permitted successors and assigns.
13. Attorneys' Fees. If any action of law or equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
14. Governing Law. This Warrant shall be governed by the laws of the
State of California.
15. Notices. All notices required under this Warrant and shall be deemed
to have been given or made for all purposes (i) upon personal delivery, (ii)
upon confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail to either party hereto at the address
set forth below or at such other address as either party may designate by
notice pursuant to this Section 15.
If to the Company: Avanex Corporation
4601 Albae Avenue
Fremont, CA 94538
Attn: President
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Judith O'Brien
If to the Holder: Simin Cai
P.O. Box 2111
Hoboken, NJ 07030
16. Captions. The section and subsection headings of this Warrant are
inserted for convenience only and shall not constitute a part of this Warrant
in construing or interpreting any provision hereof.
-6-
<PAGE> 17
IN WITNESS HEREOF, AVANEX CORPORATION has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: Dec. 31st, 1998
AVANEX CORPORATION
By: /s/ SIMON CAO
------------------------------
Simon Cao
3-3-99
*WARRANT*
-7-
<PAGE> 18
WARRANT PURCHASE AGREEMENT
Lee Wang (the "Purchaser") hereby purchases from Avanex Corporation, a
California corporation (the "Seller"), and the Seller hereby sells to the
Purchaser, a warrant in the form attached hereto as Exhibit A (the "Warrant")
for the purchase price of $10.00.
The Purchaser represents and warrants that it is acquiring the Warrant for
investment purposes only and not with a view to the distribution of the Warrant,
as such term is defined under the Securities Act of 1933, as amended (the "1933
Act"). The Purchaser understands and acknowledges that the Warrant constitutes a
"restricted security" as such term is defined under the 1933 Act and may not be
sold or otherwise transferred unless registered under the 1933 Act or unless an
appropriate exemption from registration shall then exist.
The Purchaser acknowledges receipt of the Warrant, and the Seller
acknowledges receipt from Purchaser of cash or a check in the amount of $10.00.
This Warrant Purchaser Agreement is executed effective as of this 31st day
of December 1998.
PURCHASER:
Lee Wang
-----------------------------------
Name (print)
/s/ LEE WANG
-----------------------------------
SELLER:
AVANEX CORPORATION
a California corporation
By: /s/ SIMON CAO
--------------------------------
Name: Simon Cao
Title: Sr. VP
<PAGE> 19
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT.
Warrant to Purchase
75,000 Shares
of Common Stock
Dated 12/31, 1998
WARRANT TO PURCHASE COMMON STOCK
OF
AVANEX CORPORATION
Void after 12/31, 2003
This certifies that, for value received, LEE WANG or his or her registered
assigns ("Holder") is entitled, subject to the terms set forth below, to
purchase from AVANEX CORPORATION (the "Company"), a California corporation,
Seventy-Five Thousand (75,000) shares of the Common Stock of the Company, as
constituted on the date hereof (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to below, with the
subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at 5:00 p.m., Pacific Standard
Time, on 12/31, 2003 (the "Term"), and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $6.00 per share of Common Stock as adjusted from time to time
pursuant to Section 10 hereof (the "Exercise Price").
3. Exercise of Warrant.
(a) Manner of Exercise. This Warrant is exercisable by the Holder in
whole or in part, but not for less than twenty thousand (20,000) shares at a
time (or if the maximum number of shares purchasable upon exercise of this
Warrant is less than 20,000, this Warrant shall be exercisable for such lesser
number of shares which may then constitute the maximum number purchasable), at
any time, or from time to time, during the term hereof as described in Section
1 above, by the surrender of this
<PAGE> 20
Warrant and the Notice of Exercise annexed hereto duly completed and executed on
behalf of the Holder, at the office of the Company (or such other office or
agency of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company). Unless Holder
is exercising the conversion right set forth in Section 3(c), Holder shall also
deliver to the Company a check for the aggregate Exercise Price for the shares
of Common Stock being purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within twenty (20) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the remaining number of shares for which
this Warrant may then be exercised.
(c) Net Exercise Conversion Right. In lieu of exercising this Warrant
as specified in Section 3(a), Holder may from time to time convert this Warrant,
in whole or in part, into a number of Shares determined by dividing (y) the
aggregate fair market value of the shares of Common Stock or other securities
otherwise issuable upon exercise of this Warrant minus the aggregate Warrant
Price of such shares of Common Stock by (z) the fair market value of one shares
of Common Stock. The fair market value of the shares of Common Stock shall be
determined pursuant to Section 3(d).
(d) Fair Market Value. The Board of Directors of the Company shall
determine fair market value of the Company's Common Stock in its reasonable good
faith judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then the
Company and Holder shall promptly agree upon a reputable investment banking firm
to undertake such valuation. If the valuation of such investment banking firm is
greater than that determined by the Board of Directors, then all fees and
expenses of such investment banking firm shall be paid by the Company. In all
other circumstances, such fees and expenses shall be paid by Holder.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional share shall be issued upon the exercise of this Warrant.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant
and, in the case of loss, theft, or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
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<PAGE> 21
6. Rights of Stockholders. Subject to Sections 8 and 10 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock of any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance,
or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised
and the shares of Common Stock purchasable upon the exercise hereof (the
"Warrant Shares") shall have been issued, as provided herein.
7. Compliance with Securities Laws. This Warrant may not be transferred
or assigned in whole or in part without compliance with all applicable federal
and state securities laws by the transferor and the transferee (including the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the Company).
(a) The Holder of this Warrant, by acceptance thereof, acknowledges
that this Warrant and the shares of Common Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances that will not
result in a violation of any federal securities laws, including without
limitation the Securities Act of 1933, as amended (the "Act"), any state
securities laws or any applicable securities law of foreign jurisdictions, or
any rules or regulations promulgated thereunder. Upon exercise of this Warrant,
the Holder shall, if requested by the Company, confirm in writing in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
(b) Without in any way limiting the representations set forth in (a)
above, the Holder further agrees not to make any disposition of all or any
portion of this Warrant or any Warrant Shares unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 7, and the satisfaction of the following conditions: (i) the Holder
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably requested by the
Company, the Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition shall
not require registration of such securities under the Act.
(c) This Warrant and all shares issuable hereunder shall bear the
following legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
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<PAGE> 22
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT."
(ii) Any legend required by applicable state law.
8. Reservation of Stock. The Company covenants that during the Term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to provide sufficient reserves of shares of the Common
Stock issuable upon the exercise of the Warrant. The Company further covenants
that all shares that may be issued upon the exercise of rights represented by
this Warrant and payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens, and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously or
otherwise specified herein). The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
9. Amendments and Waivers. Any term of this Warrant may be amended and
the observance of any term of this Warrant may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and the Holder. No waivers of or exceptions
to any term, condition or provision of this Warrant, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
10. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) Reclassification, etc. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 10.
(b) Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased and the number of securities issuable upon exercise proportionately
increased in the case of a split or subdivision
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<PAGE> 23
or the Exercise Price of such securities shall be proportionately increased and
the number of securities issuable upon exercise proportionately decreased in the
case of a combination.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If, while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon the exercise of this
Warrant, and without payment of any additional consideration thereof, the amount
of such other or additional stock or other securities or property (other than
cash) of the Company which such holder would hold on the date of such exercise
had it been the holder of record of the security receivable upon exercise of
this Warrant on the date hereof and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares
and/or all other additional stock available by it as aforesaid during such
period, giving effect to all adjustments called for during such period by the
provisions of this Section 10.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 10, the Company shall, upon
the written request of any holder of this Warrant, furnish or cause to be
furnished to such holder a certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all of the provisions of this Section 10 and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of this Warrant against impairment.
11. Expiration of Warrant Upon Occurrence of Certain Events.
(a) Upon the closing of any Acquisition or Initial Public Offering,
this Warrant shall expire.
(b) Definitions. For the purpose of this Section 11 the following
definitions shall apply:
(i) "Acquisition" means any sale, license, or other disposition
of all or substantially all of the assets (including intellectual property) of
the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
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<PAGE> 24
(ii) "Initial Public Offering" means the Company's initial firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company to the public.
12. Successors and Assigns. The terms and provisions of this Warrant
shall inure to the benefit of and be binding upon the Company and Holder and
their respective permitted successors and assigns.
13. Attorneys' Fees. If any action of law or equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorney's fees, costs and disbursements in addition
to any other relief to which it may be entitled.
14. Governing Law. This Warrant shall be governed by the laws of the
State of California.
15. Notices. All notices required under this Warrant shall be deemed to
have been given or made for all purposes (i) upon personal delivery, (ii) upon
confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail to either party hereto at the address
set forth below or at such other address as either party may designate by
notice pursuant to this Section 15.
If to the Company: Avanex Corporation
4601 Albae Avenue
Fremont, CA 94538
Attn: President
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Judith O'Brien
If to the Holder: Lee Wang
1247 Scott Blvd., #B
Santa Clara, CA 95050
16. Captions. The Section and subsection headings of this Warrant are
inserted for convenience only and shall not constitute a part of this Warrant
in construing or interpreting any provision hereof.
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<PAGE> 25
IN WITNESS HEREOF, AVANEX CORPORATION has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: 12/31/, 1998
AVANEX CORPORATION
By: /s/ SIMON CAO
------------------------------------
Simon Cao 2-9-99
*WARRANT*
-7-
<PAGE> 1
EXHIBIT 10.1
AVANEX CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of
____________, ___ by and between Avanex Corporation, a Delaware corporation (the
"COMPANY") and ____________________________________ ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the significant increases in the
cost of liability insurance for its directors, officers, employees, agents and
fiduciaries.
B. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other directors, officers,
employees, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection.
C. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
D. In view of the considerations set forth above, the Company desires that
Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "CLAIM") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of Indemnitee while serving in such
capacity (hereinafter an "INDEMNIFIABLE Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and
<PAGE> 2
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "EXPENSES"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five days after written demand by Indemnitee therefor
is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control that has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control)
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<PAGE> 3
then, with respect to all matters thereafter arising concerning the rights of
Indemnitees to payments of Expenses and Expense Advances under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in
Section 10(d) hereof) shall be selected by Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld). Such counsel, among
other things, shall render its written opinion to the Company and Indemnitee as
to whether and to what extent Indemnitee would be permitted to be indemnified
under applicable law and the Company agrees to abide by such opinion. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitees'
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim
-3-
<PAGE> 4
or create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by the Reviewing Party or otherwise as to whether Indemnitee is
entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect that may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee counsel shall be at
the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule that expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule that narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
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<PAGE> 5
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. (i) To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be indemnified under applicable law; or (ii) to indemnify
Indemnitee for Indemnitee's intentional acts or transactions in violation of the
Company's policies;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of
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<PAGE> 6
defense, except (i) with respect to actions or proceedings brought to establish
or enforce a right to indemnification under this Agreement or any other
agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under Section 145 of the Delaware General Corporation Law, regardless
of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or in the right of the Company against Indemnitee,
Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger that, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants
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<PAGE> 7
and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to
have acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
(c) For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his or her beneficial ownership of such securities by 5% or more over
the percentage so owned by such person, or (B) becomes the "beneficial owner"
(as defined in Rule 13d-3 under said Act), directly or indirectly, of securities
of the Company representing more than 20% of the total voting power represented
by the Company's then outstanding Voting Securities, (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation that would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 80% of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
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<PAGE> 8
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile or electronic mail transmission, if delivered by facsimile or
electronic mail transmission, with copy by first class mail, postage prepaid,
and shall be addressed if to Indemnitee, at the Indemnitee address as set forth
beneath Indemnitee's signature to this Agreement and if to the Company at the
address of its principal corporate offices (attention: Secretary) or at such
other address as such party may designate by ten days' advance written notice to
the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding that arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
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<PAGE> 9
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE
FOLLOWS IMMEDIATELY HEREAFTER]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AVANEX CORPORATION
By:
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Title:
-----------------------------------
Address:
---------------------------------
AGREED TO AND ACCEPTED BY:
Signature:
--------------------
Name:
-------------------------
Address:
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<PAGE> 1
EXHIBIT 10.2
AVANEX CORPORATION
1998 STOCK PLAN
(as amended and restated effective ________)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Avanex Corporation, a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
<PAGE> 2
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "IPO Effective Date" means the date upon which the Securities
and Exchange Commission declares the initial public offering of the Company's
common stock as effective.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
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<PAGE> 3
(q) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(w) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(x) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1998 Stock Plan.
(z) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(aa) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "Section 16(b) " means Section 16(b) of the Exchange Act.
(dd) "Service Provider" means an Employee, Director or Consultant.
(ee) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ff) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
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<PAGE> 4
(gg) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 10,200,000 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning on July 1, 2000, equal to the
lesser of (i) 4,000,000 shares, (ii) 4.9% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees
with respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
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<PAGE> 5
(iii) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
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<PAGE> 6
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
3,000,000 Shares, which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the amendment and
restatement of the Plan shall become effective upon the IPO Effective Date. It
shall continue in effect for a term of ten (10) years from the date of obtaining
stockholder approval of the Plan in December, 1999, unless terminated earlier
under Section 15 of the Plan.
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<PAGE> 7
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
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<PAGE> 8
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise
-8-
<PAGE> 9
his or her Option within such period of time as is specified in the Option
Agreement to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept
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<PAGE> 10
such offer. The offer shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall
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<PAGE> 11
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
-11-
<PAGE> 12
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 13
AVANEX CORPORATION
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ______________________________
Date of Grant ______________________________
Vesting Commencement Date ______________________________
Exercise Price per Share $_____________________________
Total Number of Shares Granted ______________________________
Total Exercise Price $_____________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: ______________________________
Vesting Schedule:
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
<PAGE> 14
Termination Period:
This Option may be exercised for three months after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for twelve months after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
A. Grant of Option.
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to [TITLE] of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
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<PAGE> 15
C. Method of Payment.
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
D. Non-Transferability of Option.
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
E. Term of Option.
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
G. Exercising the Option.
1. Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to
-3-
<PAGE> 16
honor the exercise and refuse to deliver Shares if such withholding amounts are
not delivered at the time of exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO, the
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the date three (3) months and one (1)
day following such change of status.
3. Disposition of Shares.
(a) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
H. Entire Agreement; Governing Law.
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
-4-
<PAGE> 17
I. NO GUARANTEE OF CONTINUED SERVICE.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: AVANEX CORPORATION
- ------------------------- -----------------------------------------
Signature By
- ------------------------- -----------------------------------------
Print Name Title
- -------------------------
Residence Address
- --------------------------
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<PAGE> 18
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
-----------------------------------------
Spouse of Optionee
<PAGE> 19
EXHIBIT A
AVANEX CORPORATION
1998 STOCK PLAN
EXERCISE NOTICE
Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, _____,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Avanex Corporation (the "Company") under
and pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE> 20
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: AVANEX CORPORATION
- ---------------------------- -----------------------------------------
Signature By
- ---------------------------- -----------------------------------------
Print Name Its
Address: Address:
- ---------------------------- AVANEX CORPORATION
- ---------------------------- 42501 Albrae Avenue
Fremont, CA 94538
-----------------------------------------
Date Received
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<PAGE> 21
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, _____ between Avanex
Corporation, a Delaware corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder shall not encumber or dispose of such Shares except in
accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE> 22
(c) Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees
to cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and
of this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee
shall have the right to accelerate payment of the Note upon notice to Pledgor,
and Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
-2-
<PAGE> 23
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
-3-
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" -----------------------------------------
Signature
-----------------------------------------
Print Name
Address:
---------------------------------
---------------------------------
"PLEDGEE" AVANEX CORPORATION
a Delaware corporation
-----------------------------------------
Signature
-----------------------------------------
Print Name
-----------------------------------------
Title
"PLEDGEHOLDER" -----------------------------------------
Secretary of Avanex Corporation
-4-
<PAGE> 25
EXHIBIT C
NOTE
$_________________ [City, State]
------------------, -----
FOR VALUE RECEIVED, _____________________ promises to pay to Avanex
Corporation, a Delaware corporation (the "Company"), or order, the principal sum
of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on _______________, _____.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
------------------------------------
<PAGE> 26
AVANEX CORPORATION
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1998 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: AVANEX CORPORATION
- -------------------------------- -------------------------------------
Signature By
- -------------------------------- -------------------------------------
Print Name Title
<PAGE> 27
EXHIBIT A-1
AVANEX CORPORATION
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's
<PAGE> 28
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
(a)__________________________ percent (______%) of the Shares shall
be released from the Company's Repurchase Option [one year] after the Date of
Grant and __________________ percent (______%) of the Shares [at the end of each
month thereafter], provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section
6 or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's
-2-
<PAGE> 29
Repurchase Option expires. As a further condition to the Company's obligations
under this Agreement, the Company may require the spouse of Purchaser, if any,
to execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that
-3-
<PAGE> 30
the Purchaser (and not the Company) shall be responsible for the Purchaser's own
tax liability that may arise as a result of the transactions contemplated by
this Agreement. The Purchaser understands that Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the
difference between the purchase price for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to the Repurchase Option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Repurchase Option expires by filing an election under Section 83(b) of
the Code with the IRS within 30 days from the date of purchase. The form for
making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are
-4-
<PAGE> 31
cumulative and shall not constitute a waiver of either party's right to assert
any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:
----------------------------
PURCHASER: AVANEX CORPORATION
- ----------------------------------- -----------------------------------------
Signature By
- ----------------------------------- -----------------------------------------
Print Name Title
-5-
<PAGE> 32
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, _______________________________, hereby sell, assign
and transfer unto (__________) shares of the Common Stock of Avanex Corporation,
standing in my name of the books of said corporation represented by Certificate
No. _____ herewith and do hereby irrevocably constitute and appoint
to transfer the said stock on the
books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, _____.
Dated: _______________, _____
Signature:_____________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 33
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
------------------, ----
Corporate Secretary
Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
Dear __________:
As Escrow Agent for both Avanex Corporation, a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities.
<PAGE> 34
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE> 35
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
PURCHASER:
--------------------------------------------
--------------------------------------------
--------------------------------------------
ESCROW AGENT: Corporate Secretary
Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
-3-
<PAGE> 36
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
AVANEX CORPORATION
-------------------------------------
By
-------------------------------------
Title
PURCHASER:
-------------------------------------
Signature
-------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary
-4-
<PAGE> 37
EXHIBIT A-4
CONSENT OF SPOUSE
I, _________________________, spouse of ________________________, have
read and approve the foregoing Restricted Stock Purchase Agreement (the
"Agreement"). In consideration of the Company's grant to my spouse of the right
to purchase shares of Avanex Corporation, as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: ,
--------------------- -----
------------------------------------------
Signature of Spouse
<PAGE> 38
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: _______ shares (the "Shares") of the Common Stock of Avanex
Corporation (the "Company").
3. The date on which the property was transferred is:________________,_____.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is: $__________.
6. The amount (if any) paid for such property is: $___________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated:_________________, ____ ______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, ____ ______________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.3
AVANEX CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Avanex Corporation, a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Period" shall mean a period of approximately six
(6) months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after February 1 and terminating on
the last Trading Day in the period ending the following July 31, or commencing
on the first Trading Day on or after August 1 and terminating on the last
Trading Day in the period ending the following January 31; provided, however,
that the first Offering Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and end on the last
Trading Day on or before July 31, 2000 and the second Offering Period under the
Plan shall commence on the first Trading Day on or after August 1, 2000 and end
on the last Trading Day on or before January 31, 2001. The duration of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
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<PAGE> 3
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after February 1 and August 1 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof; provided, however, that the first Offering Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before July 31,
2000 and the second Offering Period under the Plan shall commence on the first
Trading Day on or after August 1, 2000 and end on the last Trading Day on or
before January 31, 2001. The Board shall have the power to change the duration
of Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
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<PAGE> 4
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any
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<PAGE> 5
withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than 2,000
shares (subject to any adjustment pursuant to Section 19), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
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<PAGE> 6
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 350,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning on July 1, 2000 equal to the lesser of (i)
500,000 shares, (ii) 1% of the outstanding shares on such date or (iii) a lesser
amount determined by the Board. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
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<PAGE> 7
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be
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<PAGE> 8
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with
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<PAGE> 9
Section 423 of the Code (or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require
stockholder approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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<PAGE> 10
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE> 11
EXHIBIT A
AVANEX CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the Avanex Corporation 1999 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at
the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased
by me over the price which I paid for the shares. I hereby agree to
notify the Company in writing within 30 days after the date of any
<PAGE> 12
disposition of shares and I will make adequate provision for Federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year holding period, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only
to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair
market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
--------------------------------------------
(First) (Middle) (Last)
------------------------- --------------------------------------------
Relationship
--------------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------------
Employee's Address:
--------------------------------------------
--------------------------------------------
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<PAGE> 13
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------- --------------------------------------------
Signature of Employee
--------------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE> 14
EXHIBIT B
AVANEX CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Avanex
Corporation 1999 Employee Stock Purchase Plan which began on ___________, ______
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
------------------------------------
------------------------------------
------------------------------------
Signature:
------------------------------------
Date:
------------------------------
<PAGE> 1
EXHIBIT 10.4
AVANEX CORPORATION
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Beneficial Owner" shall mean a "beneficial owner" (as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended),
directly or indirectly, of securities of the Company representing 1% or more of
the total voting power represented by the Company's outstanding voting
securities on the date of any grant hereunder.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" means the occurrence of any of the
following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities who is not
already such as of the Effective Date; or
(ii) The consummation of the sale or disposition by the
Company of all or substantially all the Company's assets; or
(iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining out-standing or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation; or
(iv) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the Effective Date, or (B) are
elected, or nominated for election, to the Board with the affirmative votes
<PAGE> 2
of at least a majority of those directors whose election or nomination was not
in connection with any transaction described in subsections (i), (ii), or (iii)
above, or in connection with an actual or threatened proxy contest relating to
the election of directors to the Company.
Notwithstanding the foregoing, in no event shall the initial public
offering of the Company's securities pursuant to a registration statement filed
under Section 12 of the Exchange Act constitute a Change of Control.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Avanex Corporation, a [Delaware] corporation.
(g) "Director" means a member of the Board.
(h) "Disability" means total and permanent disability as defined
in section 22(e)(3) of the Code.
(i) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
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<PAGE> 3
(l) "Inside Director" means a Director who is an Employee.
(m) "Option" means a stock option granted pursuant to the Plan.
(n) "Optioned Stock" means the Common Stock subject to an Option.
(o) "Optionee" means a Director who holds an Option.
(p) "Outside Director" means a Director who is not an Employee
and who is not the Beneficial Owner.
(q) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1999 Director Option Plan.
(s) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(t) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 150,000 Shares (the "Pool"), plus an annual increase to be
added on the first day of the Company's fiscal year beginning on July 1, 2000,
equal to the lesser of (i) 100,000 shares, (ii) _ of 1% of the outstanding
shares on such date or (iii) a lesser amount determined by the Board. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options.
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<PAGE> 4
(ii) Each Outside Director shall be automatically granted an
Option to purchase 26,667 Shares (the "First Option") on the date on which the
later of the following events occurs:
(A) the effective date of this Plan, as determined in
accordance with Section 6 hereof, or
(B) the date on which such person first becomes an
Outside Director, whether through election by the shareholders of the Company or
appointment by the Board to fill a vacancy; provided, however, that an Inside
Director or Beneficial Owner who ceases to be an Inside Director or Beneficial
Owner but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted
an Option to purchase 6,667 Shares (a "Subsequent Option") on the date of the
Company's annual stockholder's meeting each year provided he or she is then an
Outside Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall vest and become exercisable as to twenty-five percent (25%) of the Shares
subject to the First Option on each anniversary of its date of grant, provided
that the Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option.
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<PAGE> 5
(D) subject to Section 10 hereof, the Subsequent Option
shall vest and become exercisable as to one-hundred percent (100%) of the Shares
subject to the Subsequent Option on each anniversary of its date of grant,
provided that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
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<PAGE> 6
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment shall be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
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<PAGE> 7
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Thereafter, the Option or option shall remain exercisable
in accordance with Sections 8(b) through (d) above. If the Successor Corporation
does not assume an outstanding Option or substitute for it an equivalent option,
the Option shall become fully vested and exercisable, including as to Shares for
which it would not otherwise be exercisable. In such event the Board shall
notify the Optionee that the Option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and upon the expiration of such
period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and
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<PAGE> 8
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares). If such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
Notwithstanding the foregoing, in the event of a Change of Control, each
outstanding Option shall accelerate and become fully vested and exercisable
immediately prior to such Change of Control with respect to one hundred percent
(100%) of the Shares then subject to each outstanding Option.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
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<PAGE> 9
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
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<PAGE> 1
EXHIBIT 10.5
AVANEX CORPORATION
FOUNDER'S STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of January 13, 1998, by and between Avanex
Corporation, a California corporation (the "COMPANY"), and Simon Xiaofan Cao
(the "PURCHASER").
Whereas, Purchaser possesses certain Technology (as defined below) related
to the business of the Company which the Company's Board of Directors has
determined to have a value of $800.00.
Whereas, Purchaser and the Company desire to assign the Technology to the
Company in consideration for the sale and issuance of shares of the Company's
common stock (as described below), and to sell additional shares of the
Company's common stock to Purchaser.
The parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase an aggregate of 1,800,000 shares of the
Company's Common Stock, no par value (the "SHARES") at a price of $0.001 per
share for an aggregate purchase price of $1,000.00, plus the assignment of all
of Purchaser's right, title and interest in and to the Technology as described
in Section 13 hereof.
2. Payment of Purchase Price. The payment of the purchase price shall be
by either cash, check, promissory notes payable to the Company, or an
assignment of all right, title and interest in certain property by Purchaser
to the company as provided in that certain Assignment of Proprietary Rights
between the Company and the Purchaser of even date herewith, or any combination
of these.
3. Repurchase Option. In the event of any voluntary or involuntary
termination of the Purchaser's employment by, or services to, the Company for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (as defined below in Section 4),
the Company shall, upon the date of such termination (as reasonably fixed and
determined by the Company), have an irrevocable, exclusive option, but not the
obligation, for a period of 90 days from such date to repurchase all or any
portion of the Unreleased Shares (as defined below in Section 4) at such time
at the original purchase price per share (the "REPURCHASE PRICE"). The
Repurchase Option shall be exercisable by the Company by written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Agent, as
defined below in Section 6) and shall be exercisable, at the company's option,
(i) by delivery to the Purchaser or the Purchaser's executor with such notice
of a check in the amount of the purchase price for the Shares being
repurchased, or (ii) by cancellation by the Company of an amount of the
Purchaser's indebtedness, if any, to the Company equal to the purchase price
for the Shares being repurchased, or (iii) by a combination of (i) and (ii) so
that the combined payment and cancellation of indebtedness equals the
Repurchased Price times the number of shares to be repurchased (the "AGGREGATE
REPURCHASE PRICE"). Upon delivery of such notice and the payment of the
Aggregate Repurchase Price in any of the ways described above, the Company
shall become the legal and beneficial owner of the Shares being repurchased and
all rights and interests therein or relating thereto, and the Company shall
have the right to retain and transfer to its own name the number of Shares
being repurchased by the Company. The Repurchase Option set forth in this
Section may be assigned by the Company in whole or in part in its sole and
unfettered discretion.
<PAGE> 2
4. Release of Shares from Repurchase Option.
(a) As of the date of this Agreement, all of the Shares shall be
subject to the Company's repurchase option (the "REPURCHASE OPTION"). The
Shares shall be released from the Repurchase Option as follows:
(i) One quarter (1/4) of the Shares shall be released from the
Repurchase Option on January 13, 1999; and
(ii) One forty-eighth (1/48) shall be released from the
Repurchase Option each full calendar month elapsing thereafter during all of
which Purchaser was a full time employee of the Company.
(b) Any of the Shares which, from time to time, have not yet been
released from the Repurchase Option are referred to herein as "UNRELEASED
SHARES".
(c) The Shares which have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request.
(d) Notwithstanding the foregoing, upon a Change of Control, as
defined below, for any reason that occurs while Purchaser is an employee of the
Company, that number of Unreleased Shares, if any, which, when aggregated with
any Shares previously released from the Repurchase Option, are required to equal
fifty percent (50%) of the Shares shall be released from the Repurchase Option
on the date the event constituting a Change of Control is consummated. The
balance of the Shares subject to the Repurchase Option shall continue to be
released form the Repurchase Option on the same schedule as existed prior to the
Change of Control. For example, if a Change of Control occurs on a date where
25% of Purchaser's Shares have been released from the Company's Purchase Option,
then an additional 25% of the Shares shall be released from the Purchase Option
pursuant hereto. If a Change of Control occurs on a date where more than 50% of
Purchaser's Shares have already been released from the Company's Purchase
Option, then no additional Shares shall be released from the Purchase Option.
For the purposes of the foregoing, a Change of Control shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities
other than in a private financing transaction approved by the Board of
Directors;
(ii) the direct or indirect sale or exchange by the shareholders
of the Company of all or substantially all of the stock of the Company;
(iii) a merger or consolidation in which the Company is a party
and in which the shareholders of the Company before such merger or
consolidation do not retain, directly or indirectly, at a least majority of the
beneficial interest in the voting stock of the Company after such transaction;
or
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<PAGE> 3
(iv) the sale or disposition by the Company of all or
substantially all the Company's assets.
(e) Acceleration Upon Termination of Employment. In addition to the
Shares released from the Company's Repurchase Option pursuant to Section 4(d)
above, in the event the Purchaser's employment terminates as a result of an
Involuntary Termination other than for Cause upon or within 12 months after a
Change of Control, all Unreleased Shares shall be released from the Company's
Purchase Option upon the date of such termination.
For the purposes of this Section 4(e), the following terms referred to in
this Agreement shall have the following meanings:
(i) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Purchaser in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Purchaser, (ii) conviction of a felony that is injurious to the Company, and
(iii) a willful act by the Purchaser which constitutes gross misconduct and
which is injurious to the Company.
(ii) Disability. "Disability" shall mean that the Purchaser has
been unable to substantially perform his duties as the result of his incapacity
due to physical or mental illness, and such inability, at least 26 weeks after
its commencement, is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Purchaser or the
Purchaser's legal representative (such agreement as to acceptability not to be
unreasonably withheld).
(iii) Involuntary Termination. "Involuntary Termination" shall
mean (i) without the Purchaser's express written consent, the significant
reduction of the Purchaser's duties or responsibilities relative to the
Purchaser's duties or responsibilities in effect immediately prior to such
reduction; provided, however, that a reduction in duties or responsibilities
solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Financial Officer of Company remains as such
following a Change of Control and is not made the Chief Financial Officer of the
acquiring corporation) shall not constitute an "Involuntary Termination"; (ii)
without the Purchaser's express written consent, a substantial reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available to the Purchaser immediately prior to such
reduction; (iii) without the Purchaser's express written consent, a material
reduction by the Company in the base compensation of the Purchaser as in effect
immediately prior to such reduction, or the ineligibility of the Purchaser to
continue to participate in any long-term incentive plan of the Company; (iv) a
material reduction by the Company in the kind or level of employee benefits to
which the Purchaser is entitled immediately prior to such reduction with the
result that the Purchaser's overall benefits package is significantly reduced;
(v) the relocation of the Purchaser to a facility or a location more than 50
miles from the Purchaser's then present location, without the Purchaser's
express written consent; (vi) any purported termination of the Purchaser by the
Company which is not effected for death or Disability or for Cause, or any
purported termination for which the grounds relied upon are not valid; or (vii)
the failure of the Company to obtain the assumption of this agreement by any
successors contemplated in Section 4(f) below.
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<PAGE> 4
(f) Successors.
(i) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Section 4 and agree expressly to
perform the obligations under this Section 4 in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Section 4, the term
"COMPANY" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
4(f)(i) or which becomes bound by the terms of this Agreement by operation of
law.
(ii) Purchaser's Successors. The terms of this Section 4 and all
rights of the Purchaser hereunder shall inure to the benefit of, and be
enforceable by, the Purchaser's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
5. Restriction on Transfer.
(a) Except for the escrow described below in Section 6, none of the
Shares or any beneficial interest therein shall be transferred, encumbered or
otherwise disposed of in any manner until the release of such shares from the
Repurchase Option in accordance with the provisions of this Agreement.
(b) Before any Shares may be sold or transferred (including transfer
by operation of law), such Shares shall first be offered to the Company (the
"RIGHT OF FIRST REFUSAL").
(i) Notice. In the event the Purchaser wishes to sell the
Shares, Purchaser shall deliver a notice ("Notice") to the Company stating (A)
his bona fide intention to sell or transfer such Shares, (B) the number of such
Shares to be sold or transferred, (C) the price for which he proposes to sell or
transfer such Shares, and (D) the name of the proposed purchaser or transferee.
(ii) Election to Purchase. Within thirty (30) days after receipt
of the Notice, the Company or its assignee may elect to purchase all or none of
the Shares to which the Notice refers, at the price per share specified in the
Notice. The purchase of the Shares in either such event shall occur at a closing
held at the Company's principal office at a mutually agreed upon time which in
no event shall be more than thirty (30) days following the end of the time
period in which the Company had to elect to purchase such Shares.
(iii) Sale of Shares by Purchaser. If all of the Shares to which
the Notice refers are not elected to be purchased, as provided in this Section
5(b), Purchaser may sell the Shares to any person named in the Notice at the
price specified in the Notice or at a higher price, provided that such sale or
transfer is consummated within sixty (60) days of the date of said Notice to the
Company, and provided, further, that any such sale is in accordance with all the
terms and conditions hereof.
(iv) Termination of Restrictions. Notwithstanding the provisions
of Section 5(a) above, the Company's Right of First Refusal shall terminate
immediately as to all Shares upon the occurrence of the first to occur of the
following events:
-4-
<PAGE> 5
(A) the acquisition of the Company by another entity by
means of the merger or consolidation of the Company with or into another
corporation in which the stock-holders of the Company immediately prior to such
merger or consolidation own less than 50% of the voting securities of the
surviving entity,
(B) the sale of all or substantially all of the assets of
the Company, or
(C) the date upon which a public market exists for the
Company's capital stock (or any other stock issued to purchasers in exchange for
the Shares purchased under this Agreement). For the purpose of this Agreement, a
"Public Market" shall be deemed to exist if (1) such stock is listed on a
national securities exchange (as that term is used in the Securities Exchange
Act of 1934), or (2) such stock is traded on the over-the-counter market and
prices are published daily on business days in a recognized financial journal.
(v) Assignment. Whenever the Company shall have the right to
purchase Shares under this Section 5, the Company may designate and assign one
or more employees, officers, directors or shareholders of the Company or other
persons or organizations to exercise all of the Company's purchase rights under
this Agreement and purchase all of such Shares; provided that if the fair market
value of the Shares to be purchased on the date of such designated or assignment
(the "Repurchase FMV") exceeds the purchase price of the Shares (determined as
described hereinabove) to be purchased, then each such designee or assignee
shall pay the Company cash equal to the difference between the Repurchase FMV
and the purchase price of the Shares which such designee or assignee shall have
the right to purchase.
(vi) Exempt Transfers. The provisions of this Section 5 shall not
apply to a transfer of any Shares by Purchaser, either during his lifetime or on
death by will or intestacy to his ancestors, descendants or spouse, or any
custodian or trustee for the account of Purchaser or Purchaser's ancestors,
descendants or spouse; provided, in each such case that the transferee shall
receive and hold such Shares subject to all of the provisions of this Section 5
and there shall be no further transfer of such Shares except in accordance
herewith.
6. Escrow of Shares. Pursuant to the terms of the Joint Escrow
Instructions attached hereto as Exhibit B, the Shares issued under this
Agreement shall be held by the Escrow Agent (as defined in such Joint Escrow
Instructions) along with a stock assignment executed by the Purchaser in blank
in the form hereto as Exhibit A.
7. Investment Representations. In connection with the purchase of the
Shares, the Purchaser represents to the Company the following:
(a) The Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. The
Purchaser is purchasing the Shares for investment for the Purchaser's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "SECURITIES ACT").
-5-
<PAGE> 6
(b) The Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission (the "COMMISSION"), the statutory basis for such exemption may not be
present if the Purchaser's representations meant that the Purchaser's present
intention was to hold the Shares for a minimum capital gains period under
applicable tax statues, for a deferred sale, for a market rise, for a sale if
the market does not rise, or for a year or any other fixed period in the future.
(c) The Purchaser further acknowledges and understands that the
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. The
Purchaser further acknowledges and understands that the Company is under no
obligation to register the Shares. The Purchaser understands that the
certificate evidencing the Shares will be imprinted with a legend which
prohibits the transfer of the Shares unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company.
8. Stock Certificate Legends. The share certificate evidencing the Shares
issued hereunder shall be endorsed with the following legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR ANY EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(c) Any legend required by any applicable state securities laws.
9. Market Stand-Off Agreement. The Purchaser hereby agrees, if so
requested by the managing underwriters or the Company in connection with the
initial public offering of the Company's Common Stock, that, without the prior
written consent of such managing underwriters, the Purchaser will not offer,
sell, contract to sell, grant any option to purchase, make any short sale or
otherwise dispose of, assign any legal or beneficial interest in or make a
distribution of any capital stock of the Company held by or on behalf of the
Purchaser or beneficially owned by the Purchaser in accordance with the rules
and regulations of the Securities and Exchange Commission for a period of up to
180 days after the date of the final prospectus relating to the Company's
initial public offering.
10. Adjustment for Stock Split. All references to the number of Shares and
the purchaser price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, reverse stock split
-6-
<PAGE> 7
or stock dividend or other similar change in the Shares which may be made by
the Company after the date of this Agreement.
11. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or
representations of the Company or any of its agents. The Purchaser understands
that the Purchaser (and not the Company) shall be responsible for the
Purchaser's own tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement. The Purchaser understands that
Section 83 of the Internal Revenue Code of 1986, as amended (the "CODE"), taxes
as ordinary income both (i) the difference between the fair market value of the
Shares when the Company granted the Purchaser the right to purchase the Shares
and the fair market value of the Shares on the date of this Agreement, and (ii)
the difference between the amount paid for the Shares and the fair market value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to its repurchase option. In the event the Company has registered
under the Exchange Act, "restriction" with respect to officers, directors and
10% shareholders could be subject to suit under Section 16(b) of the Exchange
Act. The Purchaser understands that the Purchaser may elect to be taxed at the
time the Shares are purchased rather than when and as the Company's repurchase
option or 16(b) period expires by filing an election under Section 83(b) of the
Code with the I.R.S. within 30 days from the date of purchase.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO TIMELY FILE THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
12. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
13. Assignment of Technology. In partial consideration for the sale and
issuance of the Stock by the Company to the Purchaser:
(i) Purchaser hereby irrevocably assigns, transfers and conveys to the
Company all of its right, title and interest in and to:
(a) all technical information, know-how, processes, procedures,
compositions, devices, methods, techniques, data, marks (and the goodwill
associated therewith), ideas, discoveries, trade secrets, copyrights or other
subject matter generally relating to micro-optic based broadband and low loss
Dispersion Compensators capable of compensating dispersion induced signal
distortion, and thermally
-7-
<PAGE> 8
tunable WDM devices capable of wavelength tuning for applications such as
programmable ADD/DROP Modules and Optical Cross-Connect systems (collectively,
the "Technology"), including without limitation any and all invention(s)
disclosed in the Technology and all embodiments thereof (the "Inventions");
(b) all rights to apply in any and all countries of the world for
patents, certificates of inventions or other governmental grants on the
Inventions, including the right to apply for patents pursuant to the
International Convention for the Protection of Industrial Property or pursuant
to any other convention, treaty, agreement or understanding;
(c) any and all applications filed and any and all patents,
certificates of inventions or other governmental grants granted on the
Invention in the United States or any other country, including each and every
application filed and each and every patent granted on any application which is
a division, substitution or continuation of any of said applications
(collectively, the "Patents");
(d) each and every reissue or extension of any of the Patents;
(e) in and to each and every patent claim resulting from a
reexamination certificate for any and all of the Patents; and
(f) any and all causes of action relating to the enforcement of the
Technology and any and all other right or interest in or to the Technology, in
each case existing as of or arising after the Effective Date.
(ii) Purchaser represents and warrants that (i) Purchaser is the owner of
the entire right, title, and interest in and to the Technology; (ii) Purchaser
has the sole right and authority to enter into this Agreement and grant the
rights hereunder; (iii) Purchaser has not previously granted and will not grant
any rights or licenses in the Technology; (iv) to the best of its knowledge,
there are no claims of third parties that would call into question the rights of
Purchaser to grant to the Company the rights contemplated hereunder; (v) as of
the Closing Date, Purchaser does not own any patents, patent applications,
technical information, know-how, processes, compositions, devices, methods,
techniques, data, market, ideas, discoveries, trade secrets, copyrights or other
intellectual property related to micro-optic based broadband and low loss
Dispersion Compensators capable of compensating dispersion induced signal
distortion, and thermally tunable WDM devices capable of wavelength tuning for
applications such as programmable ADD/DROP Modules and Optical Cross-Connect
systems except for the Technology assigned to the Company.
(iii) Purchaser agrees to execute any and all papers and documents, and
take such other actions as are reasonably requested by the Company, to evidence,
perfect or defend the foregoing assignment and fully implement the Company's
proprietary rights in the subject matter assigned hereunder, such as obtaining
and enforcing patents, and to fully cooperate in the prosecution, enforcement
and defense of such proprietary rights. Purchaser further agrees that if the
Company is unable, for any reason, to secure such signatures to apply for or to
pursue any application for any patent, copyright or other proprietary right
covering any Technology assigned to the Company above, then Purchaser hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Purchaser's agent and attorney-in-fact, to act for and in
Purchaser's behalf and stead to execute and file any such applications and
-8-
<PAGE> 9
to do all other lawfully permitted acts to further the prosecution and issuance
of patents, copyright and other registrations thereon with the same legal force
and effect as if executed by Purchaser.
14. General Provisions.
(a) This Agreement shall be governed by the laws of the State of
California. This Agreement represents the entire agreement between the parties
with respect to the purchase of Common Stock by the Purchaser and may only be
modified or amended in writing signed by both parties.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other
in writing.
(c) The rights and benefits of the Company under this Agreement
shall be transferable to any one or more persons or entities, and all covenants
and agreements hereunder shall inure to the benefit of, and be enforceable by
the Company's successors and assigns. The rights and obligations of the
Purchaser under this Agreement may only be assigned with the prior written
consent of the Company and any purported transfer otherwise shall be null and
void.
(d) Either party's failure to enforce any provision or provisions of
this Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every other provision of this Agreement. The rights granted both parties
herein are cumulative and shall not constitute a waiver of either party's right
to assert all other legal remedies available to it under the circumstances.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE LAPSING OF THE
REPURCHASE OPTION PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING
SERVICE AS AN "AT WILL" EMPLOYEE OF THE COMPANY (AND NOT THROUGH THE ACT OF
BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND
AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
REPURCHASE OPTION SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR
IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE FOR SUCH PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.
(g) Purchaser has reviewed this Agreement in its entirety, has had
an opportunity to obtain the advice of counsel prior to executing this
Agreement and fully understands all provisions of this Agreement.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first set forth above.
PURCHASER: AVANEX CORPORATION
/s/ SIMON XIAOFAN CAO /s/ SIMON XIAOFAN CAO
- ----------------------------------- ----------------------------------------
(Name) Simon Xiaofan Cao Simon Xiaofan Cao, President
Address: Address:
2202 Ensenada Way 2202 Ensenada Way
San Mateo, California 94403 San Mateo, California 94403
<PAGE> 11
CONSENT OF SPOUSE
I, Julie Cao, spouse of Simon Cao, have read and approve the foregoing
Agreement. In consideration of granting of the right to my spouse to purchase
shares of Avanex Corporation as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws of the State of California or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: Jan. 20, 1998
/s/ JULIE CAO
---------------------------------------------
<PAGE> 12
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, , herby sell,
assign and transfer unto ( ) shares of
the Common Stock of Avanex Corporation standing in my name on the books of said
corporation represented by Certificate No. herewith and do hereby irrevocably
constitute and appoint Wilson, Sonsini, Goodrich & Rosati, attorney, to transfer
the said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be sued only in accordance with the Founder
Stock Purchase Agreement between Avanex Corporation and the undersigned dated
January 13, 1998.
Dated:
------------------------
/s/ SIMON XIAOFAN CAO
-------------------------------------
(Name) Simon Xiaofan Cao
INSTRUCTIONS: Please do not fill in the blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"Repurchase Option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 13
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
January 13, 1998
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Judith M. O'Brien
Ladies and Gentlemen:
As escrow agent (the "Escrow Agent") for both Avanex Corporation, a
California corporation (the "Company"), and the undersigned purchaser of stock
of the Company (the "Purchaser"), you are hereby authorized and directed to hold
the documents delivered to you pursuant to the terms of that certain Founder
Stock Purchase Agreement ("Agreement") between the Company and the undersigned
(the "Escrow"), in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the
Company's Repurchase Option (as defined in the Agreement), the Company shall
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, cancellation of indebtedness or some combination thereof) for
the number of shares of stock being purchased pursuant to the exercise of the
Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this Escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions
<PAGE> 14
of the Agreement and of this Escrow Agreement, Purchaser shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 90 days after cessation of Purchaser's continuous employment by the
Company, or any parent or subsidiary of the Company, you will deliver to
Purchaser a certificate or certificates representing the aggregate number of
shares held or issued pursuant to the Agreement and not purchased by the Company
or its assignees pursuant to exercise of the Company's repurchase option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE> 15
12. Your responsibilities as Escrow Agent shall terminate if you shall
cease to be an officer or agent of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company shall
appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes have been settled either by mutual written agreement of the parties
concerned or by a final order, decree or judgment of a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but you shall be under no duty whatsoever to institute or defend any
such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto:
<TABLE>
<S> <C>
COMPANY: Avanex Corporation
PURCHASER: Simon Cao
2202 Ensenada Way
San Mateo, CA 94403
ESCROW AGENT: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Judith M. O'Brien
</TABLE>
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
-3-
<PAGE> 1
EXHIBIT 10.6
AVANEX CORPORATION
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the 1998 Stock
Plan shall have the same defined meanings in this Restricted Stock Purchase
Agreement (the "Agreement").
I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT
WALTER ALESSANDRINI
You have been granted the right to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Agreement, as follows:
Date of Grant October 8, 1999
Exercise Price Per Share $0.58
Total Number of Shares Subject 347,706
to This Stock Purchase Right
Expiration Date January 6, 2000
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
Non-Transferability of Stock Purchase Right.
This Stock Purchase Right may not be transferred in any manner otherwise
than by will or by the laws of descent or distribution and may be exercised
during the lifetime of Optionee only by Optionee. The terms of the Plan and this
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
II. AGREEMENT
1. Sale of Stock. The Company hereby agrees to sell to the individual
named in the Notice of Grant of Stock Purchase Right (the "Purchaser"), and the
Purchaser hereby agrees to purchase the number of Shares set forth in the Notice
of Grant of Stock Purchase Right, at the exercise price per share set forth in
the Notice of Grant of Stock Purchase Right (the "Exercise Price"), and subject
to the terms and conditions of the Plan, which is incorporated herein by
reference. Subject to 14(c) of the Plan, in the event of a conflict between the
terms and conditions of the Plan and this Agreement, the terms and conditions of
the Plan shall prevail.
<PAGE> 2
2. Payment of Purchase Price. Purchaser herewith delivers to the Company
the aggregate Exercise Price for the Shares by cash or check.
3. Purchaser's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Stock
Purchase Right is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Stock Purchase
Right, deliver to the Company his or her Investment Representation Statement in
the form attached hereto as Exhibit B.
4. Repurchase Option.
(a) In the event the Purchaser's continuous status as a Service
Provider terminates for any or no reason (including death or Disability), the
Company shall, upon the date of such termination (as reasonably fixed and
determined by the Company), have an irrevocable, exclusive option for a period
of sixty (60) days from such date to repurchase up to that number of shares
which constitute the Unreleased Shares (as defined in Section 5) at the Exercise
Price per share (the "Repurchase Price") (the "Repurchase Option").
(b) The Repurchase Option shall be exercised by the Company by
delivering written notice to the Purchaser or the Purchaser's executor (with a
copy to the Escrow Holder (as defined in Section 7)) AND, at the Company's
option, (i) by delivering to the Purchaser or the Purchaser's executor a check
in the amount of the aggregate Repurchase Price, or (ii) by the Company
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals such aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price in any of the ways described above, the Company shall become
the legal and beneficial owner of the Unreleased Shares being repurchased and
all rights and interests therein or relating thereto, and the Company shall have
the right to retain and transfer to its own name the number of Unreleased Shares
being repurchased by the Company.
(c) Whenever the Company shall have the right to repurchase the
Unreleased Shares hereunder, the Company may designate and assign one or more
employees, officers, directors or shareholders of the Company or other persons
or organizations to exercise all or a part of the Company's Repurchase Option to
purchase all or a part of the Unreleased Shares. If the Fair Market Value of the
Unreleased Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of the
Unreleased Shares, then each such designee or assignee shall pay the Company
cash equal to the difference between the Repurchase FMV and the aggregate
Repurchase Price of Unreleased Shares to be purchased.
(d) If the Company or its assignee does not elect to exercise the
Repurchase Option conferred above by giving the requisite notice within ninety
(90) days following Purchaser's termination as a Service Provider, the
Repurchase Option shall terminate.
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5. Release of Shares From Repurchase Option.
(a) As of the date of this Agreement, all of the Shares shall be
subject to the Company's Repurchase Option. The Shares shall be released from
the Repurchase Option as follows:
(i) One quarter (1/4) of the Shares shall be released from
the Repurchase Option on March 22, 2000; and
(ii) One forty-eighth (1/48) shall be released from the
Repurchase Option each full calendar month elapsing thereafter during all of
which Purchaser was a full time employee of the Company.
(b) Any of the Shares which, from time to time, have not yet been
released from the Repurchase Option are referred to herein as "Unreleased
Shares."
(c) The Shares which have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 7).
(d) Notwithstanding the foregoing, upon a Change of Control, as
defined below, for any reason that occurs while Purchaser is an employee of the
Company, that number of Unreleased Shares, if any, which, when aggregated with
any Shares previously released from the Repurchase Option, are required to equal
fifty percent (50%) of the Shares shall be released from the Repurchase Option
on the date the event constituting a Change of Control is consummated. The
balance of the Shares subject to the Repurchase Option shall continue to be
released from the Repurchase Option on the same schedule (i.e., the same number
of shares shall vest each month) as existed prior to the Change of Control. For
example, if a Change of Control occurs on a date where 25% of Purchaser's Shares
have been released from the Company's Purchase Option, then an additional 25% of
the Shares shall be released from the Purchase Option pursuant hereto. The
remaining 50% of the Shares shall vest at the rate of 1/48th of the Shares per
month thereafter, such that all Shares are fully vested after an additional
24-month period. If a Change of Control occurs on a date where more than 50% of
Purchaser's Shares have already been released from the Company's Purchase
Option, then no additional Shares shall be released from the Purchase Option.
For the purposes of the foregoing, a Change of Control shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities
other than in a private financing transaction approved by the Board of
Directors;
(ii) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company;
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(iii) a merger or consolidation in which the Company is a
party and in which the shareholders of the Company before such merger or
consolidation do not retain, directly or indirectly, at a least majority of the
beneficial interest in the voting stock of the Company after such transaction;
or
(iv) the sale or disposition by the Company of all or
substantially all the Company's assets.
(e) Acceleration Upon Termination of Employment. In addition to
the Shares released from the Company's Repurchase Option pursuant to Section
4(d) above, in the event the Purchaser's employment terminates as a result of an
Involuntary Termination other than for Cause upon or within 12 months after a
Change of Control, all Unreleased Shares shall be released from the Company's
Purchase Option upon the date of such termination.
For the purposes of this Section 5(e), the following terms referred to
in this Agreement shall have the following meanings:
(i) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Purchaser in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Purchaser, (ii) conviction of a felony that is injurious to the Company, and
(iii) a willful act by the Purchaser which constitutes gross misconduct and
which is injurious to the Company.
(ii) Disability. "Disability" shall mean that the
Purchaser has been unable to substantially perform his duties as the result of
his incapacity due to physical or mental illness, and such inability, at least
26 weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Purchaser or the Purchaser's legal representative (such agreement as to
acceptability not to be unreasonably withheld).
(iii) Involuntary Termination. "Involuntary Termination"
shall mean (i) without the Purchaser's express written consent, the significant
reduction of the Purchaser's duties or responsibilities relative to the
Purchaser's duties or responsibilities in effect immediately prior to such
reduction; provided, however, that a reduction in duties or responsibilities
solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Financial Officer of Company remains as such
following a Change of Control and is not made the Chief Financial Officer of the
acquiring corporation) shall not constitute an "Involuntary Termination"; (ii)
without the Purchaser's express written consent, a substantial reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available to the Purchaser immediately prior to such
reduction; (iii) without the Purchaser's express written consent, a material
reduction by the Company in the base compensation of the Purchaser as in effect
immediately prior to such reduction, or the ineligibility of the Purchaser to
continue to participate in any long-term incentive plan of the Company; (iv) a
material reduction by the Company in the kind or level of employee benefits to
which the Purchaser is entitled immediately prior to such reduction with the
result that the Purchaser's overall benefits package is significantly reduced;
(v) the
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relocation of the Purchaser to a facility or a location more than 50 miles from
the Purchaser's then present location, without the Purchaser's express written
consent; (vi) any purported termination of the Purchaser by the Company which is
not effected for death or Disability or for Cause, or any purported termination
for which the grounds relied upon are not valid; or (vii) the failure of the
Company to obtain the assumption of this agreement by any successors
contemplated in Section 4(f) below.
(f) The Shares which have been released from the Company's
Repurchase Option shall be delivered to the Purchaser at the Purchaser's
request.
6. Restriction on Transfer. Except for the escrow described in 7 or
transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until the release of
such Shares from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
7. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon exercise of the Repurchase Option by the Company, the
Purchaser shall, upon execution of this Agreement, deliver and deposit with an
escrow holder designated by the Company (the "Escrow Holder") the share
certificates representing the Unreleased Shares, together with the Assignment
Separate from Certificate (the "Stock Assignment") duly endorsed in blank,
attached hereto as Exhibit A-1. The Unreleased Shares and Stock Assignment shall
be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the
Company and Purchaser attached as Exhibit A-2 hereto, until such time as the
Company's Repurchase Option expires. As a further condition to the Company's
obligations under this Agreement, the spouse of Purchaser, if any, shall execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-3.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises its Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
option exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from such Repurchase
Option, upon Purchaser's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released Shares and shall deliver such
certificate to the Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time
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during the term of the Company's Repurchase Option, there is (i) any stock
dividend, stock split or other change in the Shares, or (ii) any merger or sale
of all or substantially all of the assets or other acquisition of the Company,
any and all new, substituted or additional securities to which the Purchaser is
entitled by reason of the Purchaser's ownership of the Shares shall be
immediately subject to this escrow, deposited with the Escrow Holder and
included thereafter as "Shares" for purposes of this Agreement and the Company's
Repurchase Option.
8. Company's Right of First Refusal. Before any Shares held by Purchaser
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this (the "Right of
First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
(i) the Offered Price in the case of Shares that are not Unreleased Shares, or
(ii) in the case of Shares that are Unreleased Shares, the lower of the Offered
Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), (i) by cash or check, (ii) by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or (iii) by any combination thereof within thirty (30) days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within one hundred twenty (120) days after the date of the Notice
and provided
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further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section, provided that the Purchaser notifies the Company in writing within
thirty (30) days of said transfer. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister. In
such case, the transferee or other recipient shall receive and hold the Shares
so transferred subject to the provisions of this Agreement, including but not
limited to this Section and Section 4, and there shall be no further transfer of
such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the date of the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the 1933 Act.
9. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer.
(a) Purchaser understands and agrees that the Company shall cause
the legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by the Company or by applicable state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A
REPURCHASE OPTION
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HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE
BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
10. Lock-Up Period. Purchaser hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Purchaser shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
11. Tax Consequences. Set forth below is a brief summary as of the date
of grant of this Stock Purchase Right of some of the federal tax consequences of
exercise of this Stock Purchase Right and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE.
(a) Exercise of Stock Purchase Right. Generally, no income will
be recognized by Purchaser in connection with the exercise of the stock
purchaser right for shares subject to the Repurchase Option, unless an election
under Section 83(b) of the Code is filed with the Internal Revenue Service
within 30 days of the date of exercise of the right to purchase stock. The form
for making this election is attached as Exhibit A-4 hereto. Otherwise, as the
Company's repurchase right lapses, Purchaser will recognize compensation income
in an amount equal to the difference between the Fair Market Value of the stock
at the time the Company's repurchase right lapses and the amount paid for the
stock, if any (the "Spread"). If Purchaser is an Employee or former Employee,
the
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Spread will be subject to tax withholding by the Company, and the Company will
be entitled to a tax deduction in the amount at the time the Purchaser
recognizes ordinary income with respect to a Stock Purchase Right.
(b) Disposition of Shares. Upon disposition of the Shares, any
gain or loss is treated as capital gain or loss. If the Shares are held for at
least one year, any gain realized on disposition of the shares will be treated
as long-term capital gain for federal income tax purposes. Long-term capital
gains are grouped and netted by holding periods. Net capital gains on assets
held for more than 12 months is capped at 20%. Capital losses are allowed in
full against capital gains, and up to $3,000 against other income.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
12. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES
THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO
4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER AT THE WILL OF
THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER).
PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
13. Notices. Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
14. No Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party from thereafter
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
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15. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
16. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
17. Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
18. Entire Agreement. The Plan is incorporated herein by reference. This
Agreement (including the exhibits referenced herein), the Plan, and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and may not be modified adversely to the
Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
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By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant of Stock Purchase Right.
Dated: October __, 1999
PURCHASER: AVANEX CORPORATION
By:
- ------------------------------- -------------------------------
Signature
Title:
- ------------------------------- ----------------------------
Print Name
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EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, Walter Alessandrini, hereby sell, assign and
transfer unto_________ (__________) shares of the Common Stock of Avanex
Corporation standing in my name of the books of said corporation represented by
Certificate No. _____ herewith and do hereby irrevocably constitute and
appoint______________________ to transfer the said stock on the books of the
within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Avanex Corporation and the undersigned dated
October __, 1999.
Dated: Signature:
---------------,------ -------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 13
EXHIBIT A-2
JOINT ESCROW INSTRUCTIONS
October __, 1999
Corporate Secretary
Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
Dear Sirs:
As Escrow Agent for both Avanex Corporation, a California corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement (the "Repurchase Option"), the
Company shall give to Purchaser and you a written notice specifying the number
of shares of stock to be purchased, the purchase price, and the time for a
closing hereunder at the principal office of the Company. Purchaser and the
Company hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
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4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within ninety (90) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
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12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
COMPANY: Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
PURCHASER: Walter Alessandrini
1305 Crane Street
Menlo Park, CA 94025
ESCROW AGENT: Corporate Secretary
Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. The Restricted Stock Purchase Agreement is incorporated herein by
reference. These Joint Escrow Instructions, the 1998 Stock Plan, and the
Restricted Stock Purchase Agreement
4
<PAGE> 16
(including the exhibits referenced therein) constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Escrow Agent, the
Purchaser and the Company with respect to the subject matter hereof, and may not
be modified except by means of a writing signed by the Escrow Agent, the
Purchaser and the Company.
19. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Very truly yours,
AVANEX CORPORATION
By:
-------------------------------
Title:
-------------------------------
PURCHASER
----------------------------------
(Signature)
----------------------------------
(Typed or Printed Name)
ESCROW AGENT:
----------------------------------
Corporate Secretary
5
<PAGE> 17
EXHIBIT A-3
CONSENT OF SPOUSE
I, Anna Alessandrini, spouse of Walter Alessandrini, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of granting of the right to my spouse to purchase shares of Avanex
Corporation, as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may have
any rights in said Agreement or any shares issued pursuant thereto under the
community property laws or similar laws relating to marital property in effect
in the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: October __, 1999 Signature:
-------------------------------
6
<PAGE> 18
EXHIBIT A-4
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the above-referenced
Federal Tax Code, to include in taxpayer's gross income for the current taxable
year, the amount of any compensation taxable to taxpayer in connection with his
receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME:
TAXPAYER: Walter Alessandrini
SPOUSE: Anna Alessandrini
ADDRESS: 1305 Crane Street, Menlo Park, CA 94025
IDENTIFICATION NO.: TAXPAYER:###-##-#### TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described
as follows: 347,706 shares (the "Shares") of the Common Stock of Avanex
Corporation (the "Company").
3. The date on which the property was transferred is: October 12, 1999.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on
certain events. This right lapses with regard to a portion of the Shares based
on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will never
lapse, of such property is: $201,669.48.
6. The amount (if any) paid for such property is: $201,669.48
The undersigned has submitted a copy of this statement to the person for
whom the services were performed in connection with the undersigned's receipt of
the above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be
revoked except with the consent of the Commissioner.
Dated: October 12, 1999 -----------------------------------------
Walter Alessandrini, Taxpayer
7
<PAGE> 19
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: WALTER ALESSANDRINI
COMPANY: AVANEX CORPORATION
SECURITY: COMMON STOCK
AMOUNT: 347,706
DATE: OCTOBER __, 1999
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to
(b) reach an informed and knowledgeable decision to acquire the
Securities. Purchaser is acquiring these Securities for investment for
Purchaser's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
(c) Purchaser acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. In this connection,
Purchaser understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one (1) year or any other
fixed period in the future. Purchaser further understands that the Securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Securities. Purchaser understands that the certificate evidencing
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the opinion of counsel satisfactory to the Company, a legend prohibiting
their transfer without the consent of the Commissioner of Corporations of the
State of California and any other legend required under applicable state
securities laws.
(d) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities"
<PAGE> 20
acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of the grant of the
Stock Purchase Right to the Purchaser, the exercise will be exempt from
registration under the Securities Act. In the event the Company becomes subject
to the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, ninety (90) days thereafter (or such longer period as any market
stand-off agreement may require) the Securities exempt under Rule 701 may be
resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of Securities being sold during any three (3)
month period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Stock Purchase Right, then the Securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires the resale to occur not less than one (1) year after the later of the
date the Securities were sold by the Company or the date the Securities were
sold by an affiliate of the Company, within the meaning of Rule 144; and, in the
case of acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two (2) years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(e) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
-------------------------------
Date:________________, ____
2
<PAGE> 21
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
TITLE 10. INVESTMENT - CHAPTER 3. COMMISSIONER OF CORPORATIONS
260.141.11: RESTRICTION ON TRANSFER. (a) THE ISSUER OF ANY SECURITY UPON
WHICH A RESTRICTION ON TRANSFER HAS BEEN IMPOSED PURSUANT TO SECTIONS 260.102.6,
260.141.10 OR 260.534 SHALL CAUSE A COPY OF THIS SECTION TO BE DELIVERED TO EACH
ISSUEE OR TRANSFEREE OF SUCH SECURITY AT THE TIME THE CERTIFICATE EVIDENCING THE
SECURITY IS DELIVERED TO THE ISSUEE OR TRANSFEREE.
(b) IT IS UNLAWFUL FOR THE HOLDER OF ANY SUCH SECURITY TO
CONSUMMATE A SALE OR TRANSFER OF SUCH SECURITY, OR ANY INTEREST THEREIN, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER (UNTIL THIS CONDITION IS REMOVED
PURSUANT TO SECTION 260.141.12 OF THESE RULES), EXCEPT:
(1) TO THE ISSUER;
(2) PURSUANT TO THE ORDER OR PROCESS OF ANY COURT;
(3) TO ANY PERSON DESCRIBED IN SUBDIVISION (i) OF SECTION
25102 OF THE CODE OR SECTION 260.105.14 OF THESE RULES;
(4) TO THE TRANSFEROR'S ANCESTORS, DESCENDANTS OR SPOUSE,
OR ANY CUSTODIAN OR TRUSTEE FOR THE ACCOUNT OF THE TRANSFEROR OR THE
TRANSFEROR'S ANCESTORS, DESCENDANTS, OR SPOUSE; OR TO A TRANSFEREE BY A TRUSTEE
OR CUSTODIAN FOR THE ACCOUNT OF THE TRANSFEREE OR THE TRANSFEREE'S ANCESTORS,
DESCENDANTS OR SPOUSE;
(5) TO HOLDERS OF SECURITIES OF THE SAME CLASS OF THE SAME
ISSUER;
(6) BY WAY OF GIFT OR DONATION INTER VIVOS OR ON DEATH;
(7) BY OR THROUGH A BROKER-DEALER LICENSED UNDER THE CODE
(EITHER ACTING AS SUCH OR AS A FINDER) TO A RESIDENT OF A FOREIGN STATE,
TERRITORY OR COUNTRY WHO IS NEITHER DOMICILED IN THIS STATE TO THE KNOWLEDGE OF
THE BROKER-DEALER, NOR ACTUALLY PRESENT IN THIS STATE IF THE SALE OF SUCH
SECURITIES IS NOT IN VIOLATION OF ANY SECURITIES LAW OF THE FOREIGN STATE,
TERRITORY OR COUNTRY CONCERNED;
(8) TO A BROKER-DEALER LICENSED UNDER THE CODE IN A
PRINCIPAL TRANSACTION, OR AS AN UNDERWRITER OR MEMBER OF AN UNDERWRITING
SYNDICATE OR SELLING GROUP;
(9) IF THE INTEREST SOLD OR TRANSFERRED IS A PLEDGE OR
OTHER LIEN GIVEN BY THE PURCHASER TO THE SELLER UPON A SALE OF THE SECURITY FOR
WHICH THE COMMISSIONER'S WRITTEN CONSENT IS OBTAINED OR UNDER THIS RULE NOT
REQUIRED;
3
<PAGE> 22
(10) BY WAY OF A SALE QUALIFIED UNDER SECTIONS 25111,
25112, 25113 OR 25121 OF THE CODE, OF THE SECURITIES TO BE TRANSFERRED, PROVIDED
THAT NO ORDER UNDER SECTION 25140 OR SUBDIVISION (a) OF SECTION 25143 IS IN
EFFECT WITH RESPECT TO SUCH QUALIFICATION;
(11) BY A CORPORATION TO A WHOLLY OWNED SUBSIDIARY OF SUCH
CORPORATION, OR BY A WHOLLY OWNED SUBSIDIARY OF A CORPORATION TO SUCH
CORPORATION;
(12) BY WAY OF AN EXCHANGE QUALIFIED UNDER SECTION 25111,
25112 OR 25113 OF THE CODE, PROVIDED THAT NO ORDER UNDER SECTION 25140 OR
SUBDIVISION (a) OF SECTION 25143 IS IN EFFECT WITH RESPECT TO SUCH
QUALIFICATION;
(13) BETWEEN RESIDENTS OF FOREIGN STATES, TERRITORIES OR
COUNTRIES WHO ARE NEITHER DOMICILED NOR ACTUALLY PRESENT IN THIS STATE;
(14) TO THE STATE CONTROLLER PURSUANT TO THE UNCLAIMED
PROPERTY LAW OR TO THE ADMINISTRATOR OF THE UNCLAIMED PROPERTY LAW OF ANOTHER
STATE; OR
(15) BY THE STATE CONTROLLER PURSUANT TO THE UNCLAIMED
PROPERTY LAW OR BY THE ADMINISTRATOR OF THE UNCLAIMED PROPERTY LAW OF ANOTHER
STATE IF, IN EITHER SUCH CASE, SUCH PERSON (i) DISCLOSES TO POTENTIAL PURCHASERS
AT THE SALE THAT TRANSFER OF THE SECURITIES IS RESTRICTED UNDER THIS RULE, (ii)
DELIVERS TO EACH PURCHASER A COPY OF THIS RULE, AND (iii) ADVISES THE
COMMISSIONER OF THE NAME OF EACH PURCHASER;
(16) BY A TRUSTEE TO A SUCCESSOR TRUSTEE WHEN SUCH
TRANSFER DOES NOT INVOLVE A CHANGE IN THE BENEFICIAL OWNERSHIP OF THE
SECURITIES;
(17) BY WAY OF AN OFFER AND SALE OF OUTSTANDING SECURITIES
IN AN ISSUER TRANSACTION THAT IS SUBJECT TO THE QUALIFICATION REQUIREMENT OF
SECTION 25110 OF THE CODE BUT EXEMPT FROM THAT QUALIFICATION REQUIREMENT BY
SUBDIVISION (f) OF SECTION 25102; PROVIDED THAT ANY SUCH TRANSFER IS ON THE
CONDITION THAT ANY CERTIFICATE EVIDENCING THE SECURITY ISSUED TO SUCH TRANSFEREE
SHALL CONTAIN THE LEGEND REQUIRED BY THIS SECTION.
(c) THE CERTIFICATES REPRESENTING ALL SUCH SECURITIES SUBJECT TO
SUCH A RESTRICTION ON TRANSFER, WHETHER UPON INITIAL ISSUANCE OR UPON ANY
TRANSFER THEREOF, SHALL BEAR ON THEIR FACE A LEGEND, PROMINENTLY STAMPED OR
PRINTED THEREON IN CAPITAL LETTERS OF NOT LESS THAN 10-POINT SIZE, READING AS
FOLLOWS:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
4
<PAGE> 23
PROMISSORY NOTE
$201,669.48
October __, 1999
FOR VALUE RECEIVED, Walter Alessandrini promises to pay to Avanex
Corporation (the "Company"), or order, the principal sum of TWO HUNDRED ONE
THOUSAND SIX HUNDRED SIXTY-NINE DOLLARS AND FORTY-EIGHT CENTS, together with
interest on the unpaid principal hereof from the date hereof at the rate of
6.02% per annum, compounded semiannually.
Principal and interest shall be due and payable on October 31, 2003.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Restricted Stock Purchase
Agreement, dated as of October __, 1999. This Note is secured in part by a
pledge of the Company's Common Stock under the terms of a Security Agreement of
even date herewith and is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or consultant
of the Company for any reason, this Note shall, at the option of the Company, be
accelerated, and the whole unpaid balance on this Note of principal and accrued
interest shall be due and payable thirty days after the date of such
termination.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
-------------------------------
Walter Alessandrini
<PAGE> 24
SECURITY AGREEMENT
This Security Agreement is made as of October __, 1999 between Avanex
Corporation ("Pledgee") and Walter Alessandrini ("(Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Restricted
Stock Purchase Agreement dated April 30, 1999 (the "Agreement"), between Pledgor
and Pledgee under Pledgee's 1998 Stock Plan, and the Pledgor's election under
the terms of the Agreement to pay for such shares with his promissory note (the
"Note"), Pledgor has purchased 347,706 shares of Pledgee's Common Stock (the
"Shares") at a price of $0.58 per share, for a total purchase price of
$201,669.48.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Agreement, Pledgor, pursuant to
the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number 13
duly endorsed in blank or with executed stock powers, and herewith delivers said
certificate to Wilson Sonsini Goodrich & Rosati, Professional Corporation
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and extensions or renewals thereof,
to be executed by Pledgor pursuant to the terms of the Agreement, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations
<PAGE> 25
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
- 2 -
<PAGE> 26
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of California.
- 3 -
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" By:
-------------------------------
Walter Alessandrini
Address: 1305 Crane Street
Menlo Park, CA 94025
"PLEDGEE" Avanex Corporation
By:
-------------------------------
Jesse Chao
Title: Chief Financial Officer
"PLEDGEHOLDER" Wilson Sonsini Goodrich & Rosati
Professional Corporation
-------------------------------
Judith M. O'Brien
- 4 -
<PAGE> 1
EXHIBIT 10.7
AVANEX CORPORATION
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the 1998 Stock
Plan shall have the same defined meanings in this Restricted Stock Purchase
Agreement (the "Agreement").
I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT
WALTER ALESSANDRINI
You have been granted the right to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Agreement, as follows:
Date of Grant March 26, 1999
Exercise Price Per Share $0.08
Total Number of Shares Subject 3,477,059
to This Stock Purchase Right
Expiration Date June 26, 1999
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
Non-Transferability of Stock Purchase Right.
This Stock Purchase Right may not be transferred in any manner otherwise
than by will or by the laws of descent or distribution and may be exercised
during the lifetime of Optionee only by Optionee. The terms of the Plan and this
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
II. AGREEMENT
1. Sale of Stock. The Company hereby agrees to sell to the
individual named in the Notice of Grant of Stock Purchase Right (the
"Purchaser"), and the Purchaser hereby agrees to purchase the number of Shares
set forth in the Notice of Grant of Stock Purchase Right, at the exercise price
per share set forth in the Notice of Grant of Stock Purchase Right (the
"Exercise Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to 14(c) of the Plan, in the event of
a conflict between the terms and conditions of the Plan and this Agreement, the
terms and conditions of the Plan shall prevail.
<PAGE> 2
2. Payment of Purchase Price. Purchaser herewith delivers to the
Company the aggregate Exercise Price for the Shares by cash or check.
3. Purchaser's Representations. In the event the Shares have not
been registered under the Securities Act of 1933, as amended, at the time this
Stock Purchase Right is exercised, the Optionee shall, if required by the
Company, concurrently with the exercise of all or any portion of this Stock
Purchase Right, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit B.
4. Repurchase Option.
(a) In the event the Purchaser's continuous status as a
Service Provider terminates for any or no reason (including death or
Disability), the Company shall, upon the date of such termination (as reasonably
fixed and determined by the Company), have an irrevocable, exclusive option for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 5) at the
Exercise Price per share (the "Repurchase Price") (the "Repurchase Option").
(b) The Repurchase Option shall be exercised by the Company
by delivering written notice to the Purchaser or the Purchaser's executor (with
a copy to the Escrow Holder (as defined in Section 7)) AND, at the Company's
option, (i) by delivering to the Purchaser or the Purchaser's executor a check
in the amount of the aggregate Repurchase Price, or (ii) by the Company
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals such aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price in any of the ways described above, the Company shall become
the legal and beneficial owner of the Unreleased Shares being repurchased and
all rights and interests therein or relating thereto, and the Company shall have
the right to retain and transfer to its own name the number of Unreleased Shares
being repurchased by the Company.
(c) Whenever the Company shall have the right to repurchase
the Unreleased Shares hereunder, the Company may designate and assign one or
more employees, officers, directors or shareholders of the Company or other
persons or organizations to exercise all or a part of the Company's Repurchase
Option to purchase all or a part of the Unreleased Shares. If the Fair Market
Value of the Unreleased Shares to be repurchased on the date of such designation
or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of
the Unreleased Shares, then each such designee or assignee shall pay the Company
cash equal to the difference between the Repurchase FMV and the aggregate
Repurchase Price of Unreleased Shares to be purchased.
(d) If the Company or its assignee does not elect to
exercise the Repurchase Option conferred above by giving the requisite notice
within ninety (90) days following Purchaser's termination as a Service Provider,
the Repurchase Option shall terminate.
2
<PAGE> 3
5. Release of Shares From Repurchase Option.
(a) As of the date of this Agreement, all of the Shares shall be
subject to the Company's Repurchase Option. The Shares shall be released from
the Repurchase Option as follows:
(i) One quarter (1/4) of the Shares shall be released from
the Repurchase Option on March 22, 2000; and
(ii) One forty-eighth (1/48) shall be released from the
Repurchase Option each full calendar month elapsing thereafter during all of
which Purchaser was a full time employee of the Company.
(b) Any of the Shares which, from time to time, have not yet been
released from the Repurchase Option are referred to herein as "Unreleased
Shares."
(c) The Shares which have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 7).
(d) Notwithstanding the foregoing, upon a Change of Control, as
defined below, for any reason that occurs while Purchaser is an employee of the
Company, that number of Unreleased Shares, if any, which, when aggregated with
any Shares previously released from the Repurchase Option, are required to equal
fifty percent (50%) of the Shares shall be released from the Repurchase Option
on the date the event constituting a Change of Control is consummated. The
balance of the Shares subject to the Repurchase Option shall continue to be
released from the Repurchase Option on the same schedule (i.e., the same number
of shares shall vest each month) as existed prior to the Change of Control. For
example, if a Change of Control occurs on a date where 25% of Purchaser's Shares
have been released from the Company's Purchase Option, then an additional 25% of
the Shares shall be released from the Purchase Option pursuant hereto. The
remaining 50% of the Shares shall vest at the rate of 1/48th of the Shares per
month thereafter, such that all Shares are fully vested after an additional
24-month period. If a Change of Control occurs on a date where more than 50% of
Purchaser's Shares have already been released from the Company's Purchase
Option, then no additional Shares shall be released from the Purchase Option.
For the purposes of the foregoing, a Change of Control shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities
other than in a private financing transaction approved by the Board of
Directors;
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(ii) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company;
(iii) a merger or consolidation in which the Company is a
party and in which the shareholders of the Company before such merger or
consolidation do not retain, directly or indirectly, at a least majority of the
beneficial interest in the voting stock of the Company after such transaction;
or
(iv) the sale or disposition by the Company of all or
substantially all the Company's assets.
(e) Acceleration Upon Termination of Employment. In addition to
the Shares released from the Company's Repurchase Option pursuant to Section
4(d) above, in the event the Purchaser's employment terminates as a result of an
Involuntary Termination other than for Cause upon or within 12 months after a
Change of Control, all Unreleased Shares shall be released from the Company's
Purchase Option upon the date of such termination.
For the purposes of this Section 5(e), the following terms referred to
in this Agreement shall have the following meanings:
(i) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Purchaser in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Purchaser, (ii) conviction of a felony that is injurious to the Company, and
(iii) a willful act by the Purchaser which constitutes gross misconduct and
which is injurious to the Company.
(ii) Disability. "Disability" shall mean that the
Purchaser has been unable to substantially perform his duties as the result of
his incapacity due to physical or mental illness, and such inability, at least
26 weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Purchaser or the Purchaser's legal representative (such agreement as to
acceptability not to be unreasonably withheld).
(iii) Involuntary Termination. "Involuntary Termination"
shall mean (i) without the Purchaser's express written consent, the significant
reduction of the Purchaser's duties or responsibilities relative to the
Purchaser's duties or responsibilities in effect immediately prior to such
reduction; provided, however, that a reduction in duties or responsibilities
solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Financial Officer of Company remains as such
following a Change of Control and is not made the Chief Financial Officer of the
acquiring corporation) shall not constitute an "Involuntary Termination"; (ii)
without the Purchaser's express written consent, a substantial reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available to the Purchaser immediately prior to such
reduction; (iii) without the Purchaser's express written
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<PAGE> 5
consent, a material reduction by the Company in the base compensation of the
Purchaser as in effect immediately prior to such reduction, or the ineligibility
of the Purchaser to continue to participate in any long-term incentive plan of
the Company; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Purchaser is entitled immediately prior to such
reduction with the result that the Purchaser's overall benefits package is
significantly reduced; (v) the relocation of the Purchaser to a facility or a
location more than 50 miles from the Purchaser's then present location, without
the Purchaser's express written consent; (vi) any purported termination of the
Purchaser by the Company which is not effected for death or Disability or for
Cause, or any purported termination for which the grounds relied upon are not
valid; or (vii) the failure of the Company to obtain the assumption of this
agreement by any successors contemplated in Section 4(f) below.
(f) The Shares which have been released from the Company's
Repurchase Option shall be delivered to the Purchaser at the Purchaser's
request.
6. Restriction on Transfer. Except for the escrow described in 7 or
transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until the release of
such Shares from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
7. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon exercise of the Repurchase Option by the Company, the
Purchaser shall, upon execution of this Agreement, deliver and deposit with an
escrow holder designated by the Company (the "Escrow Holder") the share
certificates representing the Unreleased Shares, together with the Assignment
Separate from Certificate (the "Stock Assignment") duly endorsed in blank,
attached hereto as Exhibit A-1. The Unreleased Shares and Stock Assignment shall
be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the
Company and Purchaser attached as Exhibit A-2 hereto, until such time as the
Company's Repurchase Option expires. As a further condition to the Company's
obligations under this Agreement, the spouse of Purchaser, if any, shall execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-3.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises its Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
option exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
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(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from such Repurchase
Option, upon Purchaser's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released Shares and shall deliver such
certificate to the Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Company's Repurchase Option.
8. Company's Right of First Refusal. Before any Shares held by Purchaser
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this (the "Right of
First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
(i) the Offered Price in the case of Shares that are not Unreleased Shares, or
(ii) in the case of Shares that are Unreleased Shares, the lower of the Offered
Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company in good faith.
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<PAGE> 7
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), (i) by cash or check, (ii) by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or (iii) by any combination thereof within thirty (30) days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within one hundred twenty (120) days after the date of the Notice
and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply to
the Shares in the hands of such Proposed Transferee. If the Shares described in
the Notice are not transferred to the Proposed Transferee within such period, a
new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section, provided that the Purchaser notifies the Company in writing within
thirty (30) days of said transfer. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister. In
such case, the transferee or other recipient shall receive and hold the Shares
so transferred subject to the provisions of this Agreement, including but not
limited to this Section and Section 4, and there shall be no further transfer of
such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the date of the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the 1933 Act.
9. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer.
(a) Purchaser understands and agrees that the Company shall cause
the legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by the Company or by applicable state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE
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<PAGE> 8
"ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A
REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET
FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE
OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
10. Lock-Up Period. Purchaser hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Purchaser shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
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11. Tax Consequences. Set forth below is a brief summary as of the date
of grant of this Stock Purchase Right of some of the federal tax consequences of
exercise of this Stock Purchase Right and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE.
(a) Exercise of Stock Purchase Right. Generally, no income will
be recognized by Purchaser in connection with the exercise of the stock
purchaser right for shares subject to the Repurchase Option, unless an election
under Section 83(b) of the Code is filed with the Internal Revenue Service
within 30 days of the date of exercise of the right to purchase stock. The form
for making this election is attached as Exhibit A-4 hereto. Otherwise, as the
Company's repurchase right lapses, Purchaser will recognize compensation income
in an amount equal to the difference between the Fair Market Value of the stock
at the time the Company's repurchase right lapses and the amount paid for the
stock, if any (the "Spread"). If Purchaser is an Employee or former Employee,
the Spread will be subject to tax withholding by the Company, and the Company
will be entitled to a tax deduction in the amount at the time the Purchaser
recognizes ordinary income with respect to a Stock Purchase Right.
(b) Disposition of Shares. Upon disposition of the Shares, any
gain or loss is treated as capital gain or loss. If the Shares are held for at
least one year, any gain realized on disposition of the shares will be treated
as long-term capital gain for federal income tax purposes. Long-term capital
gains are grouped and netted by holding periods. Net capital gains on assets
held for more than 12 months is capped at 20%. Capital losses are allowed in
full against capital gains, and up to $3,000 against other income.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
12. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES
THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO
4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER AT THE WILL OF
THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER).
PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
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13. Notices. Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
14. No Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party from thereafter
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
15. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
16. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
17. Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
18. Entire Agreement. The Plan is incorporated herein by reference. This
Agreement (including the exhibits referenced herein), the Plan, and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and may not be modified adversely to the
Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
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By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant of Stock Purchase Right.
PURCHASER: AVANEX CORPORATION
By:
- ------------------------------- ----------------------------
Signature
Title:
- ------------------------------- -------------------------
Print Name
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EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, Walter Alessandrini, hereby sell, assign and
transfer unto __________ (__________) shares of the Common Stock of Avanex
Corporation standing in my name of the books of said corporation represented by
Certificate No. _____ herewith and do hereby irrevocably constitute and appoint
__________ to transfer the said stock on the books of the within named
corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Avanex Corporation and the undersigned dated
April 30, 1999.
Dated: _______________, _____ Signature:____________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 13
EXHIBIT A-2
JOINT ESCROW INSTRUCTIONS
April 30, 1999
Corporate Secretary
Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
Dear Sirs:
As Escrow Agent for both Avanex Corporation, a California corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement (the "Repurchase Option"), the
Company shall give to Purchaser and you a written notice specifying the number
of shares of stock to be purchased, the purchase price, and the time for a
closing hereunder at the principal office of the Company. Purchaser and the
Company hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
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4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within ninety (90) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
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12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
COMPANY: Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
PURCHASER: ___________________
___________________
___________________
ESCROW AGENT: Corporate Secretary
Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
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18. The Restricted Stock Purchase Agreement is incorporated herein by
reference. These Joint Escrow Instructions, the 1998 Stock Plan, and the
Restricted Stock Purchase Agreement (including the exhibits referenced therein)
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Escrow Agent, the Purchaser and the Company with respect to
the subject matter hereof, and may not be modified except by means of a writing
signed by the Escrow Agent, the Purchaser and the Company.
19. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Very truly yours,
AVANEX CORPORATION
By:
---------------------------------------------
Title:
------------------------------------------
PURCHASER
------------------------------------------------
(Signature)
------------------------------------------------
(Typed or Printed Name)
ESCROW AGENT:
------------------------------------------------
Corporate Secretary
5
<PAGE> 17
EXHIBIT A-3
CONSENT OF SPOUSE
I, Anna Alessandrini, spouse of Walter Alessandrini, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of granting of the right to my spouse to purchase shares of Avanex
Corporation, as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may have
any rights in said Agreement or any shares issued pursuant thereto under the
community property laws or similar laws relating to marital property in effect
in the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: April 30, 1999 Signature:_____________________________
6
<PAGE> 18
EXHIBIT A-4
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the above-referenced
Federal Tax Code, to include in taxpayer's gross income for the current taxable
year, the amount of any compensation taxable to taxpayer in connection with his
receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME:
TAXPAYER: Walter Alessandrini
SPOUSE: Anna Alessandrini
ADDRESS: 129 Beaver Dam Road, Columbia, South Carolina 29223
IDENTIFICATION NO.: TAXPAYER:###-##-#### SPOUSE:
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described
as follows: 3,477,059 shares (the "Shares") of the Common Stock of Avanex
Corporation (the "Company").
3. The date on which the property was transferred is: April 30, 1999.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on
certain events. This right lapses with regard to a portion of the Shares based
on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will never
lapse, of such property is: $278,164.72.
6. The amount (if any) paid for such property is: $278,164.72.
The undersigned has submitted a copy of this statement to the person for
whom the services were performed in connection with the undersigned's receipt of
the above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
7
<PAGE> 19
The undersigned understands that the foregoing election may not be
revoked except with the consent of the Commissioner.
Dated: April 30, 1999
---------------------------------------------
Walter Alessandrini, Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: April 30, 1999
---------------------------------------------
Anna Alessandrini, Spouse of Taxpayer
8
<PAGE> 20
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: WALTER ALESSANDRINI
COMPANY: AVANEX CORPORATION
SECURITY: COMMON STOCK
AMOUNT: 3,477,059
DATE: APRIL 30, 1999
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to
(b) reach an informed and knowledgeable decision to acquire the
Securities. Purchaser is acquiring these Securities for investment for
Purchaser's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
(c) Purchaser acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. In this connection,
Purchaser understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one (1) year or any other
fixed period in the future. Purchaser further understands that the Securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Securities. Purchaser understands that the certificate evidencing
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the opinion of counsel satisfactory to the Company, a legend prohibiting
their transfer without the consent of the Commissioner of Corporations of the
State of California and any other legend required under applicable state
securities laws.
<PAGE> 21
(d) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Stock Purchase Right to the Purchaser, the
exercise will be exempt from registration under the Securities Act. In the event
the Company becomes subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such
longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three (3) month period not exceeding the limitations specified
in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Stock Purchase Right, then the Securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires the resale to occur not less than one (1) year after the later of the
date the Securities were sold by the Company or the date the Securities were
sold by an affiliate of the Company, within the meaning of Rule 144; and, in the
case of acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two (2) years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(e) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
-------------------------------
Date:________________, ____
2
<PAGE> 22
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
TITLE 10. INVESTMENT - CHAPTER 3. COMMISSIONER OF CORPORATIONS
260.141.11: RESTRICTION ON TRANSFER. (a) THE ISSUER OF ANY SECURITY UPON
WHICH A RESTRICTION ON TRANSFER HAS BEEN IMPOSED PURSUANT TO SECTIONS 260.102.6,
260.141.10 OR 260.534 SHALL CAUSE A COPY OF THIS SECTION TO BE DELIVERED TO EACH
ISSUEE OR TRANSFEREE OF SUCH SECURITY AT THE TIME THE CERTIFICATE EVIDENCING THE
SECURITY IS DELIVERED TO THE ISSUEE OR TRANSFEREE.
(b) IT IS UNLAWFUL FOR THE HOLDER OF ANY SUCH SECURITY TO
CONSUMMATE A SALE OR TRANSFER OF SUCH SECURITY, OR ANY INTEREST THEREIN, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER (UNTIL THIS CONDITION IS REMOVED
PURSUANT TO SECTION 260.141.12 OF THESE RULES), EXCEPT:
(1) TO THE ISSUER;
(2) PURSUANT TO THE ORDER OR PROCESS OF ANY COURT;
(3) TO ANY PERSON DESCRIBED IN SUBDIVISION (i) OF SECTION
25102 OF THE CODE OR SECTION 260.105.14 OF THESE RULES;
(4) TO THE TRANSFEROR'S ANCESTORS, DESCENDANTS OR SPOUSE,
OR ANY CUSTODIAN OR TRUSTEE FOR THE ACCOUNT OF THE TRANSFEROR OR THE
TRANSFEROR'S ANCESTORS, DESCENDANTS, OR SPOUSE; OR TO A TRANSFEREE BY A TRUSTEE
OR CUSTODIAN FOR THE ACCOUNT OF THE TRANSFEREE OR THE TRANSFEREE'S ANCESTORS,
DESCENDANTS OR SPOUSE;
(5) TO HOLDERS OF SECURITIES OF THE SAME CLASS OF THE SAME
ISSUER;
(6) BY WAY OF GIFT OR DONATION INTER VIVOS OR ON DEATH;
(7) BY OR THROUGH A BROKER-DEALER LICENSED UNDER THE CODE
(EITHER ACTING AS SUCH OR AS A FINDER) TO A RESIDENT OF A FOREIGN STATE,
TERRITORY OR COUNTRY WHO IS NEITHER DOMICILED IN THIS STATE TO THE KNOWLEDGE OF
THE BROKER-DEALER, NOR ACTUALLY PRESENT IN THIS STATE IF THE SALE OF SUCH
SECURITIES IS NOT IN VIOLATION OF ANY SECURITIES LAW OF THE FOREIGN STATE,
TERRITORY OR COUNTRY CONCERNED;
(8) TO A BROKER-DEALER LICENSED UNDER THE CODE IN A
PRINCIPAL TRANSACTION, OR AS AN UNDERWRITER OR MEMBER OF AN UNDERWRITING
SYNDICATE OR SELLING GROUP;
(9) IF THE INTEREST SOLD OR TRANSFERRED IS A PLEDGE OR
OTHER LIEN GIVEN BY THE PURCHASER TO THE SELLER UPON A SALE OF THE SECURITY FOR
WHICH THE COMMISSIONER'S WRITTEN CONSENT IS OBTAINED OR UNDER THIS RULE NOT
REQUIRED;
3
<PAGE> 23
(10) BY WAY OF A SALE QUALIFIED UNDER SECTIONS 25111,
25112, 25113 OR 25121 OF THE CODE, OF THE SECURITIES TO BE TRANSFERRED, PROVIDED
THAT NO ORDER UNDER SECTION 25140 OR SUBDIVISION (a) OF SECTION 25143 IS IN
EFFECT WITH RESPECT TO SUCH QUALIFICATION;
(11) BY A CORPORATION TO A WHOLLY OWNED SUBSIDIARY OF SUCH
CORPORATION, OR BY A WHOLLY OWNED SUBSIDIARY OF A CORPORATION TO SUCH
CORPORATION;
(12) BY WAY OF AN EXCHANGE QUALIFIED UNDER SECTION 25111,
25112 OR 25113 OF THE CODE, PROVIDED THAT NO ORDER UNDER SECTION 25140 OR
SUBDIVISION (a) OF SECTION 25143 IS IN EFFECT WITH RESPECT TO SUCH
QUALIFICATION;
(13) BETWEEN RESIDENTS OF FOREIGN STATES, TERRITORIES OR
COUNTRIES WHO ARE NEITHER DOMICILED NOR ACTUALLY PRESENT IN THIS STATE;
(14) TO THE STATE CONTROLLER PURSUANT TO THE UNCLAIMED
PROPERTY LAW OR TO THE ADMINISTRATOR OF THE UNCLAIMED PROPERTY LAW OF ANOTHER
STATE; OR
(15) BY THE STATE CONTROLLER PURSUANT TO THE UNCLAIMED
PROPERTY LAW OR BY THE ADMINISTRATOR OF THE UNCLAIMED PROPERTY LAW OF ANOTHER
STATE IF, IN EITHER SUCH CASE, SUCH PERSON (i) DISCLOSES TO POTENTIAL PURCHASERS
AT THE SALE THAT TRANSFER OF THE SECURITIES IS RESTRICTED UNDER THIS RULE, (ii)
DELIVERS TO EACH PURCHASER A COPY OF THIS RULE, AND (iii) ADVISES THE
COMMISSIONER OF THE NAME OF EACH PURCHASER;
(16) BY A TRUSTEE TO A SUCCESSOR TRUSTEE WHEN SUCH
TRANSFER DOES NOT INVOLVE A CHANGE IN THE BENEFICIAL OWNERSHIP OF THE
SECURITIES;
(17) BY WAY OF AN OFFER AND SALE OF OUTSTANDING SECURITIES
IN AN ISSUER TRANSACTION THAT IS SUBJECT TO THE QUALIFICATION REQUIREMENT OF
SECTION 25110 OF THE CODE BUT EXEMPT FROM THAT QUALIFICATION REQUIREMENT BY
SUBDIVISION (f) OF SECTION 25102; PROVIDED THAT ANY SUCH TRANSFER IS ON THE
CONDITION THAT ANY CERTIFICATE EVIDENCING THE SECURITY ISSUED TO SUCH TRANSFEREE
SHALL CONTAIN THE LEGEND REQUIRED BY THIS SECTION.
(c) THE CERTIFICATES REPRESENTING ALL SUCH SECURITIES SUBJECT TO
SUCH A RESTRICTION ON TRANSFER, WHETHER UPON INITIAL ISSUANCE OR UPON ANY
TRANSFER THEREOF, SHALL BEAR ON THEIR FACE A LEGEND, PROMINENTLY STAMPED OR
PRINTED THEREON IN CAPITAL LETTERS OF NOT LESS THAN 10-POINT SIZE, READING AS
FOLLOWS:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
4
<PAGE> 1
EXHIBIT 10.8
AVANEX CORPORATION
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the 1998 Stock
Plan shall have the same defined meanings in this Restricted Stock Purchase
Agreement (the "Agreement").
I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT
You have been granted the right to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Agreement, as follows:
Date of Grant
Vesting Commencement Date:
Exercise Price Per Share
Total Number of Shares Subject
to This Stock Purchase Right
Total Exercise Price
Expiration Date
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
Non-Transferability of Stock Purchase Right.
This Stock Purchase Right may not be transferred in any manner otherwise
than by will or by the laws of descent or distribution and may be exercised
during the lifetime of Optionee only by Optionee. The terms of the Plan and this
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
II. AGREEMENT
1. Sale of Stock. The Company hereby agrees to sell to the individual
named in the Notice of Grant of Stock Purchase Right (the "Purchaser"), and the
Purchaser hereby agrees to purchase the number of Shares set forth in the Notice
of Grant of Stock Purchase Right, at the exercise price per share set forth in
the Notice of Grant of Stock Purchase Right (the "Exercise
<PAGE> 2
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to 14(c) of the Plan, in the event of
a conflict between the terms and conditions of the Plan and this Agreement, the
terms and conditions of the Plan shall prevail.
2. Payment of Purchase Price. Purchaser herewith delivers to the Company
the aggregate Exercise Price for the Shares by cash or check or promissory note
in the form of Exhibit C secured by the shares pursuant to a Security Agreement
in the form of Exhibit D.
3. Purchaser's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Stock
Purchase Right is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Stock Purchase
Right, deliver to the Company his or her Investment Representation Statement in
the form attached hereto as Exhibit B.
4. Repurchase Option.
(a) In the event the Purchaser's continuous status as a Service
Provider terminates for any or no reason (including death or Disability), the
Company shall, upon the date of such termination (as reasonably fixed and
determined by the Company), have an irrevocable, exclusive option for a period
of ninety (90) days from such date to repurchase up to that number of shares
which constitute the Unreleased Shares (as defined in Section 5) at the Exercise
Price per share (the "Repurchase Price") (the "Repurchase Option").
(b) The Repurchase Option shall be exercised by the Company by
delivering written notice to the Purchaser or the Purchaser's executor (with a
copy to the Escrow Holder (as defined in Section 7)) AND, at the Company's
option, (i) by delivering to the Purchaser or the Purchaser's executor a check
in the amount of the aggregate Repurchase Price, or (ii) by the Company
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals such aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price in any of the ways described above, the Company shall become
the legal and beneficial owner of the Unreleased Shares being repurchased and
all rights and interests therein or relating thereto, and the Company shall have
the right to retain and transfer to its own name the number of Unreleased Shares
being repurchased by the Company.
(c) Whenever the Company shall have the right to repurchase the
Unreleased Shares hereunder, the Company may designate and assign one or more
employees, officers, directors or shareholders of the Company or other persons
or organizations to exercise all or a part of the Company's Repurchase Option to
purchase all or a part of the Unreleased Shares. If the Fair Market Value of the
Unreleased Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of the
Unreleased Shares, then each such designee or assignee shall pay the Company
cash equal to the difference between the Repurchase FMV and the aggregate
Repurchase Price of Unreleased Shares to be purchased.
2
<PAGE> 3
(d) If the Company or its assignee does not elect to exercise the
Repurchase Option conferred above by giving the requisite notice within ninety
(90) days following Purchaser's termination as a Service Provider, the
Repurchase Option shall terminate.
5. Release of Shares From Repurchase Option.
(a) As of the date of this Agreement, all of the Shares shall be
subject to the Company's Repurchase Option. The Shares shall be released from
the Repurchase Option as follows:
(i) One quarter (1/4) of the Shares shall be released from
the Repurchase Option on October 9, 2000; and
(ii) One forty-eighth (1/48) shall be released from the
Repurchase Option each full calendar month elapsing thereafter during all of
which Purchaser was a full time employee of the Company.
(b) Any of the Shares which, from time to time, have not yet been
released from the Repurchase Option are referred to herein as "Unreleased
Shares."
(c) The Shares which have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 7).
(d) Notwithstanding the foregoing, upon a Change of Control, as
defined below, for any reason that occurs while Purchaser is an employee of the
Company, that number of Unreleased Shares, if any, which, when aggregated with
any Shares previously released from the Repurchase Option, are required to equal
fifty percent (50%) of the Shares shall be released from the Repurchase Option
on the date the event constituting a Change of Control is consummated. The
balance of the Shares subject to the Repurchase Option shall continue to be
released from the Repurchase Option on the same schedule (i.e., the same number
of shares shall vest each month) as existed prior to the Change of Control. For
example, if a Change of Control occurs on a date where 25% of Purchaser's Shares
have been released from the Company's Purchase Option, then an additional 25% of
the Shares shall be released from the Purchase Option pursuant hereto. The
remaining 50% of the Shares shall vest at the rate of 1/48th of the Shares per
month thereafter, such that all Shares are fully vested after an additional
24-month period. If a Change of Control occurs on a date where more than 50% of
Purchaser's Shares have already been released from the Company's Purchase
Option, then no additional Shares shall be released from the Purchase Option.
For the purposes of the foregoing, a Change of Control shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or
3
<PAGE> 4
more of the total voting power represented by the Company's then outstanding
voting securities other than in a private financing transaction approved by the
Board of Directors;
(ii) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company;
(iii) a merger or consolidation in which the Company is a
party and in which the shareholders of the Company before such merger or
consolidation do not retain, directly or indirectly, at a least majority of the
beneficial interest in the voting stock of the Company after such transaction;
or
(iv) the sale or disposition by the Company of all or
substantially all the Company's assets.
(e) Acceleration Upon Termination of Employment. In addition to
the Shares released from the Company's Repurchase Option pursuant to Section
4(d) above, in the event the Purchaser's employment terminates as a result of an
Involuntary Termination other than for Cause upon or within 12 months after a
Change of Control, all Unreleased Shares shall be released from the Company's
Purchase Option upon the date of such termination.
For the purposes of this Section 5(e), the following terms referred to
in this Agreement shall have the following meanings:
(i) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Purchaser in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Purchaser, (ii) conviction of a felony that is injurious to the Company, and
(iii) a willful act by the Purchaser which constitutes gross misconduct and
which is injurious to the Company.
(ii) Disability. "Disability" shall mean that the
Purchaser has been unable to substantially perform his duties as the result of
his incapacity due to physical or mental illness, and such inability, at least
26 weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Purchaser or the Purchaser's legal representative (such agreement as to
acceptability not to be unreasonably withheld).
(iii) Involuntary Termination. "Involuntary Termination"
shall mean (i) without the Purchaser's express written consent, the significant
reduction of the Purchaser's duties or responsibilities relative to the
Purchaser's duties or responsibilities in effect immediately prior to such
reduction; provided, however, that a reduction in duties or responsibilities
solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Financial Officer of Company remains as such
following a Change of Control and is not made the Chief Financial Officer of the
acquiring corporation) shall not constitute an "Involuntary Termination"; (ii)
without the Purchaser's express written consent, a substantial reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available
4
<PAGE> 5
to the Purchaser immediately prior to such reduction; (iii) without the
Purchaser's express written consent, a material reduction by the Company in the
base compensation of the Purchaser as in effect immediately prior to such
reduction, or the ineligibility of the Purchaser to continue to participate in
any long-term incentive plan of the Company; (iv) a material reduction by the
Company in the kind or level of employee benefits to which the Purchaser is
entitled immediately prior to such reduction with the result that the
Purchaser's overall benefits package is significantly reduced; (v) the
relocation of the Purchaser to a facility or a location more than 50 miles from
the Purchaser's then present location, without the Purchaser's express written
consent; (vi) any purported termination of the Purchaser by the Company which is
not effected for death or Disability or for Cause, or any purported termination
for which the grounds relied upon are not valid; or (vii) the failure of the
Company to obtain the assumption of this agreement by any successors
contemplated in Section 4(f) below.
(f) The Shares which have been released from the Company's
Repurchase Option shall be delivered to the Purchaser at the Purchaser's
request.
6. Restriction on Transfer. Except for the escrow described in Section 7
or transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until the release of
such Shares from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
7. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon exercise of the Repurchase Option by the Company, the
Purchaser shall, upon execution of this Agreement, deliver and deposit with an
escrow holder designated by the Company (the "Escrow Holder") the share
certificates representing the Unreleased Shares, together with the Assignment
Separate from Certificate (the "Stock Assignment") duly endorsed in blank,
attached hereto as Exhibit A-1. The Unreleased Shares and Stock Assignment shall
be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the
Company and Purchaser attached as Exhibit A-2 hereto, until such time as the
Company's Repurchase Option expires. As a further condition to the Company's
obligations under this Agreement, the spouse of Purchaser, if any, shall execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-3.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow and while
acting in good faith and in the exercise of its judgment and the Company shall
hold Escrow Holder harmless from any and all such liability, including attorneys
fees and other expenses of defending against the assertion of any such claim.
(c) If the Company or any assignee exercises its Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
option exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
5
<PAGE> 6
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from such Repurchase
Option, upon Purchaser's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released Shares and shall deliver such
certificate to the Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Company's Repurchase Option.
8. Company's Right of First Refusal. Before any Shares held by Purchaser
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this (the "Right of
First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
(i) the Offered Price in the case of Shares that are not Unreleased Shares, or
(ii) in the case of Shares that are Unreleased Shares, the lower of the Offered
Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), (i) by cash or check, (ii) by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee,
6
<PAGE> 7
to the assignee), or (iii) by any combination thereof within thirty (30) days
after receipt of the Notice or in the manner and at the times set forth in the
Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within one hundred twenty (120) days after the date of the Notice
and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply to
the Shares in the hands of such Proposed Transferee. If the Shares described in
the Notice are not transferred to the Proposed Transferee within such period, a
new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section, provided that the Purchaser notifies the Company in writing within
thirty (30) days of said transfer. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister. In
such case, the transferee or other recipient shall receive and hold the Shares
so transferred subject to the provisions of this Agreement, including but not
limited to this Section and Section 4, and there shall be no further transfer of
such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the date of the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the 1933 Act.
9. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer.
(a) Purchaser understands and agrees that the Company shall cause
the legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by the Company or by applicable state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER,
7
<PAGE> 8
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST
REFUSAL, AND A REPURCHASE OPTION HELD BY THE ISSUER OR
ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK
PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE
OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
10. Lock-Up Period. Purchaser hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Purchaser shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
11. Tax Consequences. Set forth below is a brief summary as of the date
of grant of this Stock Purchase Right of some of the federal tax consequences of
exercise of this Stock Purchase Right and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE.
(a) Exercise of Stock Purchase Right. Generally, no income will
be recognized by Purchaser in connection with the exercise of the stock
purchaser right for shares subject to the Repurchase Option, unless an election
under Section 83(b) of the Code is filed with the Internal
8
<PAGE> 9
Revenue Service within 30 days of the date of exercise of the right to purchase
stock. The form for making this election is attached as Exhibit A-4 hereto.
Otherwise, as the Company's repurchase right lapses, Purchaser will recognize
compensation income in an amount equal to the difference between the Fair Market
Value of the stock at the time the Company's repurchase right lapses and the
amount paid for the stock, if any (the "Spread"). If Purchaser is an Employee or
former Employee, the Spread will be subject to tax withholding by the Company,
and the Company will be entitled to a tax deduction in the amount at the time
the Purchaser recognizes ordinary income with respect to a Stock Purchase Right.
(b) Disposition of Shares. Upon disposition of the Shares, any
gain or loss is treated as capital gain or loss. If the Shares are held for at
least one year, any gain realized on disposition of the shares will be treated
as long-term capital gain for federal income tax purposes. Long-term capital
gains are grouped and netted by holding periods. Net capital gains on assets
held for more than 12 months is capped at 20%. Capital losses are allowed in
full against capital gains, and up to $3,000 against other income.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
12. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES
THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO
SECTION 12 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES
HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
13. Notices. Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
14. No Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor
9
<PAGE> 10
prevent that party from thereafter enforcing each and every other provision of
this Agreement. The rights granted both parties herein are cumulative and shall
not constitute a waiver of either party's right to assert all other legal
remedies available to it under the circumstances.
15. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
16. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
17. Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
18. Entire Agreement. The Plan is incorporated herein by reference. This
Agreement (including the exhibits referenced herein), the Plan, and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and may not be modified adversely to the
Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
10
<PAGE> 11
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant of Stock Purchase Right.
PURCHASER: AVANEX CORPORATION
By:
- ----------------------------------- --------------------------------
Signature
Title:
- ----------------------------------- -----------------------------
Print Name
Date: October 8, 1999
11
<PAGE> 12
EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, _______________, hereby sell, assign and transfer
unto ____________ (__________) shares of the Common Stock of Avanex Corporation
standing in my name of the books of said corporation represented by Certificate
No. _____ herewith and do hereby irrevocably constitute and appoint __________
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Avanex Corporation and the undersigned dated
_______________.
Dated: , Signature:
--------------- ----- ------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 13
EXHIBIT A-2
JOINT ESCROW INSTRUCTIONS
---------------------
Corporate Secretary
Avanex Corporation
40915 Encyclopedia Circle
Fremont, CA 94538-2436
Dear Sirs:
As Escrow Agent for both Avanex Corporation, a California corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement (the "Repurchase Option"), the
Company shall give to Purchaser and you a written notice specifying the number
of shares of stock to be purchased, the purchase price, and the time for a
closing hereunder at the principal office of the Company. Purchaser and the
Company hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE> 14
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within ninety (90) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
2
<PAGE> 15
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
COMPANY: Avanex Corporation
40915 Encyclopedia Circle
Fremont, CA 94538-2436
PURCHASER:
--------------------
---------------------------------------
---------------------------------------
ESCROW AGENT: Corporate Secretary
Avanex Corporation
40915 Encyclopedia Circle
Fremont, CA 94538-2436
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. The Restricted Stock Purchase Agreement is incorporated herein by
reference. These Joint Escrow Instructions, the 1998 Stock Plan, and the
Restricted Stock Purchase Agreement (including the exhibits referenced therein)
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of
3
<PAGE> 16
the Escrow Agent, the Purchaser and the Company with respect to the subject
matter hereof, and may not be modified except by means of a writing signed by
the Escrow Agent, the Purchaser and the Company.
19. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Very truly yours,
AVANEX CORPORATION
By:
-------------------------------------
Title:
----------------------------------
PURCHASER
----------------------------------------
(Signature)
----------------------------------------
(Typed or Printed Name)
ESCROW AGENT:
----------------------------------------
Corporate Secretary
4
<PAGE> 17
EXHIBIT A-3
CONSENT OF SPOUSE
I, ___________________, spouse of ______________, have read and approve
the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of granting of the right to my spouse to purchase shares of Avanex
Corporation, as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may have
any rights in said Agreement or any shares issued pursuant thereto under the
community property laws or similar laws relating to marital property in effect
in the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: , 1999 Signature:
-------- ----------------------------------
<PAGE> 18
EXHIBIT A-4
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the above-referenced
Federal Tax Code, to include in taxpayer's gross income for the current taxable
year, the amount of any compensation taxable to taxpayer in connection with his
receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME:
TAXPAYER:
--------------------
SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER:
SPOUSE:
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described
as follows: 90,000 shares (the "Shares") of the Common Stock of Avanex
Corporation (the "Company").
3. The date on which the property was transferred is:.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on
certain events. This right lapses with regard to a portion of the Shares based
on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will never
lapse, of such property is: $
6. The amount (if any) paid for such property is: $
The undersigned has submitted a copy of this statement to the person for
whom the services were performed in connection with the undersigned's receipt of
the above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be
revoked except with the consent of the Commissioner.
Dated: , 1999
-------- ---------------------------------------------
, Taxpayer
-----------------
The undersigned spouse of taxpayer joins in this election.
Dated: , 1999
-------- ---------------------------------------------
<PAGE> 19
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER:
--------------------
COMPANY: AVANEX CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
--------------------
DATE:
--------------------
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to
(b) reach an informed and knowledgeable decision to acquire the
Securities. Purchaser is acquiring these Securities for investment for
Purchaser's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
(c) Purchaser acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. In this connection,
Purchaser understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one (1) year or any other
fixed period in the future. Purchaser further understands that the Securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Securities.
(d) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Stock Purchase Right to the Purchaser, the
exercise will be exempt from registration under the Securities Act. In the event
the Company becomes subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, ninety (90) days
<PAGE> 20
thereafter (or such longer period as any market stand-off agreement may require)
the Securities exempt under Rule 701 may be resold, subject to the satisfaction
of certain of the conditions specified by Rule 144, including: (1) the resale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, (3) the amount of
Securities being sold during any three (3) month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form 144,
if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Stock Purchase Right, then the Securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires the resale to occur not less than one (1) year after the later of the
date the Securities were sold by the Company or the date the Securities were
sold by an affiliate of the Company, within the meaning of Rule 144; and, in the
case of acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two (2) years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(e) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
---------------------------------------------
Date: ,
---------------- ----
2
<PAGE> 21
PROMISSORY NOTE
__________ ________________
FOR VALUE RECEIVED, ______________ ("Borrower") promises to pay
to Avanex Corporation (the "Company"), or order, the principal sum of _________
_______________________________________, together with interest on the unpaid
principal hereof from the date hereof at the rate of _____ per annum, compounded
semiannually.
Principal and interest shall be due and payable on October 8,
2004. Should the undersigned fail to make full payment of principal or interest
for a period of 10 days or more after the due date thereof, the whole unpaid
balance on this Note of principal and interest shall become immediately due at
the option of the holder of this Note. Payments of principal and interest shall
be made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Stock Purchase Agreement
between Borrower and the Company and dated as of October 8, 1999. This Note is
secured in part by a pledge of the Company's Common Stock under the terms of a
Security Agreement of even date herewith and is subject to all the provisions
thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be due and payable thirty days after the date of such
termination.
Should any action be instituted for the collection of this Note,
the reasonable costs and attorneys' fees therein of the holder shall be paid by
the undersigned.
-----------------------------------
<PAGE> 22
SECURITY AGREEMENT
This Security Agreement is made as of _________, 1999 between
Avanex Corporation ("Pledgee"), ______________ ("Pledgor") and the Secretary of
Pledgee as "Pledgeholder."
Recitals
A. Pledgor has incurred payment obligations (the "Payment
Obligations") to Pledgee set forth in a Promissory Note of even date herewith.
B. Pledgor desires to provide a security interest in all of the
Pledgor's shares of Common
Stock of the Pledgee, all options, and similar rights to acquire such
capital stock or interests, and all rights to receive profits or surplus or
other dividends or distributions from the Pledgee to its shareholders, in each
case whether now owned or existing or hereafter acquired or arising, wherever
located, together with all substitutions, replacements, (the "Shares") to secure
performance by Pledgor of the Payment Obligations, all as more specifically set
forth in this Pledge Agreement.
NOW, THEREFORE, it is agreed as follows:
(1) Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Stock Purchase Agreement (the
"Agreement), Pledgor, pursuant to the California Commercial Code, hereby pledges
all of such Shares (herein sometimes referred to as the "Collateral")
represented by certificate number __, duly endorsed in blank or with executed
stock powers, and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Shares to Pledgee if,
as and when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Agreement, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
<PAGE> 23
(2) Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at
the time and in the manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve
Board and Pledgee is classified as a "lender" within the meaning
of the regulations under Part 207 of Title 12 of the Code of
Federal Regulations ("Regulation G"), Pledgor agrees to cooperate
with Pledgee in making any amendments to the Note or providing
any additional collateral as may be necessary to comply with such
regulations.
(3) Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
(4) Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
(5) Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
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<PAGE> 24
(6) Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Agreement or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee
shall have the right to accelerate payment of the Note upon notice to Pledgor,
and Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.
(7) Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
(8) Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
(9) Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
(10) Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
(11) Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
(12) Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
(13) Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term
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<PAGE> 25
"Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for
all purposes, the respective designees, successors, assigns, heirs, executors
and administrators.
(14) Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"PLEDGOR" By:
------------------------------------
Address:
"PLEDGEE" Avanex Corporation
By:
------------------------------------
President
"PLEDGEHOLDER"
----------------------------------------
Secretary of Avanex Corporation
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<PAGE> 1
EXHIBIT 10.9
- --------------------------------------------------------------------------------
AVANEX CORPORATION
SERIES A PREFERRED, SERIES B PREFERRED AND
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 Authorization and Sale of Preferred Stock 1
1.1 Authorization 1
1.2 Sale of the Shares 1
1.3 Additional Sales of Preferred Stock 2
SECTION 2 Closing Date; Delivery 2
2.1 Closing Date 2
2.2 Delivery 3
SECTION 3 Representations and Warranties of the Company 3
3.1 Organization and Standing; Qualification 3
3.2 Corporate Power 4
3.3 Subsidiaries 4
3.4 Capitalization 4
3.5 Authorization 4
3.6 Title to Properties and Assets; Liens, etc 5
3.7 Patents, Trademarks, etc 5
3.8 Agreements 5
3.9 Material Contracts and Commitments 6
3.10 Compliance with Other Instruments, None Burdensome, etc. 6
3.11 Litigation, etc 6
3.12 Employees 6
3.13 Employee Agreements 7
3.14 No Conflict of Interest 7
3.15 No Financial Statements 7
3.16 Insurance 7
3.17 Qualified Small Business Stock 7
3.18 Registration Rights 7
3.19 Governmental Consent, etc 8
3.20 Permits 8
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
3.21 Environmental and Safety Laws 8
3.22 Brokers or Finders 8
3.23 Disclosures 8
3.24 Employee Benefit Plans 8
3.25 Minute Books 8
SECTION 4 Representations and Warranties of the Purchasers 9
4.1 Investment Representations and Covenants of the Purchasers 9
4.2 No Public Market 10
4.3 Receipt of Information 10
4.4 Authorization 11
4.5 Consents 11
SECTION 5 Conditions to Obligations of Purchasers in the Series A Closing 11
5.1 Representations and Warranties Correct 11
5.2 Covenants 11
5.3 Employees 11
5.4 Opinion of Company's Counsel 11
5.5 Compliance Certificate 12
5.6 Blue Sky 12
5.7 Board of Directors 12
5.8 Restated Articles 12
5.9 No Material Adverse Change 12
5.10 Shareholder Rights Agreement 12
5.11 Co-Sale Agreement 12
5.12 Voting Agreement 12
SECTION 6 Conditions to the Obligations of Purchasers in the Series B Closing 12
6.1 Representations 12
6.2 Covenants 13
6.3 Compliance Certificate 13
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
6.4 Fulfillment of Series B Milestones 13
6.5 Opinion of Company's Counsel 13
SECTION 7 Conditions to the Obligations of Purchasers in the Series C Closing 13
7.1 Representations 13
7.2 Covenants 13
7.3 Compliance Certificate 13
7.4 Fulfillment of Series C Milestones 14
7.5 Opinion of Company's Counsel 14
SECTION 8 Conditions to the Obligations of the Company in the Series A Closing 14
8.1 Representations 14
8.2 Blue Sky 14
8.3 Shareholder Rights Agreement 14
8.4 Legal Matters 14
SECTION 9 Conditions to the Obligations of the Company in the Series B Closing 14
9.1 Representations 14
9.2 Blue Sky 15
9.3 Legal Matters 15
SECTION 10 Conditions to the Obligations of the Company in the Series C Closing 15
10.1 Representations 15
10.2 Blue Sky 15
10.3 Legal Matters 15
SECTION 11 Miscellaneous 15
11.1 Governing Law 15
11.2 Survival 15
11.3 Successors and Assigns 16
11.4 Entire Agreement; Amendment 16
11.5 Notices, etc 16
11.6 Delays or Omissions 16
11.7 California Corporate Securities Law 16
</TABLE>
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<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
11.8 Expenses 17
11.9 Finder's Fee 17
11.10 Counterparts 17
11.11 Severability 17
11.12 Gender 17
11.13 Headings 17
</TABLE>
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<PAGE> 6
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
A. Schedule of Purchasers
B. First Amended and Restated Articles of Incorporation
C. Schedule of Exceptions
D. Shareholder Rights Agreement
E. Co-Sale Agreement
F. Voting Agreement
G. Opinion of Wilson Sonsini Goodrich & Rosati
H. Series B Preferred and Series C Preferred Milestones
</TABLE>
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<PAGE> 7
AVANEX CORPORATION
SERIES A PREFERRED, SERIES B PREFERRED AND
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of February ___, 1998, by and among Avanex
Corporation, a California corporation (the "Company"), with its principal office
at 2202 Ensenada Way, San Mateo, California 94403, and the persons and entities
listed on the Schedule of Purchasers attached as Exhibit A hereto (the
"Purchasers").
SECTION 1
Authorization and Sale of Preferred Stock
1.1 Authorization.
(a) Series A Preferred Stock. The Company has, or before the
Series A Closing Date (as that term is hereinafter defined) will have,
authorized the sale and issuance of up to 4,600,000 shares of its Series A
Preferred Stock ("Series A Preferred" or, together with the shares of Series B
Preferred Stock described in Section 1.1(b) below and Series C Preferred Stock
described in Section 1.1(c) below, the "Shares") and up to 4,600,000 shares of
Common Stock issuable upon conversion of the Series A Preferred pursuant to the
First Amended and Restated Articles of Incorporation of the Company, in the form
attached hereto as Exhibit B (the "Restated Articles"). The Series A Preferred
shall be sold for a purchase price of $0.223 per share.
(b) Series B Preferred Stock. The Company has, or before the
Series A Closing Date (as that term is hereinafter defined) will have,
authorized the sale and issuance of up to 6,350,000 shares of its Series B
Preferred Stock ("Series B Preferred" or, as described in Section 1.1(a) above,
the "Shares") and up to 6,350,000 shares of Common Stock issuable upon
conversion of the Series B Preferred pursuant to the Restated Articles. The
Series B Preferred shall be sold for a purchase price of $0.40 per share.
(c) Series C Preferred Stock. The Company has, or before the
Series A Closing Date (as that term is hereinafter defined) will have,
authorized the sale and issuance of up to 7,350,000 shares of its Series C
Preferred Stock ("Series C Preferred" or, as described in Section 1.1(a) above,
the "Shares") and up to 7,350,000 shares of Common Stock issuable upon
conversion of the Series C Preferred pursuant to the Restated Articles. The
Series C Preferred shall be sold for a purchase price of $0.756 per share.
1.2 Sale of the Shares. Subject to the terms and conditions hereof, the
Company will issue and sell to each of the Purchasers, and the Purchasers will
severally buy from the Company, the number of shares (the "Shares") of Series A
Preferred, Series B Preferred and Series C Preferred specified opposite each
Purchaser's name on the Schedule of Purchasers, at the aggregate purchase price
set forth
<PAGE> 8
therein. The Company's agreements with each of the Purchasers are separate
agreements, and the sales of the Shares to each of the Purchasers are separate
sales.
1.3 Additional Sales of Preferred Stock. Any of the authorized shares of
Preferred Stock not sold at the Series A Closing, Series B Closing or Series C
Closing, as defined below, may be sold to one or more additional purchasers at a
subsequent closing(s) to be held at any time before ninety (90) days after the
applicable Closing Date, provided that each such purchaser agrees to be bound by
the terms hereof as a "Purchaser" hereunder and provided further that any such
sale or sales be on terms identical to the terms contained in this Agreement,
and each subsequent Purchaser shall become a party to this Agreement (and
Exhibit A hereto shall be amended to include such subsequent Purchaser) and the
Shareholder Rights Agreement, the form of which is attached hereto as Exhibit D.
The shares of Preferred Stock sold at such additional closing(s) shall be deemed
to be "Shares" hereunder and the purchasers thereof shall be deemed to be
"Purchasers" hereunder.
SECTION 2
Closing Date; Delivery
2.1 Closing Date.
(a) Series A Closing Date. The closing of the purchase and sale
of the Series A Preferred shall be held at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, at 10:00 a.m.,
local time, on or prior to February ___, 1998 or at such other time and place
upon which the Company and the Purchasers shall agree (which time and place
shall be referred to as the "Series A Closing" and the date of the Series A
Closing is hereinafter referred to as the "Series A Closing Date").
(b) Series B Closing Date. In addition, within ten (10) business
days following delivery of notice by the Company that the conditions set forth
in Section 6 below have been satisfied, the closing of the purchase and sale of
the Series B Preferred shall be held at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California (which time and place shall be
referred to as the "Series B Closing" and the date of the Series B Closing is
hereinafter referred to as the "Series B Closing Date"). Such Series B Closing
shall be held on such date and at such time as the parties agree and absent such
agreement, on the tenth (10th) business day following delivery of the foregoing
described notice at 10:00 a.m., local time.
(c) Series C Closing Date. In addition, within ten (10) business
days following delivery of notice by the Company that the conditions set forth
in Section 7 below have been satisfied, the closing of the purchase and sale of
the Series C Preferred shall be held at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California (which time and place shall be
referred to as the "Series C Closing" and the date of the Series C Closing is
hereinafter referred to as the "Series C Closing Date"). Such Series C Closing
shall be held on such date and at such time as the
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<PAGE> 9
parties agree and absent such agreement, on the tenth (10th) business day
following delivery of the foregoing described notice at 10:00 a.m., local time.
(d) The Series A Closing, the Series B Closing and the Series C
Closing shall sometimes be referred to individually herein as a "Closing."
2.2 Delivery.
(a) Series A Preferred. At the Series A Closing, the Company will
issue to each Purchaser a certificate or certificates registered in such
Purchaser's name as set forth on the Schedule of Purchasers attached hereto as
Exhibit A, representing the number of shares of Series A Preferred set forth
opposite such Purchaser's name on such Schedule of Purchasers against payment of
the purchase price therefor. Such payment shall be by check or wire transfer
payable to the Company or by the cancellation of outstanding indebtedness.
(b) Series B Preferred. At the Series B Closing, the Company will
issue to each Purchaser a certificate or certificates registered in such
Purchaser's name as set forth on the Schedule of Purchasers attached hereto as
Exhibit A, representing the number of shares of Series B Preferred set forth
opposite such Purchaser's name on such Schedule of Purchasers against payment of
the purchase price therefor. Such payment shall be by check or wire transfer
payable to the Company or by the cancellation of outstanding indebtedness.
(c) Series C Preferred. At the Series C Closing, the Company will
issue to each Purchaser a certificate or certificates registered in such
Purchaser's name as set forth on the Schedule of Purchasers attached hereto as
Exhibit A, representing the number of shares of Series C Preferred set forth
opposite such Purchaser's name on such Schedule of Purchasers against payment of
the purchase price therefor. Such payment shall be by check or wire transfer
payable to the Company or by the cancellation of outstanding indebtedness.
SECTION 3
Representations and Warranties of the Company
Except as set forth on the Schedule of Exceptions attached as Exhibit C
hereto, the Company hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing; Qualification. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted. The Company is not qualified to do
business as a foreign corporation in any jurisdiction and such qualification is
not presently required.
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<PAGE> 10
3.2 Corporate Power. The Company will have at the Closing Date all
requisite legal and corporate power to execute and deliver this Agreement, the
Shareholder Rights Agreement attached hereto as Exhibit D (the "Shareholder
Rights Agreement"), the Co-Sale Agreement attached hereto as Exhibit E (the
"Co-Sale Agreement") and the Voting Agreement attached hereto as Exhibit F, to
sell, issue and deliver the Shares hereunder, to issue the Common Stock issuable
upon conversion of the Shares (the "Conversion Shares") and to carry out and
perform its obligations under the terms of this Agreement, the Shareholder
Rights Agreement, the Co-Sale Agreement and the Voting Agreement.
3.3 Subsidiaries. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock, of which 4,200,000 shares are issued and
outstanding, 4,600,000 shares of Series A Preferred Stock ("Series A
Preferred"), none of which are issued and outstanding prior to the Series A
Closing Date, 6,350,000 shares of Series B Preferred Stock ("Series B
Preferred"), none of which are issued and outstanding prior to the Series A
Closing Date, and 7,350,000 shares of Series C Preferred, none of which are
issued or outstanding prior to the Series A Closing Date. All such issued and
outstanding shares have been duly authorized and validly issued, are fully paid
and nonassessable and have been issued in compliance with all applicable federal
and state securities laws. The Company has reserved (i) 4,600,000 shares of
Common Stock for issuance upon conversion of the Series A Preferred, 6,350,000
shares of Common Stock for issuance upon conversion of the Series B Preferred,
and 7,350,000 shares of Common Stock for issuance upon conversion of the Series
C Preferred and (ii) 10,200,000 shares of Common Stock for issuance to employees
pursuant to the Company's 1998 Stock Plan, none of which are subject to
outstanding options, and 7,800,000 of which remain available for future grant.
The Series A Preferred, Series B Preferred and Series C Preferred shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Articles. Except as set forth in Exhibit C hereto, and as set forth in the
Shareholder Rights Agreement, there are no options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of capital stock or other securities
of the Company. Except for the Shareholders Rights Agreement, the Company is not
a party or subject to any agreement or understanding which affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company. Assuming the accuracy of each Purchaser's
representations in Section 4 below, upon issuance in accordance with this
Agreement and the Company's Restated Articles, the Shares will have been issued
in compliance with all federal and state securities laws.
3.5 Authorization. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement, the Shareholder Rights Agreement, the Co-Sale
Agreement and the Voting Agreement by the Company, the authorization, sale,
issuance and delivery of the Shares (and the Conversion Shares) and the
performance of the Company's obligations hereunder has been taken or will be
taken prior to the Closing. This Agreement, the Shareholder Rights Agreement,
the Co-Sale Agreement and the Voting Agreement, when executed and delivered by
the Company, shall constitute the valid and binding obligations of the Company
enforceable in accordance with their respective terms. The Shares, when
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<PAGE> 11
issued in compliance with the provisions of this Agreement and the Company's
Restated Articles, will be duly and validly issued, fully paid and
nonassessable. The Common Stock issuable upon conversion of the Shares has been
duly and validly reserved and, when issued in compliance with the provisions of
this Agreement and the Company's Restated Articles, will be duly and validly
issued, fully paid and nonassessable.
3.6 Title to Properties and Assets; Liens, etc. The Company has good and
marketable title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen otherwise than
in the ordinary course of business.
3.7 Patents, Trademarks, etc. The Company owns or has the right to use,
free and clear of all liens, charges, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses and
proprietary rights necessary to its business as now conducted, and is not
infringing upon or otherwise acting adversely to the right or claimed right of,
to the Company's knowledge, any person under or with respect to any of the
foregoing. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as currently proposed, would violate any
patent, trademark, service mark, trade name, copyright or trade secret or other
proprietary right of any other person or entity. To the Company's knowledge,
after reasonable investigation, none of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as currently proposed to be conducted. Neither the execution
nor delivery of this Agreement, the Shareholders Rights Agreement or the Co-Sale
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as currently proposed to be
conducted, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe, after reasonable investigation, that it is or will be necessary to
utilize any inventions of any of the Company's employees (or people it currently
intends to hire) made prior to their employment by the Company.
3.8 Agreements. There are no agreements, understandings, instruments,
contracts or transactions currently in negotiation, which the Company is a party
that may involve (i) obligations (contingent or otherwise) of, or payments to
the Company in excess of, $10,000, (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company or (iii)
indemnification by the Company with respect to infringements of proprietary
rights.
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<PAGE> 12
3.9 Material Contracts and Commitments. Neither the Company, nor, to the
knowledge of the Company, any third party is in default under any material
contract, agreement or instrument to which the Company is a party.
3.10 Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of its Restated Articles or Bylaws, or
in any material respect of any term or provision of any mortgage, indenture,
contract, agreement, instrument, judgment or decree to which it is a party, and
the Company is not in violation of any federal or state judgment, order,
statute, law, rule or regulation applicable to the Company, which violation
would have a material adverse effect on the Company's business. The execution,
delivery and performance of and compliance with this Agreement, the Shareholder
Rights Agreement and the Co-Sale Agreement and the issuance of the Shares and
the Conversion Shares, will not result in any violation of, or conflict with, or
constitute a default under, any material contract, agreement, instrument or
mortgage, or any pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company; and there is no such violation or default or event
which, with the passage of time or giving of notice or both, would constitute a
violation or default which materially and adversely affects the business of the
Company or any of its properties or assets.
3.11 Litigation, etc. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the Company's knowledge, is there any threat
thereof or basis therefor), which, either in any case or in the aggregate, would
result in any material adverse change in the business or financial condition of
the Company or any of its properties or assets, or in any material impairment of
the right or ability of the Company to carry on its business as now conducted or
as proposed to be conducted, or in any material liability on the part of the
Company, and none which questions the validity of this Agreement, the
Shareholders Rights Agreement or the Co-Sale Agreement, or any action taken or
to be taken in connection herewith or therewith. The foregoing includes, without
limitation, any action, suit, proceeding, or investigation pending or, to the
Company's knowledge, currently threatened involving the prior employment of any
of the Company's employees, such employees' use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, such employees' obligations under any agreements with prior
employers, or negotiations by the Company with potential backers of, or
investors in, the Company or its proposed business. The Company is not a party
to, or to its knowledge, named in any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit or proceeding by the Company currently pending or that the Company
currently intends to initiate.
3.12 Employees. To the Company's knowledge, no employee of the Company
is in violation of any term of any employment contract, patent disclosure
agreement or any other contract or agreement relating to the relationship of any
such employee with the Company or any other party because of the nature of the
business conducted or to be conducted by the Company. The Company does not have
any collective bargaining agreements covering any of its employees. The
employment of each officer and employee of the Company is terminable at the will
of the Company.
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<PAGE> 13
3.13 Employee Agreements. Each person presently employed by the Company
has executed (or will execute by the Closing Date) an Employment, Confidential
Information and Invention Assignment Agreement in the form previously provided
to or made available to the Purchasers. To the Company's knowledge, neither the
execution, delivery or performance of such agreements, nor the carrying on of
the Company's business as employees by such persons, nor the conduct of the
Company's business as currently proposed will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any of such persons is now
obligated.
3.14 No Conflict of Interest. The Company is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. To the Company's knowledge, none of the Company's
officers or directors, or any members of their immediate families, are, directly
or indirectly, indebted to the Company (other than in connection with purchases
of the Company's stock) or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that officers, directors and/or shareholders of the
Company may own stock in (but not exceeding two percent of the outstanding
capital stock of ) any publicly traded companies that may compete with the
Company. To the Company's knowledge, none of the Company's officers or directors
or any members of their immediate families are, directly or indirectly,
interested in any material contract with the Company. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.15 No Financial Statements. The Company has not prepared any balance
sheet, income statement, statement of changes in financial position and
shareholders' equity or other financial statement and has kept its financial
records on a cash basis since the Company's incorporation on October 24, 1997.
3.16 Insurance. The Company has, or within 30 days following the
Closing, will have in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
3.17 Qualified Small Business Stock. The Company represents and warrants
to the Purchasers that, to the best of its knowledge, the Shares should qualify
as "Qualified Small Business Stock" as defined in Section 1202(c) of the
Internal Revenue code of 1986, as amended as of the date hereof.
3.18 Registration Rights. Except as set forth in the Shareholder Rights
Agreement, the Company is not currently under any obligation to register under
the Securities Act of 1933, as amended (the "Securities Act") any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
-7-
<PAGE> 14
3.19 Governmental Consent, etc. No consent, approval, qualification or
authorization of, or designation, declaration or filing with, any federal, state
or local governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement, the
Shareholder Rights Agreement and the Co-Sale Agreement, or the offer, sale or
issuance of the Shares (and the Conversion Shares), or the consummation of any
other transaction contemplated hereby, except (a) filing of the Restated
Articles in the office of the Secretary of State of the State of California, and
(b) qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the Shares
(and the Conversion Shares) under the California Corporate Securities Law and
other applicable Blue Sky laws, which filing and qualification, if required,
will be accomplished in a timely manner prior to or promptly upon completion of
the Closing.
3.20 Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company and believes it can
obtain without undue burden or expense, any similar authority for the conduct of
its business as currently planned to be conducted. The Company is not in default
in any material respect under any of such franchises, permits, licenses or other
similar authority.
3.21 Environmental and Safety Laws. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
3.22 Brokers or Finders. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.23 Disclosures. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate furnished
to the Purchasers pursuant to this Agreement, contains any untrue statement of a
material fact or, when taken together, omits to state a material fact necessary
to make the statements made herein, in light of the circumstances under which
they were made, not misleading. However, as to any projections furnished to the
Purchasers, such projections were prepared in good faith by the Company, but the
Company makes no representation or warranty that it will be able to achieve such
projections. The Company has fully provided each Purchaser with all the
information that such Purchaser has requested for deciding whether to purchase
the Shares.
3.24 Employee Benefit Plans. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
3.25 Minute Books. The minute books of the Company made available to the
Purchasers contain summaries of all meetings of directors and shareholders since
the time of incorporation.
-8-
<PAGE> 15
SECTION 4
Representations and Warranties of the Purchasers
Each Purchaser hereby represents and warrants to the Company with
respect to its purchase of the Shares as follows:
4.1 Investment Representations and Covenants of the Purchasers.
(a) This Agreement is made by the Company with each Purchaser in
reliance upon such Purchaser's representations and covenants made in this
Section 4, which by its execution of this Agreement each Purchaser hereby
confirms. Each Purchaser represents that the Shares to be received will be
acquired for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling, granting any participation in or otherwise
distributing the same. Each Purchaser further represents that it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares or any Common Stock acquired on conversion thereof.
(b) Each Purchaser understands and acknowledges that the offering
of the Shares pursuant to this Agreement will not, and any issuance of Common
Stock on conversion thereof may not, be registered under the Securities Act on
the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt pursuant to section 4(2) or Section 3(b) of the
Securities Act, and that the Company's reliance on such exemption is predicated
on the Purchasers' representations set forth herein.
(c) Each Purchaser covenants that in no event will it make any
disposition of any of the Shares, or any Conversion Shares acquired upon the
conversion thereof, except in accordance with Section 4 of the Shareholder
Rights Agreement.
(d) Each Purchaser represents that it is experienced in
evaluating recently organized, high technology companies such as the Company, is
able to fend for itself in transactions such as the one contemplated by this
Agreement, has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of its prospective
investment in the Company, and has the ability to bear the economic risks of the
investment.
(e) Each Purchaser acknowledges and understands that the Shares,
and any Conversion Shares, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and that, except as otherwise provided in the
Shareholder Rights Agreement, the Company is under no obligation to register
either the Shares or Conversion Shares.
-9-
<PAGE> 16
(f) Each Purchaser acknowledges that it has received and reviewed
a copy of Rule 144 promulgated under the Act, which permits limited public
resales of securities acquired in a non-public offering, subject to the
satisfaction of certain conditions. Each Purchaser understands that before the
Shares, or any Conversion Shares, may be sold under Rule 144, the following
conditions must be fulfilled, except as otherwise described below: (i) certain
public information about the Company must be available, (ii) the sale must occur
at least one year after the later of the date the Shares were sold by the
Company or the date they were sold by an affiliate of the Company, (iii) the
sale must be made in a broker's transaction and (iv) the number of Shares sold
must not exceed certain volume limitations. If, however, the sale occurs at
least two years after the Shares were sold by the Company or an affiliate of the
Company, and if the Purchaser is not an affiliate of the Company, the foregoing
conditions will not apply. Each Purchaser understands that the current
information referred to above is not now available and the Company has no
present plans to make such information available.
(g) Each Purchaser acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock. Each Purchaser understands that although Rule 144 is
not exclusive, the Commission has expressed its opinion that persons proposing
to sell restricted securities received in a private offering other than in a
registered offering or pursuant to Rule 144 will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales and that such persons and the brokers who participate in the
transactions do so at their own risk.
(h) Each Purchaser covenants that, in the absence of an effective
registration statement covering the stock in question, it will sell, transfer,
or otherwise dispose of the Shares and any Conversion Shares only in a manner
consistent with its representations and covenants set forth in this Section 4.
In connection therewith each Purchaser acknowledges that the Company shall make
a notation on its stock books regarding the restrictions on transfer set forth
in this Section 4 and shall transfer shares on the books of the Company only to
the extent not inconsistent therewith.
(i) Each Purchaser represents that it is an "accredited investor"
as defined in Rule 501 pursuant to the Securities Act.
4.2 No Public Market. Each Purchaser understands that no public market
now exists for any of the securities issued by the Company and that it is
unlikely that a public market will ever exist for the Shares.
4.3 Receipt of Information. Each Purchaser has received and reviewed
this Agreement and all Exhibits hereto; it, its attorney and its accountant have
had access to, and an opportunity to review all documents and other materials
requested of, the Company; it and they have been given an opportunity to ask any
and all questions of, and receive answers from, the Company concerning the terms
and conditions of the offering and to evaluate the suitability of an investment
in the Shares; and, in evaluating the suitability of an investment in the
Shares, it and they have not relied upon any representations or other
information (whether oral or written) other than as set forth in the documents
-10-
<PAGE> 17
and answers referred to above. The foregoing, however, does not limit or modify
the representations and warranties of the Company in Section 3 of this Agreement
or the right of the Purchasers to rely thereon.
4.4 Authorization. Each of the Purchasers has the full right, power and
authority to enter into and perform the Purchasers' obligations under this
Agreement, the Shareholder Rights Agreement and the Co-Sale Agreement, and this
Agreement and the Shareholder Rights Agreement and the Co-Sale Agreement
constitute valid and binding obligations of the Purchaser enforceable in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditor's rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) to the extent that the indemnification provisions
set forth in the Shareholder Rights Agreement may be limited by applicable laws.
4.5 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of the
Purchaser is required in connection with the valid execution and delivery of
this Agreement, the Shareholder Rights Agreement or the Co-Sale Agreement.
SECTION 5
Conditions to Obligations of Purchasers in the Series A Closing
The Purchasers' obligations to purchase the Series A Preferred at the
Series A Closing are, at the option of each Purchaser, subject to the
fulfillment on or prior to the Series A Closing Date of each of the following
conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
when made and shall be true and correct on and as of the Series A Closing Date
with the same force and effect as if they had been made on and as of said date.
5.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Series A
Closing Date shall have been performed or complied with in all material
respects.
5.3 Employees. Simon Cao, Jessy Chao and Paul Jiang shall have become
employees of the Company prior to the Series A Closing Date and entered into
Employment, Confidential Information, Invention Assignment and Arbitration
Agreements with the Company.
5.4 Opinion of Company's Counsel. The Purchasers shall have received
from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion
addressed to them, dated the Series A Closing Date, in substantially the form of
Exhibit G.
-11-
<PAGE> 18
5.5 Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate executed by the President of the Company, dated the
Series A Closing Date, and certifying to the fulfillment of the conditions
specified in Sections 5.1, 5.2, and 5.9 of this Agreement, and that he has made,
or caused to be made, such investigations as he deemed necessary in order to
permit him to verify the accuracy of the information set forth in such
certificate.
5.6 Blue Sky. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by any
state for the offer and sale of the Series A Preferred and the Common Stock
issuable upon conversion of the Series A Preferred.
5.7 Board of Directors. On or before the Closing, the Bylaws of the
Company shall provide for a flexible number of directors from four to seven and
fixing the current number of directors at seven. The Board of Directors shall at
the Closing consist of Michael Goguen, Seth Neiman, Todd Brooks, Simon Cao,
Jessy Chao and two vacancies.
5.8 Restated Articles. The Restated Articles shall have been filed with
the Secretary of State of the State of California.
5.9 No Material Adverse Change. There shall have been no material
adverse change in the Company's business or financial condition.
5.10 Shareholder Rights Agreement. The Purchasers and the Company shall
have executed the Shareholder Rights Agreement.
5.11 Co-Sale Agreement. The Company shall have entered into the Co-Sale
Agreement with the Purchasers in the form attached hereto as Exhibit E.
5.12 Voting Agreement. The Company, Simon Cao, Jessy Chao and Paul Jiang
shall have entered into the Voting Agreement with the Purchasers in the form
attached hereto as Exhibit F.
SECTION 6
Conditions to the Obligations of Purchasers in the Series B Closing
The Purchasers' obligations to purchase the Series B Preferred at the
Series B Closing are, at the option of Purchaser, subject to the fulfillment on
or prior to the Series B Closing Date of each of the following conditions:
6.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
when made and shall be true and correct on and as of the Series B Closing Date
with the same force and effect as if they had been made on and as
-12-
<PAGE> 19
of said date with such exceptions as are set forth in Exhibit C attached hereto,
which shall be updated as of the Series B Closing Date.
6.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Series B Closing Date shall have been performed or complied with.
6.3 Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate of the Company, executed by the President of the
Company, dated the Series B Closing Date, and certifying, among other things, to
the fulfillment of the conditions specified in Sections 6.1 and 6.2 of this
Agreement.
6.4 Fulfillment of Series B Milestones. The Company shall have achieved
and completed all of the Series B Milestones as set forth in and determined
(with regard to the achievement thereof) in accordance with Exhibit H attached
hereto.
6.5 Opinion of Company's Counsel. The Purchasers shall have received
from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion
addressed to them, dated the Series B Closing Date, in form and substance
reasonably satisfactory to Purchasers and their special counsel.
SECTION 7
Conditions to the Obligations of Purchasers in the Series C Closing
The Purchasers' obligations to purchase the Series C Preferred at the
Series C Closing are, at the option of each Purchaser, subject to the
fulfillment of the following conditions:
7.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
when made and shall be true and correct on and as of the Series C Closing Date
with the same force and effect as if they had been made on and as of said date
with such exceptions as are set forth in Exhibit C attached hereto, which shall
be updated as of the Series C Closing Date.
7.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Series C Closing Date shall have been performed or complied with.
7.3 Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate of the Company, executed by the President of the
Company, dated the Series C Closing Date, and certifying, among other things, to
the fulfillment of the conditions specified in Sections 7.1 and 7.2 of this
Agreement.
-13-
<PAGE> 20
7.4 Fulfillment of Series C Milestones. The Company shall have achieved
and completed all of the Series C Milestones as set forth in and determined
(with regard to the achievement thereof) in accordance with Exhibit H attached
hereto.
7.5 Opinion of Company's Counsel. The Purchasers shall have received
from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion
addressed to them, dated the Series C Closing Date, in form and substance
reasonably satisfactory to Purchasers and their special counsel.
SECTION 8
Conditions to the Obligations of the Company in the Series A Closing
The Company's obligation to sell and issue the Series A Preferred at the
Series A Closing is, at the option of the Company, subject to the fulfillment as
of the Series A Closing Date of the following conditions:
8.1 Representations. With respect to each Purchaser, the representations
made by such Purchaser in Section 4 hereof shall be true and correct when made,
and shall be true and correct on the Series A Closing Date.
8.2 Blue Sky. The Company shall have obtained all necessary blue sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares.
8.3 Shareholder Rights Agreement. The Purchasers and the Company shall
have entered into the Shareholder Rights Agreement.
8.4 Legal Matters. All material matters of a legal nature which pertain
to this Agreement and the transactions contemplated hereby, shall have been
reasonably approved by counsel to the Company.
SECTION 9
Conditions to the Obligations of the Company in the Series B Closing
The Company's obligation to sell and issue the Series B Preferred at the
Series B Closing is, at the option of the Company, subject to the fulfillment as
of the Series B Closing Date of the following conditions:
9.1 Representations. With respect to each Purchaser, the representations
made by such Purchaser in Section 4 hereof shall be true and correct when made,
and shall be true and correct on the
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<PAGE> 21
Series B Closing Date with such exceptions as are set forth in Exhibit C
attached hereto, which shall be updated as of the Series B Closing Date.
9.2 Blue Sky. The Company shall have obtained all necessary blue sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares.
9.3 Legal Matters. All material matters of a legal nature which pertain
to this Agreement and the transactions contemplated hereby, shall have been
reasonably approved by counsel to the Company.
SECTION 10
Conditions to the Obligations of the Company in the Series C Closing
The Company's obligation to sell and issue the Series C Preferred at the
Series C Closing is, at the option of the Company, subject to the fulfillment as
of the Series C Closing Date of the following conditions:
10.1 Representations. With respect to each Purchaser, the
representations made by such Purchaser in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Series C Closing Date
with such exceptions as are set forth in Exhibit C attached hereto, which shall
be updated as of the Series C Closing Date.
10.2 Blue Sky. The Company shall have obtained all necessary blue sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares.
10.3 Legal Matters. All material matters of a legal nature which pertain
to this Agreement and the transactions contemplated hereby, shall have been
reasonably approved by counsel to the Company.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California, without giving effect to the conflicts of
laws principles thereof.
11.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby.
-15-
<PAGE> 22
11.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto,
provided, however, that the rights of a Purchaser to purchase Shares shall not
be assignable without the consent of the Company.
11.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged,
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge, or termination is
sought; provided, however, that holders of sixty-seven percent (67%) of the
shares of Common Stock issued or issuable upon conversion of the outstanding
Shares and (whether or not converted) not resold to the public may waive or
amend, on behalf of all Purchasers, any provisions hereof, so long as the effect
thereof will be that all such Purchasers and other holders of the Shares will be
treated equally.
11.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person by facsimile or by courier
service or five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Purchaser, at such
Purchaser's address set forth in Exhibit A, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to its address and facsimile number set forth at the end of this
Agreement and addressed to the attention of the Corporate Secretary, or at such
other address as the Company shall have furnished to the Purchasers (with a copy
to Judith M. O'Brien, Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304; facsimile: (650) 493-6811).
11.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
11.7 California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
-16-
<PAGE> 23
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
OR SUCH EXEMPTION BEING AVAILABLE.
11.8 Expenses. The Company and the Purchasers shall each bear their own
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby; except that, upon the Series A Closing, the Company will
pay at the Series A Closing the reasonable legal fees (up to a maximum of
$10,000) and reasonable expenses upon receipt of a bill therefor, incurred by
Venture Law Group, special counsel to the Purchasers.
11.9 Finder's Fee. The Company and the Purchasers shall each indemnify
and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Purchaser's, or any of their respective partners, employees, or representatives,
as the case may be, is responsible.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
11.11 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
11.12 Gender. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
11.13 Headings. Headings and the table of contents in this Agreement are
for reference purposes only and shall not be deemed to have an substantive
effect.
-17-
<PAGE> 24
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
AVANEX CORPORATION
a California corporation
By:
-------------------------------
Simon X. Cao, President
[Signature page to Preferred Stock Purchase Agreement]
<PAGE> 25
"PURCHASERS"
SEQUOIA CAPITAL VII
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A Management, LLC
A California Limited Liability Company,
its General Partner
By:
-------------------------------
Managing Member
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A Management, LLC
A California Limited Liability Company,
its General Partner
By:
-------------------------------
Managing Member
SQP 1997
By: SC VII-A Management, LLC
A California Limited Liability Company,
its General Partner
By:
-------------------------------
Managing Member
SEQUOIA 1997 LLC
By: SC VII-A Management, LLC
A California Limited Liability Company,
its General Partner
By:
-------------------------------
Managing Member
[Signature page to Preferred Stock Purchase Agreement]
<PAGE> 26
SEQUOIA INTERNATIONAL PARTNERS
By: SC VII-A Management, LLC
A California Limited Liability Company,
its General Partner
By:
-------------------------------
Managing Member
CROSSPOINT VENTURE PARTNERS 1997
By:
-------------------------------
Seth Neiman
Partner
[Signature page to Preferred Stock Purchase Agreement]
<PAGE> 27
WS INVESTMENT 98
By:
-------------------------------
Partner
BRADFORD C. O'BRIEN AND JUDITH M. O'BRIEN,
TRUSTEES OF THE O'BRIEN FAMILY TRUST U/D/T
DATED 7/1/92
By:
-------------------------------
[Signature page to Preferred Stock Purchase Agreement]
<PAGE> 28
JAFCO CO., LTD.
By:
-------------------------------
Hitoshi Imuta, Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO R-3 INVESTMENT ENTERPRISE
PARTNERSHIP
By:
-------------------------------
Hitoshi Imuta, Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO JS-3 INVESTMENT ENTERPRISE
PARTNERSHIP
By:
-------------------------------
Hitoshi Imuta, Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO G6-(A) INVESTMENT ENTERPRISE
PARTNERSHIP
By:
-------------------------------
Hitoshi Imuta, Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO G6-(B) INVESTMENT ENTERPRISE
PARTNERSHIP
By:
-------------------------------
Hitoshi Imuta, Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
U.S. INFORMATION TECHNOLOGY No. 2 INVESTMENT
ENTERPRISE PARTNERSHIP
By:
-------------------------------
Hitoshi Imuta, Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
[Signature page to Preferred Stock Purchase Agreement]
<PAGE> 29
EXHIBIT A
SCHEDULE OF PURCHASERS
SERIES A CLOSING
<TABLE>
<CAPTION>
Amount of
Aggregate Cash Cancellation Number
Name of Purchaser Purchase Price Amount of Debt of Shares
----------------- -------------- ------ ------- ---------
<S> <C> <C> <C> <C>
Crosspoint Venture Partners 1997 $ 334,500.00 $ 309,500.00 $ 25,000.00 1,500,000
JAFCO Co., Ltd. $ 13,399.84 60,089
JAFCO R-3 Investment Enterprise $ 13,399.84 60,089
Partnership
JAFCO JS-3 Investment Enterprise $ 13,399.84 60,089
Partnership
JAFCO G6-(A) Investment $ 13,399.84 60,089
Enterprise Partnership
JAFCO G6-(B) Investment $ 13,399.84 60,089
Enterprise Partnership
U.S. Information Technology No. 2 $ 267,500.76 1,199,555
Investment Enterprise Partnership
Sequoia Capital VII, a California $ 306,067.50 $ 281,067.50 $ 25,000.00 1,372,500
Limited Partnership
Sequoia Technology Partners VII, $ 13,380.00 60,000
a California Limited Partnership
SQP 1997 $ 6,208.32 27,840
Sequoia 1997 LLC $ 3,492.18 15,660
Sequoia International Partners $ 5,352.00 24,000
WS Investment 98 $ 5,589.94 25,067
Bradford C. O'Brien and Judith M. $ 1,117.90 5,013
O'Brien, Trustees of the O'Brien
Family Trust U/D/T
dated 7/1/92
TOTAL $1,010,207.80 4,530,080
============= =========
</TABLE>
<PAGE> 30
Series B Closing
<TABLE>
<CAPTION>
Aggregate Number
Name of Purchaser Purchase Price of Shares
----------------- -------------- ---------
<S> <C> <C>
Crosspoint Venture Partners $ 834,000.00 2,085,000
JAFCO Co., Ltd. $ 33,443.20 83,608
JAFCO R-3 Investment Enterprise Partnership $ 33,443.20 83,608
JAFCO JS-3 Investment Enterprise Partnership $ 33,443.20 83,608
JAFCO G6-(A) Investment Enterprise Partnership $ 33,443.20 83,608
JAFCO G6-(B) Investment Enterprise Partnership $ 33,443.20 83,608
U.S. Information Technology Investment Enterprise $ 666,784.00 1,666,960
Partnership
Sequoia Capital VII, a California Limited $ 763,110.00 1,907,775
Partnership
Sequoia Technology Partners VII, a California $ 33,360.00 83,400
Limited Partnership
SQP 1997 $ 15,479.20 38,698
Sequoia 1997 LLC $ 8,706.80 21,767
Sequoia International Partners $ 13,344.00 33,360
WS Investment $ 13,915.00 34,787
Bradford C. O'Brien and Judith M. O'Brien, $ 2,782.80 6,957
Trustees of the O'Brien Family Trust U/D/T
dated 7/1/92
TOTAL $2,518,697.80 6,296,744
============= =========
</TABLE>
<PAGE> 31
SERIES C CLOSING
<TABLE>
<CAPTION>
Aggregate Number
Name of Purchaser Purchase Price of Shares
----------------- -------------- ---------
<S> <C> <C>
Crosspoint Venture Partners $1,825,740.00 2,415,000
JAFCO Co., Ltd. $ 73,211.79 96,841
JAFCO R-3 Investment Enterprise Partnership $ 73,211.79 96,841
JAFCO JS-3 Investment Enterprise Partnership $ 73,211.79 96,841
JAFCO G6-(A) Investment Enterprise Partnership $ 73,211.79 96,841
JAFCO G6-(B) Investment Enterprise Partnership $ 73,211.79 96,841
U.S. Information Technology Investment Enterprise $1,459,681.02 1,930,795
Partnership
Sequoia Capital VII, a California Limited $1,825,740.00 2,415,000
Partnership
Sequoia Technology Partners VII, a California
Limited Partnership
SQP 1997
Sequoia 1997 LLC
Sequoia International Partners
WS Investment $ 30,495.00 40,337
Bradford C. O'Brien and Judith M. O'Brien, $ 6,098.65 8,067
Trustees of the O'Brien Family Trust U/D/T
dated 7/1/92
TOTAL $5,513,813.62 7,293,404
============= =========
</TABLE>
<PAGE> 32
EXHIBIT B
FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION
[SEE TAB A-3]
<PAGE> 33
EXHIBIT C
SCHEDULE OF EXCEPTIONS
<PAGE> 34
EXHIBIT D
SHAREHOLDER RIGHTS AGREEMENT
[SEE TAB A-5]
<PAGE> 35
EXHIBIT E
CO-SALE AGREEMENT
[SEE TAB A-6]
<PAGE> 36
EXHIBIT F
VOTING AGREEMENT
[SEE TAB A-7]
<PAGE> 37
EXHIBIT G
OPINION OF WILSON SONSINI GOODRICH & ROSATI
[SEE TAB A-12]
<PAGE> 38
EXHIBIT H
SERIES B PREFERRED AND SERIES C PREFERRED MILESTONES
<PAGE> 1
- --------------------------------------------------------------------------------
AVANEX CORPORATION
FIRST AMENDED AND RESTATED
SERIES A PREFERRED, SERIES B PREFERRED AND
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
SERIES A CLOSING: FEBRUARY 10, 1998
SERIES B CLOSING: JUNE 29, 1998
SERIES C CLOSING: FEBRUARY __, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
SECTION 1 Authorization and Sale of Preferred Stock...........................................................2
1.1 Authorization.......................................................................................2
1.2 Sale of the Shares..................................................................................2
1.3 Additional Sale(s) of Preferred Stock...............................................................2
SECTION 2 Closing Date; Delivery..............................................................................3
2.1 Closing Date........................................................................................3
2.2 Delivery............................................................................................4
SECTION 3 Representations and Warranties of the Company.......................................................4
3.1 Organization and Standing; Qualification............................................................4
3.2 Corporate Power.....................................................................................5
3.3 Subsidiaries........................................................................................5
3.4 Capitalization......................................................................................5
3.5 Authorization.......................................................................................5
3.6 Title to Properties and Assets; Liens, etc..........................................................6
3.7 Patents, Trademarks, etc............................................................................6
3.8 Agreements..........................................................................................6
3.9 Material Contracts and Commitments..................................................................7
3.10 Compliance with Other Instruments, None Burdensome, etc.............................................7
3.11 Litigation, etc.....................................................................................7
3.12 Employees...........................................................................................7
3.13 Employee Agreements.................................................................................8
3.14 No Conflict of Interest.............................................................................8
3.15 No Financial Statements.............................................................................8
3.16 Insurance...........................................................................................8
3.17 Qualified Small Business Stock......................................................................8
3.18 Registration Rights.................................................................................8
3.19 Governmental Consent, etc...........................................................................9
3.20 Permits.............................................................................................9
3.21 Environmental and Safety Laws.......................................................................9
3.22 Brokers or Finders..................................................................................9
3.23 Disclosures.........................................................................................9
3.24 Employee Benefit Plans..............................................................................9
3.25 Minute Books.......................................................................................10
SECTION 4 Representations and Warranties of the Purchasers...................................................10
4.1 Investment Representations and Covenants of the Purchasers.........................................10
4.2 No Public Market...................................................................................11
4.3 Receipt of Information.............................................................................11
4.4 Authorization......................................................................................12
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
4.5 Consents...........................................................................................12
SECTION 5 Conditions to Obligations of Purchasers in the Series A Closing....................................12
5.1 Representations and Warranties Correct.............................................................12
5.2 Covenants..........................................................................................12
5.3 Employees..........................................................................................12
5.4 Opinion of Company's Counsel.......................................................................13
5.5 Compliance Certificate.............................................................................13
5.6 Blue Sky...........................................................................................13
5.7 Board of Directors.................................................................................13
5.8 Restated Articles..................................................................................13
5.9 No Material Adverse Change.........................................................................13
5.10 Shareholder Rights Agreement.......................................................................13
5.11 Co-Sale Agreement..................................................................................13
5.12 Voting Agreement...................................................................................13
SECTION 6 Conditions to the Obligations of Purchasers in the Series B Closing................................14
6.1 Representations....................................................................................14
6.2 Covenants..........................................................................................14
6.3 Compliance Certificate.............................................................................14
6.4 Fulfillment of Series B Milestones.................................................................14
6.5 Opinion of Company's Counsel.......................................................................14
SECTION 7 Conditions to the Obligations of Purchasers in each Series C Closing...............................14
7.1 Representations....................................................................................14
7.2 Covenants..........................................................................................15
7.3 Compliance Certificate.............................................................................15
7.4 Certificate of Amendment...........................................................................15
7.5 No Material Adverse Change.........................................................................15
7.6 Shareholder Rights Agreement.......................................................................15
7.7 Co-Sale Agreement..................................................................................15
7.8 Voting Agreement...................................................................................15
7.9 Fulfillment of Series C Milestones.................................................................15
7.10 Opinion of Company's Counsel.......................................................................15
SECTION 8 Conditions to the Obligations of the Company in the Series A Closing...............................16
8.1 Representations....................................................................................16
8.2 Blue Sky...........................................................................................16
8.3 Shareholder Rights Agreement.......................................................................16
8.4 Legal Matters......................................................................................16
SECTION 9 Conditions to the Obligations of the Company in the Series B Closing...............................16
9.1 Representations....................................................................................16
9.2 Blue Sky...........................................................................................16
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
9.3 Legal Matters......................................................................................16
SECTION 10 Conditions to the Obligations of the Company in each Series C Closing..............................17
10.1 Representations....................................................................................17
10.2 Blue Sky...........................................................................................17
10.3 Shareholder Rights Agreement.......................................................................17
10.4 Voting Agreement...................................................................................17
10.5 Legal Matters......................................................................................17
SECTION 11 Miscellaneous......................................................................................17
11.1 Governing Law......................................................................................17
11.2 Survival...........................................................................................17
11.3 Successors and Assigns.............................................................................17
11.4 Entire Agreement; Amendment........................................................................18
11.5 Notices, etc.......................................................................................18
11.6 Delays or Omissions................................................................................18
11.7 California Corporate Securities Law................................................................18
11.8 Expenses...........................................................................................19
11.9 Finder's Fee.......................................................................................19
11.10 Counterparts.......................................................................................19
11.11 Severability.......................................................................................19
11.12 Gender.............................................................................................19
11.13 Headings...........................................................................................19
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
A. Schedule of Purchasers
B. First Amended and Restated Articles of Incorporation
C. Schedule of Exceptions
D. First Amended and Restated Shareholder Rights Agreement
E. First Amended and Restated Co-Sale Agreement
F. First Amended and Restated Voting Agreement
G. Form of Opinion of Wilson Sonsini Goodrich & Rosati
H. Series B Preferred and Series C Preferred Milestones
I. Certificate of Amendment to the First Amended and
Restated Articles of Incorporation
</TABLE>
-iv-
<PAGE> 6
EXHIBIT 10.10
AVANEX CORPORATION
FIRST AMENDED AND RESTATED
SERIES A PREFERRED, SERIES B PREFERRED AND
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This First Amended and Restated Series A Preferred, Series B Preferred
and Series C Preferred Stock Purchase Agreement (this "Agreement") is made as of
February ___, 1999, by and among Avanex Corporation, a California corporation
(the "Company"), with its principal office at 42501 Albrae Avenue, Fremont,
California 94538, and the persons and entities listed on the Schedule of
Purchasers attached as Exhibit A hereto (the "Purchasers").
Recitals
A. The Company and certain of the Purchasers entered into that certain
Series A Preferred, Series B Preferred and Series C Preferred Stock Purchase
Agreement on February 10, 1998 (the "Prior Purchase Agreement").
B. Pursuant to the Prior Purchase Agreement, the Company sold 4,530,080
shares of Series A Preferred Stock of the Company to certain Purchasers on
February 10, 1998, and, after the Company had met certain conditions set forth
in the Prior Purchase Agreement, the Company sold 6,296,744 shares of Series B
Preferred Stock of the Company to certain Purchasers on June 29, 1998.
C. The Prior Purchase Agreement provided for, among other things, the
issuance and sale, upon the Company meeting certain milestones set forth in the
Prior Purchase Agreement, of up to 7,350,000 of the Company's Series C Preferred
Stock to certain of the Purchasers.
D. The parties to the Prior Purchase Agreement wish to increase the
number of shares of Series C Preferred Stock of the Company authorized for sale
and issuance by 3,500,000 shares from 7,350,000 to 10,850,000 shares in order to
permit additional investors to become Purchasers under this Agreement.
E. The parties to the Prior Purchase Agreement wish to amend, restate
and supersede the Prior Purchase Agreement in its entirety and to accept the
terms and conditions of this Agreement in lieu of the Prior Purchase Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Purchasers and the Company hereby agree as follows:
SECTION 1
Authorization and Sale of Preferred Stock
<PAGE> 7
1.1 Authorization.
(a) Series A Preferred Stock. The Company has, or before the
Series A Closing Date (as that term is hereinafter defined) will have,
authorized the sale and issuance of up to 4,600,000 shares of its Series A
Preferred Stock ("Series A Preferred" or, together with the shares of Series B
Preferred Stock described in Section 1.1(b) below and Series C Preferred Stock
described in Section 1.1(c) below, the "Shares") and up to 4,600,000 shares of
Common Stock issuable upon conversion of the Series A Preferred pursuant to the
First Amended and Restated Articles of Incorporation of the Company, as amended,
in the form attached hereto as Exhibit B (the "Restated Articles"). The Series A
Preferred shall be sold for a purchase price of $0.223 per share.
(b) Series B Preferred Stock. The Company has, or before the
Series A Closing Date (as that term is hereinafter defined) will have,
authorized the sale and issuance of up to 6,350,000 shares of its Series B
Preferred Stock ("Series B Preferred" or, as described in Section 1.1(a) above,
the "Shares") and up to 6,350,000 shares of Common Stock issuable upon
conversion of the Series B Preferred pursuant to the Restated Articles. The
Series B Preferred shall be sold for a purchase price of $0.40 per share.
(c) Series C Preferred Stock. The Company has, or before the
Series C Closing Date (as that term is hereinafter defined) will have,
authorized the sale and issuance of up to 10,850,000 shares of its Series C
Preferred Stock ("Series C Preferred" or, as described in Section 1.1(a) above,
the "Shares") and up to 10,850,000 shares of Common Stock issuable upon
conversion of the Series C Preferred pursuant to the Restated Articles, as
amended by the Certificate of Amendment to the Restated Articles (the
"Certificate of Amendment") in the form attached hereto as Exhibit I. The Series
C Preferred shall be sold for a purchase price of $0.756 per share.
1.2 Sale of the Shares. Subject to the terms and conditions
hereof, the Company will issue and sell to each of the Purchasers, and the
Purchasers will severally buy from the Company, the number of shares (the
"Shares") of Series A Preferred, Series B Preferred and Series C Preferred
specified opposite each Purchaser's name on the Schedule of Purchasers, at the
aggregate purchase price set forth therein. The Company's agreements with each
of the Purchasers are separate agreements, and the sales of the Shares to each
of the Purchasers are separate sales.
1.3 Additional Sale(s) of Preferred Stock. Any of the authorized
shares of Preferred Stock not sold at the Series A Closing, Series B Closing or
Series C Closing, as defined below, may be sold to one or more additional
purchasers at a subsequent closing(s) to be held at any time before ninety (90)
days after the applicable Closing Date without any further action or approval of
the other parties to this Agreement, provided that each such purchaser agrees to
be bound by the terms hereof as a "Purchaser" hereunder and provided further
that any such sale or sales be on terms identical to the terms contained in this
Agreement, and each subsequent Purchaser shall become a party to this Agreement
(and Exhibit A hereto shall be amended to include such subsequent Purchaser) and
to that certain First Amended and Restated Shareholder Rights Agreement dated as
of the date hereof by and among the Purchasers and
-2-
<PAGE> 8
the Company, in the form attached hereto as Exhibit D (the "Shareholder Rights
Agreement"); and to that certain First Amended and Restated Voting Agreement
dated as of the date hereof by and among the Company, the Purchasers and the
Founders, the form of which is attached hereto as Exhibit F (the "Voting
Agreement"); and that certain First Amended and Restated Co-Sale Agreement dated
as of the date hereof by and among the Company, certain of the Purchasers, and
the Founders named therein, the form of which is attached hereto as Exhibit E
(the "Co-Sale Agreement,") (and together with the Shareholder Rights Agreement
and the Voting Agreement, the "Ancillary Agreements"), and shall have the rights
and obligations of a Purchaser hereunder and thereunder. The shares of Preferred
Stock sold at such additional closing(s) shall be deemed to be "Shares"
hereunder and the purchasers thereof shall be deemed to be "Purchasers"
hereunder. The subsequent closings shall take place at Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California 94304, at 10:00 a.m., local
time, or at such other times and places as the Company and Purchasers acquiring
in the aggregate more than a majority of the shares of Series C Preferred Shares
sold pursuant hereto at such Closing mutually agreed upon orally or in writing
(which each time and place are designated as a "Closing").
SECTION 2
Closing Date; Delivery
2.1 Closing Date.
(a) Series A Closing Date. The closing of the purchase and
sale of the Series A Preferred shall be held at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, at 10:00 a.m.,
local time, on or prior to February 10, 1998, or at such other time and place
upon which the Company and the Purchasers shall agree (which time and place
shall be referred to as the "Series A Closing" and the date of the Series A
Closing is hereinafter referred to as the "Series A Closing Date").
(b) Series B Closing Date. In addition, within ten (10)
business days following delivery of notice by the Company that the conditions
set forth in Section 6 below have been satisfied, the closing of the purchase
and sale of the Series B Preferred shall be held at the offices of Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California (which time
and place shall be referred to as the "Series B Closing" and the date of the
Series B Closing is hereinafter referred to as the "Series B Closing Date").
Such Series B Closing shall be held on such date and at such time as the parties
agree and absent such agreement, on the tenth (10th) business day following
delivery of the foregoing described notice at 10:00 a.m., local time.
(c) Series C Closing Date. Provided that the conditions set
forth in Section 7 below have been satisfied, the first closing of the purchase
and sale of the Series C Preferred shall be held on or prior to February __,
1999, or at such other time and place upon which the Company and the Purchasers
shall agree. The second closing of the purchase and sale of the Series C
Preferred Shall be held on or prior to March __, 1999, or at such other time and
place upon which the Company and the
-3-
<PAGE> 9
Purchasers shall agree. Such time and place for the first closing, the second
closing and any subsequent closing(s) are each referred to individually herein
as a "Series C Closing," and the date of each such Series C Closing is
hereinafter referred to individually herein as a "Series C Closing Date").
(d) The Series A Closing, the Series B Closing and the Series
C Closing shall sometimes be referred to individually herein as a "Closing."
2.2 Delivery.
(a) Series A Preferred. At the Series A Closing, the Company
will issue to each Purchaser a certificate or certificates registered in such
Purchaser's name as set forth on the Schedule of Purchasers attached hereto as
Exhibit A, representing the number of shares of Series A Preferred set forth
opposite such Purchaser's name on such Schedule of Purchasers against payment of
the purchase price therefor. Such payment shall be by check or wire transfer
payable to the Company or by the cancellation of outstanding indebtedness.
(b) Series B Preferred. At the Series B Closing, the Company
will issue to each Purchaser a certificate or certificates registered in such
Purchaser's name as set forth on the Schedule of Purchasers attached hereto as
Exhibit A, representing the number of shares of Series B Preferred set forth
opposite such Purchaser's name on such Schedule of Purchasers against payment of
the purchase price therefor. Such payment shall be by check or wire transfer
payable to the Company or by the cancellation of outstanding indebtedness.
(c) Series C Preferred. At the Series C Closing, the Company
will issue to each Purchaser a certificate or certificates registered in such
Purchaser's name as set forth on the Schedule of Purchasers attached hereto as
Exhibit A, representing the number of shares of Series C Preferred set forth
opposite such Purchaser's name on such Schedule of Purchasers against payment of
the purchase price therefor. Such payment shall be by check or wire transfer
payable to the Company or by the cancellation of outstanding indebtedness.
SECTION 3
Representations and Warranties of the Company
Except as set forth on the Schedule of Exceptions attached as Exhibit C
hereto, the Company hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing; Qualification. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted. The Company is not qualified to do
business as a foreign corporation in any jurisdiction and such qualification is
not presently required.
-4-
<PAGE> 10
3.2 Corporate Power. The Company will have at the Closing Date all
requisite legal and corporate power to execute and deliver this Agreement, the
Shareholder Rights Agreement, the Co-Sale Agreement and the Voting Agreement, to
sell, issue and deliver the Shares hereunder, to issue the Common Stock issuable
upon conversion of the Shares (the "Conversion Shares") and to carry out and
perform its obligations under the terms of this Agreement, the Shareholder
Rights Agreement, the Co-Sale Agreement and the Voting Agreement.
3.3 Subsidiaries. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, of which 4,980,000 shares are
issued and outstanding, 4,600,000 shares of Series A Preferred Stock ("Series A
Preferred"), 4,530,080 of which are issued and outstanding prior to the Series C
Closing Date, 6,350,000 shares of Series B Preferred Stock ("Series B
Preferred"), 6,296,744 of which are issued and outstanding prior to the Series C
Closing Date, and 10,850,000 shares of Series C Preferred, none of which are
issued or outstanding prior to the Series C Closing Date. All such issued and
outstanding shares have been duly authorized and validly issued, are fully paid
and nonassessable and have been issued in compliance with all applicable federal
and state securities laws. The Company has reserved (i) 4,600,000 shares of
Common Stock for issuance upon conversion of the Series A Preferred, 6,350,000
shares of Common Stock for issuance upon conversion of the Series B Preferred,
and 10,850,000 shares of Common Stock for issuance upon conversion of the Series
C Preferred and (ii) 10,200,000 shares of Common Stock for issuance to employees
pursuant to the Company's 1998 Stock Plan, 4,510,501 of which are subject to
outstanding options, and 2,709,499 of which remain available for future grant.
The Series A Preferred, Series B Preferred and Series C Preferred shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Articles. Except as set forth in Exhibit C hereto, and as set forth in the
Shareholder Rights Agreement, there are no options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of capital stock or other securities
of the Company. Except for the Shareholders Rights Agreement, the Company is not
a party or subject to any agreement or understanding which affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company. Assuming the accuracy of each Purchaser's
representations in Section 4 below, upon issuance in accordance with this
Agreement and the Company's Restated Articles, the Shares will have been issued
in compliance with all federal and state securities laws.
3.5 Authorization. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement, the Shareholder Rights
Agreement, the Co-Sale Agreement and the Voting Agreement by the Company, the
authorization, sale, issuance and delivery of the Shares (and the Conversion
Shares) and the performance of the Company's obligations hereunder has been
taken or will be taken prior to the Closing. This Agreement, the Shareholder
Rights Agreement, the Co-Sale Agreement and the Voting Agreement, when executed
and delivered by the Company, shall constitute the valid and binding obligations
of the Company enforceable in accordance with their respective terms. The
Shares, when
-5-
<PAGE> 11
issued in compliance with the provisions of this Agreement and the Company's
Restated Articles, will be duly and validly issued, fully paid and
nonassessable. The Common Stock issuable upon conversion of the Shares has been
duly and validly reserved and, when issued in compliance with the provisions of
this Agreement and the Company's Restated Articles, will be duly and validly
issued, fully paid and nonassessable.
3.6 Title to Properties and Assets; Liens, etc. The Company has
good and marketable title to its properties and assets, and has good title to
all its leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than (i) the lien of current taxes not yet
due and payable, and (ii) possible minor liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and which have not arisen
otherwise than in the ordinary course of business.
3.7 Patents, Trademarks, etc. The Company owns or has the right to
use, free and clear of all liens, charges, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses and
proprietary rights necessary to its business as now conducted, and is not
infringing upon or otherwise acting adversely to the right or claimed right of,
to the Company's knowledge, any person under or with respect to any of the
foregoing. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as currently proposed, would violate any
patent, trademark, service mark, trade name, copyright or trade secret or other
proprietary right of any other person or entity. To the Company's knowledge,
after reasonable investigation, none of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as currently proposed to be conducted. Neither the execution
nor delivery of this Agreement, the Shareholders Rights Agreement or the Co-Sale
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as currently proposed to be
conducted, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe, after reasonable investigation, that it is or will be necessary to
utilize any inventions of any of the Company's employees (or people it currently
intends to hire) made prior to their employment by the Company.
3.8 Agreements. There are no agreements, understandings,
instruments, contracts or transactions currently in negotiation, which the
Company is a party that may involve (i) obligations (contingent or otherwise)
of, or payments to the Company in excess of, $10,000, (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company or (iii) indemnification by the Company with respect to infringements of
proprietary rights.
-6-
<PAGE> 12
3.9 Material Contracts and Commitments. Neither the Company, nor,
to the knowledge of the Company, any third party is in default under any
material contract, agreement or instrument to which the Company is a party.
3.10 Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of its Restated Articles or Bylaws, or
in any material respect of any term or provision of any mortgage, indenture,
contract, agreement, instrument, judgment or decree to which it is a party, and
the Company is not in violation of any federal or state judgment, order,
statute, law, rule or regulation applicable to the Company, which violation
would have a material adverse effect on the Company's business. The execution,
delivery and performance of and compliance with this Agreement, the Shareholder
Rights Agreement and the Co-Sale Agreement and the issuance of the Shares and
the Conversion Shares, will not result in any violation of, or conflict with, or
constitute a default under, any material contract, agreement, instrument or
mortgage, or any pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company; and there is no such violation or default or event
which, with the passage of time or giving of notice or both, would constitute a
violation or default which materially and adversely affects the business of the
Company or any of its properties or assets.
3.11 Litigation, etc. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the Company's knowledge, is there any threat
thereof or basis therefor), which, either in any case or in the aggregate, would
result in any material adverse change in the business or financial condition of
the Company or any of its properties or assets, or in any material impairment of
the right or ability of the Company to carry on its business as now conducted or
as proposed to be conducted, or in any material liability on the part of the
Company, and none which questions the validity of this Agreement, the
Shareholders Rights Agreement or the Co-Sale Agreement, or any action taken or
to be taken in connection herewith or therewith. The foregoing includes, without
limitation, any action, suit, proceeding, or investigation pending or, to the
Company's knowledge, currently threatened involving the prior employment of any
of the Company's employees, such employees' use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, such employees' obligations under any agreements with prior
employers, or negotiations by the Company with potential backers of, or
investors in, the Company or its proposed business. The Company is not a party
to, or to its knowledge, named in any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit or proceeding by the Company currently pending or that the Company
currently intends to initiate.
3.12 Employees. To the Company's knowledge, no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other party because of
the nature of the business conducted or to be conducted by the Company. The
Company does not have any collective bargaining agreements covering any of its
employees. The employment of each officer and employee of the Company is
terminable at the will of the Company.
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3.13 Employee Agreements. Each person presently employed by the
Company has executed (or will execute by the Closing Date) an Employment,
Confidential Information and Invention Assignment Agreement in the form
previously provided to or made available to the Purchasers. To the Company's
knowledge, neither the execution, delivery or performance of such agreements,
nor the carrying on of the Company's business as employees by such persons, nor
the conduct of the Company's business as currently proposed will conflict with
or result in a breach of the terms, conditions or provisions of or constitute a
default under any contract, covenant or instrument under which any of such
persons is now obligated.
3.14 No Conflict of Interest. The Company is not indebted, directly
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. To the Company's knowledge, none of the
Company's officers or directors, or any members of their immediate families,
are, directly or indirectly, indebted to the Company (other than in connection
with purchases of the Company's stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or shareholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of ) any publicly traded companies that may compete with the
Company. To the Company's knowledge, none of the Company's officers or directors
or any members of their immediate families are, directly or indirectly,
interested in any material contract with the Company. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.15 No Financial Statements. The Company has not prepared any
balance sheet, income statement, statement of changes in financial position and
shareholders' equity or other financial statement and has kept its financial
records on a cash basis since the Company's incorporation on October 24, 1997.
3.16 Insurance. The Company has, or within 30 days following the
Closing, will have in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
3.17 Qualified Small Business Stock. The Company represents and
warrants to the Purchasers that, to the best of its knowledge, the Shares should
qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of the
Internal Revenue code of 1986, as amended as of the date hereof.
3.18 Registration Rights. Except as set forth in the Shareholder
Rights Agreement, the Company is not currently under any obligation to register
under the Securities Act of 1933, as amended (the "Securities Act") any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
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3.19 Governmental Consent, etc. No consent, approval, qualification
or authorization of, or designation, declaration or filing with, any federal,
state or local governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement, the
Shareholder Rights Agreement and the Co-Sale Agreement, or the offer, sale or
issuance of the Shares (and the Conversion Shares), or the consummation of any
other transaction contemplated hereby, except (a) filing of the Restated
Articles in the office of the Secretary of State of the State of California, and
(b) qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the Shares
(and the Conversion Shares) under the California Corporate Securities Law and
other applicable Blue Sky laws, which filing and qualification, if required,
will be accomplished in a timely manner prior to or promptly upon completion of
the Closing.
3.20 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company and believes it can
obtain without undue burden or expense, any similar authority for the conduct of
its business as currently planned to be conducted. The Company is not in default
in any material respect under any of such franchises, permits, licenses or other
similar authority.
3.21 Environmental and Safety Laws. The Company is not in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
3.22 Brokers or Finders. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.23 Disclosures. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate furnished
to the Purchasers pursuant to this Agreement, contains any untrue statement of a
material fact or, when taken together, omits to state a material fact necessary
to make the statements made herein, in light of the circumstances under which
they were made, not misleading. However, as to any projections furnished to the
Purchasers, such projections were prepared in good faith by the Company, but the
Company makes no representation or warranty that it will be able to achieve such
projections. The Company has fully provided each Purchaser with all the
information that such Purchaser has requested for deciding whether to purchase
the Shares.
3.24 Employee Benefit Plans. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
3.25 Minute Books. The minute books of the Company made available
to the Purchasers contain summaries of all meetings of directors and
shareholders since the time of incorporation.
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SECTION 4
Representations and Warranties of the Purchasers
Each Purchaser hereby represents and warrants to the Company with
respect to its purchase of the Shares as follows:
4.1 Investment Representations and Covenants of the Purchasers.
(a) This Agreement is made by the Company with each Purchaser
in reliance upon such Purchaser's representations and covenants made in this
Section 4, which by its execution of this Agreement each Purchaser hereby
confirms. Each Purchaser represents that the Shares to be received will be
acquired for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling, granting any participation in or otherwise
distributing the same. Each Purchaser further represents that it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares or any Common Stock acquired on conversion thereof.
(b) Each Purchaser understands and acknowledges that the
offering of the Shares pursuant to this Agreement will not, and any issuance of
Common Stock on conversion thereof may not, be registered under the Securities
Act on the ground that the sale provided for in this Agreement and the issuance
of securities hereunder is exempt pursuant to Section 4(2) or Section 3(b) of
the Securities Act, and that the Company's reliance on such exemption is
predicated on the Purchasers' representations set forth herein.
(c) Each Purchaser covenants that in no event will it make any
disposition of any of the Shares, or any Conversion Shares acquired upon the
conversion thereof, except in accordance with Section 4 of the Shareholder
Rights Agreement.
(d) Each Purchaser represents that it is experienced in
evaluating recently organized, high technology companies such as the Company, is
able to fend for itself in transactions such as the one contemplated by this
Agreement, has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of its prospective
investment in the Company, and has the ability to bear the economic risks of the
investment.
(e) Each Purchaser acknowledges and understands that the
Shares, and any Conversion Shares, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and that, except as otherwise provided in the
Shareholder Rights Agreement, the Company is under no obligation to register
either the Shares or Conversion Shares.
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(f) Each Purchaser acknowledges that it has received and
reviewed a copy of Rule 144 promulgated under the Act, which permits limited
public resales of securities acquired in a non-public offering, subject to the
satisfaction of certain conditions. Each Purchaser understands that before the
Shares, or any Conversion Shares, may be sold under Rule 144, the following
conditions must be fulfilled, except as otherwise described below: (i) certain
public information about the Company must be available, (ii) the sale must occur
at least one year after the later of the date the Shares were sold by the
Company or the date they were sold by an affiliate of the Company, (iii) the
sale must be made in a broker's transaction and (iv) the number of Shares sold
must not exceed certain volume limitations. If, however, the sale occurs at
least two years after the Shares were sold by the Company or an affiliate of the
Company, and if the Purchaser is not an affiliate of the Company, the foregoing
conditions will not apply. Each Purchaser understands that the current
information referred to above is not now available and the Company has no
present plans to make such information available.
(g) Each Purchaser acknowledges that in the event the
applicable requirements of Rule 144 are not met, registration under the
Securities Act or compliance with another exemption from registration will be
required for any disposition of its stock. Each Purchaser understands that
although Rule 144 is not exclusive, the Commission has expressed its opinion
that persons proposing to sell restricted securities received in a private
offering other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
(h) Each Purchaser covenants that, in the absence of an
effective registration statement covering the stock in question, it will sell,
transfer, or otherwise dispose of the Shares and any Conversion Shares only in a
manner consistent with its representations and covenants set forth in this
Section 4. In connection therewith each Purchaser acknowledges that the Company
shall make a notation on its stock books regarding the restrictions on transfer
set forth in this Section 4 and shall transfer shares on the books of the
Company only to the extent not inconsistent therewith.
(i) Each Purchaser represents that it is an "accredited
investor" as defined in Rule 501 pursuant to the Securities Act.
4.2 No Public Market. Each Purchaser understands that no public
market now exists for any of the securities issued by the Company and that it is
unlikely that a public market will ever exist for the Shares.
4.3 Receipt of Information. Each Purchaser has received and
reviewed this Agreement and all Exhibits hereto; it, its attorney and its
accountant have had access to, and an opportunity to review all documents and
other materials requested of the Company; it and they have been given an
opportunity to ask any and all questions of, and receive answers from, the
Company concerning the terms and conditions of the offering and to evaluate the
suitability of an investment in the Shares; and, in evaluating the suitability
of an investment in the Shares, it and they have not relied upon any
representations or other information (whether oral or written) other than as set
forth in the documents
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<PAGE> 17
and answers referred to above. The foregoing, however, does not limit or modify
the representations and warranties of the Company in Section 3 of this Agreement
or the right of the Purchasers to rely thereon.
4.4 Authorization. Each of the Purchasers has the full right,
power and authority to enter into and perform the Purchasers' obligations under
this Agreement, the Shareholder Rights Agreement and the Co-Sale Agreement, and
this Agreement and the Shareholder Rights Agreement and the Co-Sale Agreement
constitute valid and binding obligations of the Purchaser enforceable in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditor's rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) to the extent that the indemnification provisions
set forth in the Shareholder Rights Agreement may be limited by applicable laws.
4.5 Consents. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority on the part
of the Purchaser is required in connection with the valid execution and delivery
of this Agreement, the Shareholder Rights Agreement or the Co-Sale Agreement.
SECTION 5
Conditions to Obligations of Purchasers in the Series A Closing
The Purchasers' obligations to purchase the Series A Preferred at the
Series A Closing are, at the option of each Purchaser, subject to the
fulfillment on or prior to the Series A Closing Date of each of the following
conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and correct
when made and shall be true and correct on and as of the Series A Closing Date
with the same force and effect as if they had been made on and as of said date.
5.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Series A
Closing Date shall have been performed or complied with in all material
respects.
5.3 Employees. Simon Cao, Jessy Chao and Paul Jiang shall have
become employees of the Company prior to the Series A Closing Date and entered
into Employment, Confidential Information, Invention Assignment and Arbitration
Agreements with the Company.
5.4 Opinion of Company's Counsel. The Purchasers shall have
received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an
opinion addressed to them, dated the Series A Closing Date, in substantially the
form of Exhibit G.
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5.5 Compliance Certificate. The Company shall have delivered to
the Purchasers a certificate executed by the President of the Company, dated the
Series A Closing Date, and certifying to the fulfillment of the conditions
specified in Sections 5.1, 5.2, and 5.9 of this Agreement, and that he has made,
or caused to be made, such investigations as he deemed necessary in order to
permit him to verify the accuracy of the information set forth in such
certificate.
5.6 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Series A Preferred and the Common
Stock issuable upon conversion of the Series A Preferred.
5.7 Board of Directors. On or before the Closing, the Bylaws of
the Company shall provide for a flexible number of directors from four to seven
and fixing the current number of directors at seven. The Board of Directors
shall at the Closing consist of Michael Goguen, Seth Neiman, Todd Brooks, Simon
Cao, Jessy Chao and two vacancies.
5.8 Restated Articles. The Restated Articles shall have been filed
with the Secretary of State of the State of California.
5.9 No Material Adverse Change. There shall have been no material
adverse change in the Company's business or financial condition.
5.10 Shareholder Rights Agreement. The Purchasers and the Company
shall have executed that certain Shareholder Rights Agreement dated February 10,
1998, pursuant to the Prior Purchase Agreement.
5.11 Co-Sale Agreement. The Purchasers and the Company shall have
executed that certain Co-Sale Agreement dated February 10, 1998, pursuant to the
Prior Purchase Agreement.
5.12 Voting Agreement. The Company, Simon Cao, Jessy Chao and Paul
Jiang shall have executed that certain Voting Agreement dated February 10, 1998,
pursuant to the Prior Purchase Agreement.
SECTION 6
Conditions to the Obligations of Purchasers in the Series B Closing
The Purchasers' obligations to purchase the Series B Preferred at the
Series B Closing are, at the option of Purchaser, subject to the fulfillment on
or prior to the Series B Closing Date of each of the following conditions:
6.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and correct
when made and shall be true and correct on
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<PAGE> 19
and as of the Series B Closing Date with the same force and effect as if they
had been made on and as of said date with such exceptions as are set forth in
Exhibit C attached hereto, which shall be updated as of the Series B Closing
Date.
6.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Company on or prior to
the Series B Closing Date shall have been performed or complied with.
6.3 Compliance Certificate. The Company shall have delivered to
the Purchasers a certificate of the Company, executed by the President of the
Company, dated the Series B Closing Date, and certifying, among other things, to
the fulfillment of the conditions specified in Sections 6.1 and 6.2 of this
Agreement.
6.4 Fulfillment of Series B Milestones. The Company shall have
achieved and completed all of the Series B Milestones as set forth in and
determined (with regard to the achievement thereof) in accordance with Exhibit H
attached hereto.
6.5 Opinion of Company's Counsel. The Purchasers shall have
received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an
opinion addressed to them, dated the Series B Closing Date, in form and
substance reasonably satisfactory to Purchasers and their special counsel.
SECTION 7
Conditions to the Obligations of Purchasers in each Series C Closing
The Purchasers' obligations to purchase the Series C Preferred at each
Series C Closing are, at the option of each Purchaser, subject to the
fulfillment of the following conditions:
7.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and correct
when made and shall be true and correct on and as of each Series C Closing Date
with the same force and effect as if they had been made on and as of said date
with such exceptions as are set forth in Exhibit C attached hereto, which shall
be updated as of each Series C Closing Date.
7.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Company on or prior to
each Series C Closing Date shall have been performed or complied with.
7.3 Compliance Certificate. The Company shall have delivered to
the Purchasers a certificate of the Company, executed by the President of the
Company, dated each Series C Closing Date, and certifying, among other things,
to the fulfillment of the conditions specified in Sections 7.1 and 7.2 of this
Agreement.
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7.4 Certificate of Amendment. The Certificate of Amendment shall
have been filed with the Secretary of State of the State of California.
7.5 No Material Adverse Change. There shall have been no material
adverse change in the Company's business or financial condition.
7.6 Shareholder Rights Agreement. The Purchasers and the Company
shall have executed the Shareholder Rights Agreement.
7.7 Co-Sale Agreement. The Company and the Founders shall have
entered into the Co-Sale Agreement with the Purchasers.
7.8 Voting Agreement. The Company and the Founders shall have
entered into the Voting Agreement with the Purchasers.
7.9 Fulfillment of Series C Milestones. The Company shall have
achieved and completed all of the Series C Milestones as set forth in and
determined (with regard to the achievement thereof) in accordance with Exhibit H
attached hereto.
7.10 Opinion of Company's Counsel. The Purchasers shall have
received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an
opinion addressed to them, dated each Series C Closing Date, in form and
substance reasonably satisfactory to Purchasers and their special counsel.
SECTION 8
Conditions to the Obligations of the Company in the Series A Closing
The Company's obligation to sell and issue the Series A Preferred at
the Series A Closing is, at the option of the Company, subject to the
fulfillment as of the Series A Closing Date of the following conditions:
8.1 Representations. With respect to each Purchaser, the
representations made by such Purchaser in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Series A Closing Date.
8.2 Blue Sky. The Company shall have obtained all necessary blue
sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares.
8.3 Shareholder Rights Agreement. The Purchasers and the Company
shall have entered into the Shareholder Rights Agreement.
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8.4 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
SECTION 9
Conditions to the Obligations of the Company in the Series B Closing
The Company's obligation to sell and issue the Series B Preferred at
the Series B Closing is, at the option of the Company, subject to the
fulfillment as of the Series B Closing Date of the following conditions:
9.1 Representations. With respect to each Purchaser, the
representations made by such Purchaser in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Series B Closing Date
with such exceptions as are set forth in Exhibit C attached hereto, which shall
be updated as of the Series B Closing Date.
9.2 Blue Sky. The Company shall have obtained all necessary blue
sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares.
9.3 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
SECTION 10
Conditions to the Obligations of the Company in each Series C Closing
The Company's obligation to sell and issue the Series C Preferred at
each Series C Closing is, at the option of the Company, subject to the
fulfillment as of each Series C Closing Date of the following conditions:
10.1 Representations. With respect to each Purchaser, the
representations made by such Purchaser in Section 4 hereof shall be true and
correct when made, and shall be true and correct on each Series C Closing Date
with such exceptions as are set forth in Exhibit C attached hereto, which shall
be updated as of each Series C Closing Date.
10.2 Blue Sky. The Company shall have obtained all necessary blue
sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares.
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10.3 Shareholder Rights Agreement. The Purchasers and the Company
shall have entered into the Shareholder Rights Agreement.
10.4 Voting Agreement. The Company, the Founders and the Purchasers
shall have executed the Voting Agreement.
10.5 Legal Matters. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without giving effect to the
conflicts of laws principles thereof.
11.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby.
11.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto,
provided, however, that the rights of a Purchaser to purchase Shares shall not
be assignable without the consent of the Company.
11.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. This Agreement shall supersede and cancel all prior agreements between
the parties hereto with regard to the subject matter hereof, including, but not
limited to, the Prior Purchase Agreement. Neither this Agreement nor any term
hereof may be amended, waived, discharged, or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge, or termination is sought; provided, however, that holders of
sixty-seven percent (67%) of the shares of Common Stock issued or issuable upon
conversion of the outstanding Shares and (whether or not converted) not resold
to the public may waive or amend, on behalf of all Purchasers, any provisions
hereof, so long as the effect thereof will be that all such Purchasers and other
holders of the Shares will be treated equally.
11.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person by facsimile or by courier
service or five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Purchaser, at such
Purchaser's address set forth in Exhibit A, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
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Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to its address and facsimile number set forth at the end of this
Agreement and addressed to the attention of the Corporate Secretary, or at such
other address as the Company shall have furnished to the Purchasers (with a copy
to Judith M. O'Brien, Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304; facsimile: (650) 493-6811).
11.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
11.7 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION
BEING AVAILABLE.
11.8 Expenses. The Company and the Purchasers shall each bear their
own expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby; except that, upon the Series A Closing, the Company will
pay at the Series A Closing the reasonable legal fees (up to a maximum of
$10,000) and reasonable expenses upon receipt of a bill therefor, incurred by
Venture Law Group, special counsel to the Purchasers.
11.9 Finder's Fee. The Company and the Purchasers shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Purchaser's, or any of their respective partners, employees, or representatives,
as the case may be, is responsible.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
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11.11 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
11.12 Gender. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
11.13 Headings. Headings and the table of contents in this Agreement
are for reference purposes only and shall not be deemed to have an substantive
effect.
[This space intentionally left blank.]
-19-
<PAGE> 25
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
AVANEX CORPORATION
a California corporation
By:
--------------------------------------
William Lanfri, Chief Executive Officer
[Signature page to the First Amended and Restated Preferred Stock
Purchase Agreement]
<PAGE> 26
"PURCHASERS"
SEQUOIA CAPITAL VII
a California Limited Partnership
SEQUOIA TECHNOLOGY PARTNERS VII
a California Limited Partnership
SQP 1997
SEQUOIA 1997 LLC
SEQUOIA INTERNATIONAL PARTNERS
By: SC VII-A Management, LLC
A California Limited Liability Company
By:
--------------------------------------
Managing Member
CROSSPOINT VENTURE PARTNERS 1997
By:
--------------------------------------
Seth Neiman
Partner
[Signature page to the First Amended and Restated Preferred Stock
Purchase Agreement]
<PAGE> 27
WS INVESTMENT 98
By:
--------------------------------------
Partner
BRADFORD C. O'BRIEN AND JUDITH M. O'BRIEN,
TRUSTEES OF THE O'BRIEN FAMILY TRUST U/D/T
DATED 7/1/92
By:
--------------------------------------
[Signature page to the First Amended and Restated Preferred Stock
Purchase Agreement]
<PAGE> 28
JAFCO CO., LTD.
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO R-3 INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO JS-3 INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO G6-(A) INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO G6-(B) INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
U.S. INFORMATION TECHNOLOGY No. 2
INVESTMENT ENTERPRISE PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
WILLIAM LANFRI
-----------------------------------------
[Signature page to the First Amended and Restated Preferred Stock
Purchase Agreement]
<PAGE> 29
ROBERT HAWK
-----------------------------------------
[Signature page to the First Amended and Restated Preferred Stock
Purchase Agreement]
<PAGE> 30
EXHIBIT A
SCHEDULE OF PURCHASERS
SERIES A CLOSING
<TABLE>
<CAPTION>
Amount of
Aggregate Cash Cancellation of Number
Name of Purchaser Purchase Price Amount Debt of Shares
----------------- --------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Crosspoint Venture Partners 1997 $ 334,500.00 $309,500.00 $25,000.00 1,500,000
JAFCO Co., Ltd. $ 13,399.84 60,089
JAFCO R-3 Investment Enterprise $ 13,399.84 60,089
Partnership
JAFCO JS-3 Investment Enterprise $ 13,399.84 60,089
Partnership
JAFCO G6-(A) Investment Enterprise $ 13,399.84 60,089
Partnership
JAFCO G6-(B) Investment Enterprise $ 13,399.84 60,089
Partnership
U.S. Information Technology No. 2 $ 267,500.76 1,199,555
Investment Enterprise Partnership
Sequoia Capital VII, a California $ 306,067.50 $281,067.50 $25,000.00 1,372,500
Limited Partnership
Sequoia Technology Partners VII, a $ 13,380.00 60,000
California Limited Partnership
SQP 1997 $ 6,208.32 27,840
Sequoia 1997 LLC $ 3,492.18 15,660
Sequoia International Partners $ 5,352.00 24,000
WS Investment 98 $ 5,589.94 25,067
Bradford C. O'Brien and Judith M. $ 1,117.90 5,013
O'Brien, Trustees of the O'Brien Family
Trust U/D/T
dated 7/1/92
TOTAL $1,010,207.80 4,530,080
============= =========
</TABLE>
<PAGE> 31
SERIES B CLOSING
<TABLE>
<CAPTION>
Aggregate Number
Name of Purchaser Purchase Price of Shares
----------------- -------------- ---------
<S> <C> <C>
Crosspoint Venture Partners 1997 $ 834,000.00 2,085,000
JAFCO Co., Ltd. $ 33,443.20 83,608
JAFCO R-3 Investment Enterprise Partnership $ 33,443.20 83,608
JAFCO JS-3 Investment Enterprise Partnership $ 33,443.20 83,608
JAFCO G6-(A) Investment Enterprise Partnership $ 33,443.20 83,608
JAFCO G6-(B) Investment Enterprise Partnership $ 33,443.20 83,608
U.S. Information Technology No. 2 Investment $ 666,784.00 1,666,960
Enterprise Partnership
Sequoia Capital VII, a California Limited $ 834,000.00 2,085,000
Partnership
Sequoia Technology Partners VII, a California
Limited Partnership
SQP 1997
Sequoia 1997 LLC
Sequoia International Partners
WS Investment 98 $ 13,915.00 34,787
Bradford C. O'Brien and Judith M. O'Brien, $ 2,782.80 6,957
Trustees of the O'Brien Family Trust U/D/T
dated 7/1/92
TOTAL $2,518,697.80 6,296,744
============= =========
</TABLE>
<PAGE> 32
SERIES C CLOSING
<TABLE>
<CAPTION>
Aggregate Number
Name of Purchaser Purchase Price of Shares
----------------- -------------- ---------
<S> <C> <C>
Crosspoint Venture Partners 1997 $1,599,999.91 2,116,402
JAFCO Co., Ltd. $ 199,999.80 264,550
U.S. Information Technology No. 2 Investment $ 799,999.96 1,058,201
Enterprise Partnership
Sequoia Capital VII, a California Limited $1,464,000.05 1,936,508
Partnership
Sequoia Technology Partners VII, a California $ 63,999.94 84,656
Limited Partnership
SQP 1997 $ 29,695.68 39,280
Sequoia 1997 LLC $ 16,703.82 22,095
Sequoia International Partners $ 25,600.43 33,863
WS Investment 98 $ 30,494.77 40,337
Bradford C. O'Brien and Judith M. O'Brien, $ 6,098.65 8,067
Trustees of the O'Brien Family Trust U/D/T
dated 7/1/92
William Lanfri $ 296,352.00 392,000
TOTAL $4,532,945.01 5,995,959
------------- -------------
</TABLE>
<PAGE> 33
EXHIBIT B
FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 34
EXHIBIT C
SCHEDULE OF EXCEPTIONS
<PAGE> 35
EXHIBIT D
FIRST AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT
<PAGE> 36
EXHIBIT E
FIRST AMENDED AND RESTATED CO-SALE AGREEMENT
<PAGE> 37
EXHIBIT F
FIRST AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 38
EXHIBIT G
FORM OF OPINION OF WILSON SONSINI GOODRICH & ROSATI
<PAGE> 39
EXHIBIT H
SERIES B PREFERRED AND SERIES C PREFERRED MILESTONES
<PAGE> 40
EXHIBIT I
CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 1
EXHIBIT 10.11
________________________________________________________________________________
AVANEX CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
________________________________________________________________________________
FIRST CLOSING: SEPTEMBER 14, 1999
SECOND CLOSING: OCTOBER 15, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 -Authorization and Sale of Preferred Stock............................................1
1.1 Authorization.................................................................1
1.2 Additional Sale(s) of Series D Preferred Stock................................1
SECTION 2 -Closing Date; Delivery...............................................................2
2.1 Closing Date..................................................................2
2.2 Delivery......................................................................2
SECTION 3 -Representations and Warranties of the Company........................................2
3.1 Organization and Standing; Qualification......................................2
3.2 Corporate Power...............................................................2
3.3 Subsidiaries..................................................................3
3.4 Capitalization................................................................3
3.5 Authorization.................................................................3
3.6 Title to Properties and Assets; Liens, etc....................................4
3.7 Patents, Trademarks, etc......................................................4
3.8 Agreements....................................................................4
3.9 Material Contracts and Commitments............................................4
3.10 Compliance with Other Instruments, None Burdensome, etc.......................4
3.11 Litigation, etc...............................................................5
3.12 Employees.....................................................................5
3.13 Employee Agreements...........................................................5
3.14 No Conflict of Interest.......................................................6
3.15 Financial Statements..........................................................6
3.16 Insurance.....................................................................6
3.17 Qualified Small Business Stock................................................6
3.18 Registration Rights...........................................................7
3.19 Governmental Consent, etc.....................................................7
3.20 Permits.......................................................................7
3.21 Environmental and Safety Laws.................................................7
3.22 Brokers or Finders............................................................7
3.23 Disclosures...................................................................7
3.24 Employee Benefit Plans........................................................7
3.25 Minute Books..................................................................8
SECTION 4 -Representations and Warranties of the Purchasers.....................................8
4.1 Investment Representations and Covenants of the Purchasers....................8
4.2 No Public Market..............................................................9
4.3 Receipt of Information........................................................9
4.4 Authorization................................................................10
4.5 Consents.....................................................................10
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 5 -Conditions to the Obligations of Purchasers at the D Closing........................10
5.1 Representations and Warranties Correct.......................................10
5.2 Covenants....................................................................10
5.3 Compliance Certificate.......................................................10
5.4 Certificate of Amendment.....................................................10
5.5 No Material Adverse Change...................................................10
5.6 Shareholder Rights Agreement.................................................10
5.7 Co-Sale Agreement............................................................11
5.8 Voting Agreement.............................................................11
5.9 Opinion of Company's Counsel.................................................11
SECTION 6 -Conditions to the Obligations of the Company in the Closing.........................11
6.1 Representations..............................................................11
6.2 Blue Sky.....................................................................11
6.3 Shareholder Rights Agreement.................................................11
6.4 Voting Agreement.............................................................11
6.5 Legal Matters................................................................11
SECTION 7 -Miscellaneous.......................................................................11
7.1 Governing Law................................................................11
7.2 Survival.....................................................................11
7.3 Successors and Assigns.......................................................12
7.4 Entire Agreement; Amendment..................................................12
7.5 Notices, etc.................................................................12
7.6 Delays or Omissions..........................................................12
7.7 California Corporate Securities Law..........................................12
7.8 Expenses.....................................................................13
7.9 Finder's Fee.................................................................13
7.10 Counterparts.................................................................13
7.11 Severability.................................................................13
7.12 Gender.......................................................................13
7.13 Headings.....................................................................13
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
A. Schedule of Purchasers
B. Second Amended and Restated Articles of Incorporation
C. Schedule of Exceptions
D. Second Amended and Restated Shareholder Rights Agreement
E. Second Amended and Restated Co-Sale Agreement
F. Second Amended and Restated Voting Agreement
G. Form of Opinion of Wilson Sonsini Goodrich & Rosati
-iii-
<PAGE> 5
AVANEX CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement (this "Agreement") is
made as of September 14, 1999, by and among Avanex Corporation, a California
corporation (the "Company"), with its principal office at 42501 Albrae Avenue,
Fremont, California 94538, and the persons and entities listed on the Schedule
of Purchasers attached as Exhibit A hereto (including purchasers in subsequent
closings under this Agreement who execute a counterpart signature page to this
Agreement) (the "Purchasers").
WHEREAS, the Company desires to sell up to 3,487,097 shares of Series D
Preferred Stock to the Purchasers pursuant to the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and for other and good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION 1
Authorization and Sale of Preferred Stock
1.1 Authorization. The Company has, or before the Closing Date (as that
term is hereinafter defined) will have, authorized the sale and issuance of up
to 3,487,097 shares of its Series D Preferred Stock (hereinafter referred to as
the "Shares" or "Series D Preferred") and up to 3,487,097 shares of Common Stock
issuable upon conversion of the Series D Preferred (the "Conversion Stock")
pursuant to this Agreement and has, or before the Closing Date will have,
authorized the issuance of the shares having the rights, privileges and
preferences set forth in the Second Amended and Restated Certificate of
Incorporation in the form attached hereto as Exhibit B (the "Restated
Articles").
1.2 Additional Sale(s) of Series D Preferred Stock. Any of the
authorized shares of Preferred Stock not sold at the Closing, as defined below,
may be sold to one or more additional purchasers at a subsequent closing(s) to
be held at any time before ninety (90) days after the Closing Date without any
further action or approval of the other parties to this Agreement, provided that
each such purchaser agrees to be bound by the terms hereof as a "Purchaser"
hereunder and provided further that any such sale or sales be on terms identical
to the terms contained in this Agreement, and each subsequent Purchaser shall
become a party to this Agreement (and Exhibit A hereto shall be amended to
include such subsequent Purchaser); and to that certain Second Amended and
Restated Shareholder Rights Agreement dated as of the date hereof by and among
the Purchasers and the Company, in the form attached hereto as Exhibit D (the
"Shareholder Rights Agreement"); and to that certain Second Amended and Restated
Voting Agreement dated as of the date hereof by and among the Company, the
Purchasers and the Founders, the form of which is attached hereto as Exhibit F
(the "Voting Agreement"); and that certain Second Amended and Restated Co-Sale
Agreement dated as of the date hereof by and among the Company, certain of the
Purchasers, and the Founders named therein, the form of which is attached hereto
as Exhibit E (the "Co-Sale
<PAGE> 6
Agreement,") (and together with the Shareholder Rights Agreement and the Voting
Agreement, the "Ancillary Agreements"), and shall have the rights and
obligations of a Purchaser hereunder and thereunder. The shares of Preferred
Stock sold at such additional closing(s) shall be deemed to be "Shares"
hereunder and the purchasers thereof shall be deemed to be "Purchasers"
hereunder. The subsequent closings shall take place at Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California 94304, at 10:00 a.m., local
time, or at such other times and places as the Company and Purchasers acquiring
in the aggregate more than a majority of the shares of Series D Preferred Shares
sold pursuant hereto at such Closing mutually agreed upon orally or in writing
(which each time and place are designated as a "Closing").
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The first closing of the purchase and sale of the
Series D Preferred shall be held at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California, at 2:00 p.m., local time, on
September 14, 1999 or at such other time and place upon which the Company and
the Purchasers shall agree (which time and place shall be referred to as the
"Closing," and the date of the Closing is hereinafter referred to as the,
"Closing Date").
2.2 Delivery. At the Closing, the Company will issue to each Purchaser a
certificate or certificates registered in such Purchaser's name as set forth on
the Schedule of Purchasers attached hereto as Exhibit A, representing the number
of shares of Series D Preferred purchased by such Purchaser against payment of
the purchase price therefor. Such payment shall be by check payable to the
Company or by wire transfer.
SECTION 3
Representations and Warranties of the Company
Except as set forth on the Schedule of Exceptions attached as Exhibit C
hereto, the Company hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing; Qualification. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted. The Company is not qualified to do
business as a foreign corporation in any jurisdiction and such qualification is
not presently required.
3.2 Corporate Power. The Company will have at the Closing Date all
requisite legal and corporate power to execute and deliver this Agreement, the
Shareholder Rights Agreement, the Co-Sale Agreement and the Voting Agreement, to
sell, issue and deliver the Shares hereunder, to issue the Common Stock issuable
upon conversion of the Shares (the "Conversion Shares") and to carry out and
perform its obligations under the terms of this Agreement, the Shareholder
Rights Agreement, the Co-Sale Agreement and the Voting Agreement.
-2-
<PAGE> 7
3.3 Subsidiaries. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock, of which 12,394,194 shares are issued and
outstanding, 4,600,000 shares of Series A Preferred Stock ("Series A
Preferred"), 4,530,080 of which are issued and outstanding prior to the Closing
Date, 6,350,000 shares of Series B Preferred Stock ("Series B Preferred"),
6,296,744 of which are issued and outstanding prior to the Closing Date,
10,850,000 shares of Series C Preferred, 9,032,169 of which are issued or
outstanding prior to the Closing Date, and 3,600,000 shares of Series D
Preferred Stock (Series D Preferred"), none of which are issued or outstanding
prior to the Closing Date. All such issued and outstanding shares have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with all applicable federal and state securities laws. The
Company has reserved (i) 4,600,000 shares of Common Stock for issuance upon
conversion of the Series A Preferred, 6,350,000 shares of Common Stock for
issuance upon conversion of the Series B Preferred, 10,850,000 shares of Common
Stock for issuance upon conversion of the Series C Preferred, 3,600,000 shares
of Common Stock for issuance upon conversion of the Series D Preferred and (ii)
12,700,000 shares of Common Stock for issuance to employees pursuant to the
Company's 1998 Stock Plan, 1,835,100 of which are subject to outstanding
options, and 470,706 of which remain available for future grant. The Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
have the rights, preferences, privileges and restrictions set forth in the
Restated Articles. Except as set forth in Exhibit C hereto, and as set forth in
the Shareholder Rights Agreement, there are no options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of capital stock or other securities
of the Company. Except for the Shareholders Rights Agreement, the Company is not
a party or subject to any agreement or understanding which affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company. Assuming the accuracy of each Purchaser's
representations in Section 4 below, upon issuance in accordance with this
Agreement and the Company's Restated Articles, the Shares will have been issued
in compliance with all federal and state securities laws.
3.5 Authorization. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement, the Shareholder Rights Agreement, the Co-Sale
Agreement and the Voting Agreement by the Company, the authorization, sale,
issuance and delivery of the Shares (and the Conversion Shares) and the
performance of the Company's obligations hereunder has been taken or will be
taken prior to the Closing. This Agreement, the Shareholder Rights Agreement,
the Co-Sale Agreement and the Voting Agreement, when executed and delivered by
the Company, shall constitute the valid and binding obligations of the Company
enforceable in accordance with their respective terms. The Shares, when issued
in compliance with the provisions of this Agreement and the Company's Restated
Articles, will be duly and validly issued, fully paid and nonassessable. The
Common Stock issuable upon conversion of the Shares has been duly and validly
reserved and, when issued in compliance with the provisions of this Agreement
and the Company's Restated Articles, will be duly and validly issued, fully paid
and nonassessable.
-3-
<PAGE> 8
3.6 Title to Properties and Assets; Liens, etc. The Company has good and
marketable title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen otherwise than
in the ordinary course of business.
3.7 Patents, Trademarks, etc. The Company owns or has the right to use,
free and clear of all liens, charges, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses and
proprietary rights necessary to its business as now conducted, and is not
infringing upon or otherwise acting adversely to the right or claimed right of,
to the Company's knowledge, any person under or with respect to any of the
foregoing. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as currently proposed, would violate any
patent, trademark, service mark, trade name, copyright or trade secret or other
proprietary right of any other person or entity. To the Company's knowledge,
after reasonable investigation, none of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as currently proposed to be conducted. Neither the execution
nor delivery of this Agreement, the Shareholders Rights Agreement or the Co-Sale
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as currently proposed to be
conducted, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe, after reasonable investigation, that it is or will be necessary to
utilize any inventions of any of the Company's employees (or people it currently
intends to hire) made prior to their employment by the Company.
3.8 Agreements. There are no agreements, understandings, instruments,
contracts or transactions currently in negotiation, which the Company is a party
that may involve (i) obligations (contingent or otherwise) of, or payments to
the Company in excess of, $10,000, (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company or (iii)
indemnification by the Company with respect to infringements of proprietary
rights.
3.9 Material Contracts and Commitments. Neither the Company, nor, to the
knowledge of the Company, any third party is in default under any material
contract, agreement or instrument to which the Company is a party.
3.10 Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of its Restated Articles or Bylaws, or
in any material respect of any term or provision of any mortgage, indenture,
contract, agreement, instrument, judgment or decree to which it is a party, and
the Company is not in violation of any federal or state judgment, order,
statute, law,
-4-
<PAGE> 9
rule or regulation applicable to the Company, which violation would have a
material adverse effect on the Company's business. The execution, delivery and
performance of and compliance with this Agreement, the Shareholder Rights
Agreement and the Co-Sale Agreement and the issuance of the Shares and the
Conversion Shares, will not result in any violation of, or conflict with, or
constitute a default under, any material contract, agreement, instrument or
mortgage, or any pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company; and there is no such violation or default or event
which, with the passage of time or giving of notice or both, would constitute a
violation or default which materially and adversely affects the business of the
Company or any of its properties or assets.
3.11 Litigation, etc. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the Company's knowledge, is there any threat
thereof or basis therefor), which, either in any case or in the aggregate, would
result in any material adverse change in the business or financial condition of
the Company or any of its properties or assets, or in any material impairment of
the right or ability of the Company to carry on its business as now conducted or
as proposed to be conducted, or in any material liability on the part of the
Company, and none which questions the validity of this Agreement, the
Shareholders Rights Agreement or the Co-Sale Agreement, or any action taken or
to be taken in connection herewith or therewith. The foregoing includes, without
limitation, any action, suit, proceeding, or investigation pending or, to the
Company's knowledge, currently threatened involving the prior employment of any
of the Company's employees, such employees' use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, such employees' obligations under any agreements with prior
employers, or negotiations by the Company with potential backers of, or
investors in, the Company or its proposed business. The Company is not a party
to, or to its knowledge, named in any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit or proceeding by the Company currently pending or that the Company
currently intends to initiate.
3.12 Employees. To the Company's knowledge, no employee of the Company
is in violation of any term of any employment contract, patent disclosure
agreement or any other contract or agreement relating to the relationship of any
such employee with the Company or any other party because of the nature of the
business conducted or to be conducted by the Company. The Company does not have
any collective bargaining agreements covering any of its employees. The
employment of each officer and employee of the Company is terminable at the will
of the Company.
3.13 Employee Agreements. Each person presently employed by the Company
has executed (or will execute by the Closing Date) an Employment, Confidential
Information and Invention Assignment Agreement in the form previously provided
to or made available to the Purchasers. To the Company's knowledge, neither the
execution, delivery or performance of such agreements, nor the carrying on of
the Company's business as employees by such persons, nor the conduct of the
Company's business as currently proposed will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any of such persons is now
obligated.
-5-
<PAGE> 10
3.14 No Conflict of Interest. The Company is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. To the Company's knowledge, none of the Company's
officers or directors, or any members of their immediate families, are, directly
or indirectly, indebted to the Company (other than in connection with purchases
of the Company's stock) or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that officers, directors and/or shareholders of the
Company may own stock in (but not exceeding two percent of the outstanding
capital stock of ) any publicly traded companies that may compete with the
Company. To the Company's knowledge, none of the Company's officers or directors
or any members of their immediate families are, directly or indirectly,
interested in any material contract with the Company. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.15 Financial Statements. The Company has delivered to each Purchaser
its unaudited financial statements (balance sheet and statement of operations
and statement of cash flows at June 30, 1999 and for the fiscal year then ended
(the "Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that the
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject in the case of the
unaudited Financial Statements to normal year-end audit adjustments. Except as
set forth in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 1999 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, in both cases, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
3.16 Insurance. The Company has, or within 30 days following the
Closing, will have in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
3.17 Qualified Small Business Stock. The Company represents and warrants
to the Purchasers that, to the best of its knowledge, the Shares should qualify
as "Qualified Small Business Stock" as defined in Section 1202(c) of the
Internal Revenue code of 1986, as amended as of the date hereof.
-6-
<PAGE> 11
3.18 Registration Rights. Except as set forth in the Shareholder Rights
Agreement, the Company is not currently under any obligation to register under
the Securities Act of 1933, as amended (the "Securities Act") any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
3.19 Governmental Consent, etc. No consent, approval, qualification or
authorization of, or designation, declaration or filing with, any federal, state
or local governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement, the
Shareholder Rights Agreement and the Co-Sale Agreement, or the offer, sale or
issuance of the Shares (and the Conversion Shares), or the consummation of any
other transaction contemplated hereby, except (a) filing of the Restated
Articles in the office of the Secretary of State of the State of California, and
(b) qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the Shares
(and the Conversion Shares) under the California Corporate Securities Law and
other applicable Blue Sky laws, which filing and qualification, if required,
will be accomplished in a timely manner prior to or promptly upon completion of
the Closing.
3.20 Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company and believes it can
obtain without undue burden or expense, any similar authority for the conduct of
its business as currently planned to be conducted. The Company is not in default
in any material respect under any of such franchises, permits, licenses or other
similar authority.
3.21 Environmental and Safety Laws. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
3.22 Brokers or Finders. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.23 Disclosures. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate furnished
to the Purchasers pursuant to this Agreement, contains any untrue statement of a
material fact or, when taken together, omits to state a material fact necessary
to make the statements made herein, in light of the circumstances under which
they were made, not misleading. However, as to any projections furnished to the
Purchasers, such projections were prepared in good faith by the Company, but the
Company makes no representation or warranty that it will be able to achieve such
projections. The Company has fully provided each Purchaser with all the
information that such Purchaser has requested for deciding whether to purchase
the Shares.
3.24 Employee Benefit Plans. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
-7-
<PAGE> 12
3.25 Minute Books. The minute books of the Company made available to the
Purchasers contain summaries of all meetings of directors and shareholders since
the time of incorporation.
SECTION 4
Representations and Warranties of the Purchasers
Each Purchaser hereby represents and warrants to the Company with
respect to its purchase of the Shares as follows:
4.1 Investment Representations and Covenants of the Purchasers.
(a) This Agreement is made by the Company with each Purchaser in
reliance upon such Purchaser's representations and covenants made in this
Section 4, which by its execution of this Agreement each Purchaser hereby
confirms. Each Purchaser represents that the Shares to be received will be
acquired for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling, granting any participation in or otherwise
distributing the same. Each Purchaser further represents that it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares or any Common Stock acquired on conversion thereof.
(b) Each Purchaser understands and acknowledges that the offering
of the Shares pursuant to this Agreement will not, and any issuance of Common
Stock on conversion thereof may not, be registered under the Securities Act on
the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt pursuant to Section 4(2) or Section 3(b) of the
Securities Act, and that the Company's reliance on such exemption is predicated
on the Purchasers' representations set forth herein.
(c) Each Purchaser covenants that in no event will it make any
disposition of any of the Shares, or any Conversion Shares acquired upon the
conversion thereof, except in accordance with Section 4 of the Shareholder
Rights Agreement.
(d) Each Purchaser represents that it is experienced in
evaluating recently organized, high technology companies such as the Company, is
able to fend for itself in transactions such as the one contemplated by this
Agreement, has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of its prospective
investment in the Company, and has the ability to bear the economic risks of the
investment.
(e) Each Purchaser acknowledges and understands that the Shares,
and any Conversion Shares, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and that, except as otherwise provided in the
Shareholder Rights Agreement, the Company is under no obligation to register
either the Shares or Conversion Shares.
(f) Each Purchaser acknowledges that it has received and reviewed
a copy of Rule 144 promulgated under the Act, which permits limited public
resales of securities acquired in a
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<PAGE> 13
non-public offering, subject to the satisfaction of certain conditions. Each
Purchaser understands that before the Shares, or any Conversion Shares, may be
sold under Rule 144, the following conditions must be fulfilled, except as
otherwise described below: (i) certain public information about the Company must
be available, (ii) the sale must occur at least one year after the later of the
date the Shares were sold by the Company or the date they were sold by an
affiliate of the Company, (iii) the sale must be made in a broker's transaction
and (iv) the number of Shares sold must not exceed certain volume limitations.
If, however, the sale occurs at least two years after the Shares were sold by
the Company or an affiliate of the Company, and if the Purchaser is not an
affiliate of the Company, the foregoing conditions will not apply. Each
Purchaser understands that the current information referred to above is not now
available and the Company has no present plans to make such information
available.
(g) Each Purchaser acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock. Each Purchaser understands that although Rule 144 is
not exclusive, the Commission has expressed its opinion that persons proposing
to sell restricted securities received in a private offering other than in a
registered offering or pursuant to Rule 144 will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales and that such persons and the brokers who participate in the
transactions do so at their own risk.
(h) Each Purchaser covenants that, in the absence of an effective
registration statement covering the stock in question, it will sell, transfer,
or otherwise dispose of the Shares and any Conversion Shares only in a manner
consistent with its representations and covenants set forth in this Section 4.
In connection therewith each Purchaser acknowledges that the Company shall make
a notation on its stock books regarding the restrictions on transfer set forth
in this Section 4 and shall transfer shares on the books of the Company only to
the extent not inconsistent therewith.
(i) Each Purchaser represents that it is an "accredited investor"
as defined in Rule 501 pursuant to the Securities Act.
4.2 No Public Market. Each Purchaser understands that no public market
now exists for any of the securities issued by the Company and that it is
unlikely that a public market will ever exist for the Shares.
4.3 Receipt of Information. Each Purchaser has received and reviewed
this Agreement and all Exhibits hereto; it, its attorney and its accountant have
had access to, and an opportunity to review all documents and other materials
requested of the Company; it and they have been given an opportunity to ask any
and all questions of, and receive answers from, the Company concerning the terms
and conditions of the offering and to evaluate the suitability of an investment
in the Shares; and, in evaluating the suitability of an investment in the
Shares, it and they have not relied upon any representations or other
information (whether oral or written) other than as set forth in the documents
and answers referred to above. The foregoing, however, does not limit or modify
the representations and warranties of the Company in Section 3 of this Agreement
or the right of the Purchasers to rely thereon.
-9-
<PAGE> 14
4.4 Authorization. Each of the Purchasers has the full right, power and
authority to enter into and perform the Purchasers' obligations under this
Agreement, the Shareholder Rights Agreement and the Co-Sale Agreement, and this
Agreement and the Shareholder Rights Agreement and the Co-Sale Agreement
constitute valid and binding obligations of the Purchaser enforceable in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditor's rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) to the extent that the indemnification provisions
set forth in the Shareholder Rights Agreement may be limited by applicable laws.
4.5 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of the
Purchaser is required in connection with the valid execution and delivery of
this Agreement, the Shareholder Rights Agreement or the Co-Sale Agreement.
SECTION 5
Conditions to the Obligations of Purchasers at the D Closing
The Purchasers' obligations to purchase the Series D Preferred at the D
Closing are, at the option of each Purchaser, subject to the fulfillment of the
following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
when made and shall be true and correct on and as of the Closing Date with the
same force and effect as if they had been made on and as of said date with such
exceptions as are set forth in Exhibit C attached hereto, which shall be updated
as of the Closing Date.
5.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with.
5.3 Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying, among other things, to the
fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement.
5.4 Certificate of Amendment. The Certificate of Amendment shall have
been filed with the Secretary of State of the State of California.
5.5 No Material Adverse Change. There shall have been no material
adverse change in the Company's business or financial condition.
5.6 Shareholder Rights Agreement. The Purchasers and the Company shall
have executed the Shareholder Rights Agreement.
-10-
<PAGE> 15
5.7 Co-Sale Agreement. The Company and the Founders shall have entered
into the Co-Sale Agreement with the Purchasers.
5.8 Voting Agreement. The Company and the Founders shall have entered
into the Voting Agreement with the Purchasers.
5.9 Opinion of Company's Counsel. The Purchasers shall have received
from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion
addressed to them, dated each Series D Closing Date, in form and substance
reasonably satisfactory to Purchasers and their special counsel.
SECTION 6
Conditions to the Obligations of the Company in the Closing
The Company's obligation to sell and issue the Series D Preferred at the
Closing is, at the option of the Company, subject to the fulfillment as of the
Closing Date of the following conditions:
6.1 Representations. With respect to each Purchaser, the representations
made by such Purchaser in Section 4 hereof shall be true and correct when made,
and shall be true and correct on the Closing Date with such exceptions as are
set forth in Exhibit C attached hereto, which shall be updated as of the Closing
Date.
6.2 Blue Sky. The Company shall have obtained all necessary blue sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares.
6.3 Shareholder Rights Agreement. The Purchasers and the Company shall
have entered into the Shareholder Rights Agreement.
6.4 Voting Agreement. The Company, the Founders and the Purchasers shall
have executed the Voting Agreement.
6.5 Legal Matters. All material matters of a legal nature which pertain
to this Agreement and the transactions contemplated hereby, shall have been
reasonably approved by counsel to the Company.
SECTION 7
Miscellaneous
7.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California, without giving effect to the conflicts of
laws principles thereof.
7.2 Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby.
-11-
<PAGE> 16
7.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto,
provided, however, that the rights of a Purchaser to purchase Shares shall not
be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
This Agreement shall supersede and cancel all prior agreements between the
parties hereto with regard to the subject matter hereof, including, but not
limited to, the Prior Purchase Agreement. Neither this Agreement nor any term
hereof may be amended, waived, discharged, or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge, or termination is sought; provided, however, that holders of
sixty-seven percent (67%) of the shares of Common Stock issued or issuable upon
conversion of the outstanding Shares and (whether or not converted) not resold
to the public may waive or amend, on behalf of all Purchasers, any provisions
hereof, so long as the effect thereof will be that all such Purchasers and other
holders of the Shares will be treated equally.
7.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person by facsimile or by courier
service or five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Purchaser, at such
Purchaser's address set forth in Exhibit A, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to its address and facsimile number set forth at the end of this
Agreement and addressed to the attention of the Corporate Secretary, or at such
other address as the Company shall have furnished to the Purchasers (with a copy
to Judith M. O'Brien, Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304; facsimile: (650) 493-6811).
7.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.7 California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
-12-
<PAGE> 17
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
OR SUCH EXEMPTION BEING AVAILABLE.
7.8 Expenses. The Company and the Purchasers shall each bear their own
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby.
7.9 Finder's Fee. The Company and the Purchasers shall each indemnify
and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Purchaser's, or any of their respective partners, employees, or representatives,
as the case may be, is responsible.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
7.11 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.12 Gender. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
7.13 Headings. Headings and the table of contents in this Agreement are
for reference purposes only and shall not be deemed to have an substantive
effect.
[This space intentionally left blank.]
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<PAGE> 18
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
AVANEX CORPORATION
a California corporation
By:
----------------------------------------------
Walter Alessandrini, Chief Executive Officer
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
-14-
<PAGE> 19
"PURCHASERS"
SEQUOIA CAPITAL FRANCHISE FUND
SEQUOIA CAPITAL FRANCHISE
PARTNERS SEQUOIA CAPITAL VII a
California Limited Partnership
SEQUOIA TECHNOLOGY PARTNERS VII a
California Limited Partnership
SQP 1997 SEQUOIA 1997 LLC SEQUOIA
INTERNATIONAL PARTNERS By: SC
VII-A Management, LLC A
California Limited Liability
Company
By:
-------------------------------
Managing Member
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
-15-
<PAGE> 20
CROSSPOINT VENTURE PARTNERS LS 1999
By:
-------------------------------
Seth Neiman
Partner
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
-16-
<PAGE> 21
JAFCO CO., LTD.
By:
-------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
-17-
<PAGE> 22
U.S. INFORMATION TECHNOLOGY No. 2 INVESTMENT
ENTERPRISE PARTNERSHIP
By:
-------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
-18-
<PAGE> 23
WS INVESTMENT 99B
By:
-------------------------------
Partner
BRADFORD C. O'BRIEN AND JUDITH M.
O'BRIEN, TRUSTEES OF THE O'BRIEN FAMILY
TRUST U/D/T DATED 7/1/92
By:
-------------------------------
BRUCE MCNAMARA
ALISANDE M. ROZYNKO AND WILLIAM C. NIETO AS
COMMUNITY PROPERTY
-------------------------------
-------------------------------
THOMAS I. SAVAGE AND JANET S. KIM JTWROS
-------------------------------
IRWIN GROSS
-------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
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<PAGE> 24
MAYFIELD IX
A Delaware Limited Partnership
By:
-------------------------------
Mayfield IX Management, L.L.C.
Its General Partner
MAYFIELD ASSOCIATES FUND IV
A Delaware Limited Partnership
By:
-------------------------------
Mayfield IX Management, L.L.C.
Its General Partner
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
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<PAGE> 25
EXHIBIT A
SCHEDULE OF PURCHASERS
First Closing (September 14, 1999)
<TABLE>
<CAPTION>
Name of Purchaser Aggregate Number
Purchase Price of Shares
-------------- --------------
<S> <C> <C>
Crosspoint Venture Partners LS 1999 $ 5,912,483.50 1,028,258
Mayfield IX $ 2,932,057.25 509,923
Mayfield Associates Fund IV $ 154,318.50 26,838
Sequoia Capital VII, a California Limited Partnership $ 2,999,648.50 521,678
Sequoia Technology Partners VII, a California Limited $ 131,134.50 22,806
Partnership
SQP 1997 $ 60,846.50 10,582
Sequoia 1997 LLC $ 34,224.00 5,952
Sequoia International Partners $ 52,451.50 9,122
Sequoia Capital Franchise Fund
$ 2,370,759.50 412,306
Sequoia Capital Franchise Partners $ 263,419.00 45,812
WS Investment 99B $ 25,001.00 4,348
Bradford C. O'Brien and Judith M. O'Brien, Trustees of the $ 2,001.00 348
O'Brien Family Trust U/D/T dated 7/1/92
Alisande M. Rozynko and William C. Nieto as Community Property $ 5,002.50 870
Thomas I. Savage and Janet S. Kim JTWROS $ 8,004.00 1,392
Irwin Gross $ 5,002.50 870
Bruce McNamara $ 5,002.50 870
TOTAL $14,961,356.25 2,601,975
============== ==============
</TABLE>
Second Closing (October 15, 1999)
<TABLE>
<CAPTION>
Name of Purchaser Aggregate Number
Purchase Price of Shares
-------------- -------------
<S> <C> <C>
JAFCO Co., Ltd. $1,017,888.00 177,024
U.S. Information Technology No. 2 Investment Enterprise $4,071,563.50 708,098
Partnership
TOTAL $5,089,451.50 885,122
------------- -------------
</TABLE>
<PAGE> 26
EXHIBIT B
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
(See Tab 3)
<PAGE> 27
EXHIBIT C
SCHEDULE OF EXCEPTIONS
<PAGE> 28
EXHIBIT D
SECOND AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT
(See Tab 5)
<PAGE> 29
EXHIBIT E
SECOND AMENDED AND RESTATED CO-SALE AGREEMENT
(See Tab 7)
<PAGE> 30
EXHIBIT F
SECOND AMENDED AND RESTATED VOTING AGREEMENT
(See Tab 6)
<PAGE> 31
EXHIBIT G
OPINION OF WILSON SONSINI GOODRICH & ROSATI
(SEE TAB 12)
<PAGE> 1
EXHIBIT 10.12
AVANEX CORPORATION
SECOND AMENDED AND RESTATED CO-SALE AGREEMENT
This Second Amended and Restated Co-Sale Agreement (this "Co-Sale
Agreement") is made as of September 14, 1999 by and among Avanex Corporation, a
California corporation (the "Company"), Simon Xiaofan Cao, Jessy Chao and Paul
Shi-Qi Jiang (the "Founders"), the purchasers of the Company's Series A
Preferred Stock (the "Series A Preferred"), Series B Preferred Stock (the
"Series B Preferred") and Series C Preferred Stock (the "Series C Preferred")
pursuant to that certain Amended and Restated Series A Preferred, Series B
Preferred and Series C Preferred Stock Purchase Agreement dated February 19,
1999 between the Company and such purchasers (the "Prior Purchasers"), and the
purchasers of the Company's Series D Preferred Stock (the "Series D Preferred")
pursuant to that certain Series D Preferred Stock Purchase Agreement of even
date herewith (the "SERIES D AGREEMENT") between the Company and such purchasers
(including purchasers in subsequent closings under the Series D Agreement who
execute a counterpart signature page to this Agreement) (the "Series D
Purchasers") (the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred are collectively referred to herein as the "Preferred Stock")
(the Prior Purchasers and the Series D Purchasers being collectively referred to
herein as the "Purchasers").
RECITALS
A. The Founders are presently the beneficial owners of Four Million Two
Hundred Thousand (4,200,000) shares of the outstanding Common Stock of the
Company (the "Common Stock"). All said shares and any additional shares of
capital stock of the Company subsequently owned by the Founders are herein
collectively referred to as the "Co-Sale Shares";
B. Pursuant to that certain Amended and Restated Series A Preferred,
Series B Preferred and Series C Preferred Stock Purchase Agreement dated
February 19, 1999 (the "Prior Purchase Agreement"), the Purchasers thereto
acquired from the Company Four Million Five Hundred Thirty Thousand Eighty
(4,530,080) shares of the Company's Series A Preferred Stock (the "Series A
Preferred Stock"), after the Company met certain conditions set forth in the
Prior Purchase Agreement, Six Million Two Hundred Ninety Six Thousand Seven
Hundred Forty Four (6,296,744) shares of the Company's Series B Preferred Stock
(the "Series B Preferred Stock"), and, after the Company met certain conditions
set forth in the Prior Purchase Agreement, nine million thirty-two thousand one
hundred sixty-nine (9,032,169) shares of the Company's Series C Preferred Stock
(the "Series B Preferred Stock"). In connection with the Prior Purchase
Agreement, the Purchasers thereto, the Founders and the Company entered into
that certain First Amended and Restated Co-Sale Agreement dated February 19,
1999 (the "Prior Co-Sale Agreement");
C. Pursuant to the Series D Agreement, the Company shall sell to the
Series D Purchasers up to Three Million Four Hundred Eighty-Seven Thousand
Ninety-Seven (3,487,097) shares of the Company's Series D Preferred Stock (the
"Series D Preferred Stock");
Second Amended and Restated Co-Sale Agreement
1
<PAGE> 2
D. The obligations of each of the Purchasers to purchase its respective
amount of Series D Preferred Stock is conditioned upon, among other things, the
execution and delivery by the Founders, each of the Purchasers, and the Company
of this Co-Sale Agreement;
E. The Founders have agreed to grant the Purchasers the opportunity to
participate, upon the terms and conditions set forth in this Co-Sale Agreement,
in certain subsequent sales of the Co-Sale Shares made by the Founders to induce
the Purchasers to acquire shares of the Company's Preferred Stock; and
F. The parties to the Prior Co-Sale Agreement wish to amend, restate and
supersede such agreement and adopt this Co-Sale Agreement in lieu thereof.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the Purchasers, the Founders and the Company agree as follows:
AGREEMENT
1. Definitions
(a) "Common Stock Equivalents" shall mean the Company's Common Stock
then outstanding and the shares of Common Stock then issuable upon conversion of
all outstanding Preferred Stock, options and other securities convertible into
Common Stock of the Company or convertible into securities convertible into
Common Stock of the Company.
(b) "Transactions" shall mean any transaction or series of related
transactions which require the giving of notice by a Founder in accordance with
Section 2(a).
(c) "Participant" shall mean a Purchaser who elects to participate
in a Founder's sale pursuant to Section 2(b) or Section 3(b).
2. Sales by a Founder
(a) Before a Founder attempts to transfer any Co-Sale Shares in one
or more transactions, such Founder shall promptly notify all Purchasers and the
Company of the terms and conditions of the transaction at least twenty (20) days
prior to the proposed closing date of the transaction.
(b) A Purchaser shall have the right, exercisable upon written
notice to such Founder within ten (10) days after receipt of the Founder's
notice pursuant to Section 2(a), to participate in the Founder's sale of Co-Sale
Shares pursuant to the specified terms and conditions of such Transaction. The
Founder shall have the exclusive right to determine the terms and conditions of
such sale and the Participants participating in any such sale shall each pay a
pro rata share of the reasonable expenses reasonably incurred by the Founder in
connection therewith. In order to participate in the Founder's sale of Common
Stock, a Participant may be required to sell Common Stock in the Transaction
and, accordingly, may be required to convert such Participant's Preferred Stock
into Common Stock immediately prior to the closing of the Transaction. To the
extent one or
2
<PAGE> 3
more of the Purchasers exercise such right of participation in accordance with
the terms and conditions set forth below, the number of shares of Common Stock
which the Founder may sell in the Transaction shall be correspondingly reduced.
The right of participation of each of the Participants shall be subject to the
following terms and conditions.
(i) Each of the Participants may sell all or any part of
that number of shares of Common Stock Equivalents of the Company then held by
such Participant equal to the product obtained by multiplying (x) the aggregate
number of shares of Common Stock Equivalents covered by the Transaction by (y) a
fraction, the numerator of which is the number of shares of Common Stock
Equivalents owned by the Participant prior to the Transaction, and the
denominator of which is the aggregate number of shares of Common Stock
Equivalents outstanding prior to the Transaction.
(ii) Each of the Participants shall effect its
participation in the sale by delivering to the Founder for transfer to the
purchase offeror one or more certificates, properly endorsed for transfer, which
represent the number of shares of Common Stock Equivalents which the Participant
elects to sell pursuant to this Section 2(b).
(c) The certificates which the Participants deliver to the Founders
pursuant to Section 2(b) shall be transferred by the Founders to the purchase
offeror in consummation of the Transaction pursuant to the terms and conditions
specified in the Section 2(a) notice to the Participants, and the Founders shall
promptly thereafter remit to each Participant that portion of the sale proceeds
to which the Participant is entitled by reason of its participation in such
sale.
(d) The exercise or non-exercise of the rights of the Participants
hereunder to participate in one or more Transactions made by the Founders shall
not adversely affect their rights to participate in subsequent Transactions
which satisfy the circumstances specified in Section 2(a).
(e) The provisions of Section 2(a) shall not apply to (i) any pledge
of Co-Sale Shares made by a Founder which creates a mere security interest,
provided the pledgee shall furnish the Participants with a written agreement
providing that such pledgee shall be bound by and comply with all provisions of
this Co-Sale Agreement applicable to the Founder, (ii) the sale or other
transfer by a Founder or any transferee of a Founder, on a cumulative basis, of
up to 1% of the number of Co-Sale Shares held by such Founder or transferee on
the date of this Agreement in any twelve-month period (as adjusted for stock
splits, stock dividends or other recapitalizations), (iii) any transfer by a
Founder or any transferee or beneficiary of a Founder to his spouse, siblings,
parents or lineal descendants, or a trust or trusts for the benefit of any of
them, provided the transferee or beneficiary shall furnish the Participant with
a written agreement to be bound by and comply with all provisions of this
Agreement applicable to the Founders, (iv) any transfer in connection with (x)
the merger or consolidation of the Company with or into any other corporation or
other entity or person, or any other corporate reorganization in which the
Company shall not be the surviving or continuing entity of such merger,
consolidation or reorganization, so long as such merger, consolidation, or other
corporate reorganization shall have been approved by the Purchasers, or (y) the
sale of all or substantially all of the assets of the Company, (v) any transfer
in connection with an underwritten public offering of the Company's Common Stock
registered under the Securities Act of 1933, as
3
<PAGE> 4
amended, (vi) any sale, assignment or transfer of Co-Sale Shares in connection
with the repurchase of unvested shares of Common Stock by the Company pursuant
to contractual arrangements and (vii) any sale made with the unanimous approval
of the Board of Directors.
3. Prohibited Transfers
(a) In the event a Founder should sell any Co-Sale Shares in
contravention of the participation rights of the Purchasers under this Agreement
(a "Prohibited Transfer"), the Purchasers shall have the put option provided in
Section 3(b) below, and the Founder shall be bound by the applicable provisions
of such put option.
(b) In the event of a Prohibited Transfer, each Purchaser shall have
the option to sell to the Founder a number of shares of Common Stock Equivalents
of the Company equal (after giving effect to any stock dividends, stock splits
or other recapitalization) to the number of shares such Purchaser would have
been entitled to sell if the Founder had complied with the provisions of Section
2 on the following terms and conditions:
(i) The price per share at which the shares are to be sold
to the Founder shall be equal to the price per share paid by the third party
purchaser or purchasers to the Founder.
(ii) The Purchaser shall deliver to the Founder, within ten
(10) days after it has received written notice of the Prohibited Transfer, the
certificate or certificates representing shares to be sold, each certificate to
be properly endorsed for transfer.
(iii) The Founder shall, upon receipt of the
certificates for the shares subject to the put option, pay the aggregate Section
3(b) purchase price therefor, by certified check or bank draft made payable to
the order of the Participants exercising the Section 3(b) option, and shall
reimburse the Participants for any additional expenses, including legal fees and
expenses, incurred in effecting such purchase and resale.
(iv) The parties agree that the foregoing is a liquidated
damages provision, and not a penalty, which is reasonable in light of the
difficulty of determining damages for the breach hereof.
(c) Notwithstanding the foregoing, any attempt to transfer shares of
the Company in violation of Section 2 hereof shall be void, and the Company
agrees that it will not effect such a transfer nor will it treat any alleged
transferee as the holder of such shares without the written consent of the
number of the Founders and Purchasers having the right to amend this Co-Sale
Agreement as provided below.
4. Legended Certificates
(a) Each certificate representing the Co-Sale Shares now or
hereafter owned by the Founders or any permitted assignee in accordance
herewith, shall be endorsed with the following legend:
4
<PAGE> 5
"THE SALE OF TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND AMONG
THE ORIGINAL OWNER OF THESE SHARES AND CERTAIN SHAREHOLDERS OF THE ISSUER.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY
OF THE ISSUER.
(b) Each Founder hereby agrees to imprint the foregoing legend on
all certificates of Co-Sale Shares now or hereafter in such Founder's possession
and further agrees that the Company may instruct its transfer agent to impose
transfer restrictions on the shares represented by such certificates to enforce
the provisions of this Co-Sale Agreement. Such legend and transfer restrictions
referenced above shall be removed upon termination of this Co-Sale Agreement in
accordance with the provisions of Section 5(a).
5. Miscellaneous Provisions
(a) This Co-Sale Agreement shall terminate and no longer be in
effect upon the earlier of (i) the liquidation, dissolution or winding up of the
Company, (ii) the execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company, (iii) the closing of a
firm underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, (the "Securities Act")
covering the offer and sale of securities for the account of the Company to the
public, (iv) the closing of the acquisition of the Company by another entity by
means of merger or consolidation resulting in the exchange of the outstanding
shares of the Company's capital stock for securities or consideration issued, or
caused to be issued, by the acquiring entity or its subsidiary which are
registered under the Securities Act, or (v) the sale of all or substantially all
of the assets of the Company. In addition, this Co-Sale Agreement shall
terminate with respect to a particular Founder six months after the termination
of his employment and consulting relationship with the Company, or at such time
as the Company is required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended.
(b) Each Founder represents and warrants that (subject to any
community property rights of such Founder's spouse) he or she is the sole legal
and beneficial owner of the Co-Sale Shares and that no other person has any
interest in such shares.
(c) All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given upon personal delivery to the party to be
notified or three (3) days after deposit in the United States mail, by
registered or certified mail, postage prepaid and properly addressed to the
party to be notified as set forth in the records of the Company or at such other
address as such party may designate by ten days' advance written notice to the
other parties hereto.
(d) The rights and obligations of the parties hereunder shall inure
to the benefit of and be binding upon, their respective successors, assigns and
legal representatives.
(e) In the event one or more of the provisions of this Co-Sale
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity,
5
<PAGE> 6
illegality or unenforceability shall not affect any other provisions of this
Co-Sale Agreement, and this Co-Sale Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
(f) Any provision of this Co-Sale Agreement may be amended, waived
or modified only upon the written consent of (i) the Company, (ii) the holders
of a majority of the outstanding shares of the Company's Preferred Stock (or
Common Stock issued upon conversion thereof), acting together as a single class
and (iii) the Founders, provided that any Purchaser may waive any of his rights
hereunder without obtaining the consent of any other Purchaser.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
(h) In the event of any dispute involving the terms hereof, the
prevailing parties shall be entitled to collect reasonable legal fees and
expenses from the other party(ies) to the dispute.
(i) This Co-Sale Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
(j) This Co-Sale Agreement constitutes the full and entire
understanding and agreement between the parties regarding the subject matter
hereof. This Co-Sale Agreement shall supersede and cancel all prior agreements
between the parties hereto with regard to the subject matter hereof, including,
but not limited to, the Prior Co-Sale Agreement.
[This space intentionally left blank.]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Second Amended and
Restated Co-Sale Agreement on the day and year indicated above.
"COMPANY"
AVANEX CORPORATION
By:
--------------------------------------
Walter Alessandrini, Chief Executive
Officer
Address: 42501 Albrae Avenue
Fremont, CA 94538
7
<PAGE> 8
"PURCHASERS"
SEQUOIA CAPITAL FRANCHISE FUND
SEQUOIA CAPITAL FRANCHISE PARTNERS
SEQUOIA CAPITAL VII
a California Limited Partnership
SEQUOIA TECHNOLOGY PARTNERS VII
a California Limited Partnership
SQP 1997
SEQUOIA 1997 LLC
SEQUOIA INTERNATIONAL PARTNERS
By: SC VII-A Management, LLC
A California Limited Liability Company,
its General Partner
By:
--------------------------------------
Managing Member
8
<PAGE> 9
CROSSPOINT VENTURE PARTNERS 1997
By:
--------------------------------------
Seth Neiman
Partner
CROSSPOINT VENTURE PARTNERS LS 1999
By:
--------------------------------------
Seth Neiman
Partner
9
<PAGE> 10
WS INVESTMENT 98
By:
--------------------------------------
Partner
WS INVESTMENTS 99B
By:
--------------------------------------
Partner
BRADFORD C. O'BRIEN AND
JUDITH M. O'BRIEN, TRUSTEES OF THE
O'BRIEN FAMILY
TRUST U/D/T DATED 7/1/92
By:
--------------------------------------
BRUCE MCNAMARA
-----------------------------------------
ALISANDE M. ROZYNKO AND WILLIAM C. NIETO
AS COMMUNITY PROPERTY
-----------------------------------------
THOMAS I. SAVAGE AND JANET S. KIM JTWROS
-----------------------------------------
-----------------------------------------
IRWIN GROSS
-----------------------------------------
10
<PAGE> 11
JAFCO CO., LTD.
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO R-3 INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO JS-3 INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO G6-(A) INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
JAFCO G6-(B) INVESTMENT ENTERPRISE
PARTNERSHIP
By:
--------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
U.S. INFORMATION TECHNOLOGY NO. 2
INVESTMENT ENTERPRISE PARTNERSHIP
By:
--------------------------------------
JAFCO Co., Ltd.
Its Executive Partner
11
<PAGE> 12
MAYFIELD IX
A Delaware Limited Partnership
By:
--------------------------------------
Mayfield IX Management, L.L.C.
Its General Partner
MAYFIELD ASSOCIATES FUND IV
A Delaware Limited Partnership
By:
--------------------------------------
Mayfield IX Management, L.L.C.
Its General Partner
12
<PAGE> 13
"FOUNDERS"
-----------------------------------------
Simon X. Cao
-----------------------------------------
Jessy Chao
-----------------------------------------
Paul Shi-Qi Jiang
13
<PAGE> 1
EXHIBIT 10.12.1
AVANEX CORPORATION
SECOND AMENDED AND RESTATED VOTING AGREEMENT
This Second Amended and Restated Voting Agreement (the "Agreement") is
made as of the ___ day of September, 1999, by and among Avanex Corporation, a
California corporation (the "Company"), Simon X. Cao, Jessy Chao and Paul Shi-Qi
Jiang (the "Founders"), and the holders of shares of Preferred Stock listed on
Exhibit A (collectively, the "Purchasers" and individually, each a "Purchaser").
RECITALS
A. Pursuant to that certain Amended and Restated Series A Preferred,
Series B Preferred and Series C Preferred Stock Purchase Agreement (the "Prior
Purchase Agreement"), the Purchasers thereto purchased (i) 4,530,080 shares of
Series A Preferred Stock of the Company (the "Series A Preferred"), (ii) after
the Company met certain conditions set forth in the Prior Purchase Agreement,
6,296,744 shares of Series B Preferred Stock of the Company (the "Series B
Preferred"), (iii) after the Company met certain conditions set forth in the
Prior Purchase Agreement, 9,032,169 shares of Series C Preferred Stock of the
Company (the "Series C Preferred"). In connection with the Prior Purchase
Agreement, the Purchasers thereto, the Company and the Founders entered into
that certain First Amended and Restated Voting Agreement dated February 19, 1999
(the "Prior Voting Agreement").
B. The Company and the Purchasers have entered into that Series D
Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date
herewith, pursuant to which the Company shall, after meeting certain conditions
set forth in the Purchase Agreement, sell Purchasers up to 3,487,097 shares of
Series D Preferred Stock of the Company (the "Series D Preferred") (the Series A
Preferred, Series B Preferred, the Series C Preferred and the Series D Preferred
are hereinafter collectively referred to as the "Preferred Stock").
C. The Company's Second Amended and Restated Articles of Incorporation
(the "Articles") provide that the holders of shares of Common Stock, voting as a
separate class, shall be entitled to elect two directors (the "Common
Directors") and, the holders of shares of Preferred Stock, voting as a separate
class, shall be entitled to elect three directors; provided, however, that under
certain circumstances the number of directors the holders of Preferred Stock are
entitled to elect may be reduced to two (the "Preferred Directors"). The
Articles further provide that any additional directors (the "Independent
Directors") shall be elected by the holders of the Preferred Stock and the
holders of Common Stock voting as a single class.
D. A condition to the Purchasers' obligations under the Purchase
Agreement is that the Company, the Founders and the Purchasers enter into this
Agreement for the purpose of setting forth the terms and conditions pursuant to
which the Purchasers and the Founders shall vote their shares of the Company's
voting stock in favor of certain designees to the Company's Board of Directors.
The Company, the Purchasers and the Founders each desire to facilitate the
voting arrangements set forth in this Agreement, and the sale and purchase of
shares of Preferred Stock pursuant to the Purchase Agreement, by agreeing to the
terms and conditions set forth below.
<PAGE> 2
E. The parties to the Prior Voting Agreement desire to amend, restate
and supersede such agreement and adopt this Agreement in lieu thereof.
AGREEMENT
The parties agree as follows:
1. ELECTION OF DIRECTORS
(a) BOARD REPRESENTATION. At each annual meeting of the
shareholders of the Company, or at any meeting of the shareholders of the
Company at which members of the Board of Directors of the Company are to be
elected, or whenever members of the Board of Directors are to be elected by
written consent, with respect to the election of the Independent Directors, the
Founders and the Purchasers agree to vote or act with respect to their shares so
as to elect those Independent Directors designated by a majority vote of the
Common Directors and the Preferred Directors all voting together.
(b) APPOINTMENT OF DIRECTORS. In the event of the resignation,
death, removal or disqualification of an Independent Director, a majority of the
Common Directors and the Preferred Directors voting together shall promptly
nominate a new Independent Director, and, at the next annual meeting of the
shareholders of the Company, or at any meeting of the shareholders of the
Company at which members of the Board of Directors of the Company are to be
elected, or whenever members of the Board of Directors are to be elected by
written consent, with respect to the election of the Independent Directors, then
each Purchaser and Founder shall vote its shares of capital stock of the Company
to elect such nominee to the Board of Directors.
2. NO REVOCATION. The voting agreements contained herein are coupled
with an interest and may not be revoked during the term of this Agreement.
3. CHANGE IN NUMBER OF DIRECTORS. The Founders and the Purchasers will
not vote for any amendment or change to the Articles of Incorporation or Bylaws
providing for the election of more than seven (7) or less than five (5)
directors, or any other amendment or change to the Articles of Incorporation
Bylaws inconsistent with the terms of this Agreement.
4. LEGENDS. Each certificate representing shares of the Company's
capital stock held by Founders or Purchasers or any assignee of the Founders or
Purchasers shall bear the following legend:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND
AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY (A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST
IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO
AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING
AGREEMENT."
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<PAGE> 3
5. TERMINATION. This Agreement shall terminate upon the earlier of (a) a
firm commitment underwritten public offering by the Company of shares of its
Common Stock pursuant to a registration statement under the Securities Act of
1933, as amended, or (b) the sale, conveyance, disposal, or encumbrance of all
or substantially all of the Company's property or business or the Company's
merger into or consolidation with any other corporation (other than a
wholly-owned subsidiary corporation) or if the Company effects any other
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, provided that this
Section 5 shall not apply to a merger effected exclusively for the purpose of
changing the domicile of the Company.
6. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) AMENDMENTS AND WAIVERS. Any term hereof may be amended or
waived only with the written consent of the Company, the Founders, and holders
of at least sixty-seven (67%) the Preferred Stock. Any amendment or waiver
effected in accordance with this Section 6(b) shall be binding upon the Company,
the holders of Preferred Stock and any holder of Founders' Shares, and each of
their respective successors and assigns.
(c) ADDITIONAL PARTIES. The parties to this Agreement acknowledge
that the Company's Preferred Stock may be sold in multiple closings pursuant to
the Purchase Agreement, and agree that all of the purchasers of Preferred Stock
pursuant to such agreement can be added as parties to this Agreement, with all
of the rights and obligations of Purchasers under this Agreement without any
further action or approval by other parties to this Agreement.
(d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address or fax number as set forth on the signature page or on
Exhibit A hereto, or as subsequently modified by written notice.
(e) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(f) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and
-3-
<PAGE> 4
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
(g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(h) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(i) ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto. This
Agreement shall supersede and cancel all prior agreements between the parties
hereto with regard to the subject matter hereof, including, but not limited to,
the Prior Voting Agreement.
-4-
<PAGE> 5
The parties hereto have executed this Voting Agreement as of the date
first written above.
"COMPANY"
AVANEX CORPORATION
By:
-----------------------------------
Walter Alessandrini, Chief Executive Officer
Address: 42501 Albrae Avenue
Fremont, CA 94538
[Signature page to the Second Amended and Restated Voting Agreement]
-5-
<PAGE> 6
"FOUNDERS"
--------------------------------------
Simon X. Cao
--------------------------------------
Jessy Chao
--------------------------------------
Paul Shi-Qi Jiang
[Signature page to the Second Amended and Restated Voting Agreement]
-6-
<PAGE> 7
"PURCHASERS"
SEQUOIA CAPITAL FRANCHISE
FUND
SEQUOIA CAPITAL FRANCHISE
PARTNERS
SEQUOIA CAPITAL VII
a California Limited
Partnership
SEQUOIA TECHNOLOGY PARTNERS
VII
a California Limited
Partnership
SQP 1997
SEQUOIA 1997 LLC
SEQUOIA INTERNATIONAL PARTNERS
By: SC VII-A Management, LLC
A California Limited Liability
Company,
its General Partner
By:
-------------------------------------------
Managing Member
[Signature page to the Second Amended and Restated Voting Agreement]
-7-
<PAGE> 8
CROSSPOINT VENTURE PARTNERS 1997
By:
--------------------------------
Seth Neiman
Partner
CROSSPOINT VENTURE PARTNERS LS 1999
By:
--------------------------------
Seth Neiman
Partner
[Signature page to the Second Amended and Restated Voting Agreement]
-8-
<PAGE> 9
JAFCO CO., LTD.
By:
----------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
[Signature page to the Second Amended and Restated Voting Agreement]
-9-
<PAGE> 10
U.S. INFORMATION TECHNOLOGY NO. 2
INVESTMENT ENTERPRISE
PARTNERSHIP
By:
---------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
[Signature page to the Second Amended and Restated Voting Agreement]
-10-
<PAGE> 11
MAYFIELD IX
A Delaware Limited Partnership
By:
---------------------------------------
Mayfield IX Management, L.L.C.
Its General Partner
MAYFIELD ASSOCIATES FUND IV
A Delaware Limited Partnership
By:
---------------------------------------
Mayfield IX Management, L.L.C.
Its General Partner
[Signature page to the Second Amended and Restated Voting Agreement]
-11-
<PAGE> 1
EXHIBIT 10.12.2
AVANEX CORPORATION
SECOND AMENDED AND RESTATED
SHAREHOLDER RIGHTS AGREEMENT
This Second Amended and Restated Shareholder Rights Agreement (this
"Agreement") is made as of this 14th day of September, 1999, by and among Avanex
Corporation, a California corporation (the "Company"), the purchasers of the
Company's Series A Preferred Stock (the "Series A Preferred"), Series B
Preferred Stock (the "Series B Preferred") and Series C Preferred Stock (the
"Series C Preferred") pursuant to that certain Amended and Restated Series A
Preferred, Series B Preferred and Series C Preferred Stock Purchase Agreement
dated February 19, 1999 between the Company and such purchasers (the "Prior
Purchasers"), and the purchasers of the Company's Series D Preferred Stock (the
"Series D Preferred") pursuant to that certain Series D Preferred Stock Purchase
Agreement of even date herewith (the "SERIES D AGREEMENT") between the Company
and such purchasers (including purchasers in subsequent closings under the
Series D Agreement who execute a counterpart signature page to this Agreement)
(the "Series D Purchasers") (the Series A Preferred, Series B Preferred, Series
C Preferred and Series D Preferred are collectively referred to herein as the
"Preferred Stock") (the Prior Purchasers and the Series D Purchasers being
collectively referred to herein as the "Purchasers").
WHEREAS, the Company and Series D Purchasers entered into the Series D
Preferred Purchase Agreement pursuant to which the Company agreed to grant to
Series D Purchasers registration rights upon the terms hereinafter set forth;
WHEREAS, the Company, the Prior Purchasers have entered into that
certain First Amended Shareholders' Rights Agreement dated February 19, 1999
(the "PRIOR AGREEMENT");
WHEREAS, pursuant to Section 24 of the Prior Agreement, the Prior
Agreement may be amended as set forth herein with the Company's prior written
consent and the holders of a majority of the outstanding Registrable Securities
under such Prior Agreement;
WHEREAS, the parties hereto consisting of the Company, the Founders, the
Prior Purchasers and the Series D Purchasers desire to amend, restate and
supersede in their entirety the Prior Agreement as set forth herein to modify
certain provisions thereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
Agreement
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any successor agency.
<PAGE> 2
"Registrable Securities" shall mean (i) shares of the Company's
Common Stock issued or issuable upon the conversion of the Series A Preferred,
Series B Preferred, or Series C Preferred or Series D Preferred; (ii) any Common
Stock of the Company or other securities issued or issuable in respect of shares
of the Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred; and (iii) shares of the Company's Common Stock or other securities
issued or issuable with respect to, or in exchange for or in replacement of
shares of the Company's Common Stock issued or issuable upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred
or other securities convertible into or exercisable for the Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred upon any stock
split, stock dividend, recapitalization, or similar event; provided, however,
that any shares described in clauses (i)-(iii) above which have been resold to
the public or can be sold pursuant to Rule 144 of the Securities Act (as defined
below) shall cease to be Registrable Securities.
"Holder" shall mean each Purchaser and any transferee of
Registrable Securities who, pursuant to Section 15 below, is entitled to
registration rights hereunder.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 3 hereof (or any similar
legend).
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (as defined below), and the declaration or
ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 5, 6 and 9 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, accounting fees of the Company, and the expense of any special
audits incident to or required by any such registration.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
2. Restrictions on Transferability. The Restricted Securities shall not
be transferable except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Each Holder of Restricted Securities will cause any proposed
transferee of the Restricted Securities held by such Holder to agree to take and
hold such Restricted Securities subject to the provisions and upon the
conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred, (ii)
shares of the Company's Common Stock issued upon conversion of the Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred, and
(iii) any other securities issued in respect of the Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred and Common Stock issued upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred upon any stock
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split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION
AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
4. Notice of Proposed Transfers. The Holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities (other than (i) a transfer not involving a change
in beneficial ownership, or (ii) in transactions involving the distribution
without consideration of Restricted Securities by a Purchaser to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) a transfer to an affiliated fund or partnership, (iv)
transfers in compliance with Rule 144, so long as the Company is furnished with
satisfactory evidence of compliance with such Rule), unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the Holder thereof shall give written notice to the Company of such Holder's
intention to effect such transfer. Each such notice shall describe the manner
and circumstances of the proposed transfer in sufficient detail, and shall, if
the Company so requests, be accompanied (except in transactions in compliance
with Rule 144) by either (i) an unqualified written opinion of legal counsel who
shall be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 3 above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for the Company such legend is not required
in order to establish compliance with any provisions of the Securities Act.
5. Requested Registration.
(a) Request for Registration. If at any time after the earlier
of (i) five years from September 14, 1999 or (ii) six months after the closing
date of the first registration statement filed by the Company covering an
underwritten offering of any of its securities to the general public, the
Company shall receive from any Holder or group of Holders holding at least a
majority of the Registrable Securities (the "Initiating Holders") a written
request that the Company effect any
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registration, qualification or compliance with respect to at least thirty
percent (30%) of the shares of Registrable Securities, or such lesser number of
shares of Registrable Securities if the reasonably anticipated aggregate
proceeds of such offering exceed $15,000,000, the Company will:
(x) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders holding
Registrable Securities; and
(y) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 20 days after receipt of such written notice from the
Company;
Provided, however, that the Company shall not be obligated to
take any action to effect any such registration, qualification or compliance
pursuant to this Section 5:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) After the Company has effected two such
registrations pursuant to this Section 5(a), such registrations have been
declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or
(C) Within six months following the effective date
of a registration statement previously filed by the Company.
Subject to the foregoing clauses (A), (B) and (C), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders. If, however, the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company stating
that, in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
of the Initiating Holder, provided, however, that the Company may not utilize
this right more than once in any twelve-month period.
(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 5(a) and the Company shall include such information in the
written notice referred to in Section 5(a)(x). The right of any Holder to
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<PAGE> 5
registration pursuant to Section 5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Holders) and to the
extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders. Notwithstanding any other
provision of this Section 5, if the managing underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then, subject to the provisions of Section 5(a), the
Company shall so advise all Holders and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders requesting inclusion in the registration in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the managing underwriter's marketing limitation shall be included in such
registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the other Holders. The Registrable
Securities and/or other securities so withdrawn shall also be withdrawn from
registration; provided, however, that if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company may offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 5(b). If the registration does not become
effective due to the withdrawal of Registrable Securities, then either (1) the
Holders requesting registration shall reimburse the Company for expenses
incurred in complying with the request or (2) the aborted registration shall be
treated as effected for purposes of Section 5(a)(B).
6. Company Registration.
(a) Notice of Registration. If the Company shall determine to
register any of its securities, either for its own account or the account of a
security holder or holders exercising their respective requested registration
rights, other than (i) a registration relating solely to employee benefit plans,
(ii) a registration relating solely to a transaction pursuant to Rule 145 of the
Securities Act, or (iii) a registration on Form S-3 solely for the purpose of
registering shares issued in a non-underwritten offering in connection with a
merger, combination or acquisition, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice from the
Company, by any Holder or Holders.
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<PAGE> 6
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 6 shall be conditioned upon such Holder's
participation in such underwriting to the extent provided herein. The Company
shall (together with all Holders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities and other securities to be distributed through such underwriting,
provided that the Company may limit, to the extent so advised by the
underwriters, the amount of Registrable Securities to be included in the
registration by the Holders to an amount not less than 30% of the total number
of securities included in the offering, unless such offering is the initial
public offering of the Company's securities, in which case all Registrable
Securities may be excluded from such offering. No Registrable Securities
excluded from the underwriting by reason of the managing underwriter's marketing
limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the other Holders. The Registrable
Securities and/or other securities so withdrawn shall also be withdrawn from
registration; provided, however, that if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company may offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 6(b).
(c) In all registered public offerings, whether underwritten
or not, the amount of Registrable Securities of Holders which are included in
such registration, in accordance with the limitations set forth in Section
6(a)(ii) above, shall be allocated to the Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities which would be
held by each of such Holders assuming conversion of all outstanding Series A
Preferred, Series B Preferred and Series C Preferred as of the date of the
notice given pursuant to this Section 6.
7. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 5(a), Section 6 and Section 9 shall be borne by the Company. All Selling
Expenses relating to securities registered by the Holders shall be borne by the
Holders of such securities pro rata on the basis of the number of shares so
registered.
8. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least 120 days or
until the distribution described in the registration statement has been
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<PAGE> 7
completed; provided, however, that such one 120-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) Cause such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
9. Registration on Form S-3. In addition to the rights set forth in
Section 5, if the Holders holding at least 30% of the Registrable Securities
request in writing that the Company file a registration statement on Form S-3
(or any successor thereto) for a public offering of shares of Registrable
Securities the reasonably anticipated aggregate price to the public of which
would exceed $1,000,000, and the Company is a registrant entitled to use Form
S-3 to register securities for such an offering, the Company shall use its best
efforts to cause such shares to be registered for the offering on such form (or
any successor thereto). The Company will promptly give written notice of
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<PAGE> 8
the request for the proposed registration to all other Holders and include all
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within 30 days after
receipt of such written notice from the Company. The substantive provisions of
Section 5(b) shall be applicable to each registration initiated under this
Section 9. A Holder or group of Holders is entitled to an unlimited number of
Form S-3 registrations; provided, however, that the Company shall be required to
file no more than one (1) such registration statement during any 12-month
period.
10. Termination of Registration Rights. The registration rights granted
pursuant to this Agreement shall terminate (i) as to all Holders on the fifth
anniversary of the closing of the Company's initial public offering and (ii) as
to any Holder, at such time after the Company's initial public offering as the
Registrable Securities held by such Holder represents 1% or less of the
outstanding Common Stock of the Company and such Holder is able to sell such
Registrable Securities under Rule 144 or such Holder is able to sell all
Registrable Securities held by it pursuant to Rule 144(k) promulgated under the
Securities Act.
11. Lockup Agreement. In consideration for the Company agreeing to its
obligations under this Agreement each Holder of Registrable Securities and each
transferee pursuant to Section 15 hereof agrees, in connection with the first
registration of the Company's securities, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities or other securities of the
Company (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify; provided, however
that all executive officers and directors of the Company must enter into similar
Lock-Up Agreements as well. Each Holder agrees that the Company may instruct its
transfer agent to place stop transfer notations in its records to enforce the
provisions of this Section 11.
12. Indemnification.
(a) The Company will indemnify each Holder, each of its
officers, directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors and
partners and
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<PAGE> 9
such Holder's legal counsel and independent accountants, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, legal counsel, independent accountants, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holders hereunder shall be limited to an amount equal to the
gross proceeds before expenses and commissions to each such Holder of
Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
12 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnified Party (together with
all other Indemnified Parties that may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding; and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, except to the extent, but only to the extent,
that the
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<PAGE> 10
Indemnifying Party's ability to defend against such claim or litigation is
impaired as a result of such failure to give notice. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
13. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
14. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to then file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements); and
(c) Furnish to Holders of Registrable Securities forthwith
upon request, a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and
the Securities Exchange Act of 1934 (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as a
Holder of Registrable Securities may reasonably request in availing itself of
any rule or regulation of the Commission allowing such Holder to sell any such
securities without registration.
15. Transfer of Registration Rights. The right to cause the Company to
register securities granted hereunder may be assigned to a transferee or
assignee who acquires at least 500,000 shares of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred (or Common Stock issued on
conversion thereof) (as adjusted for stock splits, reverse stock splits or
similar events after the date hereof), provided that the Company is given
written notice of such assignment prior to such assignment. In addition, rights
to cause the Company to register securities may be freely assigned (a) to any
constituent partner or retired partner of a Holder, where such Holder is a
partnership, (b) to any affiliate (as that term is defined in Rule 405
promulgated by the Commission under the Securities Act), (c) to any officer,
director or principal shareholder thereof, where such Holder is a corporation or
(d) to the spouse, children, grandchildren or spouse of such children or
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grandchildren of any Holder or to trusts for the benefit of any Holder or such
persons where the Holder is a natural person.
16. Subsequent Grant of Registration Rights. The Company shall not grant
rights to have securities other than the Registrable Securities registered under
the Securities Act that are pari passu or superior to the registration rights
granted herein without the written consent of the holders of a majority of the
shares of Series A Preferred, Series B Preferred, Series C Preferred and Series
D Preferred (or Common Stock issued upon conversion thereof) (voting together as
a single class on an as converted basis).
17. Company Covenants. The Company hereby covenants and agrees as
follows:
17.1 Annual Financial Information. The Company will furnish to
each Purchaser for so long as such Purchaser is a holder of any shares of Series
A Preferred, Series B Preferred, Series C Preferred or Series D Preferred
purchased by such person pursuant to the Agreement (or Common Stock issued upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred), as soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of cash flows of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and certified by independent public accountants of
national standing selected by the Company.
17.2 Quarterly Financial Information and Financial Plan. The
Company will furnish the following reports to each Purchaser for so long as such
Purchaser is a holder of at least 500,000 shares of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred (or Common Stock issued upon
conversion of Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred or a combination of such Series A Preferred, Series B
Preferred, Series C Preferred and Common Stock) (adjusted for stock splits,
reverse stock splits or similar events after the date hereof).
(a) As soon as practicable after the end of each fiscal
quarter (except for the fiscal quarter ending December 31 of each year), and in
any event with 45 days thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such quarter, and cash flow
statements and consolidated statements of income for each quarter and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles consistently applied, all in reasonable detail and signed,
subject to changes resulting from year-end audit adjustments, by the principal
financial or accounting officer of the Company, together with a comparison of
such statements to the Company's operating plan then in effect and approved by
its Board of Directors.
(b) As soon as available (but in any event within 10 days
after the commencement of its fiscal year), a summary of the financial plan of
the Company for each fiscal year, including (but not limited to) a cash flow
projection and operating budget, calculated monthly, as contained in its
operating plan approved by the Company's Board of Directors.
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17.3 Assignment of Rights to Financial Information. The rights to
receive information pursuant to Section 17.1 may be assigned or otherwise
conveyed by any Purchaser or subsequent transferee to any transferee of shares
of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred (or Common Stock issued upon conversion thereof). The rights specified
in Section 17.2 may be assigned or otherwise conveyed by a Purchaser or
subsequent transferee only to a transferee who acquires at least 500,000 shares
of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred (or Common Stock issued upon conversion thereof) (adjusted for stock
splits, reverse stock splits or similar events after the date hereof).
17.4 Inspection. The Company shall permit each Purchaser for so
long as such Purchaser is eligible to receive reports under Section 17.2 at such
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Purchaser; provided, however, that the Company shall not be obligated
pursuant to this Section 17.4 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
17.5 Employment, Confidential Information and Invention
Assignment Agreement. The Company will require each person employed by the
Company, whether at present or in the future, to execute an Employment,
Confidential Information and Invention Assignment Agreement in a form approved
by the Company's Board of Directors as a condition of such employment.
17.6 Vesting of Employee Stock. All stock and options to acquire
stock of the Company granted to employees of the Company pursuant to a stock
grant, option plan or purchase plan or other employee stock incentive program
approved by the Board of Directors will be subject to four year vesting, except
as otherwise approved by the Company's Board of Directors.
17.7 Confidentiality Agreement. Each Purchaser and any successor
or assign of such Purchaser, who receives from the Company or its agents,
directly or indirectly, any information which the Company has not made generally
available to the public, pursuant to the preparation and execution of this
Agreement or disclosure in connection therewith or pursuant to the provisions of
this Section 17, acknowledges and agrees that such information is confidential
and for its use only in connection with evaluating its investment in the
Company, and further agrees that it will not disseminate such information to any
person other than its accountant, investment advisor or attorney and that such
dissemination shall be only for purposes of evaluating its investment.
17.8 Termination of Covenants. Notwithstanding anything to the
contrary set forth herein, the covenants set forth in this Section 17 shall
terminate and be of no further force or effect after the date upon which the
first registration statement filed by the Company under the Securities Act in
connection with an underwritten public offering of its securities first becomes
effective ("IPO").
18. Rights of First Refusal. The Company hereby grants to each Purchaser
who holds at least 600,000 shares of Registrable Securities the right of first
refusal to purchase its pro rata share of "New Securities" (as defined in this
Section 18) that the Company may, from time to time propose to sell and issue.
Such pro rata share, for purposes of this right of first refusal, is the ratio
of (X) the number of shares of Common Stock immediately prior to the issuances
of New Securities then
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<PAGE> 13
owned by such Purchaser or issuable upon the conversion of the Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred then
owned by such Purchaser (including shares issuable upon exercise of options or
warrants held by such Purchaser), to (Y) the total number of shares of Common
Stock immediately prior to the issuances of New Securities then outstanding,
after giving effect to the conversion of all outstanding convertible securities
(including the Series A Preferred Stock, Series B Preferred, Series C Preferred
and Series D Preferred) and the exercise of all outstanding options. This right
of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any Common Stock and Preferred
Stock of the Company whether or not authorized on the date hereof, and rights,
options, or warrants to purchase Common Stock or Preferred Stock and securities
of any type whatsoever that are, or may become, convertible into Common Stock or
Preferred Stock; provided, however, that "New Securities" does not include the
following:
(i) the Series A Preferred, the Series B Preferred, the
Series C Preferred or any agreement or commitment to issue any of the foregoing;
(ii) shares of Common Stock, or options to purchase shares
of Common Stock (including all options granted by the Company prior to the date
of this Agreement), issued or granted to officers, directors and employees of,
or consultants to, the Company pursuant to a stock grant, employee restricted
stock purchase agreement, option plan or purchase plan or other stock incentive
program (collectively, the "Plans");
(iii) shares of Common Stock issuable upon conversion of
the Series A Preferred, Series B Preferred and Series C Preferred;
(iv) securities of the Company offered to the public
pursuant to a firm commitment underwritten public offering pursuant to a
registration statement filed under the Securities Act;
(v) securities of the Company issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns more than fifty percent (50%) of the voting power of such other
corporation;
(vi) securities of the Company issued in connection with
equipment lease financing transactions, real estate leases or bank financing
transactions the principal purpose of which is not to raise equity funding;
(vii) securities issued to corporate partners or in
connection with other strategic alliances if the Board of Directors agrees that
such transaction should be excluded from operation of this Section 18; and
(viii) shares of Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, or recapitalization by the
Company.
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<PAGE> 14
(b) In the event that Company proposes to undertake an
issuance of New Securities, it shall give each Purchaser written notice of its
intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Purchaser shall
have twenty (20) business days after receipt of such notice to agree to purchase
its pro rata share of such New Securities at the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. If any Purchaser fails
to agree to purchase its full pro rata share within such twenty (20) business
day period, the Company shall give the Purchasers who did so agree (the
"Electing Purchasers") notice of the number of shares which were not subscribed
for. Such notice may be by telephone if followed by written confirmation within
two days. The Electing Purchasers shall have five (5) business days from the
date of such notice to agree to purchase their pro rata share of all of the New
Securities not purchased by such non-purchasing Purchasers.
(c) In the event that Purchasers fail to exercise in full the
right of first refusal within the twenty (20) business day plus five (5)
business day period specified above, the Company shall have one hundred twenty
(120) days thereafter to sell (or enter into an agreement pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of said agreement) the New Securities respecting which
the rights of the Purchasers were not exercised at a price and upon terms no
more favorable to the purchasers thereof than specified in the Company's notice.
In the event the Company has not sold the New Securities within such one hundred
twenty (120) day period (or sold and issued New Securities in accordance with
the foregoing within sixty (60) days from the date of such agreement) the
Company shall not thereafter issue or sell any New Securities, without first
offering such New Securities to the Purchasers and in the manner provided above.
(d) The right of first refusal granted under this Section 18
shall expire upon an IPO.
(e) This right of first refusal is nonassignable except to any
transferee to whom registration rights may be transferred pursuant to Section 15
of this Agreement.
19. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations between the parties arising under this Agreement.
20. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto. This
Agreement shall supersede and cancel all prior agreements between the parties
hereto with regard to the subject matter hereof, including, but not limited to,
the Prior Rights Agreement.
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<PAGE> 15
21. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person by facsimile or by courier
service or five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Purchaser, at such
Purchaser's address set forth in Exhibit A, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to its address and facsimile number set forth at the end of this
Agreement and addressed to the attention of the Corporate Secretary, or at such
other address as the Company shall have furnished to the Purchasers (with a copy
to Judith M. O'Brien, Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304; facsimile: (650) 493-6811).
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
23. Additional Parties. The parties to this Agreement acknowledge that
the Company's Preferred Stock may be sold in multiple closings pursuant to the
Purchase Agreement, and the parties hereto agree that all of the purchasers of
Preferred Stock pursuant to the Purchase Agreement can be added as parties to
this Agreement and granted all of the rights of Purchasers under this Agreement
without any further action or approval by other parties to this Agreement.
24. Amendment. Any provision of this Agreement may be amended, waived or
modified upon the written consent of the Company and the Holders of a majority
of the Registrable Securities. Any amendment or waiver effected in accordance
with this Section shall be binding upon each Holder of Registrable Securities
and the Company. Any Purchaser may waive any of its rights or the Company's
obligations hereunder without obtaining the consent of any other person.
25. Headings. Headings and the table of contents in this Agreement are
for reference purposes only and shall not be deemed to have an substantive
effect.
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<PAGE> 16
IN WITNESS WHEREOF, the undersigned have executed this Second Amended
and Restated Shareholder Rights Agreement as of the date set forth above.
"COMPANY"
AVANEX CORPORATION
By:
--------------------------------------------
Walter Alessandrini, Chief Executive Officer
Address: 42501 Albrae Avenue
Fremont, CA 94538
[SIGNATURE PAGE SECOND AMENDED AND RESTATED SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE> 17
JAFCO CO., LTD.
By:
------------------------------------------
JAFCO America Ventures, Inc.
Its Executive Partner
U.S. INFORMATION TECHNOLOGY NO. 2
INVESTMENT ENTERPRISE PARTNERSHIP
By:
------------------------------------------
JAFCO Co., Ltd.
Its Executive Partner
[SIGNATURE PAGE SECOND AMENDED AND RESTATED SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 10.13
REVOLVING CREDIT AND SECURITY AGREEMENT
DATED AS OF JULY 8, 1999
BY AND BETWEEN
AVANEX CORPORATION
AND
COMERICA BANK-CALIFORNIA
<PAGE> 2
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS REVOLVING CREDIT AND SECURITY AGREEMENT ("Agreement") is made and
delivered this 8th day of July, 1999, by and between Avanex Corporation, a
California corporation ("Borrower"), and COMERICA BANK-CALIFORNIA, a California
banking corporation ("Bank").
WITNESSETH
WHEREAS, Borrower desires to obtain certain credit facilities from the
Bank, as herein provided; and,
WHEREAS, Bank is willing to provide such credit facilities to and in
favor of Borrower, subject to the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, Borrower and Bank agree as follows:
SECTION 1: DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following respective meanings:
"ACCOUNTS," "CHATTEL PAPER," "DOCUMENTS," "EQUIPMENT," "FIXTURES,"
"GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS" and "INVENTORY" shall have the
respective meanings assigned to them in the UCC on the date of this Agreement.
"ACCOUNT DEBTOR" shall mean the party who is obligated on or under any
Account.
"ADVANCE(S)" shall mean a borrowing requested by Borrower and made by
Bank under the Revolving Credit pursuant to Section 2.1 of this Agreement.
"AFFILIATE" shall mean, when used with respect to any Person, any other
Person which, directly or indirectly, controls or is controlled by or is under
common control with such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"AFFILIATE RECEIVABLES" shall mean, as of any time of determination, any
amounts in respect of loans or advances owing to Borrower from any of its
Subsidiaries or Affiliates at such time.
"AGREEMENT" shall mean this Revolving Credit and Security Agreement, as
it may be amended from time to time.
"BANK EXPENSES" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents,
provided that such costs and expenses incurred in connection with the
preparation and negotiation of the Loan Documents shall not exceed $4,000.00;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of appeal
or review, or those incurred in any Insolvency Proceeding), whether or not suit
is brought.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as
amended, or any successor act or code.
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<PAGE> 3
"BASE RATE" shall mean that annual rate of interest designated by Bank
as its base rate, which rate may not be the lowest rate of interest charged by
Bank to any of its customers, and which rate is changed by Bank from time to
time, plus three quarters of a percent (0.75%).
"BORROWING BASE" shall mean the sum of: (a) seventy-five percent (75%)
of Borrower's Eligible Accounts after deducting therefrom all payments,
adjustments and credits applicable thereto, increasing to eighty percent (80%)
of Borrower's Eligible Accounts after deducting therefrom all payments,
adjustments and credits applicable thereto upon Borrower raising a minimum of
$5,000,000.00 in new equity; and, (b) $300,000.00 thru July 31, 2000; and, (c)
$750,000.00 which will decrease by $62,500.00 per month beginning August 31,
1999.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or
holiday, on which the Bank is open to carry on all or substantially all of its
normal commercial lending business in California.
"COLLATERAL" shall mean the property described on Exhibit A attached
hereto.
"COLLATERAL DOCUMENTS" shall mean all security agreements, assignments,
stock pledge agreements, mortgages, deeds of trust, guarantees and other
collateral documents executed by Borrower, or any other Person(s), and delivered
to Bank prior to or as of the date hereof, or from time to time subsequent
hereto, in connection with this Agreement, or any of the Loan Documents, or the
Indebtedness, to secure the payment and performance of the Indebtedness, as such
collateral documents may be amended from time to time, including, without
limitation, those Collateral Documents identified in this Agreement.
"CONTINGENT OBLIGATIONS" shall mean, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices.
"CURRENT ASSETS" shall mean, in respect of a Person and as of any
applicable date of determination, all (a) unrestricted cash, marketable
securities, or certificates of deposit, (b) non-affiliated accounts receivable,
(c) United States government securities, (d) claims against the United States
government, and (e) inventories (held for sale in the ordinary course of
business) of such Person.
"CURRENT LIABILITIES" shall mean, in respect of a Person and as of any
applicable date of determination, (a) all liabilities of such Person that should
be classified as current in accordance with GAAP, including, without limitation,
any portion of the principal of the Notes classified as current at such time,
plus (b) to the extent not otherwise included, all liabilities of the Borrower
to any of its Affiliates whether or not classified as current in accordance with
GAAP.
"CURRENT RATIO" shall mean, in respect of a Person and as of any
applicable date of determination thereof, the ratio of Current Assets to Current
Liabilities.
"DEBT" shall mean, as of any applicable date of determination thereof,
all items of indebtedness, obligation or liability of a Person, whether matured
or unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP. In the case of Borrower, the term "Debt" shall include,
without limitation, the Indebtedness.
"DEBT-TO-WORTH RATIO" shall mean, in respect of a Person and as of any
applicable date of determination thereof, the ratio of (a) the total Debt of
such Person at such time, to (b) the Tangible Net Worth of such Person at such
time.
2
<PAGE> 4
"DEFAULT" shall mean any condition or event which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
"ELIGIBLE ACCOUNT" shall mean an Account (but shall not include interest
and service charges thereon) arising in the ordinary course of Borrower's which
meets each of the following requirements:
(a) It is not owing more than thirty (30) days after the date of
the original invoice or other writing evidencing such Account;
(b) It is not owing by an Account Debtor who has failed to pay
twenty-five percent (25%) or more of the aggregate amount of its
Accounts owing to Borrower within ninety (90) days after the date of the
respective invoices or other writings evidencing such Accounts;
(c) It arises from the sale or lease of goods and such goods
have been shipped or delivered to the Account Debtor under such Account;
or it arises from services rendered and such services have been
performed;
(d) It is evidenced by an invoice, dated not later than the date
of shipment or performance, rendered to such Account Debtor or some
other evidence of billing acceptable to Bank;
(e) It is not evidenced by any note, trade acceptance, draft or
other negotiable instrument or by any chattel paper, unless such note or
other document or instrument previously has been endorsed and delivered
by Borrower (or the relevant Subsidiary) to Bank;
(f) It is a valid, legally enforceable obligation of the Account
Debtor thereunder, and is not subject to any offset, counterclaim or
other defense on the part of such Account Debtor or to any claim on the
part of such Account Debtor denying liability thereunder in whole or in
part;
(g) It is not subject to any sale of accounts, any rights of
offset, assignment, lien or security interest whatsoever other than to
Bank;
(h) It is not owing by a Subsidiary or Affiliate of Borrower,
nor by an Account Debtor which (i) does not maintain its chief executive
office in the United States of America, (ii) is not organized under the
laws of the United States of America, or any state thereof, or (iii) is
the government of any foreign country or sovereign state, or of any
state, province, municipality or other instrumentality thereof;
(i) It is not an account owing by the United States of America
or any state or political subdivision thereof, or by any department,
agency, public body corporate or other instrumentality of any of the
foregoing, unless all necessary steps are taken to comply with the
Federal Assignment of Claims Act of 1940, as amended, or with any
comparable state law, if applicable, and all other necessary steps are
taken to perfect Bank's security interest in such Account;
(j) It is not owing by an Account Debtor for which Borrower or
any of its Subsidiaries has received a notice of (i) the death of the
Account Debtor or any partner of the Account Debtor, (ii) the
dissolution, liquidation, termination of existence, insolvency or
business failure of the Account Debtor, (iii) the appointment of a
receiver for any part of the property of the Account Debtor, or (iv) an
assignment for the benefit of creditors, the filing of a petition in
bankruptcy, or the commencement of any proceeding under any bankruptcy
or insolvency laws by or against the Account Debtor;
(k) It is not an account billed in advance, payable on delivery,
for consigned goods, for guaranteed sales, for unbilled sales, for
progress billings, payable at a future date in accordance with its
terms, subject to a retainage or holdback by the Account Debtor or
insured by a surety company;
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<PAGE> 5
(l) It is not owing by any Account Debtor whose obligations
Bank, acting in its sole discretion, shall have notified Borrower are
not deemed to constitute Eligible Accounts:
(m) That portion of Accounts owed by any single account debtor,
including Subsidiaries and Affiliates, that do not exceed twenty percent
(20%) of all Eligible Accounts; except (l) as approved by Bank in
writing including an 80% advance rate to Fujitsu, MCI, Nortel and Lucent
until December 31, 1999 at which time the advance rate will reduce to no
more than 40% of eligible accounts receivable; and,
(n) Accounts the collection of which Bank reasonably determines,
after consultation with Borrower, to be doubtful.
An Account which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Account.
"EQUIPMENT" shall mean all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ENVIRONMENTAL LAW(S)" shall mean all laws, codes, ordinances, rules,
regulations, orders, decrees and directives issued by any federal, state, local,
foreign or other governmental or quasi-governmental authority or body (or any
agency, instrumentality or political subdivision thereof) pertaining to the
environment or to any hazardous materials or wastes, toxic substances,
flammable, explosive or radioactive materials, asbestos, and/or other similar
materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code.
"EVENT OF DEFAULT" shall mean any of those conditions or events listed
in Section 9 of this Agreement.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"INDEBTEDNESS" shall mean all obligations of Borrower to Bank under this
Agreement, together with all other indebtedness and obligations of Borrower to
Bank under any other agreement, now existing or hereafter arising.
"INVESTMENT" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LETTER OF CREDIT" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.5.
"LETTER OF CREDIT RESERVE" has the meaning set forth in Section 2.5.
"LOAN DOCUMENTS" shall mean collectively, this Agreement and any other
agreement or instrument executed pursuant to or in connection with the
Indebtedness, this Agreement or the other Loan Documents, as such documents may
be amended from time to time.
"LOANS" shall mean, collectively, the "Revolving Credit and Security
Agreement" and any loans which Bank in its sole discretion has made or may
hereafter make to Borrower, and "Loan" shall mean any of them.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon the
financial or other condition of Borrower or any of its Subsidiaries, or upon
Borrower's or any of its Subsidiaries' ability to perform their respective
obligations under any of the Loan Documents, or upon the enforceability of this
Agreement or any of the other Loan Documents.
4
<PAGE> 6
"NET INCOME" shall mean the net income (or loss) of a Person for any
applicable period of determination, determined in accordance with GAAP, but
excluding, in any event:
(a) Any gains or losses on the sale or other disposition, not in
the ordinary course of business, of investments or fixed or capital
assets, and any taxes on the excluded gains and any tax deductions or
credits on account on any excluded losses; and,
(b) In the case of Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of
business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower
(provided that the primary obligations are not prohibited hereby), and
indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited
hereby);
(f) Subject to the $3,000,000 cap in clause (g), indebtedness
secured by Permitted Liens;
(g) Capital leases or indebtedness in an aggregate amount
incurred in each fiscal year not to exceed $3,000,000 incurred solely to
purchase equipment which is secured in accordance with clause (c) of
"Permitted Liens" below and is not in excess of the lesser of the
purchase price of such equipment or the fair market value of such
equipment on the date of acquisition;
(h) Other Indebtedness not otherwise permitted by Section 8.4
not exceeding $100,000 in the aggregate outstanding at any time; and
(i) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (h)
above, provided that the principal amount thereof is not increased or
the terms thereof are not modified to impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing no more than one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iii) certificates of deposit maturing no more
than one (1) year from the date of investment therein issued by Bank;
and (iv) any Investments permitted by Borrower's investment
5
<PAGE> 7
policy, as amended from time to time, provided that such investment
policy and any such amendment thereto has been approved by Bank.
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transaction in the
ordinary course of business;
(d) Investments accepted in connection with Transfers permitted
by Section 8.2;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the
Board of Directors of Borrower determines that such compensation is in
the best interests of Borrower, (ii) travel advances, employee
relocation loans and other employee loans and advances in the ordinary
course of business, and (iii) loans to employees, officers or directors
relating to the purchase of equity securities of Borrower or its
Subsidiaries pursuant to employee stock purchase plans or agreements
approved by Borrower's Board of Directors;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of
business;
(g) Investments pursuant to or arising under currency agreements
or interest rate agreements entered into in the ordinary course of
business;
(h) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions to, customers and suppliers who
are not Affiliates, in the ordinary course of business; provided that
this paragraph (h) shall not apply to Investments by Borrower in any
Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 8.6;
(j) Deposit accounts of Borrower in which Bank has a Lien prior
to any other Lien;
(k) Deposit accounts of any subsidiaries maintained in the
ordinary course of business;
(l) Investments or Subsidiaries in or to other Subsidiaries or
Borrower and Investments by Borrower in Subsidiaries not to exceed
$100,000 in the aggregate;
(m) Other Investments not otherwise permitted by Section .8 not
exceeding $100,000 in the aggregate outstanding at any time; and
(n) Investments not to exceed $100,000 in the aggregate
consisting of joint ventures and strategic partnership consisting of the
development or licensing of technology or the providing of technical
support.
"PERMITTED LIENS" shall mean:
(a) Liens, security interests, mortgages and encumbrances in
favor of the Bank;
(b) Liens for taxes, assessments or other governmental charges
incurred in the ordinary course of business and for which no interest,
late charge or penalty is attaching or which is being contested in good
faith by appropriate proceedings and, if requested by Bank, bonded in an
amount and manner satisfactory to Bank;
(c) Liens, not delinquent, created by statute in connection with
worker's compensation, unemployment insurance, social security and
similar statutory obligations;
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(d) Liens of mechanics, materialmen, carriers, warehousemen or
other like statutory or common law liens securing obligations incurred
in good faith in the ordinary course of business that are not yet due
and payable;
(e) Encumbrances consisting of existing or future zoning
restrictions, existing recorded rights-of-way, existing recorded
easements, existing recorded private restrictions or existing or future
public restrictions on the use of real property, none of which
materially impairs the use of such property in the operation of the
business for which it is used and none of which is violated in any
material respect by any existing or proposed structure or land use;
(f) Liens existing as of the date hereof as more particularly
described in Schedule I attached to this Agreement;
(g) Deposits under worker's compensation, unemployment
insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment
of borrowed money) or to secure indemnity, performance or other similar
bonds for the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory obligations
(other than liens arising under ERISA or environmental liens) or surety
or appeal bonds, or to secure indemnity, performance or other similar
bonds in the ordinary course of business;
(h) Liens (i) upon or in any Equipment, other than Equipment
financed hereunder, acquired or held by Borrower or any of its
Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such Equipment at the
time of its acquisition, provided that the Lien is confined solely to
the property so acquired and improvements thereof, and the proceeds of
such Equipment;
(i) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of
business (including proceeds thereof and accessions thereto) incurred
solely for the purpose of financing the lease of such Equipment
(including Liens pursuant to leases permitted pursuant to Section 8.2
and Liens arising from UCC financing statements regarding leases
permitted by this Agreement);
(j) Leases or subleases and licenses and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in
any material respect with the business of Borrower and its Subsidiaries
taken as a whole, and any interest or title of a lessor, licensor or
under any lease or license;
(k) Liens or assets (including the proceeds thereof and
accessions thereto that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation
that existed at the time it became or becomes a Subsidiary); provided
such Liens are not granted in contemplation or in connection with the
acquisition of such asset by Borrower or a Subsidiary;
(l) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.1(g);
(m) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with
the importation of goods;
(n) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or banker's Liens
with respect to amounts on deposit, where arising by operation of law or
by contract, in connection with arrangement entered in to with banks in
the ordinary course of business;
(o) Earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section
8.2 or Section 8.6;
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(p) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums; and
(q) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clauses (f), (h), (i), (j), (k) and (o) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.
"PERSON" OR "PERSON" shall mean any individual, corporation,
partnership, joint venture, limited liability company, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
"QUICK ASSETS" shall mean, in respect of a Person and as of any
applicable date of determination, the total cash, marketable securities and
accounts receivable of such Person.
"QUICK RATIO" shall mean, in respect of a Person and as of any
applicable date of determination thereof, the ratio of Quick Assets to Current
Liabilities.
"REVOLVING CREDIT" shall mean a Loan made, or to be made, under the
revolving credit loan facility to be advanced to Borrower by the Bank pursuant
to Section 2 of this Agreement.
"REVOLVING CREDIT MATURITY DATE" shall mean October 1, 2000.
"SUBORDINATED DEBT" shall mean indebtedness of Borrower to third parties
which has been subordinated to the indebtedness pursuant to a subordination
agreement in form and substance satisfactory to Bank.
"SUBSIDIARY" shall mean any corporation (whether now existing or
hereafter organized or acquired) in which more than fifty percent (50%) of the
outstanding securities having ordinary voting power for the election of
directors, as of any applicable date of determination, shall be owned directly,
or indirectly through one or more Subsidiaries, by Borrower.
"TANGIBLE EFFECTIVE NET WORTH" shall mean, with respect to any Person
and as of any applicable date of determination, Tangible Net Worth plus
Subordinated Debt.
"TANGIBLE NET WORTH" shall mean, with respect to any Person and as of
any applicable date of determination, the excess of (a) the net book value of
all assets of such Person (excluding Affiliate Receivables, patent rights,
trademarks, trade names, franchises, copyrights, licenses, goodwill, and all
other intangible assets of such Person), after all appropriate deductions in
accordance with GAAP (including, without limitation, reserves for doubtful
receivables, obsolescence, depreciation and amortization), over (b) all Debt of
such Person at such time.
"UCC" shall mean the California Uniform Commercial Code.
1.2 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be determined and construed in accordance with GAAP.
1.3 Singular and Plural. Where the context herein requires, the singular
number shall be deemed to include the plural, the masculine gender shall include
the feminine and neuter genders, and vice versa.
SECTION 2: REVOLVING CREDIT
2.1 Revolving Credit Commitment. Subject to the terms and conditions of
this Agreement, the Bank agrees to make Advances of the Revolving Credit to
Borrower at any time and from time to time from the effective date hereof until
(but not including) the Revolving Credit Maturity Date. The aggregate principal
amount of Advances shall not exceed (a) $3,750,000.00 or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts hereunder may be repaid and reborrowed at any time prior to the
Revolving
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Credit Maturity Date. Borrower may prepay all or part of the outstanding
Advances without premium or penalty. If at anytime the outstanding Advances
exceed the lesser of $3,750,000.00 or the Borrowing Base, Borrower shall
immediately pay Bank, in cash, the amount of such excess.
2.2 Accrual and Payment of Interest and Maturity. The Revolving Credit,
and all principal and interest outstanding thereunder, shall mature and become
due and payable in full on the Revolving Credit Maturity Date. Each Advance
shall, from and after the date of such Advance, bear interest at a per annum
rate equal to the Base Rate. Interest on the unpaid balance of all Advances
outstanding under the Revolving Credit from time to time shall be payable on
August 1, 1999, and continuing on a like day of each successive calendar month
thereafter, until the Revolving Credit Maturity Date, when all unpaid principal,
interest and other amounts owing under the Revolving Credit shall be due and
payable.
2.3 Requests for Advances. Borrower may request an Advance under the
Revolving Credit only after delivery to Bank of a Request for Advance executed
by an authorized officer of Borrower, subject to the following:
(a) Each such Request for Advance shall set forth the
information required on the Request for Advance form annexed hereto as
Exhibit "B" (or such other form as acceptable to Bank), including,
without limitation, the proposed amount and date of such Advance, which
date must be a Business Day;
(b) Each such Request for Advance shall be delivered to Bank by
3:00 p.m. California time on the proposed date of Advance; and,
(c) A Request for Advance, once delivered to Bank, shall not be
revocable by Borrower.
(d) Bank may make Advances under the Revolving Credit upon the
telephonic or facsimile request of Borrower, which Borrower shall
confirm in writing by delivering to Bank, on or before 11:00 a.m. on the
next Business Day following such Advance with a duly executed Request
for Advance and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of reliance on such
telephonic or facsimile request.
2.4 Disbursement of Advances. Subject to the terms and conditions of
this Agreement, Bank shall make available to Borrower the amount of the Advance
so requested on the date of such Advance by credit to an account of Borrower
maintained with Bank or to such other account or third party as Borrower may
reasonably direct.
2.5 Facility Fee. On the date hereof, a facility fee in the amount of
Twenty-two thousand two-hundred fifty Dollars ($22,250.00), shall be due, earned
and nonrefundable upon execution of the Loan Documents.
2.6 Warrant. On the date hereof, an executed Warrant To Purchase Stock,
dated July 8, 1999, shall be furnished to the Bank concurrent with execution of
the Loan documents.
SECTION 3: PAYMENTS, RECOVERIES AND COLLECTIONS
3.1 Interest Computations. In the event the Base Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Base Rate is
changed, by an amount equal to such change in the Base Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
3.2 Bank's Books and Records. The amount and date of each Loan
hereunder, the amount from time to time outstanding, the applicable interest
rate in respect of each Loan, and the amount and date of any repayment
hereunder, shall be noted on Bank's books and records, which shall be conclusive
evidence thereof, absent manifest error; provided, however, any failure by Bank
to make any such notation, or any error in any such notation, shall not relieve
Borrower of its obligations to pay to Bank all amounts owing to Bank under or
pursuant to this Agreement and each of the other Loan Documents, in each case,
when due in accordance with the terms hereof or thereof.
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3.3 Payments on Non-Business Day. In the event that any payment of any
principal, interest, fees or any other amounts payable by Borrower under or
pursuant to this Agreement, or under any other Loan Document shall become due on
any day which is not a Business Day, such due date shall be extended to the next
succeeding Business Day, and, to the extent applicable, interest shall continue
to accrue and be payable at the applicable rate(s) for and during any such
extension.
3.4 Payment Procedures. All sums payable by Borrower to Bank under or
pursuant to this Agreement, or any other Loan Document, whether principal,
interest, or otherwise, shall be paid, when due, directly to Bank at the office
of Bank identified on the signature page of this Agreement, or at such other
office of Bank as Bank may designate in writing to Borrower from time to time,
in immediately available United States funds, and without setoff, deduction or
counterclaim. Bank may, in its discretion, charge any and all deposit or other
accounts (including, without limitation, any account evidenced by a certificate
of deposit or time deposit) of Borrower maintained with Bank for all or any part
of any Indebtedness then due and payable; provided, however, that such
authorization shall not affect Borrower's obligations to pay all Indebtedness,
when due, whether or not any such account balances maintained by Borrower with
Bank are insufficient to pay any amounts then due.
3.5 Default Rate. Notwithstanding anything to the contrary set forth
herein, in the event that and so long as any Event of Default shall have
occurred and be continuing or exist, all Indebtedness outstanding shall bear
interest at a rate equal to the then applicable interest rate plus three percent
(3%), which interest, in any case, shall be payable upon demand.
3.6 Receipt of Payments by Bank. Any payment by Borrower of any of the
Indebtedness made by mail will be deemed tendered and received by Bank only upon
actual receipt thereof by Bank at the address designated for such payment,
whether or not Bank has authorized payment by mail or in any other manner, and
such payment shall not be deemed to have been made in a timely manner unless
actually received by Bank on or before the date due for such payment, time being
of the essence. Borrower expressly assumes all risks of loss or liability
resulting from non-delivery or delay of delivery of any item of payment
transmitted by mail or in any other manner. Acceptance by Bank of any payment in
an amount less than the amount then due shall be deemed an acceptance on account
only, and any failure to pay the entire amount then due shall constitute and
continue to be an Event of Default hereunder, and at any time thereafter, and
until the entire amount then due has been paid in full, Bank shall be entitled
to exercise any and all rights and remedies conferred upon and otherwise
available to Bank hereunder or any of the other Loan Documents upon the
occurrence and during the continuance of any such Event of Default. Prior to the
occurrence of any Event of Default hereunder, Borrower shall have the right to
direct the application of any and all payments made to Bank by Borrower
hereunder to the respective Indebtedness. Borrower waives the right to direct
the application of any and all payments received by Bank from and on behalf of
Borrower at any time or times after the occurrence and during the continuance of
any Event of Default hereunder. Borrower further agrees that after the
occurrence and during the continuance of any Event of Default hereunder, or
prior to the occurrence of any Event of Default hereunder if Borrower has failed
to direct such application, Bank shall have the continuing exclusive right to
apply and to reapply any and all payments received by Bank at any time or times
hereafter, whether as voluntary payments, proceeds from any Collateral, offsets,
or otherwise, against the Indebtedness in such order and in such manner as Bank
may, in its sole discretion, deem advisable, notwithstanding any entry by Bank
upon any of its books and records. Borrower hereby expressly agrees that, to the
extent that Bank receives any payment or benefit of or otherwise upon any of the
Indebtedness, and such payment or benefit, or any part thereof, is subsequently
invalidated, declared to be fraudulent or preferential, set aside, or required
to be repaid to a trustee, receiver, or any other party under any bankruptcy
act, state or federal law, common law, or equitable cause, then to the extent of
such payment or benefit, the Indebtedness, or part thereof, intended to be
satisfied shall be revived and continued in full force and effect as if such
payment or benefit had not been made by Borrower or received by Bank, and,
further, any such repayment by Bank shall be added to and be deemed to be
additional Indebtedness.
SECTION 4: CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Indebtedness
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except for Permitted Liens, such security
interest constitutes a valid, first priority security interest
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in the presently existing Collateral, and will constitute a valid, first
priority security interest in Collateral acquired after the date hereof, in each
case, to the extent that a security interest in such Collateral can be perfected
by the filing of a financing statement or, in the case of Collateral consisting
of instruments, documents, chattel paper or certificated securities, to the
extent that Bank takes possession of such Collateral. Borrower acknowledges that
Bank may place a "hold" on any deposit account pledged as Collateral to secure
the Indebtedness. Bank agrees to execute and deliver to Borrower from time to
time such subordination agreements as Borrower may request and as are necessary
to give to other lenders which finance equipment for Borrower a first priority
security interest in the equipment financed so long as the Liens and the
Indebtedness incurred with respect to such equipment financing are permitted
under this Agreement. Notwithstanding the foregoing, the security interest
granted herein shall not extend to and the term "Collateral" shall not include
any property, rights or licenses to the extent the granting of a security
interest therein (i) would be contrary to applicable law or (ii) is prohibited
by or would constitute a default under any agreement or document governing such
property, rights or licenses (but only to the extent such prohibition is
enforceable under applicable law, including without limitation Section 9318 of
the Code); provided that immediately and automatically upon the ineffectiveness,
lapse or termination of any such prohibition or restriction, the Collateral
shall include such property, rights or licenses, and Borrower shall be deemed to
have granted a security interest in all such rights and interests as if such
prohibition or restriction had never been in effect. Notwithstanding termination
of this Agreement, Bank's Lien on the Collateral shall remain in effect for so
long as any Indebtedness is outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Rights to Inspect. Bank (through any of its officers, employers, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral. Notwithstanding any provision of this
Agreement to the contrary, except upon the occurrence and during the
continuation of an Event of Default, Borrower shall not be required to disclose,
permit the inspection, examination, copying or making extracts of, or discuss,
any document, information or other matter that (i) constitutes non-financial
trade secrets or non-financial proprietary information, or (ii) the disclosure
of which to Bank, or their designated representative, is then prohibited by (a)
law, or (b) an agreement binding on the Borrower that was not entered into by
the Borrower for the primary purpose of concealing information from the Bank.
SECTION 5: CONDITIONS PRECEDENT
5.1 The obligation of the Bank to make the initial Loan under or
pursuant to this Agreement, Bank shall have received the following, all in form
and substance satisfactory to Bank:
(a) The Loan Documents;
(b) Evidence of the authorization of the Loan Documents and
incumbency of Borrower's officers; and,
(c) Such additional documents or certificates as may be required
by Bank and/or required under the terms of any and every Collateral
Document.
5.2 Conditions Precedent to Disbursement of All Loans. The obligation of
Bank to make any Loan under this Agreement, including the initial Loan
hereunder, shall be further subject to the satisfaction of each of the following
conditions precedent on or before any disbursement under such Loan:
(a) Representations and Warranties. Each of the representations
and warranties of Borrower, and any other Person who is a party to any
of the Loan Documents, under this Agreement and any of the other Loan
Documents shall be true and correct in all material respects.
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(b) No Default or Material Adverse Change. No Default or Event
of Default shall have occurred and be continuing; there shall have been
no material adverse change in the condition (financial or otherwise),
properties, business, or operations of Borrower, any of its
Subsidiaries, or any guarantor since the date of the most recent
financial statements delivered to Bank in accordance with the terms of
this Agreement; and no provision of law, any order of any court or other
agency of government, or any regulation, rule or interpretation thereof,
shall reasonably be expected to have had any Material Adverse Effect on
the validity or enforceability of this Agreement, or any other Loan or
Collateral Documents.
SECTION 6: REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
6.1 Authority. Borrower is a corporation duly organized and existing in
good standing under the laws of the State of California and is duly qualified
and authorized to do business as a corporation in each jurisdiction where the
character of its assets or the nature of its activities makes such qualification
necessary, except for jurisdictions as to which any failure to be so qualified
could not reasonably be expected to have a Material Adverse Effect.
6.2 Due Authorization: Noncontravention. Execution, delivery and
performance by Borrower of this Agreement, each of the Loan Documents, and any
and all other documents and instruments required under this Agreement and/or to
which it is a party or is otherwise bound are within the corporate powers of
Borrower, have been duly authorized by all necessary corporate action, and are
not in contravention of law or the terms of Borrower's Articles of
Incorporation, Bylaws, or other constitutional documents or any agreement to
which Borrower is party or by which it is bound.
6.3 Title to Property. Borrower has good and valid title to all property
and assets purported to be owned by it, including those assets identified on the
financial statements most recently delivered by Borrower to and accepted by
Bank, free and clear of all security interests, liens, mortgages, or other
encumbrances.
6.4 Name: Location of Chief Executive Office. Borrower has not done
business and will not, without at least thirty (30) days prior written notice to
Bank, do business under any name other than that specified on the signature page
hereof. Borrower's chief executive office is located at 42501 Albrae Street,
Fremont, California 94538 and Borrower covenants and agrees that it will not,
during the term of this Agreement, without prior written notification to Bank,
relocate said chief executive office.
6.5 Solvency. the fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities: the
Borrower is not left with unreasonably small capital after the transaction
contemplated by this Agreement: Borrower is now and shall be at all times
solvent and able to pay its debts (including trade debts) as they mature.
6.6 No Material Adverse Change in Financial Statement. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the date of this Agreement.
6.7 Subsidiaries. There are no directly or indirectly owned Subsidiaries
of Borrower, except as set forth in Schedule 2 attached hereto, which Schedule
sets forth the percentage of ownership of Borrower in each such Subsidiary as of
the date of this Agreement.
6.8 Taxes. Borrower and each of its Subsidiaries have each filed, on or
before their respective due dates, all material federal, state, local and
foreign tax returns which are required to be filed, or have obtained extensions
for filing such tax returns, and is not delinquent in filing such returns in
accordance with such extensions, and have paid all taxes which have become due
pursuant to those returns or pursuant to any assessments received by
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any such party, as the case may be, to the extent such taxes have become due,
except to the extent such tax payments are being actively and diligently
contested in good faith by appropriate proceedings.
6.9 No Defaults. There exists no default under the provisions of any
instrument or agreement evidencing, governing or otherwise relating to any Debt
of Borrower or any of its Subsidiaries, or connected with any of the Permitted
Liens, or with respect to any other agreement, a default under which could
reasonably be expected to have a Material Adverse Effect.
6.10 Actions, Suits, Litigation or Proceedings. There are no actions,
suits, litigation or proceedings, at law or in equity, and no proceedings before
any arbitrator or by or before any governmental commission, board, bureau, or
other administrative agency, pending, or, to the best knowledge of Borrower,
threatened against or affecting Borrower or any of its Subsidiaries, or any
properties or rights of Borrower or any of its Subsidiaries, which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
Neither Borrower nor any of its Subsidiaries is under investigation by, or is
operating under any restrictions imposed by, any regulatory body or authority.
6.11 Compliance with Laws. Borrower and its Subsidiaries have each
complied with all applicable laws, including, without limitation, Environmental
Laws, to the extent that failure to so comply could have a Material Adverse
Effect. Neither Borrower nor any of its Subsidiaries maintains or contributes to
any employee benefit plan subject to Title IV of ERISA. Furthermore, neither
Borrower nor any of its Subsidiaries has incurred any accumulated funding
deficiency within the meaning of ERISA or incurred any liability to the Pension
Benefit Guaranty Corporation ("PBGC") in connection with any employee benefit
plan established or maintained by Borrower or any of its Subsidiaries, and no
reportable event or prohibited transaction, as defined in ERISA, has occurred
with respect to such plans. Neither Borrower nor any of its Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, nor is Borrower or any of its Subsidiaries "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. Neither Borrower nor any of its Subsidiaries is engaged principally,
or as one of its important activities, directly or indirectly, in the business
of extending credit for the purpose of purchasing or carrying margin stock, and
none of the proceeds of any of the Loans will be used, directly or indirectly,
to purchase or carry any margin stock or made available by Borrower or any of
its Subsidiaries in any manner to any other Person to enable or assist such
Person in purchasing or carrying margin stock.
6.12 Consents, Approvals and Filings, Etc. Except as have been
previously obtained or as otherwise expressly provided in this Agreement, no
authorization, consent, approval, license, qualification or formal exemption
from, nor any filing, declaration or registration with, any court, environmental
agency or regulatory authority or other governmental body or any securities
exchange, and no material authorization, consent or approval from any other
Person, is required in connection with the execution, delivery and performance
by Borrower of this Agreement, or any of the other Loan Documents. All such
authorizations, consents, approvals, licenses, qualifications, exemptions,
filings, declarations and registrations which have previously been obtained or
made, as the case may be, are in full force and effect and are not the subject
of any attack, or to the knowledge of Borrower, any threatened attack, in any
material respect, by appeal, direct proceeding or otherwise.
6.13 Environmental Representations. (a) Neither Borrower nor any of its
Subsidiaries has received any notice of any violation of any Environmental
Law(s); and neither Borrower nor any of its Subsidiaries is a party to any
litigation or administrative proceeding, nor, so far as is known by Borrower, is
any litigation or administrative proceeding threatened against Borrower or any
of its Subsidiaries which, in any case, (i) asserts or alleges that Borrower or
any of its Subsidiaries violated any Environmental Law(s), (ii) asserts or
alleges that Borrower or any of its Subsidiaries is required to clean up,
remove, or take any other remedial or response action due to the disposal,
depositing, discharge, leaking or other release of any hazardous materials, or
(iii) asserts or alleges that Borrower or any of its Subsidiaries is required to
pay all or a portion of any past, present or future clean-up, removal or other
remedial or response action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any hazardous materials by
Borrower or any of its Subsidiaries, and which, either singularly or in the
aggregate, could have a Material Adverse Effect upon the business, operations,
conditions (financial or otherwise), performance or properties of Borrower or
any of its Subsidiaries.
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6.13.1 To the best of Borrower's knowledge, there are no
conditions existing currently which could subject Borrower or any of its
Subsidiaries to damages, penalties, injunctive relief or clean-up costs
under any applicable Environmental Law(s), or which require, or are
likely to require, clean-up, removal, remedial action or other response
pursuant to any applicable Environmental Law(s) by Borrower or any of
its Subsidiaries, and which, in any case, either singularly or in
aggregate, could have a Material Adverse Effect upon the business,
operations, conditions (financial or otherwise), performance or
properties of Borrower or any of its Subsidiaries.
6.13.2 Neither Borrower nor any of its Subsidiaries is subject
to any judgment, decree, order or citation related to or arising out of
any applicable Environmental Law(s), which, either singularly or in the
aggregate, could have a Material Adverse Effect upon the business,
operations, conditions (financial or otherwise), performance or
properties of Borrower or any of its Subsidiaries; and, to the best of
Borrower's knowledge, neither Borrower nor any of its Subsidiaries has
been named or listed as a potentially responsible party by any
governmental body or agency in any matter arising under any applicable
Environmental Law(s).
6.13.3 Borrower and each of its Subsidiaries have all material
permits, licenses and approvals required under applicable Environmental
Laws, where the failure to so obtain or maintain any such permits,
licenses or approvals could have a Material Adverse Effect upon the
business, operations, conditions (financial or otherwise), performance
or properties of Borrower or any of its Subsidiaries.
6.14 Warranties, Representations and Agreements. Each warranty,
representation and agreement contained in this Agreement shall be automatically
deemed repeated with each Advance and shall be conclusively presumed to have
been relied on by Bank regardless of any investigation made or information
possessed by Bank. The warranties, representations and agreements set forth
herein shall be cumulative and in addition to any and all other warranties,
representations and agreements which Borrower shall give, or cause to be given,
to Bank, either now or hereafter.
6.15 Merchantable Inventory. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
6.16 Accuracy of Information. The Financial Statements of Borrower and
its Subsidiaries, previously furnished to Bank, have been prepared in accordance
with GAAP, are complete and correct in all material respects, and fairly present
the financial condition of Borrower and the consolidated financial condition of
Borrower and its Subsidiaries, and the results of their respective operations as
of the dates and for the periods covered thereby; and since the date(s) of said
financial statements, there has been no material adverse change in the financial
condition of Borrower or any of its Subsidiaries. Neither Borrower nor any of
its Subsidiaries has any material contingent obligations, liabilities for taxes,
long-term leases, or long-term commitments not disclosed by, or reserved against
in, such financial statements. Borrower and each of its Subsidiaries is solvent,
able to pay its respective debts as they mature, has capital sufficient to carry
on its business and has assets the fair market value of which exceed its
liabilities, and Borrower will not be rendered insolvent, under-capitalized or
unable to pay debts generally as they become due by the execution or performance
of this Agreement, or any of the other Loan Documents to which it is a party or
by which it is otherwise bound.
SECTION 7: AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as Bank is committed to make
any Loan(s) under this Agreement, and thereafter, so long as any Indebtedness
remains outstanding under this Agreement, it will, and, as applicable, it will
cause its Subsidiaries to:
7.1 Preservation of Existence, Etc. Preserve and maintain its existence
and such of its rights, licenses, and privileges as are material to the business
and operations conducted by it; qualify and remain qualified to do business in
each jurisdiction in which such qualification is material to its business and
operations or ownership of its properties, continue to conduct and operate its
business substantially as conducted and operated during the present and
preceding calendar year; at all times maintain, preserve and protect all of its
franchises and trade names and preserve all the remainder of its property and
keep the same in good repair, working order and condition.
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7.2 Keeping of Books. Keep proper books of record and account in which
full and correct entries shall be made of all of its financial transactions and
its assets and businesses so as to permit the presentation of financial
statements prepared in accordance with GAAP; and permit Bank, or its
representatives, at reasonable times and intervals, at Borrower's cost and
expense, to visit all of Borrower's and each of its Subsidiary's offices,
discuss their respective financial matters with their officers, employees,
directors and independent certified public accountants.
7.3 Reporting Requirements. Furnish to Bank, or cause to be furnished to
Bank, the following:
(a) As soon as possible, and in any event within three (3)
calendar days after becoming aware of the occurrence or existence of
each Default or Event of Default hereunder or any material adverse
change in the financial condition of Borrower, any of its Subsidiaries
or any Guarantor, a written statement of the chief financial officers of
Borrower (or in his or her absence, a responsible senior officer of
Borrower), setting forth details of such Default, Event of Default or
change, and the action which Borrower has taken, or has caused to be
taken, or proposes to take, or to cause to be taken, with respect
thereto;
(b) As soon as available, and in any event within ninety (90)
days after and as of the end of each fiscal year of Borrower, a balance
sheet and statement of profit and loss and surplus reconciliation and a
statement of cash flows of Borrower, for and as of such fiscal year then
ending, in each case, prepared on a reviewed basis by independent
certified public accountants satisfactory to Bank, and certified by the
chief financial officer of Borrower as to consistency with prior
financial reports and accounting periods, accuracy, and fairness of
presentation;
(c) As soon as available, and in any event within thirty (30)
days after and as of the end of each calendar month, including the last
calendar month of each of Borrower's fiscal years, a balance sheet and
statement of profit and loss and surplus reconciliation and a statement
of cash flows of Borrower for and as of the month then ending and for
and as of that portion of the fiscal year of Borrower then ending, in
each case, certified by the chief financial officer of Borrower as to
consistency with prior financial reports and accounting periods,
accuracy, and fairness of presentation;
(d) As soon as available, and in any event within twenty (20)
days after and as of the end of each calendar month, agings and reports
of Borrower's accounts receivable and accounts payable, in each case, in
form and detail satisfactory to Bank.
(e) Simultaneously with the financial statements to be delivered
to Bank pursuant to Sections 7.3(b) and (c) above, a Compliance
Certificate in substantially the form of attached Exhibit C, dated as of
the end of such month or year, as the case may be; and,
(f) Promptly, and in form and detail to be satisfactory to the
Bank, such other information as Bank may reasonably request from time to
time.
7.4 Financial Covenants. Borrower shall maintain the following financial
ratios and covenants on a consolidated and non-consolidated basis:
* Tangible Net Worth. Maintain a Tangible Net Worth, as of the last day of each
calendar month, of not less than $2,500,000.00 which shall increase by 75% of
new equity and by 75% of any net profit on a quarterly basis.
* Quick Ratio. Maintain a Quick Ratio, as of the last day of each calendar
month, of not less than the following during each of the respective periods:
<TABLE>
<CAPTION>
Period Amount
- --------------------------------------------------------- --------
<S> <C>
From the date of this Agreement through November 30, 1999 1.00:1
At all times from and after December 31, 1999 1.50:1
</TABLE>
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<PAGE> 17
* Profitability Borrower shall have a maximum net loss of Five-Hundred Thousand
Dollars ($500,000.00) for the quarter ending December 31, 1999. Thereafter
Borrower to be profitable on a quarterly basis allowing one loss quarter per
fiscal year not to exceed Three-Hundred Thousand Dollars ($300,000.00).
* New Equity. Borrower shall raise new equity in a minimum amount of
$5,000,000.00 by November 30, 1999.
7.5 Inspections. Permit Bank, through its authorized attorneys,
accountants and representatives, at Borrower's cost and expense, to examine
Borrower's and each of its Subsidiary's, books, accounts, records, ledgers and
assets and properties of every kind and description, wherever located, at all
reasonable times during normal business hours, upon reasonable oral or written
request of Bank.
7.6 Indemnification. Indemnify and save Bank harmless from any and all
losses, costs, damages, liabilities and expenses, including, without limitation,
reasonable attorneys' fees, incurred by Bank in connection with any of the Loan
Documents or any transactions contemplated thereby or the Collateral and any
failure by Borrower or any Subsidiary to comply with any laws, including any
Environmental Laws.
7.7 Governmental and Other Approvals. Apply for, obtain and/or maintain
in effect, as applicable, all authorizations, consents, approvals, licenses,
qualifications, exemptions, filings, declarations and registrations (whether
with any court, governmental agency, regulatory authority, securities exchange
or otherwise) which are necessary in connection with the execution, delivery
and/or performance by Borrower and its Subsidiaries of this Agreement, the Loan
Documents, or any other documents or instruments to be executed and/or delivered
by Borrowers, or any of its Subsidiaries, in connection therewith or herewith
and the transactions consummated or to be consummated hereunder or thereunder.
7.8 Insurance. Maintain insurance coverage on its physical assets and
against other business risks in such amounts and of such types as are
customarily carried by companies similar in size and nature (including, without
limitation, loss of rent and/or business interruption insurance and boiler and
machinery insurance), and in the event of acquisition of additional property,
real or personal, or of the incurrence of additional risks of any nature,
increase such insurance coverage in such manner and to such extent as prudent
business judgment and present practice would dictate; and in the case of all
policies covering property subject to Collateral Documents or property in which
the Bank shall have a security interest of any kind whatsoever, other than those
policies protecting against casualty liabilities to strangers, all such
insurance policies shall provide that the loss payable thereunder shall be
payable to Borrower (or other Person providing Collateral pursuant hereto) and
Bank, with mortgagee's clauses in favor of and satisfactory to Bank for all such
policies, and such policies shall also provide that they may not be canceled or
changed without thirty (30) days' prior written notice to Bank. Upon the request
of Bank, all of said policies, or copies thereof, including all endorsements
thereon and those required hereunder, shall be deposited with Bank.
7.9 Environmental Covenants. (a) Comply in all material respects with
all applicable Environmental Laws, and maintain all material permits, licenses
and approvals required under applicable Environmental Laws, where the failure to
do so could have a Material Adverse Effect upon the business, operations,
condition (financial or otherwise) performance or properties of Borrower, of any
of its Subsidiaries, or could have a Material Adverse Effect upon Borrower's, or
any of its Subsidiaries', ability to perform their respective obligations under
this Agreement or any of the other Loan Documents, or could materially adversely
affect the enforceability of this Agreement or any of the other Loan Documents.
7.9.1 Promptly notify Bank, in writing, as soon as Borrower
becomes aware of any condition or circumstance which makes any of the
environmental representations or warranties set forth in this Agreement
incomplete, incorrect or inaccurate in any material respect as of any
date; and promptly provide to Bank, immediately upon receipt thereof,
copies of any material correspondence, notice, pleading, citation,
indictment, complaint, order, decree, or other document from any source
asserting or alleging a violation of any Environmental Laws by either
Borrower, or any of its Subsidiaries, or of any circumstance or
condition which requires or may require, a financial contribution by
Borrower, or any of its Subsidiaries,
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or a clean-up, removal, remedial action or other response by or on
behalf of Borrower, or any of its Subsidiaries, under applicable
Environmental Law(s), or which seeks damages or civil, criminal, or
punitive penalties from Borrower, or any of its Subsidiaries, or any
violation or alleged violation of Environmental Law(s).
7.10 Year 2000 Compliant. Perform a comprehensive review and assessment
of all of Borrower's and any of its Subsidiaries' systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems to ensure, to the extent reasonably commercially practicable,
that (i) Borrower and any of its Subsidiaries' become Year 2000 Compliant in a
timely manner. As used in this Section, "Year 2000 Compliant" shall mean, in
regard to any entity, that all software, hardware, firmware, equipment, goods or
systems utilized by or material to the business operations or financial
condition of such entity, will properly perform date sensitive functions before,
during and after the year 2000. Borrower shall, immediately upon request,
provide to Bank such certifications or other evidence of Borrower's and any of
its Subsidiaries' compliance with the terms of this Section as Bank may from
time to time require.
7.11 Principal Depository. Borrower shall maintain its principal bank
accounts with Bank as of the effective date of this Agreement or within a
reasonable time, not to exceed two (2) months, thereafter.
7.12 Inventory; Location. Borrower shall keep the Inventory only at the
following locations: 42501 Albrae Street - Fremont, CA 94538 and 405
International Parkway - Richardson, TX 75082 and such other locations of which
Borrower gives Bank prior written notice and as to which Borrower signs and
files a financing statement where needed to perfect Bank's security interest.
7.13 Inventory: Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than
one-hundred thousand Dollars ($100,000.00).
SECTION 8: NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as Bank is committed to make
any Loan under this Agreement, and thereafter, so long as any Indebtedness
remains outstanding under this Agreement or any Note, it will not, and it will
not allow its Subsidiaries to, without the prior written consent of Bank:
8.1 Capital Structure, Business Objects or Purpose. Purchase, acquire or
redeem any of its capital stock, or enter into any reorganization or
recapitalization or reclassify its capital stock, or make any material change in
its capital structure or general business objects or purpose.
8.2 Mergers or Dispositions. Enter into any merger or consolidation,
whether or not the surviving corporation thereunder, or sell, lease, transfer,
relocate or dispose of all, substantially all, or any material part of its
assets (whether in a single transaction or in a series of transactions), other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; (iii) Transfers of worn-out or
obsolete Equipment or Equipment financed by other vendors; (iv) Transfers which
constituted liquidation of Investments permitted under Section 8.8; and (v)
other Transfers not otherwise permitted by this Section 7.1 not exceeding One
Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year.
8.3 Guaranties. Guarantee, endorse, or otherwise become secondarily
liable for or upon the obligations or Debt of others (whether directly or
indirectly), except:
(a) Guaranties in favor of and satisfactory to Bank; and
(b) Endorsements for deposit or collection in the ordinary
course of business.
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8.4 Indebtedness. Become or remain obligated for any Debt, except:
(a) Indebtedness and other Debt from time to time outstanding
and owing to Bank.
(b) Current unsecured trade, utility or non-extraordinary
accounts payable arising in the ordinary course of business;
(c) Purchase money indebtedness incurred for the purpose of
purchasing or acquiring fixed assets, so long as the amount of such
purchase money indebtedness incurred by Borrower and its Subsidiaries
does not exceed three-million Dollars ($3,000,000.00), in aggregate, for
any fiscal year of Borrower;
(d) Debt and capital leases outstanding as of the date hereof
more particularly described in Schedule 1 attached hereto; and
(e) any other Permitted Indebtedness (without duplication of
clauses (a)-(d), above, and subject in any case to the $3,000,000 cap on
capital expenditures).
8.5 Encumbrances. Create, incur, assume or suffer to exist any mortgage,
pledge, encumbrance, security interest, lien or charge upon, or create, suffer
or permit to exist any lien, security interest in, or encumbrance upon any of
its property or assets, whether now owned or hereafter acquired, except for
Permitted Liens.
8.6 Acquisitions. Purchase or otherwise acquire or become obligated for
the purchase of all or substantially all of the assets or business interests of
any person, firm or corporation or any shares of stock of any corporation,
trusteeship or association or in any other manner effectuate or attempt to
effectuate an expansion of present business by acquisition; provided that this
Section 8.6 shall not apply to (i) the purchase of inventory, equipment, or
intellectual property rights in any transaction valued at less than $100,000 in
the ordinary course of business or (ii) transactions among Subsidiaries or among
Borrower and its Subsidiaries in which Borrower is the surviving entity.
8.7 Dividends. Declare or pay dividends on, or make any other
distribution (whether by reduction of capital or otherwise) in respect of any
shares of its capital stock, except (a) dividends payable by a Subsidiary to
Borrower; (b) dividends payable solely in stock; (c) conversion of any of its
convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefore, and (d) redemption,
repurchase or acquisition of any shares of its capital stock payable upon an
employee's termination pursuant to its employee stock option, repurchase, or
similar plan: provided, however, that after giving effect to such redemption,
repurchase or acquisition, Borrower shall be in full compliance with the terms
of this Agreement.
8.8 Investments. Make or allow to remain outstanding any investment
(whether such investment shall be of the character of investment in shares of
stock, evidences of indebtedness or other securities or otherwise) in, or any
loans or advances to, any Person, firm, corporation or other entity or
association, other than:
(a) Borrower's current ownership interests in those Subsidiaries
of Borrower identified on Schedule 2 attached hereto:
(b) Any investment in direct obligations of the United States of
America or any agency thereof, or in certificates of deposit issued by
Bank, maintained consistent with Borrower's or such Subsidiary's
business practices prior to the date hereof; provided, that no such
investment shall mature more than ninety (90) days after the date when
made or the issuance thereof; and
(c) Any other Permitted Investment
8.9 Transactions with Affiliates. Enter into any transaction with any of
their stockholders, officers, employees, partners or any of their Affiliates,
except, subject to the terms hereof, transactions in the ordinary course
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<PAGE> 20
of business and on terms not less favorable than would be usual and customary in
similar transactions between Persons dealing at arm's length.
8.10 Prepayment of Indebtedness. Prepay any Debt (or take any actions
which impose an obligation to prepay), except, subject to the terms hereof or
thereof, Indebtedness or other Debt payable to Bank.
8.11 Pension Plans. Except in compliance with this Agreement, enter
into, maintain, or make contribution to, directly or indirectly, any Pension
Plan that is subject to ERISA.
8.12 Subordinate Indebtedness. Subordinate any indebtedness due to it
from any Person to indebtedness of other creditors of such Person.
8.13 No Further Negative Pledges. Enter into or become subject to any
agreement (other than this Agreement or the Loan Documents) (a) prohibiting the
guaranteeing by Borrower or any of its Subsidiaries of any obligations, (b)
prohibiting the creation or assumption of any lien or encumbrance upon the
properties or assets of Borrower or any of its Subsidiaries, whether now owned
or hereafter acquired, or (c) requiring an obligation to become secured (or
further secured) if another obligation is secured or further secured.
8.14 Accounts Receivable. Sell or assign any Account, account
receivable, note or trade acceptance, except to the Bank.
8.15 Capital Expenditures. Make Capital Expenditures during Borrower's
fiscal year ending on or about June 30, 2000, in excess of three-million Dollars
($3,000,000.00) in aggregate, or in excess of three-million Dollars
($3,000,000.00) in aggregate, on a non-cumulative basis, in any fiscal year of
Borrower thereafter.
8.16 Inventory. That Inventory is not now and shall not at any time or
times hereafter be located or stored with a bailee, warehouseman, or other third
party without Bank's prior written consent, and, in such event, Borrower will
concurrently therewith cause any such bailee, warehouseman, or other third party
to issue and deliver to Bank, in a form acceptable to Bank, warehouse receipts
in Bank's name evidencing the storage of Inventory or other evidence of Bank's
prior rights in the Inventory. In any event, Borrower shall instruct any third
party to hold all such Inventory for Bank's account subject to Bank's security
interests and its instructions.
SECTION 9: EVENTS OF DEFAULTS
9.1 Events of Default. The occurrence or existence of any of the
following conditions or events shall constitute an "Event of Default" hereunder:
(a) Upon non-payment of any principal, interest or other sums
due to Bank under this Agreement or any other agreement or if any
guarantor shall fail to pay, when due, any indebtedness, obligation or
liability whatsoever of any such guarantor to Bank:
(b) Any default in the observance or performance of any of the
conditions, covenants or agreements of Borrower set forth in Sections 6,
7 or 8 of this Agreement;
(c) Default in the observance or performance of any of the other
conditions, covenants or agreements of Borrower set forth in this
Agreement (other than as provided in (a) or (b) above), and continuance
thereof for a period of thirty (30) days;
(d) Any representation or warranty made by Borrower, or by any
other Person (other than Bank), herein or in any other Loan Document
shall be untrue or incorrect in any material respect;
(e) Any default or event of default, as the case may be, in the
observance or performance of any of the conditions, covenants or
agreements of Borrower or any other Person (excluding Bank) set forth in
any of the Collateral Documents, or in any of the other Loan Documents,
and continuation thereof beyond any applicable period of grace or cure
provided with respect thereto;
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(f) Any default by Borrower, any guarantor, or any of their
respective Subsidiaries, in the payment of any Debt (other than Debt
owing to Bank), or in the observance or performance of any conditions,
covenants or agreements related or given with respect thereto or any
other agreement, the failure to perform under which could reasonably be
expected to have a Material Adverse Effect and, in each such case,
continuation thereof beyond any applicable grace or cure period;
(g) The rendering of one or more judgments or decrees for the
payment of money in excess of the sum of two-hundred-fifty thousand
Dollars ($250,000.00), in the aggregate, against Borrower, any
guarantor, or any of their respective Subsidiaries, and such judgment(s)
or decree(s) shall remain unvacated, unbonded or unstayed, by appeal or
otherwise, for a period of thirty (30) consecutive days after the date
of entry;
(h) If there shall be any change in the management, ownership or
control of Borrower, whether by reason of incapacity, death,
resignation, termination or otherwise, which, in Bank's sole judgment,
shall have a Material Adverse Effect upon the future prospects for the
successful operation by Borrower, of its businesses as conducted before
such change, or its ability to pay and perform its liabilities and
obligations under this Agreement, the Indebtedness, or the Loan
Documents;
(i) The failure by Borrower, any guarantor, or any of their
respective Subsidiaries, to meet the minimum funding requirements under
ERISA with respect to any Pension Plan established or maintained by it;
the occurrence of any "reportable event", as defined in ERISA, which
could constitute grounds for termination by the PBGC of any Pension Plan
or for the appointment by the appropriate United States District Court
of a trustee to administer such Pension Plan, and such reportable event
is not corrected and such determination is not revoked within thirty
(30) days after notice thereof has been given to the plan administrator
or Borrower, any such Guarantor, or the respective Subsidiary(ies), as
the case may be; or the institution of any proceedings by the PBGC to
terminate any such Pension Plan or to appoint a trustee by the
appropriate United States District Court to administer any such Pension
Plan;
(j) If Borrower, any guarantor, or any of their respective
Subsidiaries, becomes insolvent or generally fails to pay, or admits in
writing its inability to pay, its debts as they mature, or applies for,
consents to, or acquiesces in the appointment of a trustee, receiver,
liquidator, conservator or other custodian for Borrower, any guarantor,
or any such Subsidiary, or a substantial part of their respective
property, or makes a general assignment for the benefit of creditors; or
files a voluntary petition in bankruptcy or in the absence of such
filing application, consent or acquiescence, a trustee, receiver,
liquidator, conservator or other custodian is appointed for Borrower,
any guarantor, or any of their respective Subsidiaries, or for a
substantial part of their respective property, and the same is not
discharged within thirty (30) days; or any bankruptcy, reorganization,
debt arrangement, or other proceedings under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, is
instituted by or against Borrower, any guarantor, or any of their
respective Subsidiaries, and, if instituted against Borrower, such
guarantor, or any such Subsidiary, the same is consented to or
acquiesced in by Borrower, any guarantor, or any such Subsidiary, as the
case may be, or otherwise remains undismissed for thirty (30) days; or
any warrant of attachment is issued against any substantial part of the
property of Borrower, any guarantor or any of their respective
Subsidiaries, which is not released within thirty (30) days of service
thereof;
(k) If any Collateral Document shall be terminated, revoked, or
otherwise rendered void or unenforceable, in any case, without Bank's
prior written consent;
(l) If any circumstance occurs that has a Material Adverse
Effect, or if there is a material impairment of the value or priority of
Bank's security interests in the Collateral;
(m) If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant
or levy has not been removed, discharged or rescinded within ten (10)
days, or if Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's assets, or
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if a notice of lien, levy, or assessment is filed of record with respect
to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten
(10) days after Borrower receives notice thereof, provided that none of
the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith
contest by Borrower (provided that no credit extensions will be required
to be made during such cure period); or,
(n) If Borrower makes any payment on account of Subordinated Debt,
except to the extent such payment is allowed under any subordination agreement
entered into with Bank.
SECTION 10: BANK'S RIGHTS AND REMEDIES
10.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Indebtedness, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of
Default described in Section 9.1(j), all Indebtedness shall become
immediately due and payable without any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Terminate this Agreement as to any future liability or
obligation of Bank, but without affecting Bank's rights and security
interests in the Collateral, and the Indebtedness of Borrower to Bank;
(d) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such
Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letters of Credit fees scheduled to
be paid or payable over the remaining term of the Letters of Credit;
(e) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which
in Bank's determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's premises. Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge,
in order to exercise any of Bank's rights or remedies provided herein,
at law, in equity, or otherwise;
(g) Without notice to Borrower set off and apply to the
Indebtedness any and all (i) balances and deposits of Borrower held by
Bank, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral;
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(i) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable, and apply the proceeds
thereof to the Indebtedness in whatever manner or order Bank deems
appropriate;
(j) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law;
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower;
(l) Without limiting Bank's rights under any security interest,
Bank is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property
of a similar nature as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral and
Borrower's rights under all licenses and all franchise agreement shall
inure to Bank's benefit, and Bank shall have the right and power to
enter into sublicense agreements with respect to all such rights with
third parties on terms acceptable to Bank;
(m) Borrower shall pay all Bank Expenses incurred in connection
with Bank's enforcement and exercise of any of its rights and remedies
as herein provided, whether or not suit is commenced by Bank.
10.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
Account Debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes and
claims respecting the Accounts directly with Account Debtors, for amounts and
upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (g) to transfer any intellectual property Collateral
into the name of Bank or a third party to the extent permitted under the
California Uniform Commercial Code, provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Indebtedness has been fully repaid and performed and Bank's
obligation to provide Advances hereunder is terminated.
10.3 Accounts Collection. At any time from the date of this Agreement,
Bank may notify any Person owing funds to Borrower of Bank's security interest
in such funds and verify the amount of such Account. Borrower shall collect all
amounts owing to Borrower for Bank, receive in trust all payments as Bank's
trustee, and, if requested or required by Bank, immediately deliver such
payments to Bank in their original form as received from the account debtor,
with proper endorsements for deposit.
10.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 7.8 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
22
<PAGE> 24
10.5 Bank's Liability for Collateral. So long as Bank complies with its
obligations under Section 9207 of the Code. Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral, (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
10.6 Waiver of Certain Laws. To the extent permitted by applicable law,
Borrower hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish, the benefit and advantage of any valuation, stay,
appraisement, extension or redemption laws now existing or which may hereafter
exist, which, but for this provision, might be applicable to any sale made under
the judgment, order or decree of any court, on any claim for interest on the
Notes, or any security interest or mortgage contemplated by or granted under or
in connection with this Agreement or the Indebtedness.
10.7 Waiver of Defaults. No Default or Event of Default shall be waived
by Bank except in a written instrument specifying the scope and terms of such
waiver and signed by an authorized officer of Bank, and such waiver and shall be
effective only for the specific time(s) and purpose(s) given. No single or
partial exercise of any right, power or privilege hereunder, nor any delay in
the exercise thereof, shall preclude other or further exercise of Bank's rights.
No waiver of any Default or Event of Default shall extend to any other or
further Default or Event of Default. No forbearance on the part of Bank in
enforcing any of Bank's rights or remedies hereunder or any of the other Loan
Documents shall constitute a waiver of any of its rights or remedies. Borrower
expressly agrees that this Section may not be waived or modified by Bank by
course of performance, estoppel or otherwise.
10.8 Receiver. Bank, in any action or suit to foreclose upon any of the
Collateral, shall be entitled, without notice or consent, and completely without
regard to the adequacy of any security for the Indebtedness, to the appointment
of a receiver of the business and premises in question, and of the rents and
profits derived therefrom. This appointment shall be in addition to any other
rights, relief or remedies afforded Bank. Such receiver, in addition to any
other rights to which he shall be entitled, shall be authorized to sell,
foreclose or complete foreclosure on Collateral contemplated by this Agreement
for the benefit of Bank, pursuant to provisions of applicable law.
10.9 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the UCC, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
10.10 Demand: Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
SECTION II: MISCELLANEOUS
11.1 Loans to Borrower. Bank and Borrower agree that any loans which
Bank in its sole discretion has made or may now or hereafter make to Borrower
shall be subject to the terms and conditions of this Agreement unless otherwise
agreed in writing by Bank and Borrower.
11.2 Accounting Principles. Except to the extent expressly stated to the
contrary herein, where the character or amount of any asset or liability or item
of income or expense is required to be determined, or any consolidation or other
accounting computation is required to be made for purposes of this Agreement, it
shall be done in accordance with GAAP, and all accounting terms not specifically
defined in this Agreement shall be construed in accordance with GAAP.
23
<PAGE> 25
11.3 Audits of Collateral: Fees. Bank shall have the right from time to
time to audit Borrower's Accounts, Inventory, or other Collateral, provided that
such audits will be conducted upon reasonable notice. Borrower agrees to
reimburse Bank, on demand, for customary and reasonable fees and costs incurred
by Bank for such audits, and for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by its agents.
11.4 Taxes and Fees. Should any tax (other than a tax based upon the net
income of Bank) or recording or filing fee become payable in respect of this
Agreement or any of the Loan Documents, any of the Collateral, or any amendment,
modification or supplement hereof or thereof, Borrower agrees to pay such taxes
(or reimburse Bank therefor), together with any interest or penalties thereon,
and agree to hold Bank harmless with respect thereto.
11.5 Governing Law. This Agreement, each of the Notes, and each of the
other Loan and Collateral Documents, shall be deemed to have been delivered in
the State of California, and shall be governed by and construed and enforced in
accordance with the laws of the State of California, except to the extent that
the Uniform Commercial Code, other personal property law or real property law of
another jurisdiction where Collateral is located is applicable, and except to
the extent expressed to the contrary in any of the Loan Documents. Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.6 Costs and Expenses. Borrower shall pay Bank, on demand, all costs
and expenses, including, without limitation, reasonable attorneys' fees and
legal expenses, incurred by Bank in perfecting, revising, protecting or
enforcing any of its rights or remedies against Borrower or any Collateral, or
otherwise incurred by Bank in connection with any Default or Event of Default or
the enforcement of this Agreement, the Loan Documents, or the Indebtedness.
Following Bank's demand upon Borrower for the payment of any such costs and
expenses, and until the same are paid in full, the unpaid amount of such costs
and expenses shall constitute Indebtedness and shall bear interest at the Base
Rate.
11.7 Notices. All notices and other communications provided for herein
or in any document contemplated hereby, given hereunder or required by law to be
given, shall be in writing (unless expressly provided to the contrary). If
personally delivered, such notices shall be effective when delivered, and in the
case of mailing, such notices shall be effective two (2) Business Days after
sending by first class mail, postage prepaid, in each case addressed to the
parties as set forth on the signature page of this Agreement, or to such other
address as a party shall have designated to the other in writing in accordance
with this Section. The giving of at least five (5) days' notice before Bank
shall take any action described in any notice shall conclusively be deemed
reasonable for all purposes; provided, that this shall not be deemed to require
Bank to give such five (5) days' notice, or any notice, if not specifically
required to do so in this Agreement.
11.8 Further Action. Borrower, from time to time, upon written request
of Bank, will promptly make, execute, acknowledge and deliver, or cause to be
made, executed, acknowledged and delivered, all such further and additional
instruments, and promptly take all such further action as may be required to
carry out the intent and purpose of this Agreement, and to provide for the Loans
under and payment of the Notes, according to the intent and purpose herein and
therein expressed.
11.9 Successors and Assigns: Participation. This Agreement shall be
binding upon and shall inure to the benefit of Borrower and Bank and their
respective successors and assigns. The foregoing shall not authorize any
assignment or transfer by Borrower, of any of its respective rights, duties or
obligations hereunder, such assignments or transfers being expressly prohibited.
Bank, however, may freely assign, whether by assignment, participation or
otherwise, its rights and obligations hereunder, and is hereby authorized to
disclose to any such assignee or participant any financial or other information
in its knowledge or possession regarding Borrower, its Subsidiaries and
Affiliates, or the Indebtedness.
11.10 Indulgence. No delay or failure of Bank in exercising any right,
power or privilege hereunder or under any of the Loan Documents shall affect
such right, power or privilege, nor shall any single or partial exercise thereof
preclude any further exercise thereof, nor the exercise of any other right,
power or privilege available to
24
<PAGE> 26
Bank. The rights and remedies of Bank hereunder are cumulative and are not
exclusive of any rights or remedies of Bank.
11.11 Amendment and Waiver. No amendment or waiver of any provision of
this Agreement or any Loan Document, nor consent to any departure by Borrower,
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Bank, and then such waiver or consent shall be effective only in
the specific instance(s) and for the specific time(s) and purpose(s) for which
given.
11.12 Severability. In case any one or more of the obligations of
Borrower under this Agreement, any Note, or any of the other Loan Documents
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining obligations of Borrower shall not
in any way be affected or impaired thereby, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the validity, legality or
enforceability of the obligations of Borrower under this Agreement, the Notes or
any of the other Loan Documents in any other jurisdiction.
11.13 Headings and Construction of Terms. The headings of the various
sub-Sections hereof are for convenience of reference only and shall in no way
modify or affect any of the terms or provisions hereof. Where the context herein
requires, the singular number shall include the plural, and any gender shall
include any other gender.
11.14 Independence of Covenants. Each covenant hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of any Default or Event of Default.
11.15 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of Borrower made herein or
in any of the Loan Documents, or in any certificate, report, financial statement
or other document furnished by or on behalf of Borrower in connection with this
Agreement or any of the Loan Documents, shall be deemed to have been relied upon
by Bank, notwithstanding any investigation heretofore or hereafter made by Bank
or on Bank's behalf, and those covenants and agreements of Borrower set forth in
this Agreement (together with any other indemnities of Borrower contained
elsewhere in this Agreement or in any of the Loan Documents) shall survive the
termination of this Agreement and the repayment in full of the Indebtedness.
11.16 Effective Upon Execution. This Agreement shall become effective
upon the execution hereof by Bank and Borrower, and shall remain effective until
the Indebtedness under this Agreement and each of the Notes shall have been
repaid and discharged in full and no commitment to extend any credit hereunder
(whether optional or obligatory) remains outstanding.
11.17 Complete Agreement: Conflicts. This Agreement, the Notes, the
other Loan Documents, any agreements, certificates, or other documents given in
connection with the Indebtedness under this Agreement, and any commitment letter
previously issued by Bank with respect thereto (provided that in the event of
any inconsistency or conflict between this Agreement and the other Loan
Documents, on one hand, and such commitment letter, on the other hand, this
Agreement and the Loan Documents shall control), contain the entire agreement of
the parties thereto and supersedes all prior agreements and understandings
related to the subject matter hereof, and none of the parties shall be bound by
anything not expressed in writing. In the event that and to the extent that any
of the terms, conditions or provisions of any of the other Loan Documents are
inconsistent with or in conflict with any of the terms, conditions or provisions
of this Agreement, the applicable terms, conditions and provisions of this
Agreement shall govern and control.
11.18 Confidentiality. In handling any confidential information, Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement,
except that disclosure of such information may be made (a) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower; (b) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower; (c) as required by law, regulations, rule or order, subpoena, judicial
order or similar
25
<PAGE> 27
order; (d) as may be required in connection with the examination, audit or
similar investigation of Bank, and, (e) as Bank may deem appropriate in
connection with the exercise of any remedies hereunder. Confidential information
hereunder shall not include information that either: (i) is in the public domain
or in the knowledge or possession of Bank when disclosed to Bank, or becomes
part of the public domain after disclosure to Bank through no fault of Bank; or,
(ii) is disclosed to Bank by a third party, provided Bank does not have actual
knowledge that such third party is prohibited from disclosing such information.
11.19 WAIVER OF JURY TRIAL. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL
OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY
OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS
SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK
OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
11.20 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
WITNESS the due execution hereof as of the day and year first above
written.
BANK: BORROWER
COMERICA BANK-CALIFORNIA
By: /s/ Signature Illegible By: /s/ Signature Illegible
-------------------------------- ---------------------------------
Its: CORP. BANKING OFFICER Its: CEO
Address: 55 Almaden Boulevard Address: 42501 Albrae
San Jose, CA 95113 Street Fremont, CA 94538
Attn.: Elizabeth Wilkerson /s/ JESSY CHAO
Telefax No.: 408-556-5889 ------------------------------------
DIRECTOR OF FINANCE
Attn.: Jessy Chao
Telefax No.: 510-360-0689
26
<PAGE> 28
EXHIBIT A
The Collateral shall consist of all right, title and interest of a
Debtor in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including
without limitation, all machinery, fixtures, vehicles, and any interest in any
of the foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily our of a Debtor's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and Debtor's
Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to a Debtor,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by a Debtor and Debtor's Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Debtor's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protections of semiconductor ships, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interest in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
(h) Notwithstanding the foregoing, the term "Collateral" shall not
include any property, rights or licenses to the extent the granting of a
security interest therein (i) would be contrary to applicable law or (ii) is
prohibited by or would constitute a default under any agreement or document
governing such property, rights or licenses (but only to the extent such
prohibition is enforceable under applicable law, including without limitation
Section 9318 of the Code); provided that immediately and automatically upon the
ineffectiveness, lapse or termination of any such prohibition or restriction,
the Collateral shall include such property, rights and licenses, and Borrower
shall be deemed to have granted a security interest in all such rights and
interests as if such prohibition or restriction had never been in effect.
27
<PAGE> 29
SCHEDULE 1
Permitted Liens and Capital Leases
- ----------------------------------
CALIFORNIA
Debtor: Avanex Corporation - Fremont, CA
<TABLE>
<CAPTION>
Instrument Number Filing Date Secured Party
- ----------------- ----------- -------------
<S> <C> <C>
9817360855 06/19/1998 Hewlett-Packard Company Finance & Remarketing Division
9835560266 12/16/1998 Phoenix Warehouse II, Inc.
9835560292 12/16/1998 Phoenix Warehouse II, Inc. [amendment 5/6/99]
9907160504 03/04/1999 Hewlett-Packard Company Finance & Remarketing Division
9907160502 03/04/1999 Hewlett-Packard Company Finance & Remarketing Division
9907860782 03/11/1999 Phoenix Warehouse II, Inc.
9908160297 03/11/1999 Phoenix Warehouse II, Inc.
9916960704 06/14/1999 Phoenix Warehouse II, Inc.
</TABLE>
Debtor: Avanex Corporation - Richardson, TX
<TABLE>
<CAPTION>
Instrument Number Filing Date Secured Party
- ----------------- ----------- -------------
<S> <C> <C>
9907860782 03/11/1999 Phoenix Warehouse II, Inc.
9908160297 03/11/1999 Phoenix Warehouse II, Inc.
9916960704 06/14/1999 Phoenix Warehouse II, Inc.
</TABLE>
Texas
Debtor: Avanex Corporation - Richardson, TX
<TABLE>
<CAPTION>
Instrument Number Filing Date Secured Party
- ----------------- ----------- -------------
<S> <C> <C>
9900043848 03/04/1999 Hewlett Packard Company Finance & Remarketing Division
9900043849 03/04/1999 Hewlett Packard Company Finance & Remarketing Division
</TABLE>
28
<PAGE> 30
SCHEDULE 2
SUBSIDIARY COMPANIES
There are no subsidiary companies.
<PAGE> 1
EXHIBIT 10.14
[SILICON VALLEY BANK LOGO]
QUICKSTART LOAN AND SECURITY AGREEMENT
BORROWER: Avanex Corporation ADDRESS: 42501 Albrae St.
DATE: February 17, 1998 Fremont, CA 94538
SILICON'S OFFER TO EXTEND FINANCING ON THE TERMS SET FORTH HEREIN SHALL EXPIRE
IF THIS AGREEMENT IS NOT EXECUTED BY BORROWER AND RETURNED TO SILICON WITHIN 30
DAYS OF THE ABOVE DATE.
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and the borrower named above (jointly and severally, the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address").
1. Loans. Silicon will make loans to Borrower (the "Loans") in amounts
determined by Silicon in its reasonable business judgment up to the amount (the
"Credit Limit") shown on the Schedule to this Agreement (the "Schedule"),
provided no Event of Default and no event which, with notice or passage of time
or both, would constitute an Event of Default has occurred. All Loans and other
monetary Obligations will bear interest at the rate shown on the Schedule.
Interest will be payable monthly, on the date shown on the monthly billing from
Silicon. Silicon may, in its discretion, charge interest to Borrower's deposit
accounts maintained with Silicon.
2. Security Interest. As security for all present and future indebtedness,
guarantees, liabilities, and other obligations, of Borrower to Silicon
(collectively, the "Obligations"), Borrower hereby grants Silicon a continuing
security interest in all of Borrower's interest in the following types of
property, whether now owned or hereafter acquired, and wherever located
(collectively, the "Collateral"): All "accounts," "general intangibles,"
"contract rights," "chattel paper," "documents," "letters of credit,"
"instruments," "deposit accounts," "inventory," "farm products," "investment
property," "fixtures" and "equipment," as such terms are defined in Division 9
of the California Uniform Commercial Code in effect on the date hereof, and all
products, proceeds and insurance proceeds of the foregoing.
3. Representations And Agreements Of Borrower. Borrower represents to Silicon as
follows, and Borrower agrees that the following representations will continue to
be true, and that Borrower will comply with all of the following agreements
throughout the term of this Agreement:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The execution, delivery
and performance by Borrower of this Agreement, and all other documents
contemplated hereby have been duly and validly authorized, and do not violate
any law or any provision of, and are not grounds for acceleration under, any
agreement or instrument which is binding upon Borrower.
3.2 Names, Places of Business. The name of Borrower set [MISSING COPY] give
Silicon 15 days' prior written notice before changing its name. The address set
forth in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Silicon at least 15 days
prior written notice before changing its chief executive office or locating the
Collateral at any other location.
3.3 Collateral. Silicon has and will at all times continue to have a
first-priority perfected security interest in all of the Collateral other than
specific equipment. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.4 Financial Condition and Statements. All financial statements now or in
the future delivered to Silicon have been, and will be, prepared in conformity
with generally accepted accounting principles. Since the last date covered by
any such statement, there has been no material adverse change in the financial
condition or business of Borrower. Borrower will provide Silicon: (i) within 30
days after the end of each month, a monthly financial statement prepared by
Borrower, and such other information as Silicon shall reasonably request; (ii)
within 120 days following the end of Borrower's fiscal year, complete annual
financial statements, certified by independent certified public accountants
acceptable to Silicon and accompanied by the unqualified report thereon by said
independent certified public accountants; and (iii) other financial information
reasonably requested by Silicon from time to time.
3.5 Taxes; Compliance with Law. Borrower has filed, and will file, when
due, all tax returns and reports required by applicable law, and Borrower has
paid, and will pay, when due, all taxes, assessments, deposits and
contributions now or in the future owned by Borrower. Borrower has complied and
will comply, in all material respects, with all applicable laws, rules and
regulations.
3.6 Insurance. Borrower shall at all times insure all of the tangible
personal property Collateral and carry such other business insurance as is
customary in Borrower's industry.
3.7 Access to Collateral and Books and Records. At [MISSING COPY]
<PAGE> 2
Silicon Valley Bank QuickStart Loan and Security Agreement
- --------------------------------------------------------------------------------
agents shall have the right to inspect the Collateral, and the right to audit
and copy Borrower's books and records.
3.8 Operating Accounts. Borrower shall maintain its primary operating accounts
with Bank.
3.9 Additional Agreements. Borrower shall not, without Silicon's prior written
consent, do any of the following: (i) enter into any transaction outside the
ordinary course of business except for the sale of capital stock to venture
investors, provided that Borrower promptly delivers written notification to
Silicon of any such sale; (ii) sell or transfer any Collateral, except in the
ordinary course of business; (iii) pay or declare any dividends on Borrower's
stock (except for dividends payable solely in stock of Borrower); or (iv)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's stock other than the repurchase of up to five percent (5%) of
Borrower's then issued stock in any fiscal year from Borrower's employees or
directors pursuant to written agreement with Borrower.
4. Term. This Agreement shall continue in effect until the maturity date set
forth on the schedule (the "Maturity Date"). This Agreement may be terminated,
without penalty, prior to the Maturity Date as follows: (i) by Borrower,
effective three business days after written notice of termination is given to
Silicon; or (ii) by Silicon at any time after the occurrence of an Event of
Default, without notice, effective immediately. On the Maturity Date or on any
earlier effective date of termination, Borrower shall pay all Obligations in
full, whether or not such Obligations are otherwise then due and payable. No
termination shall in any way affect or impair any security interest or other
right or remedy of Silicon, nor shall any such termination relieve Borrower of
any Obligation to Silicon, until all of the Obligations have been paid and
performed in full.
5. Events of Default and Remedies. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement: (a) Any
representation, statement, report or certificate given to Silicon by Borrower or
any of its officers, employees or agents, now or in the future, is untrue or
misleading in a material respect; or (b) Borrower fails to pay when due any Loan
or any interest thereon or any other monetary Obligation; or (c) the total
Obligations outstanding at any time exceed the Credit Limit; or (d) Borrower
fails to perform any other non-monetary Obligation, which failure is not cured
within 5 business days after the date due; or (e) Dissolution, termination of
existence, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by or against Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (f) a material
adverse change in the business, operations, or financial or other condition of
Borrower. If an Event of Default occurs, Silicon shall have the right to
additional four percent per annum, and exercise all rights and remedies accorded
it by applicable law.
6. General. If any provision of this Agreement is held to be unenforceable,
the remainder of this Agreement shall still continue in full force and effect.
This agreement and any other written agreements, documents and instruments
executed in connection herewith are the complete agreement between Borrower and
Silicon and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated in this
Agreement. There are no oral understandings, representations or agreements
between the parties which are not in this Agreement or in other written
agreements signed by the parties in connection this Agreement. The failure of
Silicon at any time to require Borrower to comply strictly with any of the
provisions of this Agreement shall not waive Silicon's right later to demand and
receive strict compliance. Any waiver of a default shall not waive any other
default. None of the provisions of this Agreement may be waived except by a
specific written waiver signed by an officer of Silicon and delivered to
Borrower. The provisions of this Agreement may not be amended, except in a
writing signed by Borrower and Silicon. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all other reasonable costs incurred by Silicon,
in connection with this Agreement (whether or not a lawsuit is filed). If
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party shall be entitled to recover its
reasonable costs and attorneys' fees from the non-prevailing party. Borrower may
not assign any rights under this Agreement without Silicon's prior written
consent. This Agreement shall be governed by the laws of the State of
California.
7. Mutual Waiver of Jury Trial. BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF
SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR AFFILIATES.
Borrower:
AVANEX CORPORATION
- -----------------------------
By /s/ SIMON CAO
---------------------------
President or Vice President
Silicon:
SILICON VALLEY BANK
By /s/ [Signature Illegible]
---------------------------
<PAGE> 3
[SILICON VALLEY BANK LOGO]
SCHEDULE TO
QUICKSTART LOAN AND SECURITY AGREEMENT (EQUIPMENT ADVANCES)
BORROWER: Avanex Corporation
DATE: February 17, 1998
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
<TABLE>
<S> <C>
CREDIT LIMIT (EQUIPMENT)
(Section 1): $300,000 (such amount to be funded under the
aggregate Credit Limit). Equipment Advances will be
made only on or prior to August 17, 1998 (the "Last
Advance Date") and only for the purpose of purchasing
equipment reasonably acceptable to Silicon. Borrower
must provide invoices for the equipment to Silicon on
or before the Last Advance Date.
INTEREST RATE (Section 1): A rate equal to the "Prime Rate" in effect from time to
time, plus 1.5% per annum. Interest shall be calculated
on the basis of a 360-day year for the actual number of
days elapsed. "Prime Rate" means the rate announced from
time to time by Silicon as its "prime rate;" it is a base
rate upon which other rates charged by Silicon are based,
and it is not necessarily the best rate available at
Silicon. The interest rate applicable to the Obligations
shall change on each date there is a change in the Prime
Rate.
MATURITY DATE (Section 4): After the Last Advance Date, the unpaid principal balance
of the Equipment Advances shall be repaid in 36 equal
monthly installments of principal, plus interest,
commencing on September 17, 1998 and continuing on the
same day of each month thereafter until the entire unpaid
principal balance of the Equipment Advances and all
accrued unpaid interest have been paid (subject to
Silicon's right to accelerate the Equipment Advances
on an Event of Default).
BORROWER: SILICON:
Avanex Corporation SILICON VALLEY BANK
By /s/ SIMON CAO By /s/ [Signature Illegible]
---------------------- --------------------------
President or Vice President Title Sr. Vice President
</TABLE>
<PAGE> 4
[SILICON VALLEY BANK LOGO]
SCHEDULE TO
QUICKSTART LOAN AND SECURITY AGREEMENT (MASTER)
BORROWER: Avanex Corporation
DATE: February 17, 1998
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
<TABLE>
<S> <C>
CREDIT LIMIT (AGGREGATE)
(Section 1): $300,000 (includes, without limitation, Equipment
Advances and the Merchant Services and Business Visa
Reserve, if any.)
INTEREST RATE (Section 1): A rate equal to the "Prime Rate" in effect from time to
time, plus 1.50% per annum. Interest shall be calculated
on the basis of a 360-day year for the actual number of
days elapsed. "Prime Rate" means the rate announced from
time to time by Silicon as its "prime rate;" it is a base
rate upon which other rates charged by Silicon are based,
and it is not necessarily the best rate available at
Silicon. The interest rate applicable to the Obligations
shall change on each date there is a change in the Prime
Rate.
MATURITY DATE (Section 4): August 17, 1999 or August 17, 2001, if equipment.
OTHER LOCATIONS AND
ADDRESSES (Section 3.2):
-------------------------------------------------
OTHER AGREEMENTS: Borrower also agrees as follows:
1. LOAN FEE. Borrower shall concurrently pay Silicon a
non-refundable Loan Fee in the amount of $3,000.
2. BANKING RELATIONSHIP. Borrower shall at all times
maintain its primary banking relationship with Silicon.
BORROWER: SILICON:
Avanex Corporation SILICON VALLEY BANK
By /s/ SIMON CAO By /s/ [Signature Illegible]
---------------------- --------------------------
President or Vice President Title Sr. Vice President
</TABLE>
<PAGE> 5
[LOGO] SILICON VALLEY BANK
CERTIFIED RESOLUTION
BORROWER: AVANEX CORPORATION, A CORPORATION ORGANIZED UNDER THE LAWS OF
THE STATE OF CALIFORNIA
DATE: FEBRUARY 17, 1998
I, the undersigned, corporate officer of the above-named borrower, a
corporation organized under the laws of the state set forth above, do hereby
certify that the following is a full, true and correct copy of resolutions duly
and regularly adopted by the Board of Directors of said corporation as required
by law, and by the by-laws of said corporation, and that said resolutions are
still in full force and effect and have not been in any way modified, repealed,
rescinded, amended or revoked.
RESOLVED, that this Corporation borrow from Silicon Valley Bank ("Silicon"),
from time to time, such sum or sums of money as, in the judgment of the officer
or officers authorized hereby, this corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, in the name of this corporation, to execute and deliver to
Silicon the loan agreements, security agreements, notes, financing statements,
and other documents and instruments providing for such loans and evidencing or
securing such loans, and said authorized officers are authorized from time to
time to execute renewals, extensions and/or amendments of said loan agreements,
security agreements, and other documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, as security for any and all indebtedness of this corporation to
Silicon, whether arising pursuant to this resolution or otherwise, to grant, to
Silicon, or deed in trust for its benefit, any property of any and every kind,
belonging to this corporation, including, but not limited to, any and all real
property, accounts, inventory, equipment, general intangibles, instruments,
documents, chattel paper, notes, money, deposit accounts, furniture, fixtures,
goods, and other property of every kind, and to execute and deliver to Silicon
any and all pledge agreements, mortgages, deeds of trust, financing statements,
security agreements and other agreements, which said instruments and the note
or notes and other instruments referred to in the preceding paragraph may
contain such provisions, covenants, recitals and agreements as Silicon may
require, and said authorized officers may approve, and the execution thereof by
said authorized officers shall be conclusive evidence of such approval.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized to issue warrants to purchase this corporation's capital stock, for
such class, series and number, and on such terms, as said officers shall deem
appropriate.
RESOLVED FURTHER, that Silicon may conclusively rely on a certified copy of
these resolutions and a certificate of the corporate officer of this
corporation as to the officers of this corporation and their offices and
signatures, and continue to conclusively rely on such certified copy of these
resolutions and said certificate for all past, present and future transactions
until written notice of any change hereto or thereto is given to Silicon by
this corporation by certified mail, return receipt requested.
The undersigned further hereby certifies that the following persons are the
duly elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
- ----- --------- -----------------
<S> <C> <C>
Simon Cao CEO x /s/ SIMON CAO
- ----------------------- ------------------- --------------------
Jessy Chao CFO x /s/ JESSY CHAO
- ----------------------- ------------------- --------------------
x
- ----------------------- ------------------- --------------------
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand as such corporate officer on
the date set forth above.
By /s/ JUDITH M. O'BRIEN
-------------------------
Its Secretary
-------------------------
<PAGE> 6
[LOGO] SILICON VALLEY BANK
SCHEDULE TO QUICKSTART LOAN AND SECURITY AGREEMENT (MERCHANT SERVICES/BUSINESS
CREDIT CARD SUBLIMIT)
BORROWER: Avanex Corporation
-------------------------------
DATE: February 17, 1998
-------------------------------
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
MERCHANT SERVICES/
BUSINESS CREDIT CARD
SUBLIMIT (Section 1): The aggregate Credit Limit shall be reduced by an
amount equal to the sum of (a) $ -0- (the "Merchant
Service Reserve") and (b) $15,000 (the "Business Credit
Card Reserve"). Silicon may, in its sole discretion,
charge as Loans, any amounts that may become due or
owing to Silicon in connection with merchant credit
card processing services and/or Business Credit Card
services furnished to Borrower by or through Silicon,
collectively, the "Credit Card Services." Borrower
shall execute all standard form applications and
agreements, including without limitation, the
Indemnification and Pledge Agreement, of Silicon in
connection with the Credit Card Services and, without
limiting any of the terms of such applications and
agreements, Borrower will pay all standard fees and
charges of Silicon in connection with the Credit Card
Services and, without limiting any of the terms of such
applications and agreements, Borrower will pay all
standard fees and charges of Silicon in connection with
the Credit Card Services.
MATURITY DATE (Section 4): AUGUST 17,
--------------------
BORROWER: SILICON:
AVANEX CORPORATION SILICON VALLEY BANK
- --------------------------------
By /s/ SIMON CAO By /s/ [SIGNATURE ILLEGIBLE]
----------------------------- -----------------------------
PRESIDENT OR VICE PRESIDENT Title SR. VICE PRESIDENT
--------------------------
<PAGE> 7
[LOGO] SILICON VALLEY BANK
AMENDED SCHEDULE TO
QUICKSTART LOAN AND SECURITY AGREEMENT (MASTER)
BORROWER: Avanex Corporation
DATE: August 3, 1998
This Amended and Restated Schedule is an integral part of the QuickStart
Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the
above-named borrower ("Borrower") dated as of February 17, 1998, as may be
further amended from time to time.
CREDIT LIMIT (AGGREGATE)
(Section 1): $750,000 (includes, without limitation, Equipment
Advances, if any, and the Merchant Services
Business Credit Card Reserve)
INTEREST RATE (Section 1): A rate equal to the "Prime Rate" in effect from
time to time, plus 1.50% per annum. Interest shall
be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by
Silicon as its "prime rate;" it is a base rate
upon which other rates charged by Silicon are
based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable
to the Obligations shall change on each date there
is a change in the Prime Rate.
MATURITY DATE (Section 4): August 17, 1999
OTHER LOCATIONS AND ADDRESSES
(Section 3.2): __________________________________________________
OTHER AGREEMENTS: Borrower also agrees as follows:
1. LOAN FEE. Borrower shall concurrently pay
Silicon a non-refundable Loan Fee in the amount of
$3000.
2. BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking relationship
with Silicon.
BORROWER: SILICON:
AVANEX CORPORATION SILICON VALLEY BANK
By /s/ JESSY CHAO By
------------------------------ -----------------------------
PRESIDENT OR VICE PRESIDENT
Title
--------------------------
<PAGE> 8
[SILICON VALLEY BANK LOGO]
AMENDED SCHEDULE TO
QUICKSTART LOAN AND SECURITY AGREEMENT (EQUIPMENT ADVANCES)
BORROWER: Avanex Corporation
DATE: August 3, 1998
THIS AMENDED SCHEDULE is an integral part of the QuickStart Loan and
Security Agreement between Silicon Valley Bank ("Silicon") and the above-named
borrower ("Borrower") dated as of February 17, 1998, as may be amended.
<TABLE>
<S> <C>
CREDIT LIMIT (EQUIPMENT)
(Section 1): $750,000 Equipment Advances will be made only on or
prior to _______________ (the "Last Advance Date")
and only for the purpose of purchasing equipment
reasonably acceptable to Silicon. Borrower must provide
invoices for the equipment to Silicon on or before the
Last Advance Date.
INTEREST RATE (Section 1): A rate equal to the "Prime Rate" in effect from time to
time, plus 1.50% per annum. Interest shall be calculated
on the basis of a 360-day year for the actual number of
days elapsed. "Prime Rate" means the rate announced from
time to time by Silicon as its "prime rate;" it is a base
rate upon which other rates charged by Silicon are based,
and it is not necessarily the best rate available at
Silicon. The interest rate applicable to the Obligations
shall change on each date there is a change in the Prime
Rate.
MATURITY DATE (Section 4): After the Last Advance Date, the unpaid principal balance
of the Equipment Advances shall be repaid in ___ equal
monthly installments of principal, plus interest,
commencing on __________________ and continuing on the
same day of each month thereafter until the entire unpaid
principal balance of the Equipment Advances plus all
accrued unpaid interest has been paid (subject to
Silicon's right to accelerate the Equipment Advances
on an Event of Default).
BORROWER: SILICON:
AVANEX CORPORATION SILICON VALLEY BANK
By /s/ JESSY CHAO By
---------------------- ----------------------
PRESIDENT OR VICE PRESIDENT Title
----------------------
</TABLE>
<PAGE> 9
[SILICON VALLEY BANK LOGO]
AMENDED SCHEDULE TO QUICKSTART LOAN AND SECURITY AGREEMENT
(MERCHANT SERVICES/BUSINESS CREDIT CARD SUBLIMIT)
BORROWER: Avanex Corporation
DATE: August 3, 1998
This Amended Schedule is an integral part of the QuickStart Loan and
Security Agreement between Silicon Valley Bank ("Silicon") and the above-named
borrower ("Borrower"), dated February 17, 1998.
<TABLE>
<S> <C>
MERCHANT SERVICES/
BUSINESS CREDIT CARD
SUBLIMIT (Section 1): The aggregate Credit Limit shall be reduced by an
amount equal to the sum of (a) $0 (the "Merchant
Service Reserve") and (b) $15,000 (the "Business
Credit Card Reserve"). Silicon may, in its sole
discretion, charge as Loans, any amounts that may
become due or owing to Silicon in connection with
merchant credit card processing services and/or
Business Credit Card services furnished to Borrower
by or through Silicon, collectively, the "Credit
Card Services." Borrower shall execute all standard
form applications and agreements, including without
limitation, the Indemnification and Pledge Agreement,
of Silicon in connection with the Credit Card Services
and, without limiting any of the terms of such
applications and agreements, Borrower will pay all
standard fees and charges of Silicon in connection with
the Credit Card Services and, without limiting any of
the terms of such applications and agreements, Borrower
will pay all standard fees and charges of Silicon in
connection with the Credit Card Services.
MATURITY DATE (Section 4): August 17, 1999
BORROWER: SILICON:
AVANEX CORPORATION SILICON VALLEY BANK
By /s/ JESSY CHAO By
---------------------- ----------------------
PRESIDENT OR VICE PRESIDENT Title
----------------------
</TABLE>
-2-
<PAGE> 10
[SILICON VALLEY BANK LOGO]
AMENDMENT TO QUICKSTART LOAN AND SECURITY AGREEMENT
Borrower: Avanex Corporation Address: 42501 Albrae Street
------------------------- -------------------------
Date: August 3, 1998 Fremont, CA 94538
---------------------------- -------------------------
-------------------------
THIS AMENDMENT TO QUICKSTART LOAN AND SECURITY AGREEMENT IS ENTERED INTO ON THE
ABOVE DATE BETWEEN SILICON VALLEY BANK ("SILICON"), WHOSE ADDRESS IS 3003
TASMAN DRIVE, SANTA CLARA, CALIFORNIA 95054 AND THE BORROWER NAMED ABOVE
(JOINTLY AND SEVERALLY, THE "BORROWER"), WHOSE CHIEF EXECUTIVE OFFICE IS LOCATED
AT THE ABOVE ADDRESS ("BORROWER'S ADDRESS").
The parties hereto agree to amend the QuickStart Loan and Security
Agreement between them dated February 17, 1998 (the "Loan Agreement"),
effective as of the date hereof, as follows: Capitalized terms used but not
defined herein shall have the same meanings set forth in the Loan Agreement.
1. AMENDED SCHEDULE. The Schedule to the Loan and Security Agreement is
amended effective on the date hereof, to read as set forth in the Amended
Schedule to QuickStart Loan and Security Agreement attached hereto.
2. FACILITY FEE. Borrower shall pay to Silicon a fee in the amount of
$3000.
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, and any
prior written amendments to the Loan Agreement signed by Silicon and the
Borrower, and other written documents between Silicon and Borrower set forth in
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior discussions, representations,
agreements, and understandings between the parties with respect to the subject
matter hereof. Except as expressly amended, all of the terms and provisions of
the Loan Agreement, and all other documents and agreements between Silicon and
Borrower shall remain in full force and effect and the same are hereby ratified
and confirmed.
BORROWER:
AVANEX CORPORATION
-------------------------------
By /s/ JESSY CHAO
-----------------------------
PRESIDENT OR VICE PRESIDENT
SILICON:
SILICON VALLEY BANK
By
------------------------------
Title
-------------------------
<PAGE> 1
EXHIBIT 10.15
SENIOR LOAN AND SECURITY AGREEMENT NO. 053-6193
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 053-6193 (this "Security Agreement")
is dated as of November 5, 1998 between AVANEX CORPORATION, a California
corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a California
corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $1,300,000 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles and
also certain custom use equipment, installation and delivery costs, purchase
tax, toolings, software and other items generally considered fungible or
expendable ("Soft Costs") whether now owned by Borrower or hereafter acquired,
and all substitutions and replacements of and additions, improvements,
accessions and accumulations to said equipment, machinery and fixtures and other
items, together with all rents, issues, income, profits and proceeds therefrom
(collectively, the "Collateral") which is described on the Note attached hereto
or any subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The Term and monthly payment amount payable with respect to each item of
Collateral shall be as set forth in and as stated in the respective Note(s). The
terms of each Note hereto are subject to all conditions and provisions of this
Security Agreement as it may at any time be amended. Each Note shall constitute
a separate and independent Loan and contractual obligation of Borrower and shall
incorporate the terms and conditions of this Security Agreement and any
additional provisions contained in such Note. In the event of a conflict between
the terms and conditions of this Security Agreement and any provisions of such
Note, the provisions of such Note shall prevail with respect to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such rent and other sums, are absolute and unconditional and are not subject
to any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims which
Borrower may have against Lender, any assignee, the manufacturer or seller of
the Collateral, or against any person for any reason whatsoever.
SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
conditions of
<PAGE> 2
this Security Agreement and so long as no Event of Default or event which with
the giving of notice or passage of time, or both, would become an Event of
Default has occurred and is continuing, Lender hereby agrees to make one or more
senior secured Loans to Borrower, subject to the following conditions: (i) each
Loan shall be evidenced by a Note; (ii) the total principal amount of the Loans
shall not exceed $1,300,000 in the aggregate (the "Commitment"); (iii) at the
time of each Loan, no Event of Default or event which with the giving of notice
or passage of time, or both, would become an Event of Default shall have
occurred and be continuing, as reasonably determined by Lender, and certified by
Borrower; (iv) the amount of each Loan shall be at least $25,000 except for a
final Loan which may be less than $25,000; (v) Lender shall not be obligated to
make any Loan after June 30, 1999 provided that the funding period may be
extended to August 31, 1999 if Lender has received and approved in its sole
discretion Borrower's monthly 2000 business plan; (vi) for each Loan, Borrower
shall present to Lender a list of proposed Collateral for approval by Lender in
its sole discretion; (vii) for each Loan, Borrower shall have provided Lender
with each of the closing documents described in Exhibit A hereto (which
documents shall be in form and substance reasonably acceptable to Lender);
(viii) Borrower is performing according to and is not materially deviating from
its business plan referred to as "Proforma Income Statement and Proforma Balance
Sheet," 2 pages, dated September 16, 1998 (the "Business Plan"), as may be
amended from time to time in form and substance acceptable to Lender; (ix) there
shall be no material adverse change in Borrower's condition, financial or
otherwise, that would materially impair the ability of Borrower to meet its
payment and other obligations under this Loan (a "Material Adverse Effect") as
reasonably determined by Lender, and Borrower so certifies, from (yy) the date
of the most recent financial statements delivered by Borrower to Lender to (zz)
the date of the proposed Loan; (x) Borrower shall use the proceeds of all Loans
hereunder to purchase or reimburse the purchase of Collateral; (xi) at the time
of each Loan, Borrower has reimbursed Lender for all UCC filing and search
costs, inspection and labeling costs, and appraisal fees, if any; (xii) all
Collateral has been marked and labeled by Lender or Lender's agent; and (xiii)
Lender has received in form and substance acceptable to Lender: (a) Borrower's
interim financial statements signed by a financial officer of Borrower, (b)
prior to the first funding, evidence of Borrower's $2.600.000 cash position as
of July 31, 1998; and (c) complete copies of the Borrower's audit reports for
its most recent fiscal year, which shall include at least Borrower's balance
sheet as of the close of such year, and Borrower's statement of income and
retained earnings and of changes in financial position for such year, prepared
on a consolidated basis and certified by independent public accountants. Such
certificate shall not be qualified or limited because of restricted or limited
examination by such accountant of any material portion of the company's records.
Such reports shall be prepared in accordance with generally accepted accounting
principles and practices consistently applied.
(b) The Notes. Each Loan shall be evidenced by a Note. Each Note shall
bear interest and be payable at the times and in the manner provided therein.
Following payment of the Indebtedness related to each Note, Lender shall return
such Note, marked "cancelled," to Borrower. Borrower has the ability to prepay
all, but not fewer than all, outstanding Notes in whole but not in part only in
the event that Lender declines to consent to Borrower's merger into,
consolidation with or conveyance or transfer of its properties substantially as
an entirety to any other person or entity. The prepayment amount shall be the
sum of (i) and (ii) below, discounting the amounts in (ii) at a rate of 6% per
annum compounded monthly on the basis of a 360 day year: (i) all amounts which
may be then due or accrued to the payment date for all outstanding Notes; (ii)
as of such payment date, an amount equal to: (A) all remaining monthly payments
due under all outstanding Notes, and (B) 20% of the value of the Collateral
under all outstanding Notes calculated in accordance with Election No. 1 in
Section 28. The prepayment conditions are as follows: (a) Borrower must provide
Lender with at least five (5) days' advance written notice of its intention to
prepay; and (b) the prepayment date must fall on a regular monthly payment date.
2
<PAGE> 3
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i) the
payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral will
be located as specified on each Exhibit A to each Note, except where failure to
be so qualified could not reasonable be expected to have a Material Adverse
Effect; (b) it has full authority to execute and deliver this Security Agreement
and the Notes and perform the terms hereof and thereof, and this Security
Agreement and the Notes have been duly authorized, executed and delivered and
constitute valid and binding obligations of Borrower enforceable in accordance
with their terms; (c) the execution and delivery of this Security Agreement and
the Notes will not contravene any law, regulation or judgment affecting Borrower
or result in any breach of any material agreement or other instrument binding on
Borrower; (d) no consent of Borrower's shareholders or holder of any
indebtedness, or filing with, or approval of, any governmental agency or
commission, which has not already been obtained or performed, as appropriate, is
a condition to the performance of the terms of this Security Agreement or the
Notes; (e) there is no action or proceeding pending or threatened against
Borrower before any court or administrative agency which might have a Material
Adverse Effect on the business, financial condition or operations of Borrower;
(f) at the time any Loan is made hereunder, Borrower owns and will keep all of
the Collateral free and clear of all liens, claims and encumbrances other than
Permitted Liens, and, except for this Security Agreement, there is no deed of
trust, mortgage, security agreement or other third party interest against any of
the Collateral other than Permitted Liens; (g) at the time any Loan is made
hereunder, Borrower has good and marketable title to the Collateral; (h) at the
time any Loan is made hereunder, all Collateral has been received, installed and
is ready for use and is satisfactory in all respects for the purposes of this
Security Agreement; (i) the Collateral is, and will remain at all times under
applicable law, removable personal property, which is free and clear of any lien
or encumbrance except in favor of Lender and except for Permitted Liens,
notwithstanding the manner in which the Collateral may be attached to any real
property; (j) all credit and financial information submitted to Lender herewith
or at any other time is and will at the time given be true and correct in all
material respects; and (k) the security interest granted to Lender hereunder is
a first priority security interest, and (l) on or before January 1, 2000,
Borrower's computer system shall be Year 2000 performance compliant and will
thus be able to accurately process date data from, into and between the
twentieth and twenty-first centuries including leap year calculations.
"Permitted Liens" shall mean and include: (i) liens for taxes or other
governmental charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith; and (ii) liens of carriers,
warehousemen, mechanics, materialmen, vendors, landlords and other liens arising
by operation of law for obligations incurred in the ordinary course of business
not at the time delinquent or thereafter payable without penalty or being
contested in good faith.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. Except for "mobile goods" (as such term
is defined in the California Uniform Commercial Code), including, without
limitation, laptop computers and other mobile equipment, and other equipment
used at trade shows, all of the Collateral shall be located at the address (the
"Collateral Location") shown on Exhibit A to each Note and shall not be moved
without Lender's prior written consent which location shall in all events be
within the United States. All of the
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records regarding the Collateral shall be located at 42501 Albrae Street,
Fremont, CA 94538, or such other location of which Borrower has given notice to
Lender in accordance with this Security Agreement. Lender shall have the right
to inspect Collateral, including records relating thereto, and Borrower's books
and records at any time (upon reasonable notification) during regular business
hours, such books and records to be maintained in accordance with generally
accepted accounting principles. Borrower shall be responsible for all labor,
material and freight charges incurred in connection with any removal or
relocation of Collateral which is requested by Borrower and consented to by
Lender, as well as for any charges due to the installation or moving of the
Collateral. Payments under the Notes and under this Security Agreement shall
continue during any period in which the Collateral is in transit during a
relocation. During Borrower's regular business hours and upon at least two days'
notice to Borrower, Lender or its agent shall mark and label Collateral, which
labels (to be provided by Lender) shall state that such Collateral is subject to
a security interest of Lender, and Borrower shall keep such labels on the
Collateral as so labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) General. Upon reasonable notice, Borrower
will reasonably permit Lender to inspect each item of Collateral and its
maintenance records during Borrower's regular business hours. Borrower will at
its sole expense comply with all applicable laws, rules, regulations,
requirements and orders with respect to the use, maintenance, repair, condition,
storage and operation of each item of Collateral. Any addition or improvement
that is so required or cannot be so removed will immediately become Collateral
of Lender. (b) Service and Repair. Borrower will at its sole expense maintain
and service and repair any damage to each item of Collateral in a manner
consistent with prudent industry practice and Borrower's own practice so that
such item of Collateral is at all times (i) in the same condition as when
delivered to Borrower, except for ordinary wear and tear, and (ii) in good
operating order for the function intended by its manufacturer's warranties and
recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." No later than sixty (60) days after such Casualty
Occurrence, Borrower shall, at its election, either: (a) repair the Collateral
returning it to good operating condition, or (b) replace the Collateral with
Collateral acceptable to Lender in its reasonable discretion, in good condition
and repair taking all steps required by Lender to perfect Lender's first
priority security interest therein, which replacement Collateral shall be
subject to the terms of this Security Agreement, or (c) pay to Lender an amount
equal to the Balance Due (as defined below) for each lost or damaged item of
Collateral. The Balance Due for each such item is the sum of: (i) all amounts
for each item which may be then due or accrued to the payment date, plus (ii) as
of such payment date, an amount discounted to present value at 6% equal to the
product of the fraction specified below times the sum of all remaining payments
under the respective Note, including the amount of any mandatory or optional
payment required or permitted to be paid by Borrower to Lender at the maturity
of the Note. The numerator of the fraction shall be the collateral value (as set
forth on the applicable Note) of the item and the denominator shall be the
aggregate collateral value of all items under the Note. Upon the making of such
payments, Lender shall release such item of Collateral from its lien hereunder.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral (including, in the case of Collateral which is vehicles,
comprehensive and collision coverage) and in no event for less than the amount
payable following a Casualty Occurrence (as provided in Section 9). Such
insurance shall provide for a loss payable endorsement to Lender and/or any
assignee of Lender. Borrower shall maintain commercial general liability
insurance, including products liability and completed operations coverage, with
respect to loss or damage
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for personal injury, death or property damage in an amount not less than
$2,000,000 in the aggregate, (and in the case of Collateral which is vehicles,
in an amount not less than $1,000,000 covering bodily injury and property damage
in a combined single limit) naming Lender and/or Lender's assignee as additional
insured. Such insurance shall contain insurer's agreement to give thirty (30)
days' advance written notice to Lender before cancellation or material change of
any policy of insurance. Borrower will provide Lender and any assignee of Lender
with a certificate of insurance from the insurer evidencing Lender's or such
assignee's interest in the policy of insurance. Such insurance shall cover any
Casualty Occurrence to any unit of Collateral. Notwithstanding anything in
Section 9 or this Section 10 to the contrary, this Security Agreement and
Borrower's obligations hereunder shall remain in full force and effect with
respect to any unit of Collateral which is not subject to a Casualty Occurrence.
If Borrower fails to provide or maintain insurance as required herein, Lender
shall have the right, but shall not be obligated, to obtain such insurance. In
that event, Borrower shall pay to Lender the cost thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules and
regulations relating to its business and the Collateral where a failure to
comply could reasonably be expected to have a Material Adverse Effect; (c) take
no action to adversely affect Lender's security interest in the Collateral as a
first and prior perfected security interest; (d) furnish Lender with its annual
audited financial statements within one hundred twenty (120) days following the
end of Borrower's fiscal year, unaudited quarterly financial statements within
forty-five (45) days after the end of each fiscal quarter, and within thirty
(30) days of the end of each month a financial statement for that month prepared
by Borrower, and including an income statement and balance sheet, all of which
shall be certified by an officer of Borrower as true and correct and shall be
prepared in accordance with generally accepted accounting principles
consistently applied, and such other information as Lender may reasonably
request; and (e) promptly (but in no event more than five (5) days after the
occurrence of such event) notify Lender of any change in Borrower's condition
during the commitment period which constitutes a Material Adverse Effect, and of
the occurrence of any Event of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower or any third party by reason of the
occurrence or existence (or alleged occurrence or existence) of any act or event
relating to or caused by any portion of the Collateral, or its purchase,
acceptance, possession, use, maintenance or transportation, including without
limitation, consequential or special damages of any kind, any failure on the
part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort and excluding only those based on Lender's gross negligence or
willful misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
and approved by Lender. Borrower's obligations under this Section 12 shall
survive the payment in full of all the Indebtedness and the performance of all
Obligations with respect to acts or events occurring or alleged to have occurred
prior to the payment in full of all the Indebtedness and the performance of all
Obligations.
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SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement, the Notes or any transaction or any part hereof
or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY.
LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS SECURITY
INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE OR IN
PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO BORROWER. If
Borrower is given notice of such assignment it agrees to acknowledge receipt
thereof in writing and Borrower shall execute such additional documentation as
Lender's assignee and/or secured party shall reasonably require at Lender's
expense. Each such assignee and/or secured party shall have all of the rights,
but (except as provided in this Section 15) none of the obligations, of Lender
under this Security Agreement, unless such assignee or secured party expressly
agrees to assume such obligations in writing, provided that notwithstanding
anything contained herein, any assignee of any portion of Lender's commitment
and obligation to extend Loans as set forth in Section 3(a)(ii) of this Security
Agreement, shall be obligated to extend such Loans. Borrower shall not assert
against any assignee and/or secured party any defense, counterclaim or offset
that Borrower may have against Lender. Notwithstanding any such assignment, and
providing no Event of Default has occurred and is continuing, Lender, or its
assignees, secured parties, or their agents or assigns, shall not interfere with
Borrower's right to quietly enjoy use of Collateral subject to the terms and
conditions of this Security Agreement. Subject to the foregoing, the Notes and
this Security Agreement shall inure to the benefit of, and are binding upon, the
successors and assignees of the parties hereto. Borrower acknowledges that any
such assignment by Lender will not change Borrower's duties or obligations under
this Security Agreement and the Notes or increase any burden or risk on
Borrower.
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SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (10th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement, statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any material term, covenant or condition of this Security Agreement or
any Note or under any other agreement between Borrower and Lender or under any
lease or mortgage of real property covering the location of the Collateral if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender or such longer period that Borrower is diligently attempting to effect
such cure; (v) seizure of any of the Collateral under legal process; (vi) the
filing by or against Borrower or any guarantor under any guaranty executed in
connection with this Security Agreement ("Guarantor") of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors provided
that in the case of all such involuntary proceedings, same are not dismissed
within sixty (60) days after commencement; (vii) the voluntary or involuntary
making of an assignment of a substantial portion of its assets by Borrower or by
any Guarantor for the benefit of its creditors, the appointment of a receiver or
trustee for Borrower or any Guarantor or for any of Borrower's or Guarantor's
assets, the institution by or against Borrower or any Guarantor of any formal or
informal proceeding for dissolution, liquidation, settlement of claims against
or winding up of the affairs of Borrower or any Guarantor provided that in the
case of all such involuntary proceedings, same are not dismissed within sixty
(60) days after commencement; (viii) the making by Borrower or by any Guarantor
of a transfer of all or a material portion of Borrower's or Guarantor's assets
or inventory not in the ordinary course of business; or (ix) any default or
breach by any Guarantor of any of the terms of its guaranty to Lender in
connection with this Security Agreement.
(b) Remedies. If any Event of Default has occurred and is continuing,
Lender may in its sole discretion exercise one or more of the following remedies
with respect to any or all of the Collateral: (i) declare due any or all of the
aggregate sum of all remaining payments under the Notes, including the amount of
any mandatory or optional payment required or permitted to be paid by Borrower
to Lender at the maturity of the Notes ("Remaining Payments"); (ii) proceed by
appropriate court action or actions either at law or in equity to enforce
Borrower's performance of the applicable covenants of the Notes and this
Security Agreement or to recover all damages and expenses incurred by Lender by
reason of an Event of Default; (iii) except as provided by law, without court
order or prior demand, enter upon the premises where the Collateral is located
and take immediate possession of and remove it without liability of Lender to
Borrower or any other person or entity; (iv) terminate this Security Agreement
and sell the Collateral at public or private sale, or otherwise dispose of,
hold, use or lease any or all of the Collateral in a commercially reasonable
manner; or (v) exercise any other right or remedy available to it under
applicable law. If Lender has declared due any or all of the Remaining Payments,
Borrower will pay immediately to Lender, without duplication, (A) the Remaining
Payments discounted at 6% per annum compounded monthly on the basis of a 360 day
year, (B) all amounts which may be then due or accrued, and (C) all other
amounts due under this Security Agreement and under the Notes (Lender's Return,
as referred to below, means the amounts described in clauses (A), (B) and (C)
above). The net proceeds of any sale or lease of such Collateral will be
credited against Lender's Return. The net proceeds of a sale of the Collateral
pursuant to this Section 16(b) is defined as the sales price of the Collateral
less selling expenses, including, without limitation, costs of remarketing the
Collateral and all refurbishing costs and commissions paid with respect to such
remarketing.
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Borrower agrees to pay all reasonable out-of-pocket costs of Lender incurred in
enforcement of this Security Agreement, the Notes or any instrument or agreement
required under this Security Agreement, including, but not limited to reasonable
attorneys' fees and litigation expenses and fees of collection agencies ("Remedy
Expenses"). At Lender's request, Borrower shall assemble the Collateral and make
it available to Lender at such time and location as Lender may reasonably
designate. Borrower waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part
of the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit or
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to remarketing,
all Remedy Expenses, all expenses, liabilities and advances incurred or made
pursuant to this Security Agreement or any Note by Lender in connection with
foreclosure, suit, sale or enforcement of this Security Agreement or the Notes,
and taxes, assessments or liens superior to Lender's security interest granted
by this Security Agreement;
Second, to the payment of all other amounts not described in item
Third below due under this Security Agreement and all Notes;
Third, to pay Lender an amount equal to Lender's Return, to the
extent not previously paid by Borrower; and
Fourth, to the payment of any surplus to Borrower or to whomever may
lawfully be entitled to receive it.
(d) Effect of Delay: Waiver: Foreclosure on Collateral. No delay or
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of Default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 8% of any
payment owed Lender by Borrower which is not paid when due (taking into account
applicable grace periods), for each month such payment is not paid when due, but
in no event an amount greater than the highest rate permitted by applicable law.
If such amounts have not been received by Lender at Lender's place of business
or by
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Lender's designated agent by the date such amounts are due under this Security
Agreement or the Notes, Lender shall bill Borrower for such charges. Borrower
acknowledges that invoices for amounts due hereunder or under the Notes are sent
by Lender for Borrower's convenience only. Borrower's non-receipt of an invoice
will not relieve Borrower of its obligation to make payments hereunder or under
the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with full power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements and other documents necessary
to perfect and/or give notice of Lender's security interest in any of the
Collateral. Notwithstanding the above, Borrower will, upon Lender's request,
execute all financing statements pursuant to the Uniform Commercial Code and all
such other documents reasonably requested by Lender to perfect Lender's security
interests hereunder. Borrower authorizes Lender to file financing statements
signed only by Lender (where such authorization is permitted by law) at all
places where Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs and
expenses including reasonable attorney's fees and the fees of collection
agencies, incurred by Lender (a) in enforcing any of the terms, conditions or
provisions hereof and related to the exercise of its remedies, and (b) in
connection with any bankruptcy or post-judgment proceeding, whether or not suit
is filed and, in each and every action, suit or proceeding, including any and
all appeals and petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. Other than in conformity with the
manufacturer's warranty and/or other functional improvements, no alterations or
attachments shall be made to the Collateral without Lender's prior written
consent, which shall not be given for changes that will affect the reliability
and utility of the Collateral or which cannot be removed without damage to the
Collateral, or which in any way affect the value of the Collateral for purposes
of resale or lease. All attachments and improvements to the Collateral shall be
deemed to be "Collateral" for purposes of the Security Agreement, and a first
priority security interest therein shall immediately vest in Lessor.
SECTION 24. COMMITMENT FEE. Borrower has paid to Lender a commitment fee ("Fee")
of $13,000. The Fee shall be applied by Lender to reimburse Lender for all
out-of-pocket UCC and other search costs, inspections and labeling costs and
appraisal fees, if any, incurred by Lender. The balance shall then be
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applied proportionally to the first monthly payment for each Note hereunder in
the proportion that the Collateral value for such Note bears to Lender's entire
commitment. However, the portion of the Fee which is not applied to such monthly
payments shall be non-refundable except if Lender defaults in its obligation to
fund Loans pursuant to Section 3.
SECTION 25. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at
42501 Albrae Street, Fremont, CA 94538, Attention: Jessy Chao.
SECTION 26. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate
resolutions, financial statements and other documents as Lender shall reasonably
request from time to time. (b) Borrower represents that the Collateral hereunder
is used solely for business purposes. (c) Time is of the essence with respect to
this Security Agreement. (d) Borrower acknowledges that Borrower has read this
Security Agreement and the Notes, understands them and agrees to be bound by
their terms and further agrees that this Security Agreement and the Notes
constitute the entire agreement between Lender and Borrower with respect to the
subject matter hereof and supersede all previous agreements, promises, or
representations. (e) This Security Agreement and the Notes may not be changed,
altered or modified except by an instrument signed by an officer or authorized
representative of Lender and Borrower. (f) Any failure of Lender to require
strict performance by Borrower or any waiver by Lender of any provision herein
or in a Note shall not be construed as a consent or waiver of any other breach
of the same or any other provision. (g) If any provision of this Security
Agreement or any Note is held invalid, such invalidity shall not affect any
other provisions hereof or thereof. (h) The obligations of Borrower to pay the
Indebtedness and perform the Obligations shall survive the expiration or earlier
termination of this Security Agreement and each Note until all Obligations of
Borrower to Lender have been met and all liabilities of Borrower to Lender and
any assignee have been paid in full. (i) Borrower will notify Lender at least 30
days before changing its name, principal place of business or chief executive
office. (j) Borrower will, at its expense, promptly execute and deliver to
Lender such documents and assurances (including financing statements) and take
such further action as Lender may reasonably request in order to carry out the
intent of this Security Agreement and Lender's rights and remedies.
SECTION 27. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
the Notes shall be deemed to have been negotiated, entered into and performed in
the State of California and it is understood and agreed that the validity of
this Security Agreement and of any of the terms and provisions, of the Security
Agreement and Notes, as well as the rights and duties of Lender and Borrower,
shall be construed pursuant to and in accordance with the laws of the State of
California, without giving effect to conflicts of law principles. It is agreed
that exclusive jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement and each Note shall be in
the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco. BORROWER, TO THE
EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY
ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 28. ADDITIONAL INTEREST COMPENSATION: (a) General. Borrower shall be
required to choose a final payment or Note extension election ("Additional
Interest Compensation") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 90 days prior
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to the end of the term of the first Note. That choice shall be an election of
Borrower's additional interest compensation election for all, but not less than
all, of the Collateral under all Notes under the Security Agreement.
Fair market value shall be determined for the Collateral under all Notes prior
to the first Note's expiration.
In the event Borrower does not provide 90 days' prior written notice of its
election, the Loan shall continue on at the original Loan rate until such 90
days' notice is given and then for an additional 90 days following such notice.
At the end of such notice period, payments under Borrower's election shall be
due.
(b) End of Loan Position Elections. As Additional Interest Compensation,
Borrower shall be required to:
Election No. 1: Make a final payment equal to the Collateral's fair market
value, in no event less than 10% nor more than 20% of the Note's original
principal amount. Fair market value shall be determined by Lender.
Election No. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.85% of the Note's original principal amount.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED AVANEX CORPORATION
By: By: /s/ JESSY CHAO
-------------------------- -------------------------------------
Name: Name (Print): Jessy Chao
------------------------
Title: Title: Director of Finance and Business
----------------------- Operation, CFO
HEADQUARTERS LOCATION:
----------------------
42501 Albrae Street
Fremont, CA 94538
County of Alameda
EXHIBITS AND SCHEDULES:
-----------------------
Exhibit A -- Closing Memorandum
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EXHIBIT A TO
SENIOR LOAN AND SECURITY AGREEMENT NO.
053-6193
DATED NOVEMBER 5, 1998
CLOSING MEMORANDUM
1* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Security Promissory Note with Exhibit A Collateral
description attached.
3. Insurance certificates reflecting coverage required under Section 10 of
the Senior Loan and Security Agreement.
4.* Resolutions of Borrower's board of directors.
5. Real Property Waiver.**
6. UCC-1 Financing Statements with respect to the Collateral.
7. UCC search (Lender will obtain).
8. Certificate of Chief Financial Officer stating that (i) there are no
liens, charges, security interests or other encumbrances that may affect
Lender's right, title and interest in the Collateral and there are no
UCC-1 financing statements filed or in the process of being filed against
any of the Collateral, (ii) Borrower is performing according to, and is
not materially deviating from, Borrower's business plan, (iii) no change
which is a Material Adverse Effect has occurred in the financial condition
of Borrower, (iv) no default has occurred, and (v) the representations and
warranties in Section 5 of the Senior Loan and Security Agreement are true
and correct as if made on the date of the Loan.
9.* Certificate from the Secretary of State of Borrower's state of
incorporation, and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Loan (Lender will obtain).
10.* Borrower's Business Plan.
11. Borrower's most recent financial statements.
12. List of proposed Collateral.
13. Purchase documentation verifying Borrower's ownership of equipment.
14. See Section 3 of the Senior Loan and Security Agreement for additional
conditions to closing.
15. Intercreditor Agreement, if applicable.
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property,
or located in certain states.
<PAGE> 1
EXHIBIT 10.16
[FINOVA LOGO]
FINANCIAL INNOVATORS
FINOVA Capital Corporation
10 Waterside Drive
Farmington, Connecticut 06032-3065
(860) 676-1818
MASTER LEASE No. S7280, dated June 2, 1999
FINOVA Capital Corporation ("we", "us" or "FINOVA") agrees to lease to Avanex
Corporation ("you" or "Lessee") and you agree to lease from us, the Equipment
described in any schedule to this Lease (a "Schedule"). The Equipment also
includes any replacement parts, repairs, additions and accessories that you may
add to the Equipment. We may treat any Schedule as a separate lease containing
all of the provisions of this Lease.
1. PURCHASING AND INSTALLING THE EQUIPMENT
We will purchase the Equipment from the Supplier you chose. The Supplier
will deliver the Equipment to you at your expense. You will properly
install the Equipment at your expense at the location(s) indicated in the
Schedule.
2. TERM
- The Term of each Schedule begins when any of the Equipment on that
Schedule is delivered to you, or a later date that we agree to in
writing.
- The Term continues until you fully perform in all material respects
all of your obligations under this Lease and the Schedule.
- If the Equipment is not delivered, installed and accepted by you by
the date indicated in the Schedule, we may terminate this Lease and
the Schedule as to the Equipment that was not delivered, installed
and accepted by giving you 10 days written notice of termination.
- Before we make any progress payment or final payment for the
Equipment on any Schedule, we require the following:
- That no payment is past due to us under any lease, loan or other
financial arrangement that you or any guarantor have with us.
- That you are complying in all material respects with all the terms
of this Lease.
- That we have received all the documents we requested, including the
signed Schedule and Delivery and Acceptance Certificate.
- That there has been no material adverse change in your financial
condition, business, operations or prospects, or that of any
guarantor, from the condition that you disclosed to us in your
application for credit.
3. RENT
- The rent is indicated on the Schedule. The rent is payable
periodically in advance from time to time (for example, monthly).
You agree that you owe us the total of all of these rent payments
over the Term of the Schedule.
- The first rent payment is due at the beginning of the Term or at a
later date that we agree to in writing. Subsequent rent payments are
due on the same day of each successive period until you pay us in
full all of the rent and any other charges or expenses you owe us.
- If the first rent payment is due later than the beginning of the
Term, you will also pay us interim rent on the first rent payment
date. The interim rent will be for the period from the beginning of
the Term until the date that the first rent payment is due. Interim
rent will be calculated at the same rate as the regular rent
payment, but on a daily basis for the number of days for which
interim rent is due.
- YOUR OBLIGATION TO PAY US ALL RENT IS ABSOLUTE AND UNCONDITIONAL.
YOU ARE NOT EXCUSED FROM PAYING THE RENT, IN
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FULL, FOR ANY REASON. YOU AGREE THAT YOU HAVE NO DEFENSE FOR FAILURE
TO PAY THE RENT AND YOU WILL NOT MAKE ANY COUNTERCLAIMS OR SETOFFS
TO AVOID PAYING THE RENT.
4. NON-CANCELABLE LEASE. YOU AGREE THAT YOU MAY NOT CANCEL OR TERMINATE
THIS LEASE OR ANY SCHEDULE.
5. PROTECTION OF OUR INTEREST IN THE EQUIPMENT; FEES.
- The Equipment is our property. It will remain our property. You will
not own the Equipment unless the Schedule gives you an option to
purchase the Equipment and you have exercised that option and paid
us in full for the Equipment and any other amounts you may owe us.
If we request, you will put labels supplied by us stating "PROPERTY
OF FINOVA" on the Equipment where they are clearly visible.
- You give us permission to add to this Lease or any Schedule the
serial numbers and other information about the Equipment.
- While this Lease is intended to be a lease (and not a loan), you
grant us a security interest in the Equipment to protect our
interest in the Equipment if this Lease is later determined to be a
security agreement. You give us permission to file this Lease or a
Uniform Commercial Code financing statement, at your expense, in
order to perfect this security interest. You also give us permission
to sign your name on the Uniform Commercial Code financing
statements where this is permitted by law.
- You will pay our cost to do searches for other filings or judgments
against you or your affiliates. You will also pay any filing,
recording or stamp fees or taxes resulting from filing this Lease or
a Uniform Commercial Code financing statement. You will also pay our
fees in effect from time to time for documentation, administration
and Termination of this Lease.
- At your expense, you will defend our ownership rights in the
Equipment against, and keep the Equipment free of, any legal
process, liens, security interests, attachments, levies and
executions. You will give us immediate written notice of any legal
process, liens, attachments, levies or executions, and you will
indemnify us against any loss that results to us from these causes.
- You will notify us at least 15 days before you change the address of
your principal executive office.
- You will promptly sign and return additional documents that we may
request in order to protect our interest in the Equipment.
- The Equipment is personal property and will remain personal
property. You will not incorporate it into real estate and will not
do anything that will cause the Equipment to become part of real
estate or a fixture.
6. CARE, USE, LOCATION AND ALTERATION OF THE EQUIPMENT
- You will make sure that the Equipment is maintained in good
operating condition, and that it is serviced, repaired and
overhauled when this is necessary to keep the Equipment in good
operating condition. All maintenance must be done according to the
Supplier's or Manufacturer's requirements or recommendations. All
maintenance must also comply with any legal or regulatory
requirements.
- You will maintain service logs for the Equipment, if applicable, and
permit us to inspect the Equipment, the service logs and service
reports. You give us permission to make copies of the service logs
and service reports.
- We will give you prior notice if we, or our agent, want to inspect
the Equipment or the service logs or service reports. We may inspect
it during regular business hours. If we find during an inspection
that you are not complying with this Lease, you will pay our travel,
meals and lodging costs, our salary costs, and the costs and fees of
our agents for reinspection. You will promptly cure any problems
with the Equipment that are discovered during our inspection.
- You will use the Equipment only for business purposes. You will obey
all legal and regulatory requirements in your use of the Equipment.
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- You will make all additions, modifications and improvements to the
Equipment that are required by law or government regulation.
Otherwise, you will not alter the Equipment without our written
permission. You will replace all worn, lost, stolen or destroyed
parts of the Equipment with replacement parts that are as good or
better than the original parts. The new parts will become our
property upon replacement.
- You will not remove the Equipment from the location indicated in the
Schedule without our written permission.
7. RETURN OF EQUIPMENT. Unless otherwise stated in the Schedule:
- You must give us written notice at least 60 days before the end of
the Term if you want to purchase the equipment from us (assuming the
Schedule provides you with an option to purchase the Equipment).
- You must give us written notice at least 60 days before the end of
the Term if you want to return the Equipment to us.
- If you do not give us written notice at least 60 days before the end
of the Term either that you want to purchase or that you want to
return the Equipment, you will continue to rent the Equipment and
this Lease and the Schedule will be automatically extended until 120
days after we receive your notice. The rent will be the fair market
rental value of the Equipment, as determined by us. Unless we notify
you otherwise, the fair market rental value will not exceed the rent
then being charged under this Lease and the Schedule.
- If you do give us 60 days written notice that you want to purchase
the Equipment but you do not pay us the purchase price, you will
continue to rent the Equipment. The rent will be the fair market
rental value of the Equipment, as determined by us. You will
continue to pay us this rent until you have paid the purchase price
for the Equipment. The rent payments will not be credited to the
purchase price.
- If you do give us 60 days written notice that you want to return the
Equipment to us, but you do not return the Equipment in compliance
with the return conditions contained in the next paragraph, you will
continue to rent the Equipment. The rent will be the fair market
rental value of the Equipment, as determined by us. You will
continue to pay us this rent until you have returned the Equipment
to us in compliance with these return conditions.
- Return conditions: - You will return the Equipment, freight and
insurance prepaid by you, to us at a location we request in the
United States of America. It will be returned in good operating
condition, as required by section 6 above. The Equipment will not be
subject to any liens when it is returned.
- You will pack or crate the Equipment for shipping in the
original containers, or comparable ones. You will do this
carefully and follow all recommendations of the Supplier and
the Manufacturer as to packing or crating.
- You will also return to us the plans, specifications,
operating manuals, software documentation, discs, warranties
and other documents furnished by the Manufacturer or Supplier.
You will also return to us all service logs and service
reports, as well as all written materials that you may have
concerning the maintenance and operation of the Equipment.
- At our request, you will provide us with up to 60 days free
storage of the Equipment at your location, and upon prior
notice and during normal business hours (except in a case of
an Event of Default in which case no notice is due) you will
let us (or our agent) have access to the Equipment in order to
inspect it and sell it.
- You will pay us what it costs us to repair the Equipment if
you do not return it in the required condition.
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<PAGE> 4
8. RISK OF LOSS
- You have the complete risk of loss or damage to the Equipment. Loss
or damage to the Equipment will not relieve you of your obligation
to pay rent.
- If any Equipment is lost or damaged, you have two choices (although
if you are in default under this Lease, we and not you will have the
two options). The choices are:
(1) Repair or replace the damaged or lost Equipment so that, once again,
we own Equipment in good operating condition and have clear title to
it.
(2) Pay us the present value (as of the date of payment) of the
remaining rent payments and our residual interest in the Equipment.
We will calculate the present value using a discount rate of five
(5%) percent per year. Once you have paid us this amount and any
other amount that you may owe us, you (or your insurer) may keep the
Equipment for salvage purposes, on an "AS IS, WHERE IS" basis.
9. INSURANCE
- Until you have properly returned the Equipment to us, you will keep
it insured. The amount of the insurance, the coverage, and the
insurance company must be acceptable to us.
- If you do not provide us with written evidence of insurance that is
acceptable to us, we may buy the insurance ourselves, at your
expense. You will promptly pay us the cost of this insurance. We
have no obligation to purchase any insurance. Any insurance that we
purchase will be our insurance, and not yours, and may insure the
Equipment beyond the end of the Term.
- Insurance proceeds may be used to repair or replace damaged or lost
Equipment or to pay us the present value of the rent and our
residual interest in the Equipment. (See section 8, "Risk of Loss",
above.)
- You appoint us as your "attorney-in-fact" to make claims under the
insurance policies, to receive payments under the insurance
policies, and to endorse your name on all documents, checks or
drafts relating to insurance claims for Equipment.
10. TAXES
- You will pay all sales, use, excise, stamp, documentary and ad
valorem taxes, license and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession,
use or lease of the Equipment.
- You will pay all taxes (other than our federal or state net income
taxes) imposed on you or on us or the rent payments.
- You will reimburse us for any of these taxes that we pay or advance.
- Unless we notify you otherwise, we will file and pay for any
personal property taxes on the Equipment. You will reimburse us for
the full amount of these taxes, without regard to early payment
discount. We may estimate the amount of these taxes in advance and
bill you periodically in advance for these taxes.
11. INDEMNITY
- You will indemnify us, defend us and hold us harmless. This applies
to any and all claims, expenses and attorney's fees concerning or
arising from the Equipment, this Lease, or any Schedule. It includes
any claims concerning the manufacture, selection, delivery,
possession, use, operation or return of the Equipment, excluding
claims arising out of our gross negligence or willful misconduct.
- This obligation of yours to indemnify us continues even after the
Term is over.
12. DEFAULT
You are in default if any of the following happens:
- You do not pay us, within five (5) days of when it is due, any rent
payment or other payment that you owe us under this Lease, any
Schedule, or any other lease, loan or other financial arrangement
that you have with us.
- Any of the financial information that you give us is not true and
complete, or you fail to tell us
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<PAGE> 5
anything that would make the financial information misleading in any
material respect.
- You do something you are not permitted to do, or you fail to do
anything that is required of you, under this Lease, any Schedule or
any other lease, loan or other financial arrangement that you have
with us, which continues uncured for thirty (30) days after written
notice by us to you.
- An event of default occurs for any other lease, loan or obligation
of yours (or any guarantor) that exceeds $50,000.
- You or any guarantor file bankruptcy, or involuntary bankruptcy is
filed against you or any guarantor and is not dismissed within 60
days.
- You or any guarantor are subject to any other insolvency proceeding
other than bankruptcy (for example, a receivership action or an
assignment for benefit of creditors) and such proceeding that is
involuntary is not dismissed within 60 days.
- Without our permission, which shall not be unreasonably withheld or
delayed you sell all or a substantial part of its assets, merge or
consolidate, or a majority of your voting stock or interests (or any
guarantor's voting stock or interests) is transferred.
- There is a material adverse change in your financial condition,
business, operations or prospects, or that of any guarantor, from
the condition that you disclosed to us in your application for
credit.
13. REMEDIES, DEFAULT INTEREST, LATE FEES
If you are in default we may exercise one or more of our "remedies." Each
of our remedies is independent. We may exercise any of our remedies, all
of our remedies or none of our remedies. We may exercise them in any order
we choose. Our exercise of any remedy will not prevent us from exercising
any other remedy or be an "election of remedies." If we do not exercise a
remedy, or if we delay in exercising a remedy, this does not mean that we
are forgiving your default or that we are giving up our right to exercise
the remedy. Our remedies allow us to do one or more of the following:
- Require you to immediately pay us all rent for the entire Term for
any or all Schedules.
- Require you to immediately pay us all amounts that you are required
to pay us for the entire Term of any other leases, loans or other
financial arrangements that you have with us.
- Sue you for all rent and other amounts you owe us plus the greater
of (1) the actual residual value of the Equipment or (2) the
residual value we assumed when we leased it to you. Future rent and
residual value will be discounted to present value using a discount
rate of five (5%) percent per year.
- Require you at your expense to assemble the Equipment at a location
we request in the United States of America.
- Remove and repossess the Equipment from where it is located, without
demand or notice, or make the Equipment inoperable. We have your
permission to remove any physical obstructions to removal of the
Equipment. We may also disconnect and separate all Equipment from
other property. No court order, court hearing or "legal process"
will be required for us to repossess the Equipment. You will not be
entitled to any damages resulting from removal or repossession of
the Equipment. We may use, ship, store, repair or lease any
Equipment that we repossess. We may sell any repossessed Equipment
at private or public sale. You give us permission to show the
Equipment to buyers at your location free of charge during normal
business hours. If we do this, we do not have to remove the
Equipment from your location. If we repossess the Equipment and sell
it, we will give you credit for the net sale price, after
subtracting our costs of repossessing and selling the Equipment. If
we rent the Equipment to somebody else, we will give you credit for
the net rent received, after subtracting our costs of repossessing
and renting the Equipment, but the credit will be discounted to
present value using the discount rate that we used in calculating
your rental payment under the Schedule for the Equipment. The credit
will be applied against what you owe us under this Lease, the
Schedules and any other leases, loans or other financial
arrangements that you have with us. If the credit exceeds the amount
you owe under this Lease,
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the Schedules and any other leases, loans or other financial
arrangements that you have with us, we will refund the amount of the
excess to you.
- You will also pay us the following:
- All our expenses of enforcing our remedies. This includes all our
expenses to repossess, store, ship, repair and sell the Equipment.
- Our reasonable attorney's fees and expenses.
- Default interest on everything you owe us from the date of your
default to the date on which we are paid in full. The "default
interest rate" will be one and one-half (1.5%) percent per month. If
this interest rate exceeds the highest legal interest rate, you will
only be required to pay us default interest at the highest legal
interest rate.
You realize that the damages we could suffer as a result of your default
are very uncertain. You also realize that the value of an unexpired lease
Term is difficult or impossible to calculate. This is why we have agreed
with you in advance on the discount rates and default interest rate to be
used in calculating the payments you will owe us if you default. You agree
that, for these reasons, the payments you will owe us if you default are
"agreed" or "liquidated" damages. You understand that these payments are
not "penalties" or "forfeitures."
You will pay us a late fee whenever you pay any amount that you owe us
more than ten (10) days after it is due. You will pay the late fee within
one month after the late payment was originally due. The late fee will be
five (5%) percent of the late payment. If this exceeds the highest legal
amount we can charge you; you will only be required to pay the highest
legal amount. The late fee is intended to reimburse us for our collection
costs that are caused by late payment. It is charged in addition to all
other amounts you are required to pay us, including default interest.
14. PERFORMING YOUR OBLIGATIONS IF YOU DO NOT
If you do not perform one or more of your obligations under this Lease or
a Schedule, we may perform it for you. We will notify you in writing at
least ten (10) days before we do this. We do not have to perform any of
your obligations for you. If we do choose to perform them, you will pay us
all of our expenses to perform the obligations. You will also reimburse us
for any money that we advance to perform your obligations, together with
interest at the default interest rate on that amount. This will be
additional "rent" that you will owe us and you will pay it at the same
time that your next rent payment is due.
15. ASSIGNMENT
WE MAY ASSIGN THIS LEASE OR ANY SCHEDULE OR ANY RENT PAYMENTS WITHOUT YOUR
PERMISSION.
WE MAY GRANT A SECURITY INTEREST IN THE EQUIPMENT WITHOUT YOUR PERMISSION.
THE PERSON TO WHOM WE ASSIGN IS CALLED THE "ASSIGNEE." THE ASSIGNEE WILL
NOT HAVE ANY OF OUR OBLIGATIONS UNDER THIS LEASE. YOU WILL NOT BE ABLE TO
RAISE ANY DEFENSE, COUNTERCLAIM OR OFFSET AGAINST THE ASSIGNEE.
AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE EQUIPMENT SO LONG
AS YOU ARE NOT IN DEFAULT.
UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER
YOUR RIGHTS UNDER THIS LEASE OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO
SUBLET THE EQUIPMENT OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR
WRITTEN PERMISSION.
16. UNIFORM COMMERCIAL CODE DISCLAIMERS OF WARRANTIES AND WAIVERS
WE DID NOT MANUFACTURE OR SUPPLY THE EQUIPMENT. WE ARE NOT A DEALER IN THE
EQUIPMENT. INSTEAD, YOU CHOSE THE EQUIPMENT.
WE DO NOT MAKE ANY WARRANTY AS TO THE EQUIPMENT. WE DO NOT MAKE ANY
WARRANTY AS TO "MERCHANTABILITY" OR "SUITABILITY" OR "FITNESS FOR A
PARTICULAR PURPOSE" OR
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"NONINFRINGEMENT" OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY
RIGHT.
WE WILL NOT BE RESPONSIBLE FOR ANY LOSS, DAMAGE, OR INJURY TO YOU OR
ANYBODY ELSE AS A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN THE
EQUIPMENT UNDER "STRICT LIABILITY" LAWS OR ANY OTHER LAWS.
WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES, LOSS OF PROFITS OR GOODWILL.
WE MAKE NO WARRANTY AS TO THE TREATMENT OF THIS LEASE FOR TAX OR
ACCOUNTING PURPOSES.
If the Equipment is unsatisfactory, you will continue to pay us all rent
and other amounts you are required to pay us. You must seek repair or
replacement of the Equipment solely from the Manufacturer or Supplier and
not from us. You may use our rights under any Manufacturer or Supplier
warranties on the Equipment to get it repaired or replaced. Neither the
Manufacturer nor the Supplier is our "agent," so they cannot speak for us
and they are not allowed to make any changes in this Lease or any
Schedule, or give up any of our rights.
17. UNIFORM COMMERCIAL CODE ARTICLE 2A PROVISIONS.
This Lease is a "Finance Lease" under Article 2A of the Uniform Commercial
Code. You agree that (a) we have advised you of the identity of the
Supplier, (b) you may have rights under the "supply contract" under which
we are purchasing the Equipment from the Supplier and (c) you may contact
the Supplier for a description of these rights.
YOU WAIVE ANY AND ALL OF YOUR RIGHTS AND REMEDIES UNDER ARTICLE 2A OF THE
UNIFORM COMMERCIAL CODE, INCLUDING SECTIONS 2A-508 THROUGH 2A-522 OF THE
UNIFORM COMMERCIAL CODE.
18. ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF
PROCESS, WAIVER OF JURY TRIAL.
THIS LEASE WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.
THIS LEASE IS GOVERNED BY THE LAWS OF THE STATE OF ARIZONA, THE STATE IN
WHICH OUR OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS AND
CONDITIONS OF THIS LEASE OCCURRED AND FROM WHICH PAYMENT FOR THE EQUIPMENT
WILL BE ORDERED HOWEVER, IF THIS LEASE IS UNENFORCEABLE UNDER ARIZONA LAW,
IT WILL INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
EQUIPMENT IS LOCATED.
YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN
MARICOPA COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL
THEORIES, INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO
THE PERSONAL JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT
MARICOPA COUNTY, ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A
PROPER "VENUE."
WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH
PROCESS IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR
ADDRESS INDICATED AFTER YOUR SIGNATURE BELOW.
YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.
19. INFORMATION SUPPLIED BY YOU AND ANY GUARANTOR
- All financial information and other information that you or any
guarantor have given us is true and complete. You or any guarantor
have not failed to tell us anything that would make the financial
information misleading. There has been no material adverse change in
your financial condition, business, operations or prospects, or the
financial condition of any guarantor, from the financial condition
that you disclosed to us in your application for credit.
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- You have supplied us with information about the Equipment. You
promise to us that the amount we are paying for the Equipment is no
more than the fair and usual price for this kind of Equipment,
taking into account any discounts, rebates and allowances that you
or any affiliate of yours may have been given for the Equipment.
- During the Term you will promptly give copies of any filings you
make with the Securities and Exchange Commission (SEC). You and any
guarantor will also provide us with the following financial
statements:
- Quarterly balance sheet and statements of earnings and cash flow -
within 45 days after the end of your first three fiscal quarters in
each fiscal year. These will be certified by your chief financial
officer and accompanied by a certificate of your chief financial
officer stating that no default exists, or, if he or she cannot
certify this because a default does exist, he or she must specify in
reasonable detail the nature of the default.
- Annual balance sheet and statements of earnings and cash flow -
within 120 days after the end of each fiscal year. These will be
audited by independent auditors acceptable to us and will be
accompanied by a certificate executed by your Chief Financial
Officer stating that you have complied with all covenants contained
in the Lease and that there are no events of default thereunder
("the Compliance Certificate"). Their audit report must be
unqualified or otherwise acceptable to FINOVA.
These financial statements will be prepared according to generally
accepted accounting principles, consistently applied.
All financial statements and SEC filings that you or any guarantor provide
us will be true and complete. They will not fail to tell us anything that
would make them misleading.
20. NOTICES
We may give you written notice in person, by mail, by overnight delivery
service, or by fax. Notice will be sent to your address below your
signature. Mail notice will be effective three (3) days after we mail it
with prepaid postage to the right address. Overnight delivery notice
requires a receipt and tracking number. Fax notice requires a receipt from
the sending machine showing that it has been sent to your fax number and
received.
You may give us notice the same way that we may give you notice.
21. GENERAL
This Lease benefits our successors and assigns. This Lease benefits only
those successors and assigns of yours that we have approved in writing.
This Lease binds your successors and assigns. This Lease binds only those
successors and assigns of ours that clearly assume our obligations in
writing.
TIME IS OF THE ESSENCE OF THIS LEASE.
This Lease and all of the Schedules is the entire agreement between you
and us concerning the Equipment.
Only an employee of FINOVA who is authorized by corporate resolution or
policy may modify or amend this Lease or any Schedule on our behalf, and
this must be in writing. Only he or she may give up any of our rights, and
this must be in writing. If more than one person is the Lessee under this
Lease, then each of you is jointly and severally liable for your
obligations under this Lease.
This Lease is only for your benefit and for our benefit, as well as our
successors and assigns. It is not intended to benefit any other person.
If any provision in this Lease is unenforceable, then that provision must
be deleted. Only unenforceable provisions are to be deleted. The rest of
the lease will remain as written.
22. YEAR 2000
You represent, warrant and agree to take all action necessary including
but not limited to due inquiry and due diligence to assure that there will
be no material adverse change to your business by reason of the advent of
the year 2000, including without limitation that all computer based
systems, embedded microchips and other processing capabilities effectively
recognize and process all dates before and after December 31, 1999 ("Y2K
Compliant"). At
8
<PAGE> 9
our request, you will provide to us assurance reasonably acceptable to us
that your computer-based systems, embedded microchips and other processing
capabilities are Y2K Compliant.
23. REPRESENTATIONS AND WARRANTIES
You represent and warrant to us as follows:
- You have complied with all "environmental laws" and will continue to
comply with all "environmental laws." No "hazardous substances" are
used, generated, treated, stored or disposed of by you or at your
properties except in compliance with all environmental laws.
"Environmental laws" mean all federal, state or local environmental
laws and regulations, including the following laws: CERCLA, RCRA,
Hazardous Materials Transport Act and The Federal Water Pollution
Control Act. "Hazardous substances" means all hazardous or toxic
wastes, materials or substances, as defined in the environmental
laws, as well as oil, flammable substances, asbestos that is or
could become friable, urea formaldehyde insulation, polychlorinated
biphenyls and radon gas.
24. PUBLICITY
We may make press releases and publish a tombstone announcing this
transaction and its total amount. You may not publicize this transaction
in any way without our prior written consent.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION AVANEX CORPORATION
10 Waterside Drive 42501 Albrae Street
Farmington, Connecticut 06032-3065 Fremont, CA 94538
BY BY: /s/ JESSY CHAO
------------------------------ ----------------------------
PRINTED NAME: PRINTED NAME: JESSY CHAO
-------------------- ------------------
TITLE TITLE: DIRECTOR OF FINANCE
---------------------------- -------------------------
FAX NUMBER: (860) 676-1814 Taxpayer ID# 94-3285348
-------------------
DATE ACCEPTED: FAX NUMBER: 510-360-0689
------------------- --------------------
DATED: 7-13-99
-------------------------
STATE OF
------------
COUNTY OF
-----------
I acknowledge that ________________, who stated that he/she is
_________________ of the Lessee named above, signed this Master Lease Agreement
in my presence today: ________________. He/she acknowledged to me that his/her
signature on this Master Lease Agreement was authorized by a valid resolution or
other valid authorization from Lessee's board of directors or other governing
body.
See attachment
--------------------------------
Notary Public
[SEAL]
9
<PAGE> 10
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT No 5907
State of CALIFORNIA
County of ALAMEDA
On 7-13-99 before me, SHEFALI B. SHETH, NOTARY PUBLIC
------- ----------------------------------------------------------
DATE NAME, TITLE OF OFFICER - E G. "JANE DOE, NOTARY PUBLIC"
personally appeared Jessy Chao
------------------------------------------------------------
NAME(S) OF SIGNER(S)
[ ] personally known to me - OR - [x] proved to me on the basis of satisfactory
evidence to be the person whose name is
subscribed to the within instrument and
acknowledged to me that he executed the
same in his authorized capacity, and that
by his signature on the instrument the
person or the entity upon behalf of which
the person acted, executed the instrument.
WITNESS my hand and official seal.
[STAMP OMITTED]
/s/ Shefali B. Sheth
------------------------------------------
SIGNATURE OF NOTARY
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[ ] INDIVIDUAL
[ ] CORPORATE OFFICER
-------------------------------------
---------------------------------- TITLE OR TYPE OF DOCUMENT
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL -------------------------------------
[ ] ATTORNEY-IN-FACT NUMBER OF PAGES
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER:
--------------------------- -------------------------------------
DATE OF DOCUMENT
---------------------------
---------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
------------------------------------
- -------------------------------------- SIGNER(S) OTHER THAN NAMED ABOVE
- -------------------------------------
(c) 1993 NATIONAL NOTARY ASSOCIATION - 8236 Remmet Ave. P O Box 7184 - Canoga
Park, CA 91309-7184
<PAGE> 11
SECRETARY'S CERTIFICATE
I am the properly elected Secretary of Avanex Corporation, which is a
California corporation (the "Corporation"). I certify to FINOVA CAPITAL
CORPORATION that:
1. A true and correct copy of the Certificate of Incorporation of
the Corporation is attached as Exhibit A to this Certificate. The Certificate of
Incorporation has not been amended, modified or supplemented. It is still in
effect as written.
2. A true and correct copy of the By-laws of the Corporation is
attached as Exhibit B to this Certificate. The By-laws have not been amended,
modified or supplemented. These are still in effect as written.
3. The following officers of the Corporation have been properly
elected. They are still officers. Their true signatures appear below:
<TABLE>
<CAPTION>
OFFICE NAME SIGNATURE
------ ---- ---------
<S> <C> <C>
President ------------------ -----------------------
Vice President ------------------ -----------------------
Secretary JUDITH O'BRIEN /s/ JUDITH O'BRIEN
----------------- -----------------------
Treasurer JESSY CHAO /s/ JESSY CHAO
----------------- -----------------------
</TABLE>
4. The Corporation is qualified to do business everywhere this is
required. It is in good standing in each of these jurisdictions.
5. Resolutions properly adopted by the Board of Directors of the
Corporation appear below. These resolutions have not been revoked, amended,
modified or supplemented. They are still in effect as written.
"WHEREAS, the Board of Directors of the Corporation believes
it is in the best interests of the Corporation to enter into a
Master Lease Agreement with FINOVA Capital Corporation
("FINOVA");
NOW, THEREFORE, be it:
RESOLVED, that the Corporation is authorized to lease
Equipment from FINOVA, pursuant to the terms of a Master Lease
Agreement and all of its Exhibits, a copy of which has been
delivered to each of the directors (the "Lease") to be signed
and delivered by the Corporation, and be it further
RESOLVED, that the form of the Lease and all of its Exhibits
are approved; and be it further
RESOLVED, that the President or any Vice President of the
Corporation, acting alone or together with a Secretary or any
Assistant Secretary of the Corporation, are authorized and
directed
<PAGE> 12
to sign and deliver and perform the Lease in the name and on
behalf of the Corporation. Any of these officers are also
authorized to sign and deliver the Exhibits and all other
documents required by FINOVA. Any of these officers are also
authorized to make any changes or add additional terms as may
appear in the final Lease and Exhibits signed by any of these
officers; and be it further
RESOLVED, that each officer of the Corporation is authorized
and directed to sign and deliver all other documents and to
take all further lawful actions to implement the previous
resolutions".
/s/ JUDITH O'BRIEN
-----------------------------------------
Secretary
Name: JUDITH O'BRIEN
-----------------------------------
Date: 3-13-99
-----------------------------------
<PAGE> 1
EXHIBIT 10.17
Comerica
SECURITY AGREEMENT
As of September 16, 1999, for value received, the undersigned ("Debtor") grants
to Comerica Bank-California ("Bank"), a California banking corporation, a
continuing security interest in the collateral (as defined below) to secure
payment when due, whether by stated maturity, demand acceleration or otherwise,
of all existing and future indebtedness ("Indebtedness") ?? the Bank of Avanex
Corporation ("Borrower") and/or Debtor. Indebtedness includes without limit any
and all obligations or liabilities of the Borrower and/or Debtor to the Bank,
whether absolute or contingent, direct or indirect, voluntary or involuntary,
liquidated or unliquidated, joint or several, known or unknown; any and all
obligations or liabilites for which the Borrower and/or Debtor would otherwise
be liable to the Bank were it not for the invalidity or unenforceability of them
by reason of any bankruptcy, insolvency or other law, or for any other reason;
any and all amendments, modifications, renewals and/or extensions of any of the
above; all costs incurred by Bank in establishing, determining, continuing, or
defending the validity or priority of its security interest, or in pursuing its
rights and remedies under this Agreement or under any other agreement between
Bank and Borrower and/or Debtor or in connection with any proceeding involving
Bank as a result of any financial accommodation to Borrower and/or Debtor; and
all other costs of collecting indebtedness, including without limit attorney
fees. Debtor agrees to pay Bank all such costs incurred by the Bank, immediately
upon demand, and until paid all costs shall bear interest at the highest per
annum rate applicable to any of the indebtedness, but not in excess of the
maximum rate permitted by law. Any reference in this Agreement to attorney fees
shall be deemed a reference to reasonable fees, costs, and expenses of both
in-house and outside counsel and paralegals, whether or not a suit or action is
instituted and to court costs if a suit or action is instituted, and whether
attorney fees or court costs are incurred at the trial court level, on appeal,
in a bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
* specific items listed below and/or on attached Schedule A, if
any, is/are also included in Collateral: A Certificate of
Deposit (#850750000070251) dated, in the name of Avanex
Corporation, in the amount of $800,000.00 and any and all
subsequent renewals thereof.
* all goods, instruments, documents, policies and certificates of
insurance, deposits, money or other property (except real
property which is not a fixture) which are now or later in
possession of Bank, or as to which Bank now or later controls
possession by documents or otherwise, and
* all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions,
rights of any kind (including but not limited to stock splits,
stock rights, voting and preferential rights), products, and
proceeds of or pertaining to the above including, without limit,
cash or other property which were proceeds and are recovered by
a bankruptcy trustee or otherwise as a preferential transfer by
Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank
may request, any information Bank may reasonably request and
allow Bank to examine, inspect, and copy any of Debtor's books
and records. Debtor shall, at the request of Bank, mark its
records and the Collateral to clearly indicate the security
interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall be
deemed to have warranted that (a) Debtor is the lawful owner of
the Collateral and has the right and authority to subject it to
a security interest granted to Bank; (b) none of the Collateral
is subject to any security interest other than that in favor of
Bank and there are no financing statements on file, other than
in favor of Bank; and (c) Debtor acquired its rights in the
Collateral in the ordinary course of its business.
2.3 Debtor will keep the Collateral free at all times from all
claims, liens, security interests and encumbrances other than
those in favor of Bank. Debtor will not, without the prior
written consent of Bank, sell, transfer or lease, or permit to
be sold, transferred or leased, any or all of the Collateral,
except (where inventory is pledged as Collateral) for inventory
in the ordinary course of its business and will not return any
Inventory to its supplier. Bank or its representatives may at
all reasonable times inspect the Collateral and may enter upon
all premises where the Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed
all writings requested by Bank to establish, maintain and
continue a perfected and first security interest of Bank in the
Collateral. Debtor agrees that Bank has no obligation to acquire
or perfect any lien on or security interest in any asset(s),
whether realty or personalty, to secure payment of the
Indebtedness, and Debtor is not relying upon assets in which the
Bank may have a lien or security interest for payment of the
Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges
which at any time are or may become a lien, charge, or
encumbrance upon any Collateral, except to the extent contested
in good faith and bonded in a manner satisfactory to Bank. If
Debtor fails to pay any of these taxes, assessments, or other
charges in the time provided above, Bank has the option (but not
the obligation) to do so and Debtor agrees to repay all amounts
so expanded by Bank immediately upon demand, together with
interest at the highest lawful default rate which could be
charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will
protect it from loss, damage, or deterioration from any cause.
Debtor has and will maintain at all times (a) with respect to
the Collateral, insurance under an "all risk" policy against
fire and other risks customarily insured against; and (b) public
liability insurance and other insurance as may be required by
law or reasonably required by Bank, all of which insurance shall
be in amount, form and content, and written by companies as may
be satisfactory to Bank, containing a Lender's loss payable
endorsement acceptable to Bank. Debtor will deliver to Bank
immediately upon demand evidence satisfactory to Bank that the
required insurance has been procured. If Debtor fails to
maintain satisfactory insurance, Bank has the option (but not
the obligation) to do so and Debtor agrees to repay all amounts
so expended by Bank immediately upon demand, together with
interest at the highest lawful default rate which could be
charged by Bank on any indebtedness.
2.7 If Accounts Receivable are pledged as Collateral under this
Agreement, then on each occasion on which Debtor evidences to
Bank the account balances on and the nature and extent of the
Accounts Receivable, Debtor shall be deemed to have warranted
that except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by
Debtor of any act; (b) each of those account balances are in
fact owing, (c) there are no setoffs, recoupments, credits,
contra accounts, counterclaims or defenses against any of those
Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have
been endorsed and/or delivered by Debtor to Bank, (e) Debtor has
not received with respect to any Account Receivable, any notice
of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence, insolvency,
business failure, appointment of a receiver for, assignment for
the benefit of creditors by, or filing of a petition in
bankruptcy by or against, the account debtor, and (f) as to each
Account Receivable, the account debtor is not an affiliate of
Debtor, the United States of America or any department, agency
or instrumentality of it, or a citizen or resident of any
jurisdiction outside of the United States. Debtor will do all
acts and will execute all writings requested by Bank to perform,
enforce performance of, and collect all Accounts Receivable.
Debtor shall neither make nor permit any modification,
compromise or substitution for any Account Receivable without
the prior written consent of Bank. Debtor shall, at Bank's
request, arrange for verification of Accounts Receivable
directly with account debtors or by other methods acceptable to
Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws,
<PAGE> 2
ordinances, directives, orders, statutes, or regulations an
object of which is to regulate or improve health, safety, or the
environment ("Environmental Laws").
2.9 If marketable securities are pledged as Collateral under this
Agreement and if at any time the outstanding principal balance
of the Indebtedness exceeds N/A of the value of the Collateral,
as such value is determined from time to time by Bank (herein
called the "Margin Requirement"), Debtor shall immediately pay
or cause to be paid to Bank an amount sufficient to reduce the
Indebtedness such that the remaining principal outstanding
thereunder is equal to or less than the Margin Requirement. Bank
shall apply payments made under this paragraph in payment of the
Indebtedness in such order and manner of application as Bank in
its sole discretion elects. In the alternative, Debtor may
provide or cause to be provided to Bank additional collateral in
the form of cash or other property acceptable to Bank and with a
value, as determined by Bank, that when added to the Collateral
will constitute compliance with the Margin Requirement.
2.10 If Bank, acting in its sole discretion, redelivers Collateral to
Debtor or Debtor's designee for the purpose of (a) the ultimate
sale or exchange thereof; or (b) presentation, collection,
renewal, or registration of transfer thereof; or (c) loading,
unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with it preliminary to sale or
exchange; such redelivery shall be in trust for the benefit of
Bank and shall not constitute a release of Bank's security
interest in it or in the proceeds or products of it unless Bank
specifically so agrees in writing. If Debtor requests any such
redelivery, Debtor will deliver with such request a duly
executed financing statement in form and substance satisfactory
to Bank. Any proceeds of Collateral coming into Debtor's
possession as a result of any such redelivery shall be held in
trust for Bank and immediately delivered to Bank for application
on the Indebtedness. Bank may (in its sole discretion) deliver
any or all of the Collateral to Debtor, and such delivery by
Bank shall discharge Bank from all liability or responsibility
for such Collateral. Bank, at its option, may require delivery
of any Collateral to Bank at any time with such endorsements or
assignments of the Collateral as Bank may request.
2.11 At any time and without notice, Bank may, as to Collateral other
than Equipment, Fixtures or Inventory, (a) cause any or all of
such Collateral to be transferred to its name or to the name of
its nominees; (b) receive or collect by legal proceedings or
otherwise all dividends, interest, principal payments and other
sums and all other distributions at any time payable or
receivable on account of such Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner
and distribution of the application to be in the sole discretion
of Bank; (c) enter into any extension, subordination,
reorganization, deposit, merger or consolidation agreement or
any other agreement relating to or affecting such Collateral,
and deposit or surrender control of such Collateral, and accept
other property in exchange for such Collateral and hold or apply
the property or money so received pursuant to this Agreement.
2.12 Bank may assign any of the Indebtedness and deliver any or all
of the Collateral to its assignee, who then shall have with
respect to Collateral so delivered all the rights and powers of
Bank under this Agreement, and after that Bank shall be fully
discharged from all liability and responsibility with respect to
Collateral so delivered.
2.13 Debtor delivers this Agreement based solely on Debtor's
independent investigation of (or decision not to investigate)
the financial condition of Borrower and is not relying on any
information furnished by Bank. Debtor assumes full
responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the
Indebtedness or any other matter which the undersigned may deem
necessary or appropriate now or Later. Debtor waives any duty on
the part of Bank, and agrees that Debtor is not relying upon nor
expecting Bank to disclose to Debtor any fact now or later known
by Bank, whether relating to the operations or condition of
Borrower, the existence, Liabilities or financial condition of
any guarantor of the Indebtedness, the occurrence of any default
with respect to the Indebtedness, or otherwise, notwithstanding
any effect such fact may have upon Debtor's risk or Debtor's
rights against Borrower. Debtor knowingly accepts the full range
of risk encompassed in this Agreement, which risk includes
without Limit the possibility that Borrower may incur
Indebtedness to Bank after the financial condition of Borrower,
or Borrower's ability to pay debts as they mature, has
deteriorated.
2.16 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and
directors from and against any and all claims, damages, fines,
expenses, liabilities or causes of action of whatever kind,
including without limit consultant fees, legal expenses, and
attorney fees, suffered by any of them as a direct or indirect
result of any actual or asserted violation of any law,
including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law,
including without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral
until Bank shall direct Debtor to the contrary. Immediately upon
notice to Debtor by Bank and at all times after that, Debtor
agrees to fully and promptly cooperate and assist Bank in the
collection and enforcement of all Collateral and to hold in
trust for Bank all payments received in connection with
Collateral and from the sale, lease or other disposition of any
Collateral, all rights by way of suretyship or guaranty and all
rights in the nature of a lien or security interest which Debtor
now or later has regarding Collateral. Immediately upon and
after such notice, Debtor agrees to (a) endorse to Bank and
immediately deliver to Bank all payments received on Collateral
or from the sale, lease or other disposition of any Collateral
or arising from any other rights or interests of Debtor in the
Collateral, in the form received by Debtor without commingling
with any other funds, and (b) immediately deliver to Bank all
property in Debtor's possession or later coming into Debtor's
possession through enforcement of Debtor's rights or interests
in the Collateral. Debtor irrevocably authorizes Bank or any
Bank employee or agent to endorse the name of Debtor upon any
checks or other items which are received in payment for any
Collateral, and to do any and all things necessary in order to
reduce these items to money. Bank shall have no duty as to the
collection or protection of Collateral or the proceeds of it,
nor as to the preservation of any related rights, beyond the use
of reasonable care in the custody and preservation of Collateral
in the possession of Bank. Debtor agrees to take all steps
necessary to preserve rights against prior parties with respect
to the Collateral. Nothing in this Section 3.1 shall be deemed a
consent by Bank to any sale, lease or other disposition of any
Collateral.
3.2 If Accounts Receivable are pledged as Collateral, this Section
3.2 shall be applicable and Debtor agrees that immediately upon
Bank's request (whether or not any Event of Default exists) the
indebtedness shall be on a "remittance basis" as follows: Debtor
shall at its sole expense establish and maintain (and Bank, at
Bank's option, may establish and maintain at Debtor's expense):
(a) an United States Post Office Lock box (the "Lock Box"), to
which Bank shall have exclusive access and control. Debtor
expressly authorizes Bank, from time to time, to remove contents
from the Lock Box, for disposition in accordance with this
Agreement. Debtor agrees to notify all account debtors and other
parties obligated to Debtor that all payments made to Debtor
agrees to payments by electronic funds transfer) shall be
remitted, for the credit of Debtor, to the Lock Box, and Debtor
shall include a like statement on all invoices; and (b) a
non-interest bearing deposit account with Bank which shall be
titled as designated by Bank (the "Cash Collateral Account") to
which Bank shall have exclusive access and control. Debtor
agrees to notify all account debtors and other parties obligated
to Debtor that all payments made to Debtor by electronic funds
transfer shall be remitted to the Cash Collateral Account, and
Debtor, at Bank's request, shall include a like statement on all
invoices. Debtor shall execute all documents and authorization
as required by Bank to establish and maintain the Lock Box and
the Cash Collateral Account.
3.3 If Accounts Receivable are pledged as Collateral, this Section
3.3 shall be applicable, and all items or amounts which are
remitted to the Lock Box, to the Cash Collateral Account, or
otherwise delivered by or for the benefit of Debtor to Bank on
account of partial or full payment of, or with respect to, any
Collateral shall, at Bank's option, (i) be applied to the
payment of the Indebtedness, whether then due or not, in such
order or at such time of application as Bank may determine in
its sole discretion, or, (ii) be deposited to the Cash
Collateral Account. Debtor agrees that Bank shall not be liable
for any loss or damage which Debtor may suffer as a result of
Bank's processing of items or its exercise of any other rights
or remedies under this Agreement, including without Limitation
indirect, special or consequential damages, loss of revenues or
profits, or any claim, demand or action by any third party
arising out of or in connection with the processing of items or
the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless
from and against all
<PAGE> 3
such third party claims, demands or actions, and all related
expenses or liabilities, including, without limitation, attorney
fees.
4. Defaults, Enforcement and Application of Proceeds
4.1 Upon the occurrence of any of the following events (each an
"Event of Default"), Debtor shall be in default under this
Agreement:
(a) Any failure to pay the Indebtedness or any other
indebtedness when due, or such portion of it as may be
due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of or
default under, any term of this Agreement, or any other
agreement or commitment between Borrower, Debtor, or any
guarantor of any of the Indebtedness ("Guarantor") and
Bank; or
(c) Any warranty, representation, financial statement, or
other information made, given or furnished to Bank by or
on behalf of Borrower, Debtor, or any Guarantor shall
be, or shall prove to have been, false or materially
misleading when made, given, or furnished; or
(d) Any loss, theft, substantial damage or destruction to or
of any Collateral, or the issuance or filing of any
attachment, levy, garnishment or the commencement of any
proceeding in connection with any Collateral or of any
other judicial process of, upon or in respect of
Borrower, Debtor, any Guarantor, or any Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any
Guarantor of any substantial portion of its assets or
property or voluntary suspension of the transaction of
business by Borrower, Debtor, or any Guarantor, or
death, dissolution, termination of existence, merger,
consolidation, insolvency, business failure, or
assignment for the benefit of creditors of or by
Borrower, Debtor, or any Guarantor; or commencement of
any proceedings under any state or federal bankruptcy or
insolvency laws or laws for the relief of debtors by or
against Borrower, Debtor, or any Guarantor; or the
appointment of a receiver, trustee, court appointee,
sequestrator or otherwise, for all or any part of the
property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or
itself insecure, in good faith believing that the
prospect of payment of the Indebtedness or performance
of this Agreement is impaired or shall fear
deterioration, removal, or waste of Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or all
of the Indebtedness to be immediately due and payable, and shall
have and may exercise any one or more of the following rights
and remedies:
(a) Exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured parties
under the provisions of the Uniform Commercial Code and
other applicable law;
(b) Institute legal proceedings to foreclose upon the lien
and security interest granted by this Agreement, to
recover judgment for all amounts then due and owing as
Indebtedness, and to collect the same out of any
Collateral or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the
Judgment or decree of any court of competent
jurisdiction, of any or all Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of a
receiver, enter upon any premises where Collateral may
then be located, and take possession of all or any of it
and/or render it unusable; and without being responsible
for loss or damage to such Collateral, hold, operate,
sell, lease, or dispose of all or any Collateral at one
or more public or private sales, leasings or other
dispositions, at places and times and on terms and
conditions as Bank may deem fit, without any previous
demand or advertisement; and except as provided in this
Agreement, all notice of sale, lease or other
disposition, and advertisement, and other notice or
demand, any right or equity of redemption, and any
obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to sell,
lease, or otherwise dispose of the Collateral or as to
the application by Bank of the proceeds of sale or
otherwise, which would otherwise be required by, or
available to Debtor under, applicable law are expressly
waived by Debtor to the fullest extent permitted.
At any sale pursuant to this Section 4.2, whether under
the power of sale, by virtue of judicial proceedings or
otherwise, it shall not be necessary for Bank or a
public officer under order of a court to have present
physical or constructive possession of Collateral to be
sold. The recitals contained in any conveyances and
receipts made and given by Bank or the public officer to
any purchaser at any sale made pursuant to this
Agreement shall, to the extent permitted by applicable
law, conclusively establish the truth and accuracy of
the matters stated (including, without limit, as to the
amounts of the principal of and interest on the
Indebtedness, the accrual and nonpayment of it and
advertisement and conduct of the sale); and all
prerequisites to the sale shall be presumed to have been
satisfied and performed. Upon any sale of any
Collateral, the receipt of the officer making the sale
under judicial proceedings or of Bank shall be
sufficient discharge to the purchaser for the purchase
money, and the purchaser shall not be obligated to see
to the application of the money. Any sale of any
Collateral under this Agreement shall be a perpetual bar
against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account debtors
or obligors of Bank's security interest in the Collateral and
direct payment of it to Bank. Bank may, itself, upon the
occurrence of any Event of Default so notify and direct any
account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first upon
all expenses authorized by the Uniform Commercial Code and all
reasonable attorney fees and legal expenses incurred by Bank;
the balance of the proceeds of the sale or other disposition
shall be applied in the payment of the Indebtedness, first to
interest, then to principal, then to remaining Indebtedness and
the surplus, if any, shall be paid over to Debtor or to such
other person(s) as may be entitled to it under applicable law.
Debtor shall remain liable for any deficiency, which it shall
pay to Bank immediately upon demand.
4.5 Nothing in this Agreement is intended, nor shall it be
construed, to preclude Bank from pursuing any other remedy
provided by law for the collection of the Indebtedness or for
the recovery of any other sum to which Bank may be entitled for
the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or
security interests of Bank contained in any existing agreement
between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer
of Bank. No waiver of any default or forbearance on the part of
Bank in enforcing any of its rights under this Agreement shall
operate as a waiver of any other default or of the same default
on a future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful
attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or
acquittances for any moneys due or to become due on any
Collateral and to endorse any item representing any
payment on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of
Debtor all financing statements or other filings deemed
necessary or desirable by Bank to evidence, perfect, or
continue the security interests granted in this
<PAGE> 4
Agreement; and
(c) to do and perform any act on behalf of Debtor permitted
or required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees,
upon request of Bank, to assemble the Collateral and make it
available to Bank at any place designated by Bank which is
reasonably convenient to Bank and Debtor.
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary, all
notices, requests and demands required under this Agreement or
by law shall be given to, or made upon, Debtor at the first
address indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written notice
of all contemplated changes in Debtor's name, chief executive
office location, and/or location of any Collateral, but the
giving of this notice shall not cure any Event of Default caused
by this change.
5.3 Bank assumes no duty of performance or other responsibility
under any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the
Indebtedness and any related obligations, including without
limit this Agreement. In connection with the above, but without
limiting its ability to make other disclosures to the full
extent allowable, Bank may disclose all documents and
information which Bank now or later has relating to Debtor, the
Indebtedness or this Agreement, however obtained. Debtor further
agrees that Bank may provide information relating to this
Agreement or relating to Debtor to the Bank's parent,
affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from
Bank to Debtor can be set off and applied by Bank on any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed
against any person or property; (b) give notice of the terms,
time and place of any public or private sale of personal
property security held from Borrower or any other person, or
otherwise comply with the provisions of Section 9-504 of the
Uniform Commercial Code; or (c) pursue any other remedy in the
Bank's power. Debtor waives notice of acceptance of this
Agreement and presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness, any
and all other notices to which the undersigned might otherwise
be entitled, and diligence in collecting any Indebtedness, and
agree(s) that the Bank may, once or any number of times, modify
the terms of any Indebtedness, compromise, extend, increase,
accelerate, renew or forbear to enforce payment of any or all
Indebtedness, or permit Borrower to incur additional
Indebtedness, all without notice to Debtor and without affecting
in any manner the unconditional obligation of Debtor under this
Agreement. Debtor unconditionally and irrevocably waives each
and every defense and setoff of any nature which, under
principles of guaranty or otherwise, would operate to impair or
diminish in any way the obligation of Debtor under this
Agreement, and acknowledges that such waiver is by this
reference incorporated into each security agreement, collateral
assignment, pledge and/or other document from Debtor now or
later securing the Indebtedness, and acknowledges that as of the
date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation,
indemnity, reimbursement, or otherwise) to recover from Borrower
any amounts paid or the value of any Collateral given by Debtor
pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give
prior notice to Debtor of any action to be taken under this
Agreement, Debtor agrees that a written notice given to Debtor
at least five days before the date of the act shall be
reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of the
time after which any private sale, lease, or other dispostion is
to be made, unless a shorter notice period is reasonable under
the circumstances. A notice shall be deemed to be given under
this Agreement when delivered to Debtor or when placed in an
envelope addressed to Debtor and deposited, with postage
prepaid, in a post office or official depository under the
exclusive care and custody of the United States Postal Service
or delivered to an overnight courier. The mailing shall be by
overnight courier, certified, or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the
effectiveness of this Agreement shall automatically continue or
be reinstated in the event that any payment received or credit
given by Bank in respect of the Indebtedness is returned,
disagreed, or rescinded under any applicable law, including,
without limitation, bankruptcy or insolvency laws, in which case
this Agreement, shall be enforceable against Debtor as if the
returned, disgorged, or rescinded payment or credit had not been
received or given by Bank, and whether or not Bank relied upon
this payment or credit or changed its position as a consequence
of it. In the event of continuation or reinstatement of this
Agreement, Debtor agrees upon demand by Bank to execute and
deliver to Bank those documents which Bank determines are
appropriate to further evidence (in the public records or
otherwise) this continuation or reinstatement, although the
failure of Debtor to do so shall not affect in any way the
reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under
this Agreement shall inure to the benefit of Bank's successors
and assigns and to any other holder who derives from Bank title
to or an interest in the Indebtedness or any portion of it, and
shall bind Debtor and the heirs, legal representatives,
successors, and assigns of Debtor. Nothing in this Section 5.10
is deemed a consent by Bank to any assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties
and covenants made by Debtor and all rights, powers and
authorities given to or conferred upon Bank are made or given
jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in
this Agreement have the meanings assigned to them in Division 9
(or, absent definition in Division 9, in any other Division) of
the Uniform commercial Code, as of the date of this Agreement.
"Uniform Commercial Code" means the California Uniform
Commercial Code, as amended.
5.13 No single or partial exercise, or delay in the exercise, of any
right or power under this Agreement, shall preclude other or
further exercise of the rights and powers under this Agreement.
The unenforceability of any provision of this Agreement shall
not affect the enforceability of the remainder of this
Agreement. This Agreement constitutes the entire agreement of
Debtor and Bank with respect to the subject matter of this
Agreement. No amendment or modification of this Agreement shall
be effective unless the same shall be in writing and signed by
Debtor and an authorized officer of Bank. This Agreement shall
be governed by and construed in accordance with the internal
laws of the State of California, without regard to conflict of
laws principles.
5.14 To the extent that any of the Indebtedness is payable upon
demand, nothing contained in this Agreement shall modify the
terms and conditions of that Indebtedness nor shall anything
contained in this Agreement prevent Bank from making demand,
without notice and with or without reason, for immediate payment
of any or all of that Indebtedness at any time(s), whether or
not an Event of Default has occurred.
5.15 Debtor's chief executive office is located and shall be
maintained at 42501 Albrae Street
-------------------
STREET ADDRESS
Fremont Ca 94538
---------------------------------------------------------------
CITY STATE ZIP CODE COUNTY
If Collateral is located at other than the chief executive
office, such Collateral is located and shall be maintained at
----------------------------------------------------------------
STREET ADDRESS
---------------------------------------------------------------
CITY STATE ZIP CODE COUNTY
<PAGE> 5
Collateral shall be maintained only at the locations identified
in this Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable
provisions of the Uniform Commercial Code, but the obligations
contained in Section 2.14 of this Agreement shall survive
termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.
7. Special Provisions Applicable to this Agreement. ("None, if left blank)
DEBTOR: Avanex Corporation
----------------------------------
DEBTOR NAME TYPED/PRINTED
By:
---------------------------------------
SIGNATURE OF Jessy Chao
Its: Director Of Finance
---------------------------------------
TITLE (If applicable)
By:
---------------------------------------
SIGNATURE OF Walter Alessandrini
Its: CEO
---------------------------------------
TITLE (If applicable)
By:
---------------------------------------
SIGNATURE OF
Its:
---------------------------------------
TITLE (If applicable)
By:
---------------------------------------
SIGNATURE OF
Its:
---------------------------------------
TITLE (If applicable)
Borrower(s):
Avanex Corporation
<PAGE> 1
EXHIBIT 10.18
AVANEX CORPORATION
March 2, 1999
Dear Mr. Alessandrini:
I am pleased to offer you a position with Avanex Corporation (the
"Company") as its Chief Executive Officer, commencing on April 5, 1999. You
will receive an annual salary of $275,000, which will be paid in accordance
with the Company's normal payroll procedures. In addition, you will receive a
bonus of $150,000 during the first year of your employment with the Company,
to be paid quarterly beginning with the quarter ending June 30, 1999. Such
bonus shall be paid based upon achievement of milestones to be agreed upon by
you and the Board of Directors prior to the beginning of each calendar quarter,
provided that the first quarterly bonus is guaranteed. The Company will
reimburse you for up to (i) $75,000 in moving expenses and (ii) $15,000 for
family travel in connection with house-hunting, in each case based on receipts
dated no later than six months after the date of this letter. As a Company
employee, you are also eligible to receive medical insurance and other employee
benefits generally available to employees of the Company.
Further, in connection with your purchase of a home in the Bay Area, the
Company will extend to you a loan, secured by the home you purchase, for up to
$300,000 at the minimum federal interest rate applicable at the time of your
purchase. The loan must be repaid within 60 days of the earliest of (i) the
closing of the sale by you of your South Carolina home, (ii) a liquidity event
of the Company (including an initial public offering of our common stock or the
sale of substantially all of our stock or assets) or (iii) the termination of
your employment with the Company. In addition, the Company agrees to pay
reasonable expenses, based on receipts which you provide to the Company, of up
to $4000 per month toward the rent on your house in California or, if you
purchase a house in California, the debt service on the mortgage, until the
earlier to occur of (a) the sixth monthly installment made under such
arrangement (with aggregate payments not to exceed $24,000), or (b) the sale of
your house in Columbia South Carolina.
Also in connection with your employment, the Company will grant you an
option for shares of Common Stock equal to 10 percent of the Company's
outstanding shares of Common Stock (including shares issuable to you) on an
as-converted and fully diluted basis following the closing of the Company's
Series C financing in March 1999 (not to exceed 3,488,037 shares, with
adjustments for stock plan activity through the Series C closing date). Your
option shall be issued at an exercise price per share equal to the fair market
value of the Common Stock as determined by the Board at its first meeting
following the start of your employment with the Company, and pursuant the terms
and conditions contained in the stock option agreement in substantially the
form enclosed for your reference.
You should be aware that your employment with the Company is for no
specified period and constitutes at will employment. As a result, you are free
to resign at any time, for any reason or for no reason. Similarly, the Company
is free to conclude its employment relationship with you at any
<PAGE> 2
Mr. Walter Alessandrini
03/02/99
Page 2
time, with or without cause. However, if the Company elects to terminate its
employment relationship with you without cause (and if such termination is
against your wishes) after you have reported to the Company and worked for at
least 90 days, you and the Company agree that you will sign a standard form of
settlement and release agreement, and that in consideration therefor the
Company will provide you a settlement of (i) acceleration of vesting of the
exercisability of the option to be granted to you equal to the greater of (A)
six months of additional vesting or (B) vesting through the first year cliff of
your vesting schedule, and (ii) six months' salary and bonus. With respect to
the shares that are to vest to you or cash that is to be paid to you pursuant
to this paragraph, one-sixth of such shares or cash shall vest or be paid to
you, as the case may be, monthly, in each case subject to your good behavior
and compliance with the terms of the settlement agreement.
You have provided the Company with a copy of your Confidentiality and
Non-Competition Agreement with Pirelli Cable Corporation dated October 18, 1996
(the "Non-Competition Agreement"), which includes a covenant not to compete and
certain prohibitions against using confidential information. You have also
discussed with the Company to its satisfaction the factual basis for our mutual
conclusion that none of the provisions of the Non-Competition Agreement are
violated by your becoming an employee of Avanex Corporation. You represent to
the Company that (i) you have provided to the Company complete and accurate
copies of all employment agreements you have in connection with your employment
by Pirelli, (ii) all of information that you have related to us concerning your
employment with Pirelli is true and correct, and you have not failed to
disclose anything that in light of all of the circumstances would be material
to our evaluation that you are not in violation of the Non-Competition
Agreement, (iii) that you have, or by the time your employment with Pirelli
terminates, will have, returned all written materials of Pirelli that may
contain confidential or other proprietary information of Pirelli and (iv) that
you will not bring, use, provide or show any confidential or other proprietary
information of Pirelli to the Company. In reliance on the truth and accuracy of
your representations, the Company agrees to indemnify you against any direct
damages (but not indirect or consequential damages to you) resulting from any
claim, action, suit or liability, including your own attorney's fees, arising
out of the Pirelli employment contract in connection with your employment by
the Company, except that our duty to indemnify you shall not apply for any
claim, action, suit or liability arising out of any fraudulent
misrepresentation by you.
Moreover, provided that all of the representations you make in the
preceding paragraph are true and accurate, if you cannot serve as our Chief
Executive Officer for any period of time due to a legal restraint or litigation
in connection with the Non-Competition Agreement, the Company agrees to pay you
up to $100,000 in salary in monthly installments for up to six months during
such period if you are not otherwise employed. You agree that any payments that
we make to you pursuant to this paragraph shall count against the bonus we have
agreed to pay you for the first year of your employment with the Company.
For purposes of federal immigration law, you will be required to provide to
the Company documentary evidence of your identity and eligibility for
employment in the United States. Such
<PAGE> 3
Mr. Walter Alessandrini
03/02/99
Page 3
documentation must be provided to us within three (3) business days of your
date of hire, or our employment relationship with you may be terminated.
I have enclosed our standard Proprietary Information Agreement. If you
accept this offer, please return to me a signed copy of that agreement.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Francisco, California. HOWEVER, we agree that
this arbitration provision shall not apply to any disputes or claims relating to
or arising out of the misuse or misappropriation of the Company's trade secrets
or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me. A duplicate
original is enclosed for your records. This letter, along with the agreement
relating to proprietary rights between you and the Company, set forth the terms
of your employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
We look forward to working with you at Avanex Corporation.
Sincerely,
AVANEX CORPORATION
/s/ SETH NEIMAN
-----------------------------------
Seth Neiman
Director
AGREED TO AND ACCEPTED this
2nd day of March, 1999.
/s/ WALTER ALESSANDRINI
- -----------------------------------
Walter Alessandrini
Enclosures: Duplicate Original Letter
Form of Stock Option Agreement
Proprietary Information Agreement
<PAGE> 1
EXHIBIT 10.20
[AVANEX LOGO]
AVANEX CORPORATION
42501 Albrae Street, Fremont, CA 94538, U.S.A.
Tel: 510-360-0688 Fax: 510-360-0689
- -------------------------------------------------------------------------------
ADJUSTMENT TO OFFER LETTER
To: Simon Cao
From: Simon Cao, President
Date: September 8, 1998
Re: New Offer to Simon Cao, VP of Marketing & Sales
I am pleased to make a new offer to you to adjust your annual salary to
$140,000 effective from August 1, 1998.
Your stock Options and other benefits will remain the same as stated on the
previous offer letter to you dated January 2, 1998.
To indicate your acceptance of this offer, please sign and date this letter in
the space provided below and return it to me. A duplicate original is enclosed
for your records.
Sincerely,
AVANEX CORPORATION
/s/ SIMON CAO
--------------------------
Simon Cao, PhD
President
ACCEPTED AND AGREED TO this
8th day of Sep., 1998
/s/ SIMON CAO
- --------------------------
Simon Cao
Enclosures: Duplicate Original Letter
<PAGE> 2
[LOGO] AVANEX CORPORATION
42501 Albrae Street, Fremont, CA 94538, U.S.A.
Tel: 510-360-0688 Fax: 510-360-0689
================================================================================
Mr. Simon Cao
2202 Ensenada Way
San Mateo, CA 94403
January 2, 1998
OFFER LETTER
------------
Dear Mr. Cao,
I am pleased to offer you a position with Avanex Corporation (the
"Company") as its Vice President of Marketing & Sales, commencing on
February 1, 1998. You will receive an annual salary of $125,000, which will
be paid bi-weekly in accordance with the Company's normal payroll
procedures. As a Company employee, you are also eligible to receive certain
employee benefits including Medical, Dental, Vision insurance at no cost
and dependent coverage at a minimal rate after completing your first month
service at Avanex.
You will begin accruing time off / vacation at a rate of 1.25 day for
each full month of employment up to 15 days a year. You are also entitled
to have 8 national holidays plus 2 floating holidays with pay.
We will recommend to the Board of Directors of the Company that, at
the next Board meeting, you be granted an [incentive] stock option
entitling you to purchase up to 1,800,000 shares of Common Stock of the
Company at the then current fair market value as determined by the Board at
that meeting. Such options shall be subject to the terms and conditions of
the Company's Stock Option Plan and Stock Option Agreement.
You should be aware that your employment with the Company is for no
specified period and constitutes at will employment. AS a result, you are
free to resign at any time, for any reason or for no reason. Similarly, the
Company is free to conclude its employment relationship with you at any
time, with or without cause.
For purposes of federal immigration law, you will be required to
provide to the Company documentary evidence of your identity and
eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
I have enclosed our standard Proprietary Information Agreement as a
condition of your employment. If you accept this offer, please return to me
a signed copy of that agreement.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes
shall be fully and finally resolved by binding arbitration conducted by the
American Arbitration Association in Alameda County, California. HOWEVER, we
agree that this arbitration provision shall
<PAGE> 3
[LOGO] AVANEX CORPORATION
42501 Albrae Street, Fremont, CA 94538, U.S.A.
Tel: 510-360-0688 Fax: 510-360-0689
================================================================================
not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of the Company's trade secrets or proprietary
information.
To indicate your acceptance of the Company's offer, please sign and
date this letter in the space provided below and return it to me. A
duplicate original is enclosed for your records. This letter, along with
the agreement relating to proprietary rights between you and the Company,
set forth the terms of your employment with the Company and supersede any
prior representations or agreements, whether written or oral. This letter
may not be modified or amended excepted by a written agreement, signed by
an officer of the Company and by you.
We look forward to working with you at Avanex Corporation.
Sincerely,
AVANEX CORPORATION
/s/ SIMON CAO
---------------------------------
Simon Cao, PhD
President
ACCEPTED AND AGREED TO this
2nd day of Jan, 1998.
/s/ SIMON CAO
- ----------------------------------
Cao, Simon
Enclosures: Duplicate Original Letter
Proprietary Information Agreement
Avanex Employee Benefit in Brief
<PAGE> 1
EXHIBIT 10.21
[AVANEX LOGO]
AVANEX CORPORATION
42501 Albrae Street, Fremont, CA 94538, U.S.A.
Tel: 510-360-0688 Fax: 510-360-0689
- --------------------------------------------------------------------------------
ADJUSTMENT TO OFFER LETTER
To: Paul Jiang
From: Simon Cao, President
Date: September 8, 1998
Re: New Offer to Paul Jiang, VP Manufacturing
I am pleased to make a new offer to you to adjust your annual salary to
$126,500 effective from August 1, 1998.
Your stock Options and other benefits will remain the same as stated on the
previous offer letter to you dated January 2, 1998.
To indicate your acceptance of this offer, please sign and date this letter in
the space provided below and return it to me. A duplicate original is enclosed
for your records.
Sincerely,
AVANEX CORPORATION
/s/ SIMON CAO
--------------------------
Simon Cao, PhD
President
ACCEPTED AND AGREED TO this
8th day of Sept., 1998
/s/ PAUL JIANG
- --------------------------
Paul Jiang
Enclosures: Duplicate Original Letter
<PAGE> 2
AVANEX CORPORATION
2202 Ensenada Way, San Mateo, CA 94403
- -------------------------------------------------------------------------------
OFFER LETTER
To: Paul Jiang
From: Simon Cao, President
Date: January 1, 1998
Re: Offer Letter to Paul Jiang
Avanex Corporation is pleased to offer Mr. Paul Jiang, a position of Director of
Manufacturing starting on Jan 17, 1998.
Mr. Jiang will report to Simon Cao, Acting CEO. The offer is as follows:
Salary: US$115,000 per year
Bonus: To be determined based on merit performance
Stock Options: 1,200,000 shares vested in 4 years
Condition as Founder status
Company will fully cover your medical and dental insurance starting from the
first day of employment.
To accept this offer, please sign and date one copy of this letter and return it
to me before Jan. 6, 1998. The second copy of this offer is enclosed for your
personal record.
<TABLE>
<S> <C> <C> <C>
/s/ PAUL JING 1-5-98 /s/ SIMON CAO 1-1-98
- ---------------- ---------- ------------------- ----------
Paul Jing Date: Simon Cao Date:
</TABLE>
Date of Birth: 5-26-58
Social Security No: ###-##-####
Tel: 408-923-6892
Address: 1848 Montage Ct.
San Jose, CA 95131
<PAGE> 3
[AVANEX LOGO]
AVANEX CORPORATION
42501 Albrae Street, Fremont, CA 94538, U.S.A.
Tel: 510-360-0688 Fax: 510-360-0689
- -------------------------------------------------------------------------------
January 2, 1998
OFFER LETTER
Dear Paul,
I am pleased to offer you a position with Avanex Corporation (the
"Company") as its Director of Manufacturing, commencing on February 2, 1998.
You will receive an annual salary of $115,000, which will be paid bi-weekly in
accordance with the Company's normal payroll procedures. As a Company employee,
you are also eligible to receive certain employee benefits including Medical,
Dental, Vision insurance at no cost and dependent coverage at a nominal rate
after completing your first month service at Avanex.
You will begin accruing time off/vacation at a rate of 1.25 days for each
full month of employment up to 15 days a year. You are also entitled to have 8
national holidays plus 2 floating holidays with pay.
We will recommend to the Board of Directors of the Company that, at the
next Board meeting, you will be granted an [incentive] stock option entitling
you to purchase up to 1,200,000 shares of Common Stock of the Company at the
then current fair market value as determined by the Board at that meeting. Such
options shall be subject to the terms and conditions of the Company's Stock
Option Plan and Stock Option Agreement.
You should be aware that your employment with the Company is for no
specified period and constitutes at will employment. As a result, you are free
to resign at any time, for any reason or for no reason. Similarly, the Company
is free to conclude its employment relationship with you at any time, with or
without cause.
For purposes of federal immigration law, you will be required to provide
to the Company documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
I have enclosed our standard Proprietary Information Agreement as a
condition of your employment. If you accept this offer, please return to me a
signed copy of that agreement.
<PAGE> 4
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Alameda County, California. HOWEVER, we agree that
this arbitration provision shall not apply to any disputes or claims relating
to or arising out of the misuse or misappropriation of the Company's trade
secrets or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me. A duplicate
original is enclosed for your records. This letter, along with the agreement
relating to proprietary rights between you and the Company, set forth the terms
of your employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
excepted by a written agreement, signed by an officer of the Company and by you.
We look forward to working with you at Avanex Corporation.
Sincerely,
AVANEX CORPORATION
/s/ SIMON CAO
--------------------------
Simon Cao, Ph.D.
President & CEO
ACCEPTED AND AGREED TO this
5th day of Jan., 1998
/s/ PAUL JIANG
- --------------------------
Paul Jiang
Enclosures: Duplicate Original Letter
Proprietary Information Agreement
<PAGE> 1
EXHIBIT 10.22
AVANEX CORPORATION
EMPLOYMENT AGREEMENT
This Agreement is made by and between Avanex Corporation (the "Company"),
and William Lanfri (the "Executive").
1. Duties and Scope of Employment.
(a) Position: Employment Commencement Date. The Company shall employ
the Executive as the Acting Chief Executive Officer of the Company reporting to
the Company's Board of Directors (the "Board"), until such time as a permanent
Chief Executive Officer is hired by the Company. Thereafter, for the duration of
Executive's employment by the Company, Executive shall, at the discretion of the
permanent Chief Executive Officer, serve as an advisor to the permanent Chief
Executive Officer or the Board. Executive's employment with the Company pursuant
to this agreement shall commence on July 1, 1998 and continue, if not earlier
terminated by either party hereto, until December 31, 1998.
(b) Obligations. Executive shall devote at least the equivalent of
three full-time days per week, on average, of his business efforts and time to
the Company through the term of this Agreement. As the Acting Chief Executive
Officer, Executive will lead the executive team of the Company. Executive agrees
not to commit to activities outside of his employment with the Company that
would require more than half of his business efforts and time. Executive will
inform the Board of any new business activities or time commitments that he
makes subsequent to the commencement of his employment with the Company.
Executive's performance objectives include the following:
o Delivery of the initial components business in Fiscal Year 1998,
including contract completing, staffing and appropriate product
shipments and related deliverables.
o Development of the marketing and technical framework and of the
primary business and staffing plan for the sub-systems business,
including setup of Dallas-area offices.
o Work on the cultural and organizational issues that are part of the
strategy of bringing together the component and the systems teams,
including creation of appropriate roles and job titles/structures.
o Help interview and sell potential permanent Chief Executive Officer
candidates.
2. Employee Benefits. During his employment hereunder, Executive shall
be eligible to participate in the employee benefit plans maintained by the
Company to the full extent provided for under those plans and except as
otherwise specifically provided for herein.
<PAGE> 2
3. At-Will Employment. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Executive and the Company acknowledge that this employment
relationship may be terminated at any time, with or without good cause or for
any or no cause, at the option either of the Company or Executive.
4. Stock Option. The Company will grant to Executive an option for
shares of Common Stock equal to 0.75 percent of the Company's outstanding
shares of Common Stock on an as-converted and fully diluted basis assuming
issuance of all shares of Preferred Stock pursuant to the Series A, Series B
and Series C Preferred Stock Purchase Agreement dated as of February 10, 1998
and at an exercise price of the then fair market value of the Common Stock, as
determined by the Board pursuant to a Stock Option Agreement in substantially
the form attached hereto as Exhibit A.
5. Expenses. The Company will pay or reimburse Executive for reasonable
travel, entertainment or other expenses incurred by Executive in the furtherance
of or in connection with the performance of Executive's duties hereunder in
accordance with the Company's established policies. To defer business expenses
incurred in connection with Executive's commute, the Company shall reimburse
Executive in an amount not to exceed $50,000.00 in accordance with a formula
discussed by the Board.
6. No Additional Compensation. Executive shall not be entitled to any
annual salary or compensation not otherwise described in this Agreement.
Executive understands and agrees that neither his job performance nor
promotions, commendations, bonuses or the like from the Company give rise to or
in any way serve as the basis for modification, amendment, or extension, by
implication or otherwise, of this Agreement.
7. Enforcement. In the event of any action to enforce the terms of this
Agreement, the prevailing party in such action shall be entitled to such
party's reasonable costs and expenses of enforcement including, without
limitation, reasonable attorneys' fees.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether
by purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
-2-
<PAGE> 3
9. Notices. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if delivered
personally or three (3) days after being mailed by registered or certified
mail, return receipt requested, prepaid and addressed to the parties or their
successors in interest at the following addresses, or at such other addresses
as the parties may designate by written notice in the manner aforesaid:
If to the Company: Avanex Corporation
42501 Albrae Avenue
Fremont, CA 94538
If to Executive: William Lanfri
at the last residential address known by the Company.
10. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
11. Proprietary Information Agreement. Executive will execute the
Company's Employment, Confidential Information, Invention Assignment and
Arbitration Agreement (the "Proprietary Information Agreement") in the form
attached hereto as Exhibit B.
12. Entire Agreement. This Agreement, the Company's 1998 Stock Plan, the
Stock Option Agreement, and the Proprietary Information Agreement represent the
entire agreement and understanding between the Company and Executive concerning
Executive's employment relationship with the Company, supersedes and replaces
any and all prior agreements and understandings concerning Executive's
employment relationship with the Company.
13. No Oral Modification, Cancellation or Discharge. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
14. Governing Law. This Agreement shall be governed by the laws of the
State of California.
15. Effective Date. This Agreement is effective immediately after it has
been signed.
16. Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below.
AVANEX CORPORATION WILLIAM LANFRI
By:
------------------------------ --------------------------------
Signature Signature
Title:
-----------------------------
Date: Date:
------------------------------ ---------------------------
-4-
<PAGE> 1
EXHIBIT 10.25
LEASE AGREEMENT
BETWEEN
STEVENSON BUSINESS PARK, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
AS LANDLORD
AND
AVANEX CORPORATION,
A CALIFORNIA CORPORATION
AS
TENANT
<PAGE> 2
LEASE AGREEMENT
DATE: September 8, 1999
LANDLORD: STEVENSON BUSINESS PARK, LLC
a California limited liability Company
c/o Trumark Companies
4135 Blackhawk Plaza Circle, Suite 280
Danville, CA 94506
TENANT: AVANEX CORPORATION,
a California corporation
The Premises
1. PREMISES. Landlord hereby leases to Tenant upon the terms and conditions
contained in this lease ("LEASE") those certain premises (the
"PREMISES") consisting of approximately 54,068 square feet (measured
from the Building "drip-line," as per custom and practice in Alameda
County) constituting all of that certain building known as "Building B"
and located at 40915 Encyclopedia Circle, Fremont, California (the
"BUILDING"), which Premises are shown within the cross-hatched area on
the map of the Building attached hereto as EXHIBIT "A." The land upon
which the Building is situated is hereinafter referred to as the "LAND"
and consists of a real property parcel described as "Parcel 2 of Parcel
Map 7251. The figure of 54,068 square feet shall be used for all
calculations under this Lease in which the square footage of the
Building is a factor, including, without limitation, any purchase price
calculations pursuant to Section 3.3 below.
For the purposes of this Lease, the following definitions shall apply:
a. The term "BUILDING SHELL" shall mean a concrete tilt-up building
(for group B occupancy only), containing four (4) combination
dock high truck doors (two (2) grade level loading doors) with
approximately 22 foot clear height; 495 GPM/2000 square feet
rated fire sprinkler system; and, a 2000 amp-277/480 volt, three
phase power service (with no power panel).
b. The term "PROJECT" shall mean that certain three (3) building
complex otherwise know as the Stevenson Business Park in which
the Building is located.
<PAGE> 3
c. The term "DECLARATION" shall mean that certain Declaration of
Covenants, Rules, and Restriction and Reciprocal Easement
Agreement which has been, or will be, recorded with respect to
the Project.
d. The term "LAND" shall refer to the real property upon which the
Project is situated.
e. The term "COMMON AREAS" shall mean all parking areas, landscape
areas and other areas, facilities or improvements located on the
Land which are designated in the Declaration as "Common Area."
f. The term "EXCLUSIVE COMMON AREA" shall mean those portions of the
Common Area which exclusively serve the Building.
g. The term "IMPROVEMENT ALLOWANCE" shall mean the sum of ONE
MILLION EIGHT HUNDRED NINETY-TWO THOUSAND THREE HUNDRED EIGHTY
DOLLARS ($1,892,380.00).
h. The term "IMPROVEMENTS COSTS" shall mean all of the costs and
expenses to be incurred in connection with the design,
permitting, construction and testing of the Tenant Improvements
(including, without limitation, the cost of the space plan for
the Tenant Improvements and the Approved Plans and the fees and
charges of the Building Contractor). The Improvement Costs shall
include a zero percent (0%) construction management fee to be
paid to Landlord.
i. The term "APPROVED PLANS" shall mean the plans and specifications
for the Tenant Improvements dated August 23, 1999 (with latest
revision dated September 3, 1999) which have been prepared by the
"BUILDING ARCHITECT", DES Architects + Engineers, and approved by
Landlord and Tenant on or before the execution of this Lease.
j. The term "TENANT IMPROVEMENTS" shall mean the interior
improvements configured for Tenant's intended use and occupancy
of the Premises which are set forth on the Approved Plans. The
term "PHASE 1" shall mean that portion of the Tenant Improvements
consisting of the manufacturing area improvements, as designated
in the Approved Plans. The term "PHASE 2" shall mean the office
area improvements, as shown on the Approved Plans.
2. BUILDING SHELL AND TENANT IMPROVEMENTS.
2.1. ACKNOWLEDGEMENTS. Tenant hereby acknowledges as follows:
2
<PAGE> 4
a. Landlord has designed and constructed the Building Shell
as a generic or "spec" office and manufacturing building
for group "B" occupancy. The Building Shell was not
constructed in contemplation of the Tenant's specific
improvements, use and/or occupancy;
b. Tenant has reviewed and inspected the Building Shell and
Building Shell plans and specifications and is satisfied
that the Building Shell will be suitable for the Tenant
Improvements and Tenant's intended use and operation
therein;
c. Except as to the Warranty (as defined in Section 2.6
below), Landlord has made not, and will not make, any
representations or warranties regarding the Building
Shell, the Common Areas, the Tenant Improvements, or any
aspect of the Project or the Common Areas.
d. Tenant has not relied on Landlord to provide any advice or
services in connection with the design of the Tenant
Improvements or as to any modifications which may need to
be made in order to accommodate the Tenant Improvements or
Tenant's particular use of the Premises.
e. Except as to the Warranty and subject to completion of
punchlist items as described in Section 2.4 below, upon
delivery of the Premises to Tenant, Tenant shall accept
the same, together with the Tenant Improvements, in their
"AS IS" in condition.
f. Tenant has requested that the Tenant Improvements be
designed and constructed on a "fast track" basis and, in
order to accommodate this, the Tenant Improvements will be
designed by the Building Architect and constructed by the
Building Contractor.
g. As a result of the "fast track" design and construction of
the Tenant Improvements, as requested by Tenant, during
the course of construction, the actual Improvement Costs
are likely to increase above any original estimates which
may be provided by the Building Contractor. H
h. Tenant will have the Space Plan and the Approved Plans
reviewed by its own consulting architect.
3
<PAGE> 5
2.2 CONSTRUCTION.
2.2.1 CONSTRUCTION. Landlord and Tenant agree that the
construction of the Tenant Improvements, as set forth on
the Approved Plans, will be carried out by the "BUILDING
CONTRACTOR", Hollander Smith Construction. Landlord will
use commercially reasonably efforts to negotiate a
fixed-price contract with the Building Contractor (the
"CONSTRUCTION CONTRACT") which is competitive for similar
work in the Fremont-Newark area based upon "fast-track"
design and construction conditions.
Landlord shall use diligent efforts to have the Building
Contractor substantially complete Phase 1 of the Tenant
Improvements by October 4, 1999 (the "TARGET DATE").
Landlord shall use diligent efforts to have the Building
Contractor substantially complete Phase 2 of the Tenant
Improvements within thirty (30) days following the
substantial completion of Phase 1. "SUBSTANTIALLY
COMPLETE" "or "SUBSTANTIAL COMPLETION" shall mean that the
particular Phase of the Tenant Improvements have been
constructed in accordance with the Approved Plans (as
evidenced by a certificate of Substantial Completion
submitted by the Building Architect), as modified by
material change orders approved by Landlord and Tenant
except for minor "field" changes in the Approved Plans,
other minor deviations and punchlist items) and are in
such condition so as to allow Tenant to install Tenant's
own fixtures, furnishings, and equipment and, thereafter,
to conduct its operations.
2.2.2. IMPROVEMENT COSTS. Provided that Tenant has made all
deposits with Landlord with respect to the Excess Costs
(as provided below), Landlord shall advance all
Improvements Costs for the construction the Tenant
Improvements up to an amount equal to the Improvement
Allowance.
It is contemplated that the Improvement Costs will exceed
the Improvement Allowance ("EXCESS COSTS"), which Excess
Costs shall be borne by Tenant. In this regard, upon the
execution of this Lease, Tenant shall pay to Landlord the
sum of THREE HUNDRED TWENTY-FOUR THOUSAND FOUR HUNDRED
EIGHT DOLLARS ($324,408.00)("TENANT'S INITIAL ADVANCE").
On the date which is thirty (30) days [60 DAYS SEEMS TOO
LONG UNDER THE PRESENT SCHEDULE] following the execution
of this Lease, Tenant shall pay to Landlord an amount by
which (a) the estimated total Improvement Costs which
Landlord then expects to be incurred, exceeds (b) the sum
of the Improvement Allowance and Tenant's Initial Advance.
("TENANT'S SECOND ADVANCE"). Tenant's Initial Advance and
Tenant's Second Advance shall be applied by Landlord
towards the payment of Improvement Costs after Landlord
has expended the full amount of the Improvement Allowance.
In no event shall Landlord be obligated to expend from its
own funds (including funds advanced to Landlord from the
Project lender) more than the sum of the Improvement
Allowance.
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<PAGE> 6
If upon completion of construction there are any Excess Costs
which have not been covered by Tenant's Initial Advance and
Tenant's Second Advance, then Tenant shall pay to Landlord, as
Additional Rent, any such remaining Excess Costs within ten (10)
days following written demand.
If, upon the completion of construction of the Tenant
Improvements and upon the payment of all amounts owing to the
Building Contractor and otherwise, there are any unexpended
portions of Tenant's Initial Advance and/or Tenant's Second
Advance ("TI SURPLUS"), then Landlord shall pay to Tenant any
such TI Surplus not later than thirty (30) days following the
completion of all punchlist items. If Landlord does not pay any
TI Surplus within the aforesaid thirty (30) day period, then the
TI Surplus shall accrue interest at the rate set forth in Section
28.8 below from the end of the aforesaid thirty (30) day period
until the date the payment is actually paid.
2.4 WALK-THROUGH-PUNCHLIST. Upon Substantial Completion of Phase 1,
Landlord, Tenant, Tenant's consultant, and the Building
Contractor shall conduct a walk-through of the Building to
inspect the Tenant Improvements as completed and shall prepare a
list of punchlist items to be completed. Landlord shall cause the
Building Contractor to complete all punchlist items within thirty
(30) days following the walk-through. Upon Substantial Completion
of Phase 2, the parties shall follow the same walk-through and
punchlist procedure. Upon Substantial Completion of both Phase 1
and Phase 2, Landlord shall diligently pursue obtaining from the
City of Fremont final inspections of the Tenant Improvements and,
if applicable, a certificate of occupancy for the Building.
2.5 DATE OF DELIVERY; AS IS. Landlord shall deliver the Premises to
Tenant upon the Substantial Completion of Phase 1 of the Tenant
Improvements. Tenant acknowledges that the Target Date of October
4, 1999 is a very early estimate of the date upon which Phase I
may be substantial completed and that it is likely that, despite
Landlord's diligent efforts, such substantial completion may not
be completed by that date. In this regard, Landlord shall not be
in default hereunder and shall not be liable to Tenant for any
damage or loss incurred by Tenant by reason of Landlord's
failure, for whatever reason, to cause the Premises to be
delivered by any particular date (including, without limitation,
the Target Date), nor shall this Lease be void or voidable on
account thereof. Notwithstanding the foregoing, if Phase 1 of the
Tenant Improvements are not Substantially Completed by January 1,
2000 and the delay in such Substantial Completion is not a result
of any Tenant Delays (as defined in Section 3.1 below), then at
any time during the period between January 1 and January 10,
2000, Tenant may provide written notice to Landlord electing to
terminate this Lease; provided, however, Tenant shall have no
right to terminate this Lease, as provided above, if Tenant has
taken occupancy of all or any part of the Building. If, within
five (5) days following a termination notice by Tenant, Phase 1
of the Tenant Improvements are
5
<PAGE> 7
not substantially completed, then this Lease shall terminate upon
the expiration of such five (5) day period and, thereafter,
neither Landlord nor Tenant shall have any further rights or
obligations hereunder. If, within five (5) days following a
termination notice by Tenant, Phase 1 of the Tenant Improvements
are substantially completed, then this Lease shall continue and
Tenant's termination notice shall be of no further force or
effect.
Subject to the completion of punchlist items and, except as to
the Warranty, Tenant shall accept the Premises (together with the
Tenant Improvements as completed) on the Commencement Date (as
defined below) in its "As Is" condition.
2.6 LIMITED WARRANTY. For a period of one (1) year following
Substantial Completion of each Phase of the Tenant Improvements,
Landlord warrants (the "WARRANTY") that each Phase has been
completed in a good and workmanlike manner free from defects, and
that all systems installed as part of such Phase will be in good
working order and condition. Tenant shall provide prompt written
notice to Landlord of any defect or condition to which the
Warranty applies (a "WARRANTY NOTICE"). Upon receipt of a
Warranty Notice from Tenant, Landlord shall be obligated, at its
cost and expense, to diligently cause the defect or condition to
be remedied within a reasonable period of time; provided,
however, in no event shall any defect or condition entitle Tenant
to terminate this Lease or provide to Tenant any right of offset,
abatement, or deduction as against any Rents becoming due
hereunder. The Warranty shall not apply to any component or
system within the Tenant Improvements which (a) have been
installed, altered, or modified by Tenant, (b) affected by the
installation of Tenant's fixtures, furnishings, and equipment or
by any other act or omission of Tenant, or (c) have been used in
a manner for which such component or system was not designed or
intended, or (d) have not been properly maintained to the extent
such maintenance is the responsibility of Tenant or to which
Tenant has otherwise conducted its own maintenance or repairs.
3. TERM; OPTION TO RENEW AND PURCHASE.
3.1 TERM. The term of this Lease (the "LEASE TERM") shall commence on
the Commencement Date and shall end on the date that is ten (10)
years thereafter. The "COMMENCEMENT DATE" shall be the date that
Phase 1 of the Tenant Improvements are substantially completed,
or the date the Tenant Improvements would have been substantially
completed but for any Tenant Delays. "TENANT DELAYS" on the part
of Tenant shall include, without limitation, Tenant's failure to
timely deposit funds with Landlord (as provided in Section 2.3.2
above), change orders requested by Tenant, and/or any failure by
Tenant to timely provide to Landlord, the Building Architect,
and/or the Building Contractor information or approvals as may be
requested from time to time; provided, however, an act or
omission on the part of Tenant shall only comprise a Tenant
6
<PAGE> 8
Delay if the completion of the Tenant Improvements are actually
delayed thereby and Landlord has provided to Tenant written
notice that such act or omission may delay the progress of
construction, which notice is provided by Landlord within five
(5) days following the date Landlord is informed that Tenant's
act or omission will cause a delay.
3.2 OPTION TO RENEW. The Landlord hereby grants to Tenant one option
to extend the Lease Term (the "OPTION") upon the following terms
and conditions:
(a) The Option shall give Tenant the right to extend the Lease
Term for one (1) additional five (5) year period (the
"EXTENDED TERM");
(b) Tenant shall give Landlord written notice of its exercise
of the Option no earlier than twelve (12) months nor later
than six (6) months before the date the Lease Term would
end but for said exercise;
(c) Tenant shall not have the right to exercise the Option if
at the time of exercise Tenant is in material default
under this Lease. The period of exercise for the Option
shall not be extended for any period for which Tenant is
unable to exercise the Option by reason of Tenant's
material default;
(d) All terms and conditions of this Lease shall apply during
the Extended Term except that Base Rent shall be
determined as provided in Section 4.2 below; and,
(e) Once Tenant delivers notice of its exercise of the Option
pursuant to (b) above, Tenant may not withdraw such
exercise, and such notice of exercise shall operate to
automatically extend the Lease Term; provided, however, if
Tenant is in material default under this Lease (provided
that Tenant's default with respect to any monetary
obligation shall in all events be regarded as material) on
the date an Extended Term is to begin, this Lease, at
Landlord's election and upon written notice from Landlord
specifying the default, shall not be extended pursuant to
the provisions of this Section 3.2, but shall terminate on
the last day of the Lease Term. If Landlord determines
that any exercise notice received from Tenant constitutes
an ineffectual exercise of the Option, then Landlord shall
provide to Tenant notice of that fact within three (3)
days following Landlord's receipt of the exercise notice.
The term "Lease Term" shall mean and refer to the initial term of
the Lease, as described in Section 3.1 above, together with the
Extended Term which has been put into effect by reason of an
exercise of the Option by Tenant pursuant to this Section 3.2.
7
<PAGE> 9
3.3 BUILDING PURCHASE RIGHTS.
3.3.1 OPTION TO PURCHASE THE BUILDING AND LAND. Upon the terms
and conditions set forth in this Section 3.3.1 Landlord
hereby grants to Tenant a one-time only option (the
BUILDING PURCHASE OPTION") to purchase the Building and
Land for a purchase price of EIGHTY SEVEN DOLLARS ($87.00)
per square foot plus the full amount of all Improvement
Costs incurred by Landlord (to the extent not reimbursed
from Tenant's Initial Advance and/or Tenant's Second
Advance) and upon the terms and provisions set forth in
the form "PURCHASE AGREEMENT" attached hereto as EXHIBIT
"B," subject to the following:
a. Not later than October 1, 1999, Landlord shall
deliver to Tenant the Due Diligence Documents. The
term "Due Diligence Documents" shall mean the
following items to the extent they are in the
possession of Landlord or Landlord's agents or
consultants: (a) any and all surveys of the Land,
(b) any and all permits, approvals, and other items
relating any governmental entitlements with respect
to the Building and Land, and (d) any and all
reports, studies, notices, or other information
received by Optionor, or otherwise in Optionor's
possession, relating to soil and subsurface
conditions or any other physical condition of the
Building and Land (including, without limitation,
information relating to the existence, release, or
presence of any Hazardous Materials). The Due
Diligence Documents shall also include a
preliminary report issued by Fidelity National
Title Company with respect to the Building and
Land, which report has been issued within the last
forty-five (45) days.
b. Upon the Commencement Date, Tenant and to Tenant's
agents, engineers, and/or contractors shall have
the right to conduct reasonable studies and
investigations of the Building and Land as may be
customary to an acquisition of real property.
Tenant, who will be responsible for restoring the
Property to substantially the same condition it was
in prior to said investigations. Tenant will
indemnify and hold Landlord harmless from any and
all liabilities, claims, and damages, that Landlord
may incur as a result of the negligent acts or
failures to act of Tenant and/or Tenant's agents in
furtherance of such inspections.
c. Except as provided in Section 3.3.1.e. below,
Tenant shall have the right to exercise the
Building Purchase Option at any time during period
commencing on the execution of the Lease (provided
that Tenant has paid to Landlord the security
deposit, rent deposit and Tenant's Initial Advance)
and ending on October 31, 1999 (the
8
<PAGE> 10
Tenant's Initial Advance) and ending on October 31,
1999 (the "BUILDING PURCHASE OPTION PERIOD").
Tenant shall exercise the Building Purchase Option
by delivering to Landlord, prior to the end of the
Building Purchase Option Period, (a) a currently
dated and executed Purchase Agreement in the form
attached hereto as EXHIBIT "B" and (b) a check in
the amount of ONE HUNDRED THOUSAND DOLLARS
($100,000.00) representing the "Deposit" under the
Purchase Agreement. The Building Purchase Option
shall automatically expire if Tenant fails to
exercise the Building Purchase Option within the
time and in the manner specified herein. Time is of
the essence. In this regard, any conditions or
modifications made by Tenant to the form of the
Purchase Agreement or the terms thereof, any
failure to execute the Purchase Agreement and/or to
deliver the Deposit, and/or any dating of the
Purchase Agreement as of a date other than the date
of exercise shall each be regarded as an
ineffectual exercise of the Building Purchase
Option. If Landlord determines that any exercise
notice received from Tenant constitutes an
ineffectual exercise of the Building Purchase
Option, then Landlord shall provide to Tenant
notice of that fact within three (3) days following
Landlord's receipt of the exercise notice.
d. Notwithstanding anything contained in this Section
3.3.1 to the contrary. Tenant may not exercise the
Building Purchase Option if there is a material
default under this Lease (provided that Tenant's
default with respect to any monetary obligation
shall in all events be regarded as material) by
Tenant under this Lease on the date of Tenant's
notice of exercise of the Building Purchase Option.
The Building Purchase Option Period shall not be
extended for any period in which Tenant is unable
to exercise the Building Purchase Option by reason
of a default by Tenant; provided, however, if there
is a default by Tenant under this Lease on the date
of Tenant's exercise of the Building Purchase
Option and the default by Tenant is later cured by
Tenant within the exercise period, then Tenant may
re-exercise the Building Purchase Option prior to
the end of such exercise period. If there is a
default by Tenant under this Lease on the Closing
Date (as defined in the Purchase Agreement), then
Landlord, in addition to any other remedies which
Landlord, may have under this Lease, may elect to
require, as a condition to the close of escrow,
that Tenant pay, in addition to the purchase price
and other amounts due from Tenant pursuant to the
Purchase Agreement, all amounts owning to Landlord
in connection with such default.
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<PAGE> 11
e. Upon the close of escrow under the Purchase
Agreement, this Lease shall terminate, provided
that Tenant shall remain liable to Landlord with
respect to any unpaid amounts which became due
prior to the close of escrow and Tenant shall
continue to indemnify Landlord pursuant to any
indemnifications set forth in this Lease as they
relate to acts or occurrences arising prior to the
close of escrow.
f. In the event Tenant does not exercise the Building
Purchase Option or otherwise fails to carry out an
effective exercise thereof or in the event escrow
fails to close under the Purchase Agreement for any
reason, then this Lease shall continue in
accordance with the terms and provisions hereof
and, upon request by Landlord, Tenant shall
execute, notarize and deliver to Landlord, for
recordation in the official records of Alameda
County, a quitclaim deed releasing all rights of
Tenant to purchase the Building and Land. Tenant's
failure to provide the aforesaid quitclaim deed
within ten (10) days of Landlord's request shall
constitute a default under Section 19 below.
g. Notwithstanding anything to the contrary in this
Section 3.3.1, if Tenant receives a Purchase Offer
pursuant to Section 3.3.2 below and either rejects
such Purchase Offer or fails to accept such Offer
within the time and manner set forth Section 3.3.2
below, then the Building Purchase Option in this
Section 3.3.1 shall automatically expire and be of
no further force or effect.
3.3.2 RIGHT OF FIRST REFUSAL TO PURCHASE THE BUILDING AND LAND.
If, at any time during the period beginning on the
Commencement Date and ending on April 1, 2000 (the "NOTICE
PERIOD") period, Landlord receives a bona-fide offer from
an unrelated third party to purchase the Building and Land
upon terms and conditions which Landlord is willing to
accept , then Landlord, prior to accepting such
third-party offer, shall give Tenant written notice
offering (the "PURCHASE OFFER") to sell the Building and
Land, on an AS IS basis (subject to an assignment of
existing contractor warranties described below), for a
purchase price equal to EIGHTY-SEVEN DOLLARS ($87.00) per
square foot plus the full amount of all Improvement Costs
incurred by Landlord (to the extent not reimbursed from
Tenant's Initial Advance and/or Tenant's Second Advance).
In no event shall this Section 3.3.2. apply to any offer,
as between the members of the Landlord and/or their
related and/or affiliated entities or persons, to sell,
transfer, or otherwise dispose of interests in the
Building and Land or in the entity which comprises the
Landlord hereunder.
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Provided that there is no material default (provided that
Tenant's default with respect to any monetary obligation
shall in all events be regarded as material) by Tenant
under this Lease, Tenant shall have three (3) business
days following receipt of the Purchase Offer to elect in
writing to purchase pursuant to the offer set forth
therein. If Tenant accepts the offer set forth in the
Purchase Offer within the time and manner provided, then,
within forty-five (45) days following acceptance (subject
to a possible maximum fifteen (15) day extension to
accommodate any Tenant financing), Landlord and Tenant
shall close escrow whereupon the Tenant shall pay the full
amount of the Purchase Price in cash. Upon the close of
escrow, Landlord shall assign to Tenant any existing
warranties which Landlord may have received from the
Building Contractor to the extent the same may be
assigned, provided that Landlord shall have no obligation
to obtain any such warranties. Landlord shall retain the
right to make its own claims against the assigned
warranties to the extent Landlord, for any reason, becomes
liable to any party with respect to any matters which are
covered by such warranties. If Tenant elects to not
purchase the Building and Land pursuant to the offer set
forth in the Purchase Offer, or fails to elect to purchase
within the time and manner provided above, then (a)
Landlord shall be free to sell the Building and Land
pursuant to the third-party offer or to any other person
or entity upon such terms and conditions as Landlord, in
its sole and absolute discretion, shall determine and (b),
regardless of whether or not Landlord sells the Building
and Land to another party, Landlord shall have no further
obligation to submit a Purchase Offer or any other sale
offer to Tenant with respect to the Building and Land, nor
shall Tenant have any other further rights to purchase the
Building and Land. If Landlord intends to sell the
Building and Land at any time after the expiration of the
Notice Period, Landlord shall have no obligation to
provide to Tenant a Purchase Offer pursuant to this
Section 3.3.
Except as set forth in this Section 3.3 and
notwithstanding any other provision of this Lease to the
contrary, Tenant shall have no other rights of first
offer, options, or similar rights with respect to the
Building and Land.
If there is a default under this Lease by Tenant on the
closing date of Tenant's purchase of the Building and
Land, then Landlord, in addition to any other remedies
Landlord may have under this Lease, may elect to require,
as a condition to the close of escrow, that Tenant pay, in
addition to the purchase price and other amounts due from
Tenant all amounts owning to Landlord in connection with
such default.
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Upon the close of escrow, this Lease shall terminate, provided
that Tenant shall remain liable to Landlord with respect to any
unpaid amounts which became due prior to the close of escrow and
Tenant shall continue to indemnify Landlord pursuant to any
indemnifications set forth in this Lease as they relate to acts
or occurrences arising prior to the close of escrow.
3.4 BUILDING C PURCHASE AND LEASE RIGHTS.
3.4.1 OPTION TO PURCHASE BUILDING C. Tenant acknowledges that
Landlord may construct a third building within the
Project, which building, together with the legal parcel on
which it is situated, is referred to herein as "BUILDING
C". Upon the terms and conditions set forth in this
Section 3.4.1, Landlord hereby grants to Tenant a one-time
only option (the "BUILDING C PURCHASE OPTION") to purchase
Building C for a purchase price of EIGHTY TWO DOLLARS
($82.00) per square foot, in completed "shell" condition
comparable to the Building (with no "tenant" improvements
or improvement allowance and on an AS IS basis) and upon
the other terms and provisions set forth in the form
Purchase Agreement attached hereto as EXHIBIT "B," subject
to the following:
a. Except as provided in Section 3.4.1.e. below,
Tenant shall have the right to exercise the
Building C Purchase Option at any time during
period commencing on the execution of the Lease
(provided that Tenant has paid to Landlord the
security deposit, rent deposit and Tenant's Initial
Advance) and ending on April 1, 2000 (the "BUILDING
C PURCHASE OPTION PERIOD"). Tenant shall exercise
the Building C Purchase Option by delivering to
Landlord, prior to the end of the Option Period,
(a) a currently dated and executed Purchase
Agreement in the form attached hereto as EXHIBIT
"B" and (b) a check in the amount of ONE HUNDRED
THOUSAND DOLLARS ($100,000.00) representing the
"Deposit" under the Purchase Agreement. The
Building C Purchase Option shall automatically
expire if Tenant fails to exercise the Building C
Purchase Option within the time and in the manner
specified herein. Time is of the essence. In this
regard, any conditions or modifications made by
Tenant to the form of the Purchase Agreement or the
terms thereof, any failure to execute the Purchase
Agreement and/or to deliver the Deposit, and/or any
dating of the Purchase Agreement as of a date other
than the date of exercise shall each be regarded as
an ineffectual exercise of the Building C Purchase
Option. If Landlord determines that
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any exercise notice received from Tenant
constitutes an ineffectual exercise of the Building
C Purchase Option, then Landlord shall provide to
Tenant notice of that fact within three (3) days
following Landlord's receipt of the exercise
notice.
If, upon an effective exercise of the Building C
Purchase Option, Landlord has not completed the
construction of the shell improvements which
comprise Building C, then Landlord shall utilize
commercially reasonable efforts to complete
Building C. Notwithstanding anything to the
contrary in this Section 3.4 or in the Purchase
Agreement, the close of escrow for Tenant's
acquisition of Building C shall not occur until the
shell improvement which comprise Building C are
substantially completed, as evidenced by a
certificate executed by the architect of record for
Building C.
b. Notwithstanding anything contained in this Section
3.4.1 to the contrary, Tenant may not exercise the
Building C Purchase Option if there is a material
default (provided that Tenant's default with
respect to any monetary obligation shall in all
events be regarded as material) by Tenant under
this Lease on the date of Tenant's notice of
exercise of the Building C Purchase Option. The
period of exercise of the Building C Purchase
Option shall not be extended for any period in
which Tenant is unable to exercise the Building C
Purchase Option by reason of a default by Tenant;
provided, however, if there is a default by Tenant
under this Lease on the date of Tenant's exercise
of the Building C Purchase Option and the default
by Tenant is later cured by Tenant within the
exercise period, then Tenant may re-exercise the
Building C Purchase Option prior to the end of such
exercise period. If there is a default by Tenant
under this Lease on the Closing Date (as defined in
the Purchase Agreement), then Landlord, in addition
to any other remedies Landlord may have under this
Lease, may elect require, as a condition to the
close of escrow, that Tenant pay, in addition to
the purchase price and other amounts due from
Tenant pursuant to the Purchase Agreement, all
amounts owning to Landlord in connection with such
default.
c. In the event Tenant does not exercise the Building
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<PAGE> 15
C Purchase Option or otherwise fails to carry out
an effective exercise thereof or in the event
escrow fails to close under the Purchase Agreement
for any reason, Tenant shall execute, notarize and
deliver to Landlord, for recordation in the
official records of Alameda County, a quitclaim
deed releasing all rights of Tenant to purchase
Building C. Tenant's failure to provide the
aforesaid quitclaim deed within ten (10) days of
Landlord's request shall constitute a default under
Section 19 below.
d. Notwithstanding anything to the contrary in this
Section 3.4.1, if Tenant receives a Purchase Offer
pursuant to Section 3.4.2 below and either rejects
such Offer or fails to accept such Offer within the
time and manner set forth Section 3.4.2 below, then
the Building C Purchase Option in this Section
3.4.1 shall expire and be of no further force or
effect.
e. If prior to Tenant's exercise of the Building C
Purchase Option pursuant to this Section 3.4.1,
Landlord has leased all or a portion of Building C
pursuant to one or more third party leases ("THIRD
PARTY LEASE(S)"), then, so long as Landlord has
complied with the provisions of Section 3.4.3 below
prior to entering into the first of any Third Party
Leases, the purchase price to be paid by Tenant
upon the Close of Escrow shall be increased by the
amount of all costs incurred by Landlord in
connection with the Third Party Lease(s). The
aforesaid costs shall be limited to those incurred
only with respect to the Third Party Lease(s) and
shall include, without limitation, any improvement
allowances actually advanced by Landlord, leasing
commissions, attorneys fees, and marketing costs.
3.4.2 RIGHT OF FIRST REFUSAL TO PURCHASE BUILDING C. If, at any
time during the period beginning on the Commencement Date
and ending on April 1, 2000 (the "BUILDING C NOTICE
PERIOD"), Landlord receives a bona-fide offer from an
unrelated third party to purchase Building C upon terms
and conditions which Landlord is willing to accept, then
Landlord, prior to accepting such third-party offer, shall
give Tenant a written Purchase Offer offering to sell
Building C, in completed "shell" condition comparable to
the Building (with no "tenant" improvements or improvement
allowance and on an AS IS basis), for a purchase price
equal to EIGHTY-TWO DOLLARS ($82.00) per square foot. In
no event shall this Section 3.4.2. apply to any offer, as
between the members of the Landlord
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<PAGE> 16
and/or their related and/or affiliated entities or
persons, to sell, transfer, or otherwise dispose of
interests in Building C or in the entity which comprises
the Landlord hereunder.
Provided that there is no material default (provided that
Tenant's default with respect to any monetary obligation
shall in all events be regarded as material) by Tenant
under this Lease, Tenant shall have three (3) business)
days following receipt of the Purchase Offer to elect in
writing to purchase pursuant to the offer set forth
therein. If Tenant elects to purchase within the time and
manner provided in the Purchase Offer, then, within
forty-five (45) days following acceptance (subject to a
possible maximum fifteen (15) day extension to accommodate
any Tenant financing), Landlord and Tenant shall close
escrow whereupon the Tenant shall pay the full amount of
the Purchase Price in cash.
If, upon an Tenant's election to buy Building C following
receipt of a Purchase Offer, Landlord has not completed
the construction of the shell improvements which comprise
Building C, then Landlord shall utilize commercially
reasonable efforts to complete Building C. Notwithstanding
anything to the contrary in this Section 3.4, the close of
escrow for Tenant's acquisition of Building C shall not
occur until the shell improvements which comprise Building
C are substantially completed, as evidenced by a
certificate executed by the architect of record for
Building C. Upon the close of escrow, Landlord shall
assign to Tenant any existing warranties which Landlord
may have received from the contractor of Building C to the
extent the same may be assigned, provided that Landlord
shall have no obligation to obtain any such warranties.
Landlord shall retain the right to make its own claims
against the assigned warranties to the extent Landlord,
for any reason, becomes liable to any party with respect
to any matters which are covered by such warranties.
If prior to Tenant's acceptance of a Purchase Offer
pursuant to this Section 3.4.2, Landlord has leased all or
a portion of Building C to pursuant to one or more Third
Party Lease(s), then, so long as Landlord has complied
with the provisions of Section 3.4.3 below prior to
entering into the first of any Third Party Leases, the
purchase price to be paid by Tenant upon the Close of
Escrow shall be increased by the amount of all costs
incurred by Landlord in connection with the Third Party
Lease(s). The aforesaid costs shall be limited to those
incurred only with respect to the Third Party Lease(s) and
shall include, without limitation, any improvement
allowances actually advanced by Landlord, leasing
commissions, attorneys fees, and marketing costs.
If Tenant rejects the offer set forth in the Purchase
Offer, or fails to accept the same within the time and
manner provided above, then (a)
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<PAGE> 17
Landlord shall be free to sell Building C pursuant to the
third-party offer or to any other person or entity upon
such terms and conditions as Landlord, in its sole and
absolute discretion, shall determine and (b), regardless
of whether or not Landlord sells Building C to another
party, Landlord shall have no further obligation to submit
a Purchase Offer or any other sale offer to Tenant with
respect to Building C, nor shall Tenant have any other
further rights to purchase Building C. If Landlord intends
to sell Building C at any time after April 1, 2000, then
Landlord shall have no obligation to provide to Tenant an
Offer pursuant to this Section 3.4.2.
If there is a default under this Lease by Tenant on the
closing date of Tenant's purchase of Building C, then
Landlord, in addition to any remedies Landlord may have
under this Lease, may elect to require, as a condition to
the close of escrow, that Tenant pay, in addition to the
purchase price and other amounts due from Tenant, all
amounts owning to Landlord in connection with such
default.
3.4.3 RIGHT OF FIRST REFUSAL TO LEASE BUILDING C. If, at any
time during the period beginning on the Commencement Date
and ending on April 1, 2000 (the "NOTICE PERIOD"),
Landlord receives a bona-fide offer from an unrelated
third party to lease all or any part of the Building upon
terms and conditions which Landlord is willing to accept,
then Landlord, prior to accepting such third-party offer,
shall give Tenant written notice offering (the "BUILDING C
LEASE OFFER") to Lease the entirety of the Building (even
if the third-party offer is only for a portion of Building
C) upon the following terms and provisions (the "OFFER
TERMS"): SEVENTY-NINE CENT ($0.79) per square foot base
rent, triple-net, TEN DOLLARS ($10.00) per square foot
improvement allowance for tenant improvements to be
approved by Landlord, in completed "shell" condition
comparable to the Building (with no "tenant" improvements
and on an AS IS basis), ten (10) year term, and a security
deposit to be determined by Landlord's lender for Building
C.
Provided that there is no default by Tenant under this
Lease, Tenant shall have three (3 business)) days
following receipt of the Building C Lease Offer to accept
in writing the Offer Terms. Tenant shall accept the
Building C Lease Offer by delivering to Landlord, within
the aforesaid five (5) business days, (a) a written notice
of acceptance, and (b) a rent deposit in an amount equal
to he base rent which will be due for the first month of
the Building C lease term. If Tenant accepts the Offer
Terms, then Landlord and Tenant, within thirty (30) days
following Tenant's acceptance, shall enter into a written
lease agreement in the form of this Lease, which lease
shall contain the Offer Terms, but shall not contain
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any of the various extension options or other rights as
are set forth in Section 3.2, 3.3, or 3.4 of this Lease.
If Tenant rejects the Building C Offer, or fails to accept
the same within the time and manner provided above, then
Tenant's right to lease Building C pursuant to this
Section 3.4.3 shall expire and be of no further force or
effect and then Landlord shall be free to lease Building C
pursuant to the third-party offer or to any other person
or entity upon such terms and conditions as Landlord, in
its sole and absolute discretion, shall determine;
provided, however, Tenant, upon receipt of the Building C
Lease Offer, shall, within three (3) business days, have
the right to exercise the Building C Purchase Option
pursuant to Section 3.4.1 above.
If there is a material default (provided that Tenant's
default with respect to any monetary obligation shall in
all events be regarded as material) by Tenant under this
Lease prior to the parties execution of a lease for
Building C, then Landlord, (in addition to its other
rights and remedies under this Lease, may elect terminate
the Building C Lease Offer, in which event Tenant shall
have no further rights to lease Building C or (ii)
require, as a condition to Landlord's execution of the
Building C lease, that Tenant pay all amounts owning to
Landlord in connection with such default.
Except as set forth herein above and notwithstanding any
other provision of this Lease to the contrary, Tenant
shall have no other rights of first offer, options, or
similar rights with respect to Building C.
4. RENT.
4.1 BASE RENT. Tenant agrees, as of the Commencement Date, to pay
Landlord, without prior notice, demand, or right of deduction
and/or offset, monthly "Base Rent" in the amounts set forth in
EXHIBIT "C" attached hereto, which Base Rent shall be due and
payable at Landlord's address shown above on the first day of
each calendar month throughout the Lease Term; provided, however,
Base Rent for the first thirty (30) days of the Lease Term shall
be equal to one half (1/2) of the applicable amount set forth in
EXHIBIT "C" ATTACHED HERETO. Base Rent for any period during the
Lease Term which is for less than one (1) month shall be prorated
based on a thirty (30) day month. For the purposes of determining
the applicable rent under EXHIBIT "C", "LEASE YEAR" shall mean
each successive twelve (12) month period during the Lease Term,
commencing on the Commencement Date.
4.2 RENT FOR EXTENDED TERM. Base Rent for the Extended Term shall be
an amount equal to the fair market rental value of the Premises
in relation to market condi-
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tions at the time of the extension; provided, however, in no
event shall the Base Rent for the Extended Term be less than the
Base Rent applicable during the tenth (10th) lease year of the
Lease Term, nor shall the annual increases of such Base Rent be
less then applicable market rates. The fair market rental value
of the Premises shall be determined by and as follows:
4.2.1 MUTUAL AGREEMENT. After timely receipt by Landlord of
Tenant's notice of exercise of the Option, Landlord and
Tenant shall have a period of thirty (30) days in which to
agree on Base Rent for the Extended Term. If Landlord and
Tenant agree on Base Rent during that period, they shall
immediately execute an amendment to this Lease stating
Base Rent for the Extended Term. If Landlord and Tenant
are unable to so agree on Base Rent, then Base Rent for
the Extended Term shall be calculated by utilizing the
fair market rental value of the Premises determined as
provided in Section 4.2.2 below.
4.2.2 APPRAISAL. Within ten (10) days after the expiration of
the thirty (30) day period described in Section 4.2.1
above, each party, at its cost and by giving notice to the
other party, shall appoint M.A.I. real estate appraiser,
with at least five (5) years full-time commercial
appraisal experience in Alameda County, to appraise and
set the fair market rental value of the Premises. If a
party does not appoint an appraiser within five (5) days
after the other party has given notice of the name of its
appraiser, the single appraiser appointed shall be the
sole appraiser and shall set the fair market rental value
of the Premises. The cost of such sole appraiser shall be
borne equally by the parties. The two appraisers appointed
by the parties shall meet promptly and attempt to set the
fair market rental value of the Premises. If they are
unable to agree within twenty (20) days after the last
appraiser has been appointed, then the two appraisers
shall attempt to select a third appraiser meeting the
qualifications stated in this Section 4.2.2 within ten
(10) days after the last day the two appraisers are given
to set the fair market rental value of the Premises If
they are unable to agree on the third appraiser, either of
the parties to this Lease, by giving ten (10) days notice
to the other party, may apply to the presiding judge of
the Superior Court of Alameda County for the selection of
a third appraiser who meets the qualifications stated
above. Each of the parties shall bear one-half (1/2) of
the cost of appointing the third appraiser and of paying
the third appraiser's fee. The third appraiser, however
selected, shall be instructed to select which of the two
appraisals submitted by the parties' respective appraisers
more closely represents the fair market rental value for
the Premises, which selection shall be the fair market
rental value of the Premises. In establishing the fair
market rental value, the appraiser or appraisers shall
consider (on a triple net basis) the reasonable market
rental value for the Premises (which shall include
considerations of (a) rental rates for com-
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<PAGE> 20
parable space with comparable tenant improvements
(provided that in no event shall the determination of the
fair market rental value of the Premises include rent
applicable to any portion of the Tenant Improvements in
excess of the Improvement Allowance or of any other
improvements paid for directly by Tenant), (b) cost of
living increases or other rental adjustments (c) the
relative strength of the tenants, and (d) the size of the
space without regard to the existence of this Lease.
4.3 ADDITIONAL RENT. In addition to Base Rent, Tenant shall pay, as
"ADDITIONAL RENT," Tenant's Percentage Share of Operating
Expenses and Taxes, utility costs as referred to in Section 7
below, late charges and interest as provided for in this Lease,
and all other items to be paid hereunder to Landlord. The term
"RENT(S)" whenever used herein refers to Base Rent and Additional
Rent.
4.4 RENT DEPOSIT. Upon execution of this Lease, Tenant shall pay to
Landlord the sum of SIXTY THREE THOUSAND EIGHT HUNDRED DOLLARS
AND TWENTY-FOUR CENTS ($63,800.24) as a prepayment towards the
first SIXTY THREE THOUSAND EIGHT HUNDRED DOLLARS AND TWENTY-FOUR
CENTS ($63,800.24) of Base Rent which becomes due starting on the
Commencement Date.
5. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit
with Landlord EIGHT HUNDRED NINETY THOUSAND EIGHT HUNDRED SEVEN DOLLARS
AND SIXTY-THREE CENTS ($890,807.63) as a security deposit for the
performance by Tenant of the provisions of this Lease. The security
deposit shall consist of (a) cash in the amount of NINETY THOUSAND EIGHT
HUNDRED SEVEN DOLLARS AND SIXTY-THREE CENTS ($90,807.63) (the, "CASH
DEPOSIT") and (b) a Letter of Credit (the, "LETTER OF CREDIT") in the
amount of EIGHT HUNDRED THOUSAND DOLLARS ($800,000.00) which meets the
requirements set forth below. Tenant may elect to deposit the Letter of
Credit with Landlord within fifteen (15) days following Tenant's
execution of this Lease, provided that in no event shall the Letter of
Credit be deposited with Landlord later than 5:00 p.m. on September 17,
1999. Tenant's failure to deliver the security deposit, or any component
thereof, as and when required in this Section 5 shall be a material
default by Tenant under this Lease. Upon such default, Landlord, in
addition to its other rights and remedies, may instruct the Building
Contractor to cease construction of the Tenant Improvements until the
default is cured. In addition, any cessation of work shall be
automatically regarded as a Tenant Delay without the necessity of any
notice on the part of Landlord. If Tenant is in default, Landlord can
use the security deposit, or any portion of it, to cure the default or
to compensate Landlord for all damages sustained by Landlord resulting
from Tenant's default. Tenant shall pay immediately on demand to
Landlord a sum equal to the portion of the security deposit expended or
applied by Landlord as provided in this Section so as to maintain the
security deposit in the sum initially deposited with Landlord. In this
regard, in the event Landlord draws only a portion of the Letter of
Credit (as described in 5. e. below), then Tenant shall immediately
provide to Landlord a replacement Letter
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of Credit in the amount of EIGHT HUNDRED THOUSAND DOLLARS ($800,000.00)
which meets the requirements set forth below. As soon as practicable
after the expiration or termination of this Lease, Landlord shall return
the security deposit to Tenant, less such amounts as are reasonably
necessary to remedy Tenant's defaults in payment of Rent, to repair
damages to the Premises caused by Tenant or to clean the Premises upon
such termination, reasonable and normal wear and tear excepted. In the
event of the sale of the Building, the security deposit will be
transferred to the purchaser and Landlord will be relieved of any
liability with reference to such security deposit upon such transfer.
Landlord shall not be required to keep the security deposit separate
from its other funds, and Tenant shall not be entitled to interest on
such deposit. Notwithstanding the foregoing, interest shall accrue on
the unused balance of the Cash Deposit at an annual rate of two percent
(2%) from the date the Cash Deposit is placed with Landlord through the
date that the Cash Deposit, or any remaining portion thereof, is
returned to Tenant following the expiration or termination of this
Lease. Accrued interest on the unused portion of the Cash Deposit shall
only be payable to Tenant upon the expiration or termination of this
Lease; provided, however, no interest shall be payable to Tenant if this
Lease has been terminated by Landlord following an event of default on
the part of Tenant.
The Letter of Credit shall comply with the following:
a. The Letter of Credit shall be issued by a financial institution
with a rating of "Aa" or better by Moody's Investor Service and
"AA" or better by Standard & Poors Corporation and otherwise
reasonably approved by Landlord and any lender which has
provided, or will be providing, financing for the Building (a
"BUILDING LENDER"), which issuer shall have offices from which
the Letter of Credit may be drawn in either Alameda County or
Santa Clara County, California;
b. The Letter of Credit shall be for the direct account and benefit
of Landlord and, if requested by Landlord, the Building Lender,
and in the form of a clean, irrevocable, non-documentary and
unconditional letter of credit and otherwise in form reasonably
approved by Landlord and the Building Lender
c. The Letter of Credit shall be fully transferable and/or
assignable by Landlord and/or the Building Lender to successor
owners of the Building, the Building Lender, or any other party
without the payment of fees or charges;
d. The Letter of Credit shall, on its face, be for an initial term
of one year with an automatic extension for consecutive periods
of one year each, unless the issuer thereof sends notice (the
"NON-RENEWAL NOTICE") to Landlord by certified mail not less than
thirty (30) days prior to the then expiration date of the Letter
of Credit;
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e. The Letter of Credit shall, on its face, state that Landlord
shall have the right to draw thereunder upon presentation of a
written statement certifying that there has occurred an event of
default under this Lease. Upon an event of default, Landlord
shall only be entitled to draw a portion of the Letter of Credit
which is equal to the damages which Landlord reasonably
determines Landlord has incurred or will incur in connection
therewith (which damages may include all damages to which
Landlord may be entitled pursuant to Section 20 below). Prior to
making a draw upon the Letter of Credit by reason of a default by
Tenant, Landlord shall have provided to Tenant written notice of
the subject default.
f. The Letter of Credit shall, on its face, also state that Landlord
shall have the right to draw the full amount thereof upon written
request given within thirty (30) days following Landlord's
receipt of a Non-Renewal Notice.
g. The Letter of Credit shall also contain such other provisions as
may be requested by the Building Lender.
The Letter of Credit may be terminated by Tenant, upon the earlier of
the following:
A. Tenant has, following the Commencement Date, six (6) consecutive
financial quarters of net profits from its operations and
provides to Landlord audited financial statements for two (2)
full fiscal years following the Commencement Date showing net
profit from operations; or,
B. Tenant has completed a public offering of its stock which nets to
Tenant not less than Eighty Million Dollars ($80,000,000.00).
6. OPERATING EXPENSES AND TAXES.
6.1 PAYMENT BY TENANT. Pursuant to this Section 6, Tenant shall pay
to Landlord Tenant's Percentage Share of Operating Expenses and
Taxes.
a. OPERATING EXPENSES. Landlord shall determine or estimate
the amount of Tenant's Percentage Share of Operating
Expenses for the calendar year in which the Occupancy Date
occurs. Beginning on the Commencement Date, one-twelfth
(1/12) of the amount estimated by Landlord to be Tenant's
Percentage Share of Operating Expenses shall be due and
payable by Tenant to Landlord, as Additional Rent, on the
first day of each calendar month remaining in the calendar
year. Thereafter, Landlord may estimate such increases to
Tenant's Percentage Share of Operating Expenses as of the
beginning of each calendar year and may require Tenant to
pay one-twelfth (1/12) of such estimated amount as
Additional Rent hereunder as of the first day of each
calendar month.
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In the event that during the course of any calendar year
Operating Expenses have increased by more than five
percent (5%) over the amount of Operating Expenses
estimated by Landlord at the commencement of that calendar
year, Landlord may recalculate the amount of the monthly
estimated payments to be paid by Tenant in order to take
into account any such increases and, following notice from
Landlord of any such increase, Tenant shall pay the full
amount of the recalculated payments on a monthly basis for
the remainder of the subject calendar year. In making the
aforesaid recalculation, Landlord may include amounts
necessary to reimburse Landlord for any increased
Operating Expenses applicable to that portion of the
subject calendar year which was prior to the date of
Landlord's notice.
Not later than ninety (90) days following any calendar
year (including the year following the year in which this
Lease terminates), Landlord shall furnish Tenant with a
true and correct accounting of the actual Operating
Expenses incurred by Landlord in the preceding calendar
year, and within thirty (30) days of Landlord's delivery
of such accounting, Tenant shall pay to Landlord the
amount of any underpayment by Tenant of Tenant's
Percentage Share of Operating Expenses. Notwithstanding
the foregoing, failure by Landlord to give such accounting
shall not constitute a waiver by Landlord of its right to
collect Tenant's Percentage Share of Operating Expenses or
any under-payment by Tenant thereof. Landlord shall credit
the amount of any overpayment by Tenant toward the next
estimated installment(s) of Tenant's Percentage Share of
Operating Expenses or, where the term of the Lease has
expired or been terminated (other than due to a default by
Tenant), shall refund the amount of overpayment to Tenant
within thirty (30) days without obligation upon Tenant to
demand such refund from Landlord.
b. TAXES. Tenant shall pay to Tenant's Percentage Share of
Taxes within ten (10) days following the written demand by
Landlord therefor, which demand shall be accompanied by a
copy of the tax bill reflecting the Taxes for which
Landlord is seeking payment and shall be made by Landlord
no earlier than thirty (30) days prior to the due date of
such Taxes. If any Taxes cover any period of time either
prior to the Occupancy Date or after the expiration of the
Lease Term, Tenant's Percentage Share of Taxes shall be
prorated to cover only the period of time following the
Commencement Date or prior to the expiration of the Lease
Term, as applicable.
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Within twelve (12) months following the end of any calendar year,
Tenant shall have the right, at it sole cost and expense, to
review Landlord's books and records with respect to the Operating
Expenses and Taxes for such calendar year. If upon such review it
is determined that there were any errors in the calculation of
Operating Expenses or Taxes, then, within thirty (30) days after
such determination, Landlord shall credit any overpayment by
Tenant to Base Rent thereafter becoming due or Tenant shall pay
to Landlord any underpayment, as the case may be. In the event
that a review by Tenant determines that Tenant has overpaid by
more than three percent (3%), then Landlord shall reimburse
Tenant for the reasonable out-of-pocket costs incurred by Tenant
in connection with such review.
6.2 DEFINITIONS. "TENANT'S PERCENTAGE SHARE" shall be (a) one hundred
percent (100%) which respect to all Operating Expenses and Taxes
which are directly attributable to Building, including, without
limitation, all Common Area Expenses (as defined in the
Declaration) which are allocable to the Building's Exclusive
Common Area, and (b) twenty-nine and five tenths percent (29.5%)
as to Common Area Expenses which are attributable to the
Non-Exclusive Common Areas (as defined in the Declaration).
"OPERATING EXPENSES" are defined as all reasonable costs and
expenses paid or incurred by Landlord in connection with the
ownership, maintenance, repair, management, and operation of the
Premises, the Building, and the Common Areas, which reasonable
costs and expenses shall include, without limit, the following:
i. Landlord's reasonable costs and expenses in carrying out
repairs and maintenance pursuant to Section 11.2(b) and
(c) below, the Building's percentage share of all Common
Area Expenses and other expenses benefiting the Project in
general and all of the Exclusive Common Area Expenses
allocable to the Building;
ii. Landlord's cost of fire, extended coverage (including
rental loss insurance) and other insurance for the
Building and the Land;
iii. Landlord's reasonable cost of the fire sprinkler
monitoring system;
iv. a annual management fee equal to three percent (3%) of the
gross revenues from the Building; and,
v. the amortized portion of any capital expenditures incurred
by Landlord with respect to the Building, to the extent
such capital expenditures are intended to reduce or
replace other items of Operating Expenses.
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"Amortized portion" of any capital expenditure to be paid
by Tenant shall mean Tenant's Percentage Share of the
following: the amount of the expenditure amortized (on a
monthly basis) over the useful life of the item to which
the expenditure is applicable. Tenant's Percentage Share
of such amortized amount shall be payable in each month
after such expenditure is incurred until the earlier of
(i) the expiration of the Lease Term, or (ii) the end of
the useful life of the item to which the expenditure is
applicable
"TAXES" are defined as all real property taxes applicable to the
Land, the Building, and the Premises. The term "real property
taxes" shall include any form of assessment (general, special,
supplemental, ordinary or extraordinary), commercial rental tax,
improvement bond or bonds, license fee, license tax, rental tax,
levy, penalty imposed by any authority having the direct or
indirect power of tax, including any city, county, state or
federal government, or any school, agricultural, lighting,
drainage or other improvement district thereof, as against any
legal or equitable interest of Landlord in the Land, the
Building, and/or the Premises, as against Landlord's right to
rent or to other income therefrom, or as against Landlord's
business of leasing the Premises or the occupancy of Tenant, or
any other tax, fee, or excise, however described, including any
value added tax, or any tax imposed in substitution, partially or
totally, of any tax previously included within the definition of
real property taxes, or any additional tax, the nature of which
was previously included within the definition of real property
tax. The term "real property taxes" shall not include any income
or franchise taxes imposed on Landlord. If, for any reason, the
Taxes for the Land, Building, and Premises are not separately
assessed from the Project as a whole, then Taxes shall be
allocated to the Land, Building, and Premises based upon the
percentage in which Common Area Expenses are allocated to the
Building pursuant to the Declaration.
7. UTILITIES. Tenant shall be solely responsible for paying the cost of all
water, gas, heat, electricity, telephone, garbage and other utilities
directly used on the Premises. Tenant shall pay directly to the utility
provider the cost of all such utilities. Tenant, as part of Tenant's
Percentage Share of Operating Expenses, will pay for a portion of the
utilities servicing the Non-Exclusive Common Area and for all of the
utilities servicing the Building's Exclusive Common Area.
8. LATE CHARGES. Tenant acknowledges that late payment by Tenant to
Landlord of Base Rent. Tenant's Percentage Share of Operating Expenses
and Taxes or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impracticable to fix. Such costs include,
without limitation, processing and accounting charges and late charges
that may be imposed on Landlord by the terms of any encumbrances or
notes secured by any encumbrance covering the Premises. Therefore, if
any installment of Base Rent or other sum due from Tenant is not
received by Landlord when due, then, within ten (10) days
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following the date said Base Rent or other sum is due, Tenant shall pay
to Landlord, without additional invoice or demand, an additional sum
equal to six percent (6%) of such overdue amount as a late charge;
provided, however, if payments of Base Rent have been made to Landlord
in a timely manner pursuant to automatic wire transfer then the late
charge herein shall be an additional sum equal to five percent (5%) of
the overdue amount. The parties agree that this late charge represents a
fair and reasonable estimate of the costs that Landlord will incur by
reason of late payment by Tenant. The accrual and/or acceptance of any
late charge shall not constitute a waiver of Tenant's default with
respect to the overdue amount, nor prevent Landlord from exercising any
of Landlord's other rights and remedies.
9. USE OF PREMISES; COMPLIANCE WITH LAWS.
9.1 GENERAL. The Premises are to be used for office, research and
development, and light manufacturing for group B occupancy
(collectively, "TENANT'S OPERATIONS"). Any other use of the
Premises shall only be made upon the prior written consent of
Landlord, which consent shall not be unreasonably withheld if any
proposed change in use would be allowed under applicable land use
ordinances. Tenant shall not do anything or permit anything to be
done in or about the Premises nor keep or bring anything or
permit anything to be kept or brought therein which will in any
way increase the existing rate of or affect any policy of fire or
other insurance upon the Building or any of its contents, or
cause a cancellation of any insurance policy. Tenant shall not
use or allow the Premises to be used for any unlawful purpose,
nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall not damage or deface or
otherwise commit or suffer to be committed any waste in or upon
the Premises. Tenant shall honor the terms of all recorded
covenants, conditions and restrictions relating to the Land.
Tenant shall honor the terms of any reasonable rules and
regulations established by Landlord during the Lease Term which
relate to the Premises and/or the Building.
In connection with Tenant's use of the Premises, Tenant shall, at
its sole cost and expense, do the following:
a. Apply for, obtain and maintain throughout the Lease Term
any and all permits, licenses and other governmental
approvals which are required in connection with Tenant's
Operations;
b. Comply with any and all laws, rules, regulations or
ordinances (collectively, "Law") of any governmental
authority which govern Tenant's Operations;
c. Adopt such measures as are, from time to time, necessary
or required in order to prevent injury, or damage to
persons or properties, in or
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around the Premises as a result of any activities related
to Tenant's Operations;
d. Subject to Article 10 below, carry out any and all
alterations and improvements to the Premises which may be
necessary in order to comply with the Laws, to the extent
such compliance is (1) required for Tenant's specific use
or occupancy of the Building, (2) imposed in connection
with any alterations or improvements being made by, or on
behalf of Tenant, or (3) imposed in connection with any
governmental permit, approval, or authorization applied
for by Tenant; and,
e. Comply with all of the terms and provisions of the
Declaration, as the same may be amended from time to time
during the Lease Term.
9.2 HAZARDOUS MATERIALS.
9.2.1 PROHIBITION. Tenant and Tenant's agents, contractors,
subcontractors, and employees shall not use, store,
release or dispose of (collectively "Release(s)"), or
allow a Release of, any Hazardous Materials (defined
below) in or about the Premises, except that Tenant may,
subject to the terms of this Lease, use and store in the
Premises any Permitted Materials (defined below). Tenant
shall, at its sole cost and expense, comply with any and
all laws, rules, regulations or ordinances of any
governmental authority which govern the use, handling or
storage of any Hazardous Materials which are placed in or
about the Premises in connection with Tenant's operations
or otherwise relating to any activity undertaken by, or on
behalf of, Tenant. All provisions of this Lease relating
to Tenant's obligations with respect to Hazardous
Materials, including, without limitation, the obligations
set forth in this Section 9.2, in Section 11.1 (regarding
maintenance of the Premises) and Section 13 (regarding
Tenant's indemnity of Landlord with respect to Hazardous
Materials), shall survive the termination or earlier
expiration of this Lease.
9.2.3 DEFINITIONS. As used in this Lease, the term "Hazardous
Materials" includes, without limitation, any material or
substance which is (i) defined as a "hazardous waste,"
"extremely hazardous waste" or "restricted hazardous
waste" under Sections 25115, 25117 or 25122.7, or listed
pursuant to Section 25140, of the California Health and
Safety Code, Division 20. Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance"
under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner
Hazardous Substance Account Act), (iii) defined as a
"hazardous material," "hazardous substance," or "hazardous
waste" under Section 25501 of the California Health and
Safety Code, Divi-
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sion 20, Chapter 6.95 (Hazardous Materials Release
Response Plans and Inventory), (iv) defined as a
"hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter
6.7 (Underground Storage of Hazardous Substances), (v)
petroleum and any petroleum by-products, (vi) asbestos,
(vii) urea formaldehyde foam insulation, (viii) listed
under Article 9 or defined as hazardous or extremely
hazardous pursuant to Article 11 of Title 22 of the
California Administrative Code, Division 4, Chapter 20,
(ix) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act (33
U.S.C. Section 1317), (x) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq. (42 U.S.C. Section 6903), (xi) defined as a
"hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601), or (ix) determined to be, or defined as,
under any federal, state or local governmental authority
as hazardous, toxic, or dangerous to persons, animals or
the environment.
As used in this Lease, the term "Permitted Materials"
shall mean and refer to those Hazardous Substances which
are (a) customarily used by Tenant in the conduct of
Tenant's Operations, (b) designated by Tenant to Landlord
in writing prior to use, and (c) approved, in advance of
its use, by Landlord. As to any Hazardous Materials which
are "Permitted Materials," Tenant shall comply with any
reasonable requirements imposed by Landlord to confirm
that Tenant's use of such materials are, or will be, in
compliance with all applicable rules, laws and
regulations, and will not otherwise not pose a threat of
contamination or unlawful release in or about the
Premises.
9.3 SIGNAGE. Tenant shall be entitled to place its name and logo
("TENANT'S SIGNS") on the monument sign for the Project and on
the exterior of the Building, subject to the following:
a. The design of Tenant's Sign shall be subject to Landlord's
prior reasonable approval and shall comply with any sign
restrictions set forth in the Declaration;
b. Tenant's Signs shall comply with all appropriate sign
ordinances of the City of Fremont;
c. The size, color, materials, and location of Tenant's Sign
shall be subject to the Project and Building sign
allocation limitations adopted by Landlord and/or the
Association (as defined in the Declaration); and,
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d. All costs and expenses in connection with Tenant's Sign shall
be borne by Tenant.
9.4 REASONABLENESS OF RESTRICTIONS. Landlord and Tenant hereby
acknowledge and agree that the use restrictions set forth in this
Section 9 shall be deemed reasonable in all respects and under
all circumstances.
10. ALTERATIONS; CONDITION ON TERMINATION. Tenant shall not install any
signs, fixtures or improvements ("ALTERATIONS") to the Premises, the
cost of which is Ten Thousand Dollars ($10,000) or more, without the
prior written consent of Landlord. At such time as Landlord is granting
its consent to any proposed Alterations, Landlord shall indicate whether
such Alterations will be required to be removed upon a termination of
this Lease. Tenant shall obtain all governmental permits, licenses and
other consents, and shall comply with all governmental rules, laws,
regulations and requirements, which are applicable to any Alterations
and/or additions constructed on the Premises by Tenant, all at Tenant's
sole cost and expense. Any Alteration shall be carried-out by licensed
and experienced contractors reasonably approved in advance of any work
by Landlord. Tenant shall keep the Premises, the Building and the Land
free from any liens arising out of any work performed, materials
furnished or obligations incurred by or on behalf of Tenant. During the
Lease Term, all Alterations placed or constructed on the Premises by
Tenant shall be deemed the property of Landlord. During the Lease Term,
Tenant may remove any such Alterations (but not the original Tenant
Improvements) without the prior consent of Landlord, provided that
Tenant shall pay all costs and expenses relating to damage caused by
such removal. Upon the termination of this Lease, Tenant shall cause all
its equipment and trade fixtures to be removed from the Premises and
shall repair any damage to the Premises resulting therefrom at its sole
cost and expense. With respect to any Alterations (including any
Alterations not requiring the prior written consent of Landlord) not
removed by Tenant prior to the termination of this Lease and provided
that Landlord has not indicated otherwise, Landlord expressly reserves
the right to require Tenant to remove any or all of such Alterations
upon the termination of this Lease, and Tenant shall promptly remove any
Alterations that Landlord so requires to be removed and repair any
damage to the Premises resulting from such removal, all at Tenant's sole
cost and expense. All Alterations not required, pursuant to this Section
10, to be removed shall become the property of Landlord upon the
termination of this Lease.
Upon termination of this Lease, Tenant shall (a) repair any damage
caused by the installation or removal of any Alterations placed or
constructed on the Premises by Tenant, (b) assure that the Premises, the
Building and/or the Land are free and clear of all Hazardous Materials
used or stored by Tenant, or Tenant's agents, employees, contractors,
subcontractors, licensees, customers or invitees, during the Lease Term,
and (c) assure that the Premises are in good condition and in good
working order (except as to any casualty damage and where, pursuant
thereto, this Lease has been terminated pursuant to Section 27 below),
reasonable and normal wear and tear excepted.
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11. REPAIRS AND MAINTENANCE.
11.1 TENANT'S OBLIGATIONS. Tenant shall, at Tenant's sole cost and
expense, do the following:
a. maintain the interior portions of the Premises in good,
clean and safe condition and repair;
b. maintain all phone, network, and other communications
cabling on, about or within the Premises;
c. maintain those exterior portions of the Premises which are
not otherwise the responsibility of Landlord as set forth
in Section 11.2 below in good, clean and safe condition
and repair;
d. repair any damage to the Premises, the Building or Common
Areas caused by any act or omission of Tenant or its
employees, agents, invitees, licensees or contractors; and
e. conduct all maintenance, clean-ups and repair required in
connection with Tenant's or Tenant's agents, employees,
contractors, subcontractors, licensees, customers or
invitees use and/or storage of Hazardous Materials on or
about the Premises, the Building and/or the Land.
Tenant shall have no right to install any device on the roof of
the Premises or the Building without the express prior written
consent of Landlord. Tenant shall not make any penetrations of
the roof of the Premises or the Building without the express
prior written consent of Landlord.
11.2 LANDLORD'S OBLIGATIONS. Landlord shall do the following:
a. repair and maintain the structural portions of the
Building and the Premises (including, without limit, the
roof structure);
b. repair and maintain all heating and HVAC systems servicing
the Premises and the Building.
All costs advanced by Landlord in connection with the performance of
Landlord's obligations in this Section 11.2 shall be subject to
repayment by Tenant to Landlord as part of Tenant's Percentage Share of
Operating Expenses, except those costs advanced by Landlord in
connection with the work described in 11.2(a) to the extent such work is
not required by reason of any act or omission on the part of Tenant, its
employees, agents, contractor, customers, suppliers, and/or invitees.
Tenant acknowledges that the
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repair and maintenance of the Common Area will be carried out by the
Association and that Landlord shall have no obligation or responsibility
under this Lease to carry out any such repairs or maintenance.
12. INSURANCE.
12.1 TENANT'S INSURANCE. Tenant shall at all times during the Lease
Term, and at its sole cost and expense, maintain general
commercial liability insurance (together with a broad form
comprehensive general liability endorsement) against liability
for bodily injury and property damage. The aforesaid liability
insurance shall also contain an endorsement naming Landlord, and
Landlord's members., as "additional insureds," which endorsement
shall cover the aforesaid additional insureds for all acts and
omissions of said parties in or about the Premises. The aforesaid
insurance shall be in an amount of not less than Two Million
Dollars ($2,000,000) per occurrence and not less than Five
Million Dollars ($5,000,000) in the aggregate. In no event shall
the limits of said policy be considered as limiting the liability
of Tenant under this Lease.
Tenant shall also at all times maintain standard "all risk"
casualty insurance upon all of Tenant's equipment, furnishings
and fixtures.
The aforesaid insurance shall be with companies licensed to do
business with the Insurance Commissioner of the State of
California. A certificate of such insurance shall be delivered to
Landlord prior to the Occupancy Date and, thereafter, on each
anniversary date of the Commencement Date. The certificate for
Tenant's liability insurance shall certify that the policy names
Landlord and the other aforesaid persons and entities as
"additional insureds" and that the policy shall not be canceled
or altered without thirty (30) days prior written notice to
Landlord.
12.2 LANDLORD'S INSURANCE. During the Lease Term, Landlord shall
maintain standard "all risk" casualty insurance on the Building
and the Premises (including the original Tenant Improvements),
which coverage shall be in an amount not less than the full
replacement cost of the Building, exclusive of architectural and
engineering fees, excavations, footings, and foundations, and the
General Tenant Improvements, and the original Tenant
Improvements.
12.3 WAIVER OF SUBROGATION. Notwithstanding any other provision of
this Lease, Landlord and Tenant each hereby waive any right of
recovery against the other and the authorized representatives of
the other for any loss or damage that is of the type required to
be covered by any policy of insurance required under Section 12.1
or 12.2 above. Each party shall cause each insurance policy
obtained by it to provide that the insurance company waives all
right of recovery by way of subrogation against either party in
connection with any damage covered by any policy. If any
insurance policy cannot be obtained with a waiver of subro-
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gation, or is obtainable only by the payment of an additional
premium charge above that charged by insurance companies issuing
policies without waivers of subrogation, the party undertaking to
obtain the insurance shall notify the other party of this fact.
The other party shall have a period of thirty (30) days after
receiving such notice either to replace the insurance with a
company that is reasonably satisfactory to the other party and
that will carry the insurance with a waiver of subrogation, or to
agree to pay the additional premium if such policy is obtainable
at additional cost. If the insurance cannot be obtained or the
party in whose favor a waiver of subrogation is desired refuses
to pay the additional premium charge, the other party is relieved
of the obligation to obtain a waiver of subrogation rights with
respect to the particular insurance involved.
13. LIMITATION OF LIABILITY AND INDEMNITY. Tenant agrees to save, defend and
hold Landlord harmless and indemnify Landlord, and Landlord's partners,
employees, agents, and contractors, against all liabilities, charges and
expenses (including reasonable attorneys' fees, costs of court and
expenses necessary in the prosecution or defense of any litigation) by
reason of injury to person or property, from whatever cause, while in or
on the Premises, or in any way connected with the Premises, with the
improvements or with the personal property therein, including any
liability for injury to person or property of Tenant, its agents or
employees or third party persons; provided, however, Landlord shall be
liable only for property damage and bodily injury resulting from the
negligent acts or omissions of Landlord, or any of its partners,
employees, agents or contractors.
Tenant's obligations under this Section 13 shall include the obligation
to indemnify, hold harmless, and defend Landlord, and its partners,
agents and employees, from and against any and all claims, losses,
liabilities, costs and expenses arising out of or in connection with (a)
any injury or damage resulting from Tenant's use of the Premises in
connection with Tenant's Operations, and (b) any Release of any
Hazardous Materials in or about the Premises, the Building and/or the
Land, to the extent the Release is caused or permitted by Tenant, or any
of its agents, employees, contractors, subcontractors and/or invitees.
Tenant's indemnity obligations under this Section 13 shall survive
termination of this Lease.
Landlord, and Landlord's partners, employees, agents, and contractors,
shall not be liable to Tenant for any damage to Tenant or Tenant's
property, nor for any injury to or loss of Tenant's business nor for any
damage or injury to any person from any cause; provided, however,
Landlord shall be liable for, and shall indemnify, defend and hold
Tenant harmless from and against any claims arising in connection with,
property damage and bodily injury resulting from the willful misconduct
or negligent acts or omissions of Landlord, or any of its partners,
employees, agents, or contractors, but only to the extent any such
property damage and bodily injury is not covered by either the insurance
required to be maintained by Tenant under this Lease or by any other
insurance actually maintained by Tenant.
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14. ASSIGNMENT AND SUBLETTING.
14.1 IN GENERAL. Tenant shall not, either voluntarily or by operation
of law, assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, and shall not sublet
the Premises or any part thereof, or any right or privilege
appurtenant thereto, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld.
Landlord shall be reasonable in withholding its consent to any
proposed assignment if the net worth of the proposed assignee is
not equal to or greater than the net worth of Tenant as of the
date of execution of this Lease or the date of the proposed
assignment, whichever is higher. Tenant shall give Landlord at
least fifteen (15) days written notice of its desire to assign or
sublet all or some of the Premises. Any such assignment, sublease
or the like which is approved by Landlord must be pursuant to a
written agreement in a form acceptable to Landlord. Each
permitted assignee, transferee, or Sublessee shall assume and be
deemed to have assumed this Lease (or the appropriate part
hereof) and shall be and remain jointly and severally liable with
Tenant for the payment of Rents and for the due performance of
and compliance with all the terms, covenants, conditions and
agreements to be performed or complied with by Tenant herein
(including, but not limited to, the provisions of this Section
14). Notwithstanding the foregoing, if Landlord consents to a
full assignment of this Lease by the original Tenant hereunder
during the initial ten (10) year term hereof, then the original
Tenant hereunder shall be released from any obligations under
this Lease if the transferee elects to exercise the Option
pursuant to Section 3.2 above; provided, however, if, in
evaluating the proposed assignment, Landlord determines that the
proposed transferee's projected financial condition during the
Extended Term is not satisfactory, then Tenant shall elect to
either (a) assign to the proposed transferee only Tenant's rights
through the remaining initial ten (10) year Lease Term (in which
event the transferee shall have no right to exercise the Option),
or (b) remain liable for any and all obligations arising under
this Lease during the Extended Term to the extent the transferee
exercises the Option. Upon any release of the original Tenant, as
provided above, such original Tenant shall have no right to
retain any portion of Excess Rents (as provided in Section 14.4
below) or any other rents or other charges which are paid or
payable by any assignee or other party during the Extended Term.
14.2 TRANSFERS OF INTERESTS IN TENANT. Any merger or reorganization of
the entity which comprises Tenant, any sale, or transfer of
substantially all of the assets of Tenant, or any sale or other
transfer of a majority of the interests in Tenant shall not be
deemed an assignment of this Lease requiring the prior written
consent of Landlord pursuant to Section 14.1 above.
14.3 RIGHT TO TERMINATE. If Tenant notifies Landlord of its desire to
assign this Lease or any interest herein, to sublet all or any
part of the Premises for more
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than seventy-five percent (75%) of the remainder of the Lease
Term, or to sublet more than seventy-five percent (75%) of the
Premises for any period, Landlord may elect to treat Tenant's
notice as an offer to terminate this Lease or Tenant's interest
in the portion of the Premises specified and, thereupon, Landlord
shall have the right to terminate the Lease (a) entirely, in the
event of a proposed assignment or a sublease of the entire
Premises for the remainder of the Lease Term, (b) as to the
portion of the Premises which is the subject of a proposed
sublease for more than seventy-five percent (75%) of the
remainder of the Lease Term, or (c) as to the portion of the
Premises which is the subject of a proposed sublease of more than
seventy-five percent (75%) of the Premises for any period, as
specified in Tenant's notice. For purposes of this Section 14.3,
(i) the term of a proposed sublease shall include all options to
extend or renew, and (ii) a proposed sublease shall be deemed to
be for the remainder of the Lease Term if the term of the
proposed sublease will expire within one (1) year of the end of
the Lease Term. If Tenant's notice specifies all of the Premises
and Landlord elects to terminate, this Lease shall terminate on
the date stated in the notice given by Tenant pursuant to Section
14.1 above, subject to any obligations which have accrued and are
unfulfilled as of such date. If Tenant's notice specifies less
than all of the Premises and Landlord elects to terminate, this
Lease shall terminate on the date stated with respect to that
portion of the Premises, and Base Rent and Tenant's Percentage
Share shall be adjusted, based upon the area retained by Tenant
after the termination, compared to the total area of the entire
Premises excluding any areas of the Premises designated in the
proposed sublease for ingress and egress and common areas. The
Lease as so amended shall continue thereafter in full force and
effect. Landlord and Tenant shall execute an amendment to this
Lease specifying the new Premises, the adjusted Base Rent and
Tenant's adjusted Percentage Share; provided, however, that
failure by either party to execute such an amendment shall not
affect the validity of this Lease.
14.4 EXCESS RENTS. Except as provided in the last sentence of Section
14.1 above, any Excess Rents (defined below) payable pursuant to
any assignment or subletting shall be paid to Landlord and Tenant
on a fifty-fifty (50-50) basis. Landlord shall have the right to
impose terms and conditions on its consent to any assignment or
subletting to assure the accounting and payment of Landlord's
share of Excess Rents. "Excess Rents" shall mean any and all
rents, payments, charges and other considerations to be received
by Tenant upon an assignment or subletting of all or any portion
of the Premises which are in excess of the Rents payable by
Tenant to Landlord under this Lease after the recovery by Tenant
of reasonable and customary amounts for brokerage commissions,
legal expenses, and tenant improvement costs, to the extent such
items have been actually incurred by Tenant in connection with
the subject assignment or sublease.
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15. AD VALOREM TAXES. Tenant shall pay before delinquent all taxes assessed
against the personal property of Tenant and all taxes attributable to
any leasehold improvements installed by Tenant.
16. LENDER REQUIREMENTS.
16.1 SUBORDINATION. This Lease is subordinate to any and all mortgages
and/or deeds of trust ("Encumbrances") now of record against the
Land and/or the Building. Tenant shall, upon the request of
Landlord, execute any instrument reasonably necessary or
desirable to (a) acknowledge the subordination of this Lease to
any existing mortgages or deeds of trust, or (b) subordinate this
Lease and all of Tenant's rights hereunder to any and all
Encumbrances hereafter recorded against the Land and/or the
Building; provided, however, Tenant may require as a condition to
any subordination in (b) above that the holder of any future
Encumbrance agree to not disturb Tenant's possession of the
Premises in the event such holder acquires the Premises pursuant
to foreclosure or otherwise.
16.2 ATTORNMENT. In the event any proceedings are brought for
foreclosure or in the event of the exercise of the power of sale
under any mortgage or deed of trust made by Landlord covering the
Premises, Tenant shall, at the option of such purchaser, attorn
to the purchaser upon any such foreclosure or sale and shall
recognize such purchaser as the Landlord under this Lease,
provided such purchaser agrees in writing to assume all
obligations of Landlord under this Lease accruing following such
sale or purchase and provides a copy of such agreement to Tenant.
16.3 APPROVAL BY LENDER. Tenant acknowledges that any future holder of
an Encumbrance may retain the right to approve the terms and
provisions of this Lease. Tenant agrees that, in the event such
holder shall require any modification of this Lease in order to
protect its security interest in the Premises; provided, however,
no modification of this Lease shall materially increase Tenant's
obligations under this Lease or impose requirements upon Tenant
which are more burdensome.
17. RIGHT OF ENTRY. Tenant grants Landlord or its agents the right to enter
the Premises at all reasonable times during normal business hours for
purposes of inspection, exhibition, repair or alteration; provided,
however, Landlord shall give Tenant at least one (1) business day prior
notice (except in the event of emergency) of Landlord's intent to enter
the Premises. Landlord shall have the right to use any and all means
Landlord deems necessary to enter the Premises in an emergency. Landlord
shall also have the right (a) to place "for rent" signs of a reasonable
size on the outside of the Premises at a reasonable location during the
last six (6) months of the Lease Term and (b) to place "for sale" signs
of a reasonable size on the outside of the Premises at a reasonable
location at any time. Tenant hereby waives any claim for damages or for
any injury or
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inconvenience to or interference with Tenant's business, or any other
loss occasioned thereby; provided, however, Landlord shall be liable for
property damage and bodily injury resulting from the negligent acts or
omissions of Landlord or Landlord's authorized representatives (except
where Landlord is released from liability for negligence in Section 12.3
above).
18. ESTOPPEL CERTIFICATE. Tenant shall execute and deliver to Landlord, upon
not less than five (5)) days prior written notice, a statement in
writing certifying (a) that this Lease is unmodified and is in full
force and effect (or, if modified, stating the nature of such
modification), (b) the date to which Rent and other charges are paid in
advance, if any, (c) that there are not, to such party's knowledge, any
uncured defaults on the part of the other party or specifying such
defaults as they are claimed, and (d) such other information (including,
without limitation, current financial information of Tenant) as a
prospective purchaser, lender or encumbrancer of the Premises may
reasonably require. Any such statement may be conclusively relied upon
by any prospective purchaser, encumbrancer, assignee or subletter of the
Premises, as applicable. A failure by Tenant to provide the statement
and information required within the time and manner provided herein
shall be a material default on the part of Tenant. Landlord shall
execute and deliver to Tenant, upon not less than five (5)) days prior
written notice, a statement in writing certifying (a) that this Lease is
unmodified and is in full force and effect (or, if modified, stating the
nature of such modification), (b) the date to which Rent and other
charges are paid in advance, if any, and (c) that there are not, to such
party's knowledge, any uncured defaults on the part of the other party
or specifying such defaults as they are claimed.
19. TENANT'S DEFAULT. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. The failure by Tenant to make any payment of Rent or any other
payment required hereunder within five (5) days from the date the
same is due and payable;
b. Tenant abandons the Premises for a continuous period of at least
thirty (30) days;
c. The failure of Tenant to observe, perform or comply with any of
the conditions or provisions of this Lease for a period, unless a
longer period is otherwise provided herein, of thirty (30) days
after written notice, or if such default cannot be cured within
that time, then such additional time as may be reasonably
necessary if within such thirty (30) days Tenant has commenced
and is diligently pursuing such activities as are necessary to
cure the default; and
d. Tenant becomes the subject of any bankruptcy, reorganization or
insolvency proceeding, whether voluntary or involuntary, and, in
the case of an involuntary bankruptcy proceeding, Tenant fails to
cause the same to be dismissed within sixty (60) days following
that date of the filing of such bankruptcy.
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Any notice from Landlord to Tenant described in this Section 19 shall,
in the sole discretion of Landlord, constitute a three (3) day notice
pursuant to California Code of Civil Procedure section 1161 or any
successor statute. With respect to any "default" by Tenant referenced in
this Lease, the term "default" as used in such context shall mean any of
the events described in subsections (a), (b) and/or (c) of this Section
19.
20. REMEDIES FOR TENANT'S DEFAULT. Upon any default by Tenant, Landlord
shall have the following remedies, in addition to all other rights and
remedies provided by law, to which Landlord may resort cumulatively, or
in the alternative:
20.1 TERMINATION. Upon any default by Tenant, Landlord shall have the
right (but not the obligation) to terminate this Lease and
Tenant's right to possession of the Premises. If Landlord has
given Tenant any written notice pursuant to Section 19 above,
then Landlord shall not be required to give Tenant any additional
notice terminating this Lease. Upon termination of this Lease,
Landlord shall have the right to recover from Tenant:
a. The worth at the time of award of the unpaid Rents which
had been earned at the time of termination;
b. The worth at the time of award of the amount by which the
Rents which would have been earned after termination until
the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided;
c. The worth at the time of award (computed by discounting at
the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent) of the
amount by which the Rents for the balance of the Lease
Term after the time of award exceed the amount of such
rental loss that Tenant proves could be reasonably
avoided; and
d. Any other amounts necessary to compensate Landlord for all
detriment proximately caused by the default by Tenant or
which in the ordinary course of events would likely
result, including without limitation the following:
(i) Expenses in retaking possession of the Premises;
(ii) Expenses for cleaning, repairing or restoring the
Premises;
(iii) Expenses for removing, transporting, and storing
any of Tenant's property left at the Premises
(although Landlord
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shall have no obligation to remove, transport, or
store any such property);
(iv) Any penalties, additional assessments, or others
costs levied against the Building pursuant the
Declaration to the extent such items arise as a
result of a breach or default by Tenant; and,
(v) Attorneys' fees and court costs.
The "worth at the time of award" of the amounts referred to in
subparagraphs (a) and (b) of this Section 20.1 is computed by
allowing interest at an annual rate equal to the greater of: ten
percent (10%); or five percent (5%) plus the rate established by
the Federal Reserve Bank of San Francisco, as of the twenty-fifth
(25th) day of the month immediately preceding the default by
Tenant, on advances to member banks under Sections 13 and 13(a)
of the Federal Reserve Act, as now in effect or hereafter from
time to time amended, not to exceed the maximum rate allowable by
law.
20.2 CONTINUANCE OF LEASE. Upon a default by Tenant and unless and
until Landlord elects to terminate this Lease pursuant to Section
20.1 above, this Lease shall continue in effect after the default
by Tenant, and Landlord may enforce all rights and remedies under
this Lease, including, without limitation, the right to recover
payment of Rents as they become due. Neither efforts by Landlord
to mitigate damages caused by a default by Tenant nor the
acceptance of any Rents shall constitute a waiver by Landlord of
any of Landlord's rights or remedies, including the rights and
remedies specified in this Section 20. It is intended that the
remedy set forth in this Section 20.2 is to provide Landlord the
rights set forth in California Civil Code Section 1951.4. The use
restrictions set forth in Section 9 above shall apply to
Landlord's rights under this Section 20.2 except to the extent
Tenant proves under all circumstances that the enforcement of
such restrictions would be unreasonable.
20.3 RELETTING PREMISES. Upon a default by Tenant, Landlord may, at
Landlord's election, re-enter the Premises and, without
terminating this Lease, and at any time and from time to time,
relet the Premises or any part or parts thereof for the account
and in the name of Tenant or otherwise. Landlord may, at
Landlord's election, eject Tenant or any of Tenant's subtenants,
assignees or other person claiming any right in or through this
Lease. Tenant shall nevertheless pay to Landlord on the due dates
specified in this Lease all sums required to be paid by Tenant
under this Lease, plus Landlord's expenses, less the proceeds of
any sublease or reletting. Notwithstanding any prior reletting
without termination, Landlord may later elect to terminate this
Lease because of a default by Tenant.
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20.4 RIGHT TO CURE TENANT'S DEFAULT. In the event Tenant fails to cure
a default described under Section 19(b) within a period of thirty
(30) days after written notice (unless a longer period of time is
otherwise provided herein), Landlord may, in addition to all
other rights and remedies under this Lease, to which Landlord may
resort cumulatively or in the alternative, cure such default and
demand reimbursement by Tenant of the cost actually incurred by
Landlord in curing such default by Tenant, with interest thereon
from the date such cost is incurred by Landlord until payment.
All amounts due and payable to Landlord under this Section 20.4
shall constitute Rent under this Lease. The cure by Landlord of
any default shall in no way be deemed a waiver or release of
Tenant from any obligation under this Lease.
21. BANKRUPTCY: HOLDOVER.
21.1 BANKRUPTCY.
A. In the event Tenant shall become a Debtor under Chapter 7
of the Bankruptcy Code ("Code") or a petition for
reorganization or adjustment of debts is filed concerning
Tenant under Chapters 11 or 13 of the Code, or a
proceeding is filed under Chapter 7 and is transferred to
Chapters 11 or 13, the Trustee or Tenant, as
Debtor-In-Possession, may not elect to assume this Lease
unless, at the time of such assumption, the Trustee or
Debtor-In-Possession has:
(i) Cured or provided Landlord "Adequate Assurance" (as
defined below) that:
(a) The Trustee or the Debtor-In-Possession has
cured, or has provided Landlord Adequate
Assurance that:
(1) Within ten (10) days from the date
of such assumption the Trustee or
Debtor-In-Possession will cure all
monetary defaults under this Lease;
and
(2) Within thirty (30) days from the
date of such assumption the Trustee
will cure all nonmonetary defaults
under this Lease.
(ii) For purposes of this Section 21.1, Landlord and
Tenant acknowledge that, in the context of a
bankruptcy proceeding of Tenant, at a minimum
"Adequate Assurance" shall mean:
(a) The Trustee or the Debtor-In-Possession has
and will continue to have sufficient
resources to fulfill the obligations of
Tenant under this Lease as the same become
due;
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and
(b) The Bankruptcy Court shall have entered an
Order segregating sufficient cash payable to
Landlord and/or the Trustee or
Debtor-In-Possession shall have granted a
valid and perfected first lien and security
interest and/or mortgage in property of
Tenant, Trustee or Debtor-In-Possession,
acceptable as to value and kind to Landlord,
to secure to Landlord the obligation of the
Trustee or Debtor-In-Possession to cure the
monetary and/or non-monetary defaults under
this Lease within the time periods set forth
above.
B. If the Trustee or Debtor-In-Possession has assumed the
Lease pursuant to the provisions of this Section 21.1 for
the purpose of assigning Tenant's interest hereunder to
any other person or entity, such interest may be assigned
only after the Trustee, Debtor-In-Possession or the
proposed assignee have complied with all of the terms,
covenants and conditions of Section 14.1 herein, Landlord
and Tenant acknowledging that such terms, covenants and
conditions are commercially reasonable in the consent of a
bankruptcy proceeding of Tenant. The terms of Section 14.1
applicable to any such assignment shall include, without
limitation, those with respect to Additional Rent and the
use of the Premises only as permitted in this Lease.
C. Unless otherwise allowed by the Court and until such time
as the Lease is assumed or rejected, the Trustee or
Debtor-In-Possession shall timely perform all the monetary
and non-monetary obligations under this Lease which arise
after the bankruptcy filing, including, without
limitation, the payment of Fixed Rent and such other
Additional Rent charges payable hereunder.
D. The rights, remedies and liabilities of Landlord and
Tenant set forth in this Section 21.1 shall be in addition
to those which may now or hereafter be accorded, or
imposed upon, Landlord and Tenant by the Code.
21.2 HOLDOVER. Upon termination of the Lease or expiration of the term
hereof, if Tenant retains possession of the Premises without
Landlord's written consent first had and obtained, then Tenant's
possession shall be deemed a tenancy at sufferance, and Landlord
may bring an action for possession or detainer at any time
thereafter. If Tenant holds possession of the Premises after the
term of this Lease with Landlord's consent, Tenant shall become a
tenant from month to month upon the terms and conditions as
provided in this Lease except that Base Rent shall equal one
hundred fifty percent (150%) of the Base Rent due during the last
year of the Lease Term, payable in advance on or before the first
day of
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each month. All options, if any, granted under the terms of this
Lease shall be deemed terminated and be of no effect during said
month to month tenancy. Tenant shall continue in possession until
such tenancy shall be terminated by either Landlord or Tenant
giving written notice of termination to the other party at least
thirty (30) days prior to the effective date of termination.
22. LANDLORD'S DEFAULT. Upon any default by Landlord under this Lease,
Tenant shall provide Landlord with written notice of such default and a
reasonable time period in which to cure such default.
23. PARKING. Tenant shall have the right during the Lease Term to use, on an
non-exclusive basis, one hundred and seventy-three (173) spaces within
the parking facilities situated within the Common Areas. If Tenant has
leased or purchased Building C (as provided in Section 3.4 above) prior
to December 31, 1999, then Tenant shall have the right to park on the
undeveloped land owned by Landlord which is adjacent to the Building C
as designated in EXHIBIT "D" attached hereto provided that Tenant pays
for one-half (1/2) of all costs associated with creating a surface
parking area on the undeveloped land described in EXHIBIT "D",
including, without limitation, all costs of City of Fremont permits and
meeting permit conditions, paving, landscaping, bridge construction, and
acquisition of needed right-of-ways and access.
24. SALE OF PREMISES. In the event of any sale of the Premises by Landlord,
Landlord shall be, without any further act or acknowledgment on the part
of Landlord or Tenant, entirely released from all liability under any
and all of its covenants and obligations contained in or derived from
this Lease or arising out of any act, occurrence or omission occurring
after the consummation of such sale. The purchaser at such sale or any
subsequent sale of the Premises shall be deemed, without any further
agreement between the parties or their successors in interest or between
the parties and any such purchaser, to have assumed and agreed to carry
out any and all of the covenants and obligations of Landlord under this
Lease.
25. WAIVER. No delay or omission in the exercise of any right or remedy of
either party on any default by the other party shall impair such a right
or remedy or be construed as a waiver. The subsequent acceptance of
Rents by Landlord or payments by Tenant after breach by the payee of any
covenant or term of this Lease shall not be deemed a waiver of such
breach, other than a waiver of timely payment for the particular payment
involved, and shall not prevent the aggrieved party from maintaining any
action based on such breach (including an unlawful detainer action, if
applicable). No payment by a party or receipt by the other party of a
lesser amount than the Rent and other sums due hereunder shall be deemed
to be other than on account of the earliest Rent or other sums due, nor
shall any endorsement or statement on any check or accompanying any
check or payment be deemed an accord and satisfaction. A party may
accept such check or payment without prejudice to its right to recover
the balance of such Rent or other sum or pursue any other remedy
provided in this Lease. The waiver by a party of
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any breach of any term of this Lease shall not be deemed a waiver of
such term or of any subsequent breach thereof.
26. CASUALTY DAMAGE. If the Premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give prompt written notice thereof
to Landlord. In case the Building or the Premises shall be damaged by
fire or other casualty (a) such that more than thirty percent (30%)
reconstruction of the Building or the Premises is required, as
determined by Landlord, or (b) regardless of the extent of damage, such
damage is either uninsured or the insurance proceeds are unavailable or
insufficient for Landlord to restore the Building or the Premises,
Landlord may elect to either terminate this Lease or restore the
Building or the Premises. In all other cases, Landlord shall promptly
commence reconstruction repair subject to this Section 26. If Landlord
elects to terminate the Lease, the estate created hereby shall terminate
forty-five (45) days following the date of damage, and Base Rent due
hereunder shall be abated as of the date of such damage. If Landlord
elects to repair and restore the Building or the Premises, then Landlord
shall proceed with reasonable diligence to restore the Building or the
Premises (except Landlord shall not be responsible for delays outside of
its control) to substantially the same condition existing immediately
prior to the casualty. If Landlord is required to make any repairs or
restorations pursuant to this Section 26, Landlord shall not be required
to spend for such repairs or restoration an amount in excess of the
insurance proceeds actually received by Landlord as a result of the
casualty. If Landlord elects to repair or restore the Building or the
Premises, then Tenant, within thirty (30) days after the date the damage
occurred, may request in writing from Landlord an estimate of the time
required to repair or restore the Building or the Premises. Landlord
shall notify Tenant of Landlord's reasonable estimate of the time for
restoration or repair.. If a casualty damages more than forty percent
(40%) of the manufacturing area within the Premises and, as a result
thereof, Tenant is not able to conduct its manufacturing operations in
any portion of the Premises, then Tenant shall have the right to
terminate this Lease if Landlord estimates that the Premises cannot be
restored within one hundred and twenty (120) days from the date the
damage occurred. Tenant shall exercise (if at all) the aforesaid right
to terminate within five (5) business days from receipt of Landlord's
estimate, which termination shall be effective as of the date the damage
occurred. Landlord shall not be liable for any inconvenience or
annoyance to Tenant, injury to the business of Tenant, loss of use of
any part of the Premises by Tenant or loss of Tenant's personal property
resulting in any way from such damage or the restoration thereof, except
that, during any restoration, Landlord shall allow Tenant a fair
diminution of Base Rent during the time and to the extent the Premises
are unfit for occupancy.
It is the intent of the parties hereto that the original Tenant
Improvements will be covered by the casualty insurance carried by
Landlord on the Building and that, in the event of a casualty where
Landlord elects or its otherwise required to restore or repair, Landlord
will restore or repair such improvements to the extent of insurance
proceeds which are actually available to Landlord for such purpose;
provided, however, in no event shall Landlord be required to rebuild,
repair or replace any part of any Altera-
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tions or other improvements constructed by, or of behalf of, Tenant or
any of Tenant's furniture, furnishings or fixtures and equipment except
to the extent that Landlord actually receives insurance proceeds with
respect to the damage of such property (Tenant acknowledges that
Landlord is under no obligation to maintain insurance covering such
property and that neither Landlord nor any of its representatives have
made any representations or warranties to Tenant that Landlord intends
to maintain any insurance covering such property). Tenant hereby waives
the provisions of Sections 1932(2.), 1933(4.), 1941 and 1942 of the
California Civil Code.
Landlord or Tenant shall have the right to terminate this Lease if (a)
the damage to the Premises occurs during the last year of the term of
this Lease, and (b) it is estimated by Landlord that the necessary
repairs will take more than ninety (90) days from the date of the
damage.
27. CONDEMNATION. If thirty percent (30%) or more of the Land or fifteen
percent (15%) or more of the Premises is taken for any public or
quasi-public purpose of any lawful governmental power or authority, by
exercise of the right of appropriation, reverse condemnation,
condemnation or eminent domain, or sold to prevent such taking, Tenant
or Landlord may, at its sole option, terminate this Lease as of the
effective date of such taking. Tenant shall not assert any claim against
Landlord or the taking authority for any compensation because of such
taking, and Landlord shall be entitled to receive the entire amount of
any award without deduction for any estate of interest of Tenant;
provided, Tenant shall be entitled to any portion of an award separately
designated as compensation to Tenant for moving expenses and/or loss of
goodwill. If less than thirty percent (30%) of the Land and/or less than
fifteen percent (15%) of the Premises is taken, Landlord shall, if
necessary, promptly proceed to restore the Premises and the Common Areas
to substantially its same condition prior to such partial taking,
allowing for the reasonable effects of such taking, and a proportionate
allowance shall be made to Tenant for the Rent corresponding to the time
during which, and to the part of the Premises of which, Tenant is
deprived on account of such taking and restoration. Notwithstanding the
foregoing, Landlord shall not be required to expend funds in connection
with the restoration of the Premises in excess of compensation actually
received by Landlord from the condemning authority.
28. GENERAL PROVISIONS.
28.1 TIME. Time is of the essence in this Lease and with respect to
each and all of its provisions in which performance is a factor.
28.2 SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to
and bind the heirs, successors, executors and assigns of the
parties hereto.
28.3 RECORDATION. Tenant shall not record this Lease or a short form
memorandum hereof without the prior written consent of Landlord.
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28.4 LANDLORD'S PERSONAL LIABILITY. The liability of Landlord to
Tenant for any default by Landlord under the terms of this Lease
shall be limited to the interest of Landlord in the Building, and
Tenant agrees to look solely to Landlord's interest in the
Building for the recovery of any judgment, it being intended that
Landlord (nor any of its partners) shall not be personally liable
for any judgment or deficiency.
28.5 SEPARABILITY. Any provisions of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or
invalidate any other provision hereof and such other provision
shall remain in full force and effect.
28.6 CHOICE OF LAW. This Lease shall be governed by the laws of the
State of California.
28.7 ATTORNEYS' FEES. In the event any legal action is brought to
enforce or interpret the provisions of this Lease, the prevailing
party therein shall be entitled to recover all costs and expenses
including reasonable attorneys' fees.
28.8 INTEREST. Any installment of Base Rent or any other sum due from
Tenant under this Lease which is received by Landlord after
thirty (30) days from when the same is due shall bear interest
from said thirtieth (30th) day until paid at an annual rate equal
to the greater of; (a) ten percent (10%); or (b) five percent
(5%) plus the rate established by the Federal Reserve Bank of San
Francisco as of the twenty-fifth (25th) day of the month
immediately preceding the due date on advances to member banks
under Sections 13 and 13(a) of the Federal Reserve Act, as now in
effect or hereafter from time to time amended, not to exceed the
maximum rate allowable by law. The accrual and/or acceptance of
any interest shall not constitute a waiver of Tenant's default
with respect to any overdue amount, nor prevent Landlord from
exercising any of Landlord's other rights or remedies.
28.9 NOTICES. All notices and demands required to be sent to Landlord
or Tenant under the terms of this Lease shall be personally
delivered or sent by certified or registered mail, or by
overnight carrier or fax transmission, to the addresses indicated
above or to such other addresses as the parties may from time to
time designate by notice.
28.10 AUTHORIZATION. The persons signing this Lease on behalf of Avanex
hereby represents and warrants to Landlord the following:
a. That Avanex, by duly passed resolution of the board of
directors of the corporation, is authorized to enter into
this Lease and to incur and perform all the obligations of
Tenant hereunder (which resolution shall be submitted to
Landlord upon Tenant's delivery of this Lease);
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b. That the person signing this Lease on behalf of Avanex has
been authorized by the corporation to execute this Lease
on behalf of such corporation and deliver the same to
Landlord.
28.11 PRIOR AGREEMENTS. This Lease contains all of the agreements of
the parties hereto, other than the Tenant Improvement Agreement,
with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understandings pertaining to any such
matters shall be effective for any purpose. No provision of this
Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective
successors-in-interest.
28.12 QUIET ENJOYMENT. If Tenant timely pays the Rents and other
amounts provided in this Lease, and observes and performs all the
covenants, terms, and conditions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Lease
Term without interruption by Landlord or any person or persons
claiming by, through or under Landlord, subject, nevertheless, to
the terms and conditions of this Lease. Notwithstanding the
foregoing, Tenant hereby acknowledges (a) that Landlord will be
constructing Building C of the Project during Tenant's occupancy
of the Building, (b) that during the course of such construction
there may be additional noise, vibrations, and traffic, together
with other elements normally attendant to construction, which may
cause some temporary disruption to Tenant's use and enjoyment of
the Premises, (c) that Tenant hereby waives any and all claims,
costs, liabilities and damages which may result from such
disruption, (d) that such disruption shall not constitute a
constructive eviction nor Tenant shall be entitled to any
abatement of Rents or other credits in connection therewith, and
(e) that Tenant shall reasonably cooperate with Landlord, upon
request, in connection with the construction of Building C.
28.13 REAL ESTATE COMMISSIONS. The parties hereto acknowledge that only
David Sandlin and Rob Shannon of Colliers International, as
Landlord's broker, and John King and Jana Gluckman of BT
Commercial, as Tenant's broker, (collectively, the "BROKERS") are
the only parties entitled to any commission or fees in connection
with this Lease and that Landlord, pursuant to a separate
agreement with David Sandlin and Rob Shannon of Colliers
International, will pay the commissions becoming due in
connection with this Lease. John King and Jana Gluckman of BT
Commercial shall be entitled to one half of the fees payable to
David Sandlin and Rob Shannon of Colliers International. Each of
Landlord and Tenant hereby represents and warrants to the other
that, other than to the Brokers, no real estate brokerage
commission is payable to any person or entity in connection with
the transaction contemplated hereby, and each party agrees to and
does hereby indemnify and hold the other harmless against the
payment of any commission to any person or entity claiming by,
through or under the indemnifying party. This indemnification
shall extend to any and all claims, li-
44
<PAGE> 46
abilities, costs and expenses (including reasonable attorney fees
and litigation costs) arising as a result of such claims and
shall survive any termination of this Lease.
28.14 JOINT AND SEVERAL LIABILITY. Each of the parties executing this
lease as "Tenant" shall be jointly and severally liable for the
performance of all of the Tenant's obligations under this Lease.
45
<PAGE> 47
IN WITNESS WHEREOF, this Lease is executed on the date and year first above
written.
LANDLORD:
STEVENSON BUSINESS PARK, LLC
a California limited liability company
By: /s/ RON WINTER
-------------------------------------
Ron Winter,
its Managing Member
TENANT:
AVANEX CORPORATION,
a California corporation
By: /s/ WALTER ALESSANDRINI
-------------------------------------
its: Chief Executive Officer
By: /s/ JESSY CHAO
-------------------------------------
its: Chief Financial Officer
46
<PAGE> 48
[EXHIBIT OMITTED]
<PAGE> 49
EXHIBIT "B"
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is entered into on this _________ day of
______, _____, by and between STEVENSON BUSINESS PARK, LLC, a California limited
liability company, ("SELLER") and AVANEX CORPORATION, a California corporation
("BUYER").
ARTICLE 1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
1.1 APPURTENANCES. The term "APPURTENANCES" shall mean all easements,
rights-of-way, and other real property rights and interests which are
appurtenant to the Land and Improvements.
1.2 CLOSING DATE; CLOSE OF ESCROW. The term "CLOSING DATE" shall mean the
date which is forty-five (45) days following the Effective Date, which
Closing Date shall be subject to extension as provided in Section 3.2
below, provided, however, in no event shall any purchase of Building B
close later than December 31, 1999. The term "CLOSE OF ESCROW" shall
mean the recording of the Grant Deed in the Official Records of Alameda
County.
1.3 ESCROW HOLDER. The term "ESCROW HOLDER" shall mean First American Title
Company in Pleasanton, California.
1.4 EFFECTIVE DATE. Provided that Buyer has executed, initialed in Section
5.1, dated and delivered this Agreement unmodified as required in the
Lease, this Agreement shall be effective on the date the Seller has
executed this Agreement.
1.5 EQUIPMENT AND COMPONENTS. The term "EQUIPMENT AND COMPONENTS" shall mean
all equipment, machinery, cabling, utility components, and other non
real property items installed or located on the Land and Improvements
which are owned by Seller and used in connection with the operation
thereof
1.6 GRANT DEED. The term "GRANT DEED" shall mean the grant deed to be given
by Seller to Buyer in connection with the conveyance of the Property.
1.7 HAZARDOUS MATERIALS. The term "HAZARDOUS MATERIALS" shall mean gasoline
and petroleum products and all substances defined as "hazardous
substances," "hazardous materials," or "toxic substances" in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.A. Sec. 9601, et seq.;
EXHIBIT "B"
<PAGE> 50
the Hazardous Materials Transportation Act, 49 U.S.A. Section 1801, et
seq.; the Resource Conservation and Recovery, Act, 42 U.S.A. Section
6901 et seq., and those substances defined as "hazardous wastes" in
Section 25117 of the California Health & Safety Code or as "hazardous
substances" in Section 25316 of the California Health & Safety Code; in
the regulations adopted and publications promulgated pursuant to such
law; and in the Hazardous Materials storage ordinances of Alameda
County, and in any amendments to such laws and regulations.
1.8 IMPROVEMENTS. The term "IMPROVEMENTS" shall mean the building shell
consisting of approximately _________________ square feet and other
affixed improvements, landscaping, and fixtures located on the Land and
located at __________ Encyclopedia Circle, Fremont, California. Tenant
has reviewed the plans and specifications for the Improvements and has
accepted the aforesaid measurement of the Improvements.
1.9 LAND. The term "LAND" shall mean the real property described in EXHIBIT
"A" attached hereto. If the description of the Land attached hereto is
based upon a tentative parcel map for the subject real property and such
description is later modified in the final parcel map, then the term
"Land" shall mean and refer to the description set forth in such final
parcel map.
1.10 LEASE, The term "LEASE" shall mean that certain Lease Agreement entered
into by and between Seller, as landlord, and buyer, as tenant, dated on
or about September __, 1999.
1.11 PERMITTED TITLE EXCEPTIONS. The term "PERMITTED TITLE EXCEPTIONS" shall
mean (a) real-property taxes and assessments constituting a lien, but
not delinquent, (b) utility easements and similar rights granted in
connection with the development of the Property, (c) all conditions
imposed in connection with the parcel map for the Land, (d) that certain
Declaration of Covenants, Conditions, and Restrictions and Reciprocal
Easement Agreement ("DECLARATION"), and (d) any encumbrances, liens,
restrictions or other matters approved in writing, and/or created, by
Buyer.
1.12 PROPERTY. The term "PROPERTY" shall mean collectively the Land,
Improvements, Equipment and Components, and all other rights and
interests appurtenant to the foregoing.
1.13 PURCHASE PRICE. The term "PURCHASE PRICE" shall mean the sum of
________________ Dollars ($______.00) and, provided that Seller has not
otherwise terminated the Lease and Buyer's option thereunder to acquire
the Property, any and all amounts due Seller under Lease which are
unpaid as of the Close of Escrow.
EXHIBIT "B"
<PAGE> 51
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Buyer hereby agrees to purchase from Seller, and
Seller hereby agrees to sell and convey to Buyer, the Property, which
purchase and sale shall be subject to, and carried out in accordance
with, the terms, provisions and conditions set forth in this Agreement.
2.2 PURCHASE PRICE. The Purchase Price shall be paid by Buyer to Seller, as
follows:
(a) On or before the Effective Date, Buyer shall pay a "DEPOSIT" in
the amount of One Hundred Thousand Dollars ($100,000.00). As of
the Effective Date, the Deposit shall be non-refundable.
(b) The balance of the Purchase Price (i.e $________, together with
the other amounts, and subject to a possible reduction as,
described in Section 1.13 above) shall be paid by Buyer in cash
upon the Close of Escrow.
2.3 CONDITION OF TITLE. Seller shall convey to Buyer good and marketable fee
title to the Property on the Closing Date by delivery of the Grant Deed,
free and clear of all liens, encumbrances and exceptions other than the
Permitted Title Exceptions.
2.4 INVESTIGATIONS. Buyer hereby acknowledges that Buyer has been in
possession of the Property pursuant to the Lease and, by reason thereof,
Buyer has had a sufficient opportunity engage in such studies,
inspections and other activities (including, without limitation, studies
or investigations regarding Hazardous Materials) which Buyer has deemed
appropriate for its acquisition and continued use of the Property
2.5 AS-IS. Buyer's purchase of the Property shall be subject to the
following:
a. Buyer agrees to purchase the Property "as is" and "with all
faults," solely in reliance on Buyer's own investigation of the
Property. Buyer acknowledges that it has conducted a review of
the physical and environmental condition of the Property, the
expenses of owning and operating the Property, the extent to
which the Property complies with governmental laws, ordinances,
rules and regulations, the present and proposed land use
regulations that affect or may affect the Property and the
fitness of the Property for Buyer's proposed use, among other
things. In undertaking its investigation, Buyer has been and will
be advised by attorneys, and other advisors.
EXHIBIT "B"
<PAGE> 52
b. Buyer acknowledges that Seller makes no representations or
warranties express or implied wit respect to the Property. In
light of Buyer's willingness to diligently investigate and
evaluate the Property and to accept the Property on an "as is"
and "with all faults" basis, the parties have negotiated the
terms and conditions of this Agreement, including the Purchase
Price. Buyer acknowledges that Buyer is purchasing the Property
"as is" and "with all faults", without other express or implied
warranties of Seller.
c. By acquiring the Property Buyer shall be deemed to have waived
any and all objections to the physical characteristics, including
acreage, size of improvements and conditions of the Property
which would be disclosed by such inspection or otherwise; and
agreed to purchase the Property having inspected and accepted the
condition and repair of the improvements, and without regard to
any other physical or environmental condition of the Property,
including (without limitation) topography, climate, soil,
subsoil, existing fill, drainage and surface and groundwater
quality, and without regard to air and water rights, the
availability of utilities and water, present and future zoning,
purposes for which the Property is suited, access to public
roads, proposed routes, or enlargement of roads or extensions
thereof, present or future assessments or any other condition or
matter affecting the Property.
d. Except to the extent such matter is caused by a breach by Seller
under this Agreement, Buyer hereby waives, releases, acquits, and
forever discharges Seller, and Seller's agents, directors,
officers and employees to the maximum extent permitted by law, of
and from any and all claims, actions, causes of action, demands,
rights, liabilities, damages, losses, costs, expenses, or
compensation whatsoever, direct or indirect, known or unknown,
foreseen or unforeseen, that it now has or which may arise in the
future on account of or in any way growing out of or connected
with the Property; including, without limitation;
i. the existence or condition of any improvements on the
Property and/or the personal property;
ii. the physical and environmental conditions of the Property
(including, without limitation the existence of Hazardous
Materials in, on, or about the Property;
iii. the state of the title to the Property;
iv. any settlement or subsidence of any fill or filled ground
on the Property or settlement or subsidence of
construction thereon, if any;
EXHIBIT "B"
<PAGE> 53
v. any governmental laws and regulations, including, but not
limited to, zoning, environmental, asbestos control,
hazardous or toxic waste and/or material and land use laws
and regulations to which the Property may be subject; and
vi. Buyer's contemplated use of the Property.
BUYER EXPRESSLY WAIVES ANY OF ITS RIGHTS GRANTED UNDER CALIFORNIA
CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS: "A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR." SELLER__________ BUYER
______________
e. Buyer acknowledges that Seller has furnished, or may furnish, to
Buyer certain "third party" items, which may include, without
limitation, items prepared by third party architects,
contractors, title companies, and consultants, such as
engineering data, title reports and related title information,
Hazardous Materials reports and information, feasibility reports,
soils reports, building plans and specifications, utility plans
and other information pertaining to the Property and the
construction and installation of the Improvements and the
Equipment and Components. It is agreed that all such "third
party" items are furnished without representation or warranty on
the part of Seller whatsoever, and Buyer agrees that Buyer will
not assert any liability against Seller in any regard as to such
"third Party" items.
f. Any disclosure whatsoever to Buyer pursuant to this Agreement
shall not constitute a warranty or representation of Seller. To
the extent any information provided by Seller shall be known by
Buyer or Buyer's agents (all such knowledge of Buyer's Agents
being imputed to Buyer) to be untrue or inaccurate as a result of
any disclosure to Buyer by Seller prior to closing, with Seller
hereby agreeing to advise Buyer, prior to closing of any changes
in information of which Seller has actual knowledge; or any
investigation conducted by Buyer or on behalf of Buyer prior to
the Close of Escrow or as a result of any knowledge otherwise
acquired by Buyer or any of Buyer's Agents, Buyer shall have no
rights under this Agreement by reason of that particular untruth
or inaccuracy, and any such information provided by Seller shall
be deemed to be modified to the extent necessary to render it
consistent with such knowledge.
g. Upon the close of escrow. Seller shall assign to Buyer any
existing warranties which Seller may have received from the
building contractor to the extent the
EXHIBIT "B"
<PAGE> 54
same may be assigned, provided that Seller shall have no
obligation to obtain any such warranties.
2.7 NO SELLER LIENS. Upon the Close of Escrow there shall be no
outstanding contracts made by Seller for any improvements to the
Property that have not been fully paid for.
ARTICLE 3
ESCROW AND CLOSE OF ESCROW
3.1 OPENING. An escrow (the "Escrow") shall be opened with Escrow Holder by
delivering a fully executed copy of this Agreement to Escrow Holder.
Buyer and Seller hereby authorize their respective attorneys to execute
and deliver to Escrow Holder any additional or supplementary
instructions as may be necessary or convenient to close the transaction
contemplated hereby; provided however, any such additional instructions
shall not supersede this Agreement.
3.2 CLOSING DATE. The Close of Escrow shall occur through Escrow on or
before the Closing Date specified in Article 1. In the event Buyer is
obtaining financing in order to purchase the Property, then Buyer may,
prior to the scheduled Closing Date, provide to Seller written notice
electing to extend the Closing Date so as to accommodate the closing of
such financing; provided, however, in no event shall the Closing Date be
extended by more than fifteen (15) days.
3.3 SELLER'S DELIVERIES. Prior to the Closing Date, Seller shall deliver to
Escrow Holder the following:
a. The Grant Deed, duly executed and acknowledged by Seller;
b. A certification as required by the Foreign Investors Property Tax
Act, as amended, and the California Revenue and Taxation Code
Section 18805 et seq.
c. Such other documents as may be reasonably required by Escrow
Holder.
3.4 BUYER'S DELIVERIES. Prior to the Closing Date, Buyer shall deliver to
Escrow Holder the following:
a. The balance of the Purchase Price;
b. Such other funds and documents as may be reasonably required by
Escrow Holder.
EXHIBIT "B"
<PAGE> 55
3.5 PRORATIONS. All items of expense (including, without limitation, real
property taxes and assessment, together with any amounts owning under
the Declaration) for the Property shall be prorated between Seller and
Buyer as of the Close of Escrow, with all items of expense for the
Property being borne by Buyer for the Close of Escrow.
3.6 CLOSING COSTS. Any escrow fee charged by Escrow Holder shall be paid
one-half (1/2) by Seller and one-half (1/2) by Buyer. Seller shall pay
(a) the CLTA portion of the premium for Buyer's title policy, and (b)
any City and County documentary and transfer taxes assessed on the
recording of the Grant Deed. Buyer shall pay (i) the fee for the
recording of the Grant Deed and any other documents, (ii) any writing
fees, (iii) the premium for the ALTA portion, if any, of the premium for
Buyer's title policy, the premium for any lender's policy of title
insurance, and the cost of any title endorsements to such policies, and
(vi) all other closing costs of any nature and costs of any inspections
or tests Buyer authorizes or conducts. Any other closing costs not
described above shall be paid by the parties in accordance with the
custom in Alameda County.
3.7 NO LITIGATION. Seller warrants to Buyer that, as of the date of this
Agreement and as of the Close of Escrow, and except as may otherwise be
disclosed by Seller: (1) there are no actions, suits, or proceedings
pending, or, to the knowledge of Seller, threatened, against Seller or
the Property, or involving the validity or enforceability of this
Agreement, including, but not limited to, petitions under Bankruptcy Act
of 1978 or other petitions for reorganization or for debtor relief or
for the appointment of a receiver; (2) there are no condemnation
proceedings, redevelopment projects, or similar projects that could
material affect the Property; and (3) the execution and delivery of this
Agreement by Seller and the performance and observance of the terms have
all been authorized by all necessary actions of Seller. This Agreement
has been duly executed by Seller. Buyer hereby acknowledges that Seller
has disclosed that the City of Fremont may take portions of the Land in
order to accommodate the widening of Encyclopedia Circle.
ARTICLE 4
RISK OF LOSS
4.1 RISK OF LOSS. Until Close of Escrow, Seller alone shall bear the risk of
loss should there be damage to any of the Improvements by fire or other
casualty (collectively, "Casualty"). If, prior to the Close of Escrow,
any of the Improvements shall be damaged by a Casualty, Seller shall
deliver to Buyer written notice if Seller does not intend to repair any
Casualty damage prior to the Closing Date ("Casualty Loss Notice").
4.2 BUYER ELECTION. Buyer may, as its sole option, within thirty (30) days
after delivery of the Casualty Loss Notice either (a) terminate this
Agreement by delivering written notice of same to Seller, or (b) waive
its right of termination and proceed to close this transaction in
accordance with the terms hereof ("Waiver Option"). Failure of Buyer to
EXHIBIT "B"
<PAGE> 56
deliver written notice of termination within said thirty (30) day period
shall be conclusively deemed to be an election by Buyer of the Waiver
Option. In the event Buyer elects to terminate this Agreement under this
Section 4.2, thereafter neither party to this Agreement shall thereafter
have any further rights or obligations hereunder and the Deposit, less
that portion thereof which is required to be retained by Seller as the
security deposit under the Lease, shall be returned to Buyer.
If Buyer elects or is deemed to have elected the Waiver Option, then
Seller shall have no obligation to repair the Casualty (but shall assign
to Buyer all of its rights in the resulting casualty insurance proceeds
and a pro rata share of the rental or business loss proceeds) and the
parties shall proceed to Close Escrow as provided in this Agreement.
ARTICLE 5 LIQUIDATED DAMAGES
5.1 DEFAULT BY BUYER.
LIQUIDATED DAMAGES: BUYER RECOGNIZES THAT THE PROPERTY WILL BE REMOVED
FROM THE MARKET COMMENCING ON THE EFFECTIVE DATE. BUYER ACKNOWLEDGES
THAT IF IT DEFAULTS IN ITS PURCHASE OF THE PROPERTY, SELLER SHALL BE
ENTITLED TO COMPENSATION FOR THE DETRIMENT RESULTING FROM THE REMOVAL OF
THE PROPERTY FROM THE MARKET. THE PARTIES HERETO AGREE THAT THE DAMAGES
SELLER SHALL SUSTAIN AS A RESULT OF SUCH BREACH WILL BE EXTREMELY
DIFFICULT AND IMPRACTICABLE TO ASCERTAIN. THEREFORE, THE PARTIES AGREE
THAT IF BUYER FAILS TO PURCHASE THE PROPERTY AS A RESULT OF ITS BREACH,
SELLER SHALL BE ENTITLED TO RETAIN AS ITS SOLE AND EXCLUSIVE REMEDY ALL
PORTIONS OF THE DEPOSIT PAYMENT. SAID SUM SHALL BE PAID AND RECEIVED AS
LIQUIDATED DAMAGES AND NOT AS A PENALTY. BOTH PARTIES ACKNOWLEDGE AND
AGREE THAT SAID AMOUNT IS PRESENTLY A REASONABLE ESTIMATE OF SELLER'S
DAMAGES CONSIDERING ALL OF THE CIRCUMSTANCES EXISTING ON THE DATE
HEREOF, INCLUDING THE RELATIONSHIP OF THE SUM TO THE RANGE OF HARM TO
SELLER THAT REASONABLY COULD BE ANTICIPATED AND THE ANTICIPATION THAT
PROOF OF ACTUAL DAMAGES WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT.
BUYER INITIALS__ SELLER INITIALS__
EXHIBIT "B"
<PAGE> 57
ARTICLE 6
GENERAL PROVISIONS
6.1 REAL ESTATE COMMISSIONS. Seller and Buyer each represent and warrant to
the other that no real estate brokerage commission is payable to any
person or entity in connection with the transaction contemplated hereby,
except _______________________ (collectively, the "Broker"). Seller
agrees to pay any commission owing to the Broker pursuant to separate
agreements, but only if, and when, the Close of Escrow occurs. Seller
and Buyer each agrees to and does hereby indemnify and hold the other
harmless against the payment of any commission to any person or entity
claiming by, through or under Seller or Buyer, as applicable. This
indemnification shall extend to any and all claims, liabilities, costs
and expenses (including reasonable attorney fees and litigation costs)
arising as a result of such claims and shall survive the Close of
Escrow.
6.2 ATTORNEYS' FEES. In the event any legal action is commenced concerning
the Property, this Agreement, or the rights and duties of any party in
relation thereto, whether such action be an action for damages,
equitable relief, or declaratory relief, the prevailing party in such
litigation shall be entitled to reasonable sums for attorneys' fees in
an amount set by the court.
6.3 COUNTERPARTS. This Agreement may be executed in counterparts each of
which shall be an original, but all of which shall constitute one
instrument.
6.4 FURTHER ASSURANCES. Each party shall perform or cause to be performed
all acts and shall execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, all instruments and documents as
may be reasonably required to carry out the intent and purpose of this
Agreement.
6.5 ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto shall
constitute the entire agreement between the parties and shall supersede
all other agreements whether written or oral respecting the subject
matter of this Agreement. On the Effective Date no other agreement,
statement or promise made by either party hereto with respect to the
subject matter of this Agreement, which is not contained herein, shall
be binding or valid.
EXHIBIT "B"
<PAGE> 58
6.6 AMENDMENTS. This Agreement shall not be modified by either party by any
oral representations made either before or after the execution of this
Agreement and all amendments to this Agreement must be in writing and
signed by Buyer and Seller.
6.7 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the respective assignees, heirs, successors and legal
representatives of each party. This Agreement shall not be assignable by
Buyer without the prior written consent of Seller: provided, however,
there may be assignments of rights under this Agreement among the
various parties which comprise the original Buyer hereunder, which
assignments shall not require the consent of Seller.
6.8 INTERPRETATION. Each party and its counsel have reviewed and revised
this Agreement and any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not
apply in the interpretation of this Agreement. The captions of this
Agreement are for convenience and references only and the words
contained therein no way shall be held to explain, modify, amplify or
aid in the interpretation, construction or meaning of the provisions of
this Agreement. This Agreement shall be construed and interpreted under,
and governed and enforced according to, the laws of the State of
California. If any provisions of this Agreement are held to be
unenforceable or invalid, it is the specific intent of the parties that
the remainder of the provisions of this Agreement shall subsist and
remain in full force and effect.
6.9 TIME OF THE ESSENCE. Upon the Effective Date, time shall be of the
essence as to the performance of obligations under this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
EXHIBIT "B"
<PAGE> 59
IN WITNESS WHEREOF, the parties have executed this Agreement on the respective
dates set forth below:
BUYER:
AVANEX CORPORATION,
A California corporation
By: Dated:
-------------------------------- --------------------
SELLER:
STEVENSON BUSINESS PARK, LLC.
A California limited liability company
By: Dated:
-------------------------------- --------------------
EXHIBIT "B"
<PAGE> 60
EXHIBIT "C"
BASE RENT SCHEDULE
<TABLE>
<CAPTION>
Lease Year Monthly Base Rent
<S> <C>
1 $63,800.24
2 $66,352.25
3 $69,006.33
4 $71,766.60
5 $74,637.25
6 $77,622.75
7 $80,727.66
8 $83,956.76
9 $87,315.03
10 $90,807.63
</TABLE>
EXHIBIT C
<PAGE> 61
[EXHIBIT OMITTED]
<PAGE> 1
AMENDMENT TO SUBLEASE
THIS AMENDMENT TO SUBLEASE (the "Amendment") is dated January _____,
1998 and is made and entered into by and between KLA-TENCOR CORPORATION, a
Delaware corporation ("Sublessor") and PATHNET, INC., a Delaware corporation
(Sublessee").
WHEREAS, Sublessor and Sublessee entered into a Sublease Agreement,
dated October 16, 1997 (the "Sublease");
WHEREAS, each of Sublessor and Sublessee desire to amend certain leases
of the Sublease as more particularly set forth herein;
NOW THEREFORE, for the mutual consideration hereinafter set forth, the
parties hereto agree as follows:
1. The Sublessor and the Sublessee hereby agree that, effective as of
the date hereof, the Sublease is hereby amended as follows:
(a) Section 6.1 is hereby amended to read in its entirety as follows:
"6.1 Security Deposit. By January 22, 1998, Sublessee shall
provide to Sublessor, as a security deposit (the "Security
Deposit") a total of $15,000 in cash. Unless otherwise required
by applicable law the Security Deposit shall not bear interest
not shall Sublessor be required to keep such sum separate from
its general funds. The Security Deposit shall be held by
Sublessor for the balance of the Sublease Term, and applied or
returned to Sublessor in Accordance with Article 6.2."
(b) Section 6.1.1, Section 6.1.2, Section 6.1.3 and Section 6.1.4 are
hereby deleted in their entirety.
(c) Section 6.2 is hereby amended to read in its entirety as follows:
"6.2 Uses of Security Deposit. The Security Deposit shall be
held by Sublessor as security for Sublessee's faithful
performance under this Sublease. If Sublessee fails to pay any
Rent as and when due under this Sublease or otherwise fails to
perform its obligations hereunder, than Sublessor may, at its
option and without prejudice to any other remedy which Sublessor
may have, apply, use or retain all or any portion of the
Security Deposit toward the payment of delinquent Rent or for
any less or damage sustained by. Sublessor due to such failure
by Sublessee. Sublessee shall, upon demand, restore the Security
Deposit to the original sum deposited. To the extent not
otherwise applied by Sublessor, the
<PAGE> 2
Security Deposit shall be returned to Sublessee within thirty
(30) days after the Termination Date. In the event of bankruptcy
or other debtor-creditor proceedings filed by or against
Sublessee, such Security Deposit shall be deemed to be applied
first to the payment of Rent due Sublessor for the period
immediately prior to the filing of such proceedings."
2. The undersigned parties hereby acknowledge that the Sublease, as
amended hereby, remains in full force and effect and is hereby ratified and
confirmed.
IN WITNESS WHEREOF, the undersigned parties have duly executed and
delivered this Amendment as of the date first above written.
Sublessor: KLA-TENCOR CORPORATION
By: /s/ LISA C. BERRY
--------------------------------------
Name: Lisa C. Berry
Title: Vice President General Counsel
Sublessee: PATHNET, INC.
By: /s/ MICHAEL A. LUBIN
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Name: Michael A. Lubin
Title: Vice President and general counsel
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EXHIBIT 10.28
COMMERCIAL LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into by:
1. LANDLORD: Jackson-Shaw Partners No. 33, Ltd. ("Landlord").
2. TENANT: KLA Instruments Corporation ("Tenant").
3. LEASED PREMISES: In consideration of the rents, terms and covenants
of this Lease Agreement (the "Lease"). Landlord hereby leases to Tenant certain
premises (the "Leased Premises") containing approximately 3,151 square feet
within the building or project known as International Corporate Park, Phase II,
and located at 405 International Parkway, Suite 209 on a certain tract of land
in Richardson. Dallas County. Texas. Such land (which is described in the
attached Exhibit A), together with the building(s), landscaping, parking and
driveway areas, sidewalks, and other improvements thereon shall be referred to
in this Lease as the "Project." In the case of a multi-building Project, the
word "Building" shall refer to the particular building in which the Leased
Premises are located and the tract of land upon which such building is located.
In the case of a single building Project the term "Building" as used herein
shall be synonymous with the term "Project". If the Leased Premises encompass an
entire building, then the term "Leased Premises" shall be synonymous with
"Building". A fuller description of the Leased Premises, including a floor plan
thereof, is contained in Exhibit B to be attached.
4. TERM:
(a) The term of this Lease shall be Sixty, (60) months
commencing on
_____________________________, 19____ (the "Commencement Date" and terminating
on the last day of __________________________, 19___ (the "Termination Date").
The Commencement Date may be subject to change, however, pursuant to
Subparagraphs (b) and (c) below. However, any such change in the Commencement
Date shall have no effect upon the Termination Date.
(c) Landlord agrees to install at its cost and expense the
improvements, if any, described in the plans and specifications described in
Exhibit B. If such improvements are not completed and the Leased Premises are
not ready for occupancy on the Commencement Date stated above, other than as a
result of the omission, delay or default by Tenant or anyone acting under or on
behalf of Tenant, the rent under this Lease shall not commence until substantial
completion of the work described in said plans and specifications and the
Commencement Date of the Lease term shall be the date of such substantial
completion. Landlord shall notify Tenant in writing as soon as such improvements
are substantially completed and ready for occupancy. If such improvements have
not in fact been substantially completed as aforesaid, Tenant shall notify
Landlord in writing of its objections within five (5) days after receipt of the
completion notice from Landlord. Landlord shall have a reasonable time after
receipt of such notice in which to take such corrective action as may be
necessary and shall notify Tenant in writing as soon as it deems such corrective
action has been completed so that the Leased Premises are completed and ready
for occupancy. In the event of any dispute as to substantial completion or work
performed or required to be performed by Landlord, a certificate of a registered
architect shall be conclusive and binding on all parties.
(d) Tenant acknowledges that no representations or promises
regarding repairs, alterations, remodeling, or improvements to the Leased
Premises have been made by Landlord, its agents, employees, or other
representatives, unless such are expressly set forth in this Lease, and that
Tenant is solely responsible for applying for and obtaining a certificate of
occupancy for the Leased Premises. Tenant agrees that if its occupancy of the
Leased Premises is delayed under the circumstances described in Subparagraph (b)
or (c) above, this Lease shall nonetheless continue in full force and effect.
However, any rental amounts applicable to such period of delay shall be abated
and such abatement shall constitute full settlement of all claims by Tenant
against Landlord by reason of any such delay in possession of the Leased
Premises. Tenant's taking possession of the Leased Premises shall conclusively
establish that the improvements, if any, to be made by Landlord under the terms
of this Lease, have been completed in accordance with the plans and
specifications therefor and that the Leased Premises are in good and
satisfactory condition as of the date of Tenant's possession, unless Tenant
notifies Landlord in writing specifying any defects within ten (10) days after
taking possession. Landlord shall use reasonable diligence to repair promptly
such items but Tenant shall have no claim for damages or rebate or abatement of
rent by reason thereof. After the Commencement Date and upon completion of any
necessary repairs as provided above. Tenant shall, upon demand, execute and
deliver to Landlord a letter of acceptance of the Leased Premises and
acknowledgment of the date of the Commencement Date.
5. BASE RENT AND SECURITY DEPOSIT:
(a) Tenant agrees to pay to Landlord as rent the sum of One
hundred eight thousand seven hundred twenty and no/100 Dollars ($108,720.00)
subject to adjustment for early or delayed occupancy under the terms hereof.
Such rent shall be payable in monthly amounts of One Thousand eight hundred
twelve and no/100 Dollars ($1,812.00) each, in advance, without demand,
deduction or offset (sometimes referred to in this Lease as the "Base Rent" or
"Base Rental"). Such rental amounts shall be due and payable to Landlord in
lawful money of the United States of America at the address shown below. An
amount equal to one monthly Base Rental payment shall be due and payable on the
date Tenant executes this lease and such amount shall be applied to the rent due
for the first complete calendar month occurring after the Commencement Date,
provided that if the Commencement Date should be a date other than the first day
of a
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under this Lease. Upon the occurrence of any event of default by Tenant or
breach by Tenant of its covenants under this Lease. Landlord may, from time to
time, without prejudice to any other remedy provided herein or provided by law,
use, apply, or retain all or part of the security deposit for the payment of any
rent or other sum in default, or for the payment of any other amount which
Landlord may spend or become obligated to spend by reason of Tenant's default,
or for payment of any other amount which Landlord may spend or become obligated
to spend by reason of Tenant default or breach, or to compensate Landlord for
any damage, injury, expense or liability caused to Landlord by such default or
breach. If any portion of the security deposit is so used or applied, Tenant
shall, within five (5) days alter written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the security deposit to the amount
required by this Paragraph. Tenant's failure to do so shall be a default under
this Lease. The balance of the security deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations have been fulfilled.
(c) Other remedies for nonpayment of Rent notwithstanding, if
the monthly Base Rental payment is not received by Landlord on or before the
tenth (10th) day of the month for which such rent is due, or if any other
payment due Landlord by Tenant hereunder (such sums being deemed to be
additional Rent) is not received by Landlord on or before the tenth (10th) day
of the month next following the month in which Tenant was invoiced, a service
charge of five percent (5%) of such past due amount shall be additionally due
and payable by Tenant. Such service charge shall be cumulative of any other
remedies Landlord may have for nonpayment of Rent and other sums payable under
this Lease.
(d) If three (3) consecutive monthly Rental payments or any five
(5) monthly Rental payments during the Lease term (or any renewal or extension
thereof) are not received by Landlord on or before the tenth (10th) day of the
month for which such Rent was due, the Base Rent hereunder shall automatically
become due and payable by Tenant in advance in quarterly installments equal to
three (3) months' Base Rent each. The first of such quarterly Base Rent payments
shall be due and payable on the first day of the next succeeding calendar month
and on the first day of every third (3rd) calendar month thereafter. This remedy
shall be cumulative of any other remedies of Landlord under this Lease for
nonpayment of Rent.
6. ADDITIONAL RENTAL:
(a) Taxes and Insurance:
(1) In the event the "Tax and Insurance Expenses" (as
defined below) of the Building shall in any calendar year during the term of
this Lease exceed the sum of $ 0.75 per square foot, then with respect to such
excess (the "Tax and Insurance Differential"). Tenant agrees to pay as
additional rental Tenant's pro rata share of the Tax and Insurance Differential
within ten (10) days following receipt of an invoice from Landlord stating the
amount due. The pro rata share to be paid by Tenant is Nineteen and 1/10 percent
(19.1%) subject, however, to adjustment for any expansion of the Leased
Premises. In the case of a multi-building Project, if such Tax and Insurance
Expenses are not separately assessed to the Building but are assessed against
the Project as a whole, Landlord shall determine the portion of such Tax and
Insurance Expenses allocable to the Building in which the Leased Premises are
located.
(2) At or prior to the commencement of this Lease and at
any time during the Lease term, Landlord may deliver to Tenant a written
estimate of any additional rent applicable to the Leased Premises (based on the
pro rata share stated above) which may be anticipated for excess Tax and
Insurance Expenses during the calendar year in which this Lease commences or for
any succeeding calendar year, as the case may be. Based upon such written
estimate, the monthly Base Rental shall be increased by one-twelfth (1/12) of
the estimated additional rent.
(3) Statements showing the actual Tax and Insurance
Expenses (as well as the actual Common Area Maintenance Expenses, as defined in
Paragraph 6(b) below) and Tenant's proportionate share thereof (hereinafter
referred to as the "Statement of Actual Adjustment") shall be delivered by
Landlord to Tenant after any calendar year in which additional rental was paid
or due by Tenant. Within ten (10) days after the delivery by Landlord to Tenant
of such Statement of Actual Adjustment. Tenant shall pay Landlord the amount of
any additional rental shown on such statement as being due and unpaid. If such
Statement of Actual Adjustment shows that Tenant has paid more than the amount
of additional rental actually due from Tenant for the preceding calendar year
and if Tenant is not then in default under this Lease, Landlord shall credit the
amount of such excess to the next Base Rental installment due from Tenant.
(4) "Tax and Insurance Expenses" shall mean: (i) all ad
valorem, rental, sales, use, and other taxes (other than Landlord's income
taxes), special assessments, and other governmental charges, and all assessments
due to deed restrictions and/or owner's associations which accrue against the
Building during the term of this Lease; and (ii) all insurance premiums paid by
Landlord with respect to the Building including, without limitation, public
liability, casualty, rental, and property damage insurance.
(b) Common Area Maintenance:
(1) In addition in the rental payable under Paragraphs 5
and 6(a) above. Tenant agrees to pay as additional monthly rental its pro rata
share (as stated in Paragraph 6(a)(1) above) of the "Common Area Maintenance
Expenses" (hereinafter defined). At or prior to the commencement of the Lease,
and at any time during the Lease term. Landlord may deliver to Tenant a written
estimate of any additional rent applicable to the Leased Premises which may be
anticipated for such Common Area Maintenance Expenses during the calendar year
in which this Lease commences or for any succeeding calendar year, as the case
may be. Based upon such written estimate, the monthly Base Rental shall be
increased by one-twelfth (1/12) of said estimated additional rent. The Statement
of Actual Adjustment shall then include the actual Common Area Maintenance
Expenses for the preceding period, and adjustments effected, as provided in
Paragraph 6(a)(3) above. In the case of a multi-building Project, if such Common
Area Maintenance Expenses are not separately assessed or charged to the Building
but are assessed or charged against the
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Project as a whole, Landlord shall determine the portion of such Common Area
Maintenance Expenses allocable to the Building in which the Leased Premises are
located.
(2) "Common Area Maintenance Expenses" shall mean all expenses
(other than the Tax and Insurance Expenses described above) incurred by Landlord
for the maintenance, repair, and operation of the Building, (excluding only
structural soundness of the roof, foundation, and exterior walls) including, but
not limited to, management fees, utility expenses of not separately metered),
maintenance and repair costs, sewer, landscaping, trash and security costs (if
furnished by Landlord), wages and fringe benefits payable to employees of
Landlord whose duties are connected with the operation and maintenance of the
Building, amounts paid to contractors or subcontractors for work or services
performed in connection with the operation and maintenance of the Building, all
services, supplies, repairs, replacements or other expenses for maintaining,
repairing and operating the Building, including without limitation common areas
and parking areas and roof, exterior wall and foundation work that is not
related to structural soundness.
(3) The term "Common Area Maintenance Expenses" does not include
the cost of any capital improvement to the Building other than the reasonably
amortized cost of capital improvements which result in the reduction of
Insurance Expenses or Common Area Maintenance Expenses. Further, the term
"Common Area Maintenance Expenses" shall not include repair, restoration or
other work occasioned by fire, windstorm or other casualty with respect to which
Landlord actually receives insurance proceeds, income and franchise taxes of
Landlord, expenses incurred in leasing to or procuring of tenants, leasing
commissions, advertising expenses, expenses for the renovating of space for new
tenants, interest or principal payments on any mortgage or other indebtedness of
Landlord, compensation paid to any employee of Landlord above the grade of
building superintendent, or depreciation allowance or expense.
(c) If the Commencement Date of this Lease is a day other than
the first day of a month, or if the Termination Date is a day other than the
last day of a month, the amount shown as due by Tenant on the Statement of
Actual Adjustment shall reflect a proration based on the ratio that the number
of days this Lease was in effect during such month bears to the actual number of
days in said month.
(d) The failure of Landlord to exercise its rights hereunder to
estimate expenses and require payment of same as additional rental shall not
constitute a waiver of such rights which rights may be exercised from time to
time at Landlord's discretion.
(e) If the nature of Tenant's business or use of the Leased
Premises is such that additional costs are incurred by Landlord for cleaning,
sanitation, trash collection or disposal services, Tenant agrees to pay as
additional rental to Landlord the amount of such additional costs upon demand.
7. TENANT REPAIRS AND MAINTENANCE:
(a) Tenant shall maintain all parts of the Leased Premises and
their appurtenances (except those for which Landlord is expressly responsible
under this Lease) in good, clean and sanitary condition at its own expense.
Tenant shall promptly make all necessary repairs and replacements to the Leased
Premises, including but not limited to, electric light lamps or tubes, windows,
glass and plate glass, interior and exterior doors, any special office entry,
interior walls and finish work, floors and floor coverings, downspouts, gutters,
heating and air conditioning systems dock boards, truck doors, dock bumpers,
plumbing work and fixtures other than common building sewage lines. Tenant shall
be obligated to repair wind damage to glass caused by events other than
hurricanes or tornadoes. Otherwise, however, Tenant shall not be obligated to
repair any damage caused by fire, hurricane, tornado or other casualty covered
by the insurance maintained by Landlord.
(b) Tenant shall not damage or disturb the integrity, structural
soundness, or support of any wall, roof, or foundation of the Leased Premises.
Any damage to these walls caused by Tenant or its employees, agents or invitees
shall be promptly repaired by Tenant at its sole cost and expense.
(c) Landlord shall have the right to coordinate any repairs and
other maintenance of any rail tracks serving or to serve the Project, and if
Tenant uses such rail tracks. Tenant shall reimburse Landlord from time to time
upon demand for a share of the cost of such repairs and maintenance and any
other sums specified in any agreement to which Landlord is a party respecting
such tracks. Tenant's share of such costs shall be additional rent and shall
reflect a proration based on the ratio that the space contained in the Leased
Premises bears to the entire space occupied by rail users in the Project.
(d) Tenant shall, at its own cost and expense, enter into a
regularly scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all heating and air conditioning systems and equipment
within the Leased Premises. The maintenance contractor and the contract must be
approved by Landlord, The service contract must include all services suggested
by the equipment manufacturer within the operation/maintenance manual and must
become effective (and a copy delivered to Landlord) within thirty (30) days of
the date Tenant takes possession of the Leased Premises. If Tenant fails to
enter into such service contract as required. Landlord shall have the right to
do so on Tenant's behalf and Tenant agrees to pay Landlord the cost and expense
of same upon demand.
(e) Tenant shall pay all charges for pest control and
extermination within the Leased Premises.
(f) At the termination of this Lease, Tenant shall deliver the
Leased Premises "broom clean" to Landlord in the same good order and condition
as existed at the Commencement Date of this Lease, ordinary wear, natural
deterioration beyond the control of Tenant, damage by fire, tornado or other
casualty excepted.
(g) Not in limitation on the foregoing, it is expressly
understood that Tenant shall repair and pay for all damage caused by the
negligence of Tenant. Tenant's employees, agents or invitees, or caused by
Tenant's default hereunder. All requests for repairs or maintenance that are the
responsibility of Landlord under this Lease must be made in writing to Landlord
at the address set forth below.
8. LANDLORD'S REPAIRS: Landlord shall be responsible, at its expense,
only for the structural soundness of the roof, foundation and
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exterior walls of the Building. Any repair to the roof, foundation or exterior
walls occasioned by the act or omission of Tenant, or its agents, employees,
guests or invitees shall be the responsibility of Tenant. The term "walls" as
used in this Paragraph 8 shall not include windows, glass or plate glass,
interior doors, special store fronts, office entries or exterior doors.
Landlord's liability with respect to any defects, repairs or maintenance for
which Landlord is responsible at its expense under this Lease shall be limited
to the cost of such repairs or maintenance or the curing of such defect. As
expenses included in Common Area Maintenance Expenses. Landlord will be
responsible for landscaping and maintenance of common areas and parking areas,
exterior painting, and common sewage line plumbing. Tenant shall immediately
give Landlord written notice of defects or need for repairs, alter which
Landlord shall have a reasonable opportunity to repair same or cure such defect.
Landlord shall not be required to perform any covenant or obligation of this
Lease, or be liable in damages to Tenant, so long as the performance or
non-performance of the covenant or obligation is delayed, caused by, or
prevented by an act of God or force majeure. An "act of God" or "force majeure"
is defined for purposes of this Lease as strikes, lockouts, sit-downs, material
or labor restrictions by any governmental authority, riots, floods, washouts,
explosions, earthquakes, fire, storms, acts of the public enemy, wars,
insurrections and any other similar cause not reasonably within the control of
Landlord, and which by the exercise of due diligence Landlord is unable, wholly
or in part, to prevent or overcome.
9. UTILITY SERVICE: Tenant shall pay the cost of all utility services,
including, but not limited to, initial connection charges and all charges for
gas, water, and electricity used on the Leased Premises. If the Leased Premises
are separately metered, Tenant shall pay such costs directly to the appropriate
utility company. Otherwise, Tenant shall pay such costs pursuant to Paragraph
6(b) above. Tenant shall pay all costs caused by Tenant introducing excessive
pollutants into the sanitary sewer system, including permits, fees and charges
levied by any governmental subdivision for any pollutants or solids other than
ordinary human waste. If Tenant can be clearly identified as being responsible
for obstructions or stoppage of the common sanitary sewage line, then Tenant
shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall
be responsible for the installation and maintenance of any dilution tanks,
holding tanks, settling tanks, sewer sampling devices, sand traps, grease traps
or similar devices which may be required by the appropriate governmental
subdivision for Tenant's use of the sanitary sewer system. Tenant shall also pay
all surcharges (i.e., charges in excess of normal charges) levied due to
Tenant's abnormal use of sanitary sewer or waste removal services so that no
such surcharges shall affect Landlord or other tenants in the Project under
Paragraph 6(b) above.
10. SIGNS: No sign, door plaques, advertisement, or notice shall be
displayed, painted or affixed by Tenant on any part of the Project or Building,
parking facilities, or Leased Premises without prior written consent of
Landlord. The color, size, character, style, material, and placement shall be
approved by Landlord, and subject to any applicable governmental laws,
ordinances, regulations, project specifications, and other requirements. Signs
on doors and entrances to the Leased Premises, if approved by Landlord, shall be
placed thereon by a contractor approved by Landlord and paid for by Tenant.
Tenant shall remove all such signs at the termination of this lease. Such
installations and removals shall be made in such manner as to avoid injury or
defacement of the Project and other improvements, and Tenant, at its sole
expense, shall repair any injury or defacement, including, without limitation,
any discoloration caused by such installation and/or removal.
11. USAGE: Tenant warrants and represents to Landlord that the Leased
Premises shall be used and occupied only for the purpose of General offices and
Field Engineering Group of KLA Any change in the stated usage purposes or in the
scope or extent of such usage as previously described to Landlord by Tenant
shall be subject to the prior written approval of Landlord. Tenant shall occupy
the Leased Premises, conduct its business and control its agents, employees,
invitees and visitors in a lawful and reputable way and as not to create any
nuisance or otherwise interfere with, annoy or disturb any other tenant in its
normal business operations or Landlord in its management of the Project. Tenant
shall not commit, or allow to be committed, any waste on the Leased Premises.
12. INSURANCE:
(a) Tenant shall not permit the Leased Premises to be used in
any way which would, in the opinion of Landlord, be hazardous or which would in
any way increase the cost of or render void the fire insurance on improvements
or contents in the Project belonging to Landlord or other tenants. If at any
time during the term of this Lease the State Board of Insurance or other
insurance authority disallows any of Landlord's sprinkler credits or imposes an
additional penalty or surcharge in Landlord's insurance premiums because of
Tenant's original or subsequent placement or use of storage racks or bins,
method of storage, or nature of Tenants inventory or any other act of Tenant,
Tenant agrees to pay as additional rental the increase in Landlord's insurance
premiums. If an increase in the fire and extended coverage premiums paid by
Landlord for the Building in which Tenant occupies space is caused by Tenant's
use or occupancy of the Leased Premises; or if Tenant vacates the Leased
Premises and causes an increase, then Tenant shall pay as additional rental the
amount of such increase to Landlord.
(b) Tenant shall procure and maintain throughout the term of
this lease a policy or policies of insurance, at its sole cost and expense,
insuring both Landlord and Tenant against all claims, demands or actions arising
out of or in connection with: (i) the Leased Premises: (ii) the condition of the
Leased Premises; (iii) Tenant's operations in and maintenance and use of the
Leased Premises; and (iv) Tenant's liability assumed under this Lease. The
limits of such policy or policies shall be not less than one million dollars
($1,000,000) combined single limit coverage per occurrence for injury to persons
(including death) and/or property damage or destruction, including loss of use.
All such policies shall be procured by Tenant from responsible insurance
companies satisfactory to Landlord. Certified copies of such policies, together
with receipts for payment of premiums, shall be delivered to Landlord prior to
the Commencement Date of this Lease. Not less than fifteen (15) days prior to
the expiration date of any such policies, certified copies of renewal policies
and evidence of the payment of renewal premiums shall be delivered to Landlord.
All such original and renewal policies shall provide for at least thirty (30)
days written notice to Landlord before such policy may be cancelled or changed
to reduce insurance coverage provided thereby. Upon request of Landlord, Tenant
further agrees to complete and return to Landlord an insurance questionnaire
(such form to be provided by Landlord) regarding Tenant's insurance coverage and
intended use of the Leased Premises. Tenant warrants and represents that all
information contained in such questionnaire shall be true and correct as of the
date thereof and shall be updated by Tenant from time to time upon Landlord's
request.
13. RELOCATION: Upon request by Landlord during the term of this Lease.
Tenant agrees to relocate to other space in the Building and/or Project
designated by Landlord, provided such other space is as large or larger than the
Leased Premises and has at least the same number of windows. Landlord shall pay
all out-of-pocket expenses of any such relocation, including the expenses of
moving and reconstructing all Tenant furnished and Landlord furnished
improvements. In the event of such relocation, this Lease shall continue in full
force and effect without any change in its terms other than substitution of the
new description of the Leased Premises for the original description set forth in
Paragraph 3 of this lease
14. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Tenant shall comply
with all applicable laws, ordinances, orders, rules and regulations of state,
federal, municipal, or other agencies or bodies relating to the use, condition
and occupancy of, and business conducted
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on, the Leased Premises, including without limitation, the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response Act, and the rules,
regulations and directives of the U.S. Environmental Protection Agency. Tenant
shall also comply with the rules of the Project which may hereafter be adopted
by Landlord. Landlord shall have the right at all times to change the rules and
regulations of the Project or to amend them in any reasonable manner as may be
deemed advisable for the safety, care, cleanliness, and good order of the
Project and Leased Premises. All rules and regulations of the Project and any
changes or amendments thereto will be sent by Landlord to Tenant in writing and
shall thereafter be carried out and observed by Tenant.
15. ASSIGNMENT AND SUBLETTING: The Tenant agrees not to assign,
transfer, or mortgage this lease or any right or interest therein, or sublet the
Leased Premises or any part thereof, without the prior written consent of
Landlord. No assignment or subletting made with the consent of Landlord shall
relieve Tenant of its obligations hereunder, and Tenant shall continue to be
liable as a principal (and not as a guarantor or surety to the same extent as
though no assignment or sublease had been made. Consent by Landlord to an
assignment or sublease shall not be construed to be consent to any additional
assignment or subletting. Each such successive act shall require similar consent
of Landlord. Landlord shall be reimbursed by Tenant for any costs or expenses
incurred as a result of Tenant's request for consent to any such assignment or
subletting. In the event Tenant subleases the Leased Premises, or any portion
thereof, or assigns this Lease with the consent of the Landlord at an annual
Base Rental exceeding that stated herein, such excess shall be paid by Tenant to
Landlord as additional rental hereunder within ten (10) days after receipt by
Tenant. Upon the occurrence of an "event of default" as defined below, if all or
any part of the Leased Premises are then assigned or sublet, Landlord may, in
addition to any other remedies provided by this lease or provided by law,
collect directly from the assignee or subtenant all rents due to Tenant.
Landlord shall have a security interest in all properties on the Leased Premises
to secure payment of such sums. Any collection directly by Landlord from the
assignee or subtenant shall not be construed, however, to constitute a novation
or a release of Tenant from the further performance of its obligations under
this lease. Notwithstanding the foregoing, it is expressly agreed that if this
Lease is assigned to any person or entity pursuant to the provisions of the
Bankruptcy Code, 11 U.S.C. Section 101 et esq. (the "Bankruptcy Code"), any and
all monies or other considerations payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Lessor, shall be
and remain the exclusive property of Landlord and shall not constitute property
of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code.
Any and all monies or other considerations constituting Landlord's property
under the preceding sentence not paid or delivered to Landlord shall be held in
trust for the benefit of Landlord and be promptly paid or delivered to Landlord.
Any person or entity to which this Lease is assigned pursuant to the provisions
of the Bankruptcy Code shall be deemed without further act or deed to have
assumed all of the obligations arising under this Lease on and after the date of
such assignment. Any such assignee shall upon demand execute and deliver to
Landlord an instrument confirming such assumption.
16. ALTERATIONS AND IMPROVEMENTS:
(a) Tenant shall not make or perform, or permit the making or
performance of, any initial or subsequent tenant finish work or any alterations,
installations, decorations, improvements, additions or other physical changes in
or about the Leased Premises (referred to collectively as "Alterations") without
Landlord's prior consent. Landlord agrees not to withhold its consent
unreasonably to any nonstructural Alterations proposed to be made by Tenant to
adapt the Leased Premises for Tenant's business purposes. Notwithstanding the
foregoing provisions or Landlord's consent to any Alterations, all Alterations
shall be made and performed in conformity with and subject to the following
provisions: All Alterations shall be made and performed at Tenant's sole cost
and expense and at such time and in such manner as Landlord may from time to
time reasonably designate. Alterations shall be made only by contractors or
mechanics approved by Landlord, such approval not to be unreasonably withheld.
No Alteration shall affect any part of the Building other than the Leased
Premises or adversely affect any service required to be furnished by Landlord to
Tenant or to any other tenant or occupant of the Building or reduce the value or
utility of the Building. No alteration shall affect the outside appearance of
the Building. Tenant shall submit to Landlord detailed plans and specifications
(including layout, architectural, mechanical and structural drawings) for each
proposed Alteration and shall not commence any such Alteration without first
obtaining Landlord's written approval of such plans and specifications. Prior to
the commencement of each proposed Alteration. Tenant shall furnish to Landlord
duplicate original policies of worker's compensation insurance covering all
persons to be employed in connection with such Alterations, including those to
be employed by all contractors and subcontractors, and of comprehensive public
liability insurance (including property damage coverage) in which Landlord, its
agents, and any lessor under any ground or underlying lease, and any mortgagee
of the Building shall be named as parties insured, which policies shall be
issued by companies, and shall be in form and amounts, satisfactory to Landlord
and shall be maintained by Tenant until the completion of such Alteration. If
Landlord shall require to assure payment of all costs of such alterations, prior
to commencement of any approved Alteration. Tenant shall cause to be issued and
delivered to Landlord an irrevocable documentary letter of credit or payment
bond in the full amount of the cost of the said approved Alterations issued by a
substantial banking institution reasonably acceptable to Landlord payable in
whole or in part, from time to time to the order of Landlord upon written demand
accompanied by Landlord's certification that Tenant has defaulted with respect
to the obligation secured thereby. The term of the letter of credit shall be
from date of issuance through ninety (90) days after completion of construction
of the approved Alterations. Tenant shall cause its contractor to provide
Landlord with a certificate of completion of the Alterations and a bills paid
affidavit and full lien waiver: and upon receipt of same, and no fewer than
thirty-one (31) days following completion, if Tenant is not in default
hereunder, Landlord shall return the letter of credit to Tenant unused and
endorsed for cancellation. Tenant shall, if requested by Landlord at the time of
Landlord's consent to the Alterations, agree to restore the Leased Premises at
the termination of this Lease to their condition prior to making such
Alterations. All permits, approvals and certificates required by all
governmental authorities shall be timely obtained by Tenant and submitted to
Landlord. Notwithstanding Landlord's approval of plans and specifications for
any Alterations, all Alterations shall be made and performed in full compliance
with all applicable laws, orders and regulations of Federal, State, County, and
Municipal authorities and with all directions, pursuant to law, of all public
officers, and with all applicable rules, orders, regulations and requirements of
the Dallas Board of Fire Underwriters or any similar body. All alterations shall
be made and performed in accordance with the Building rules. All materials and
equipment to be incorporated in the Leased Premises as a result of all
Alterations shall be new and first quality. No such materials or equipment shall
be subject to any lien, encumbrance, chattel mortgage or title retention or
security agreement. If such Alterations are being performed by Tenant in
connection with Tenant's initial occupancy of the Leased Premises, Tenant agrees
to make proper application for, and obtain, a certificate of occupancy from the
city in which the Leased Premises are located. Tenant shall furnish such
certificate to Landlord promptly after issuance of same.
(b) Tenant shall not at any time prior to or during the term of
this Lease, directly or indirectly employ or permit the employment of, any
contractor, mechanic, or laborer in the Leased Premises, whether in connection
with any Alteration or otherwise, if such employment will interfere or cause any
conflict with other contractors, mechanics, or laborers engaged in the
construction, maintenance or operation of the Building by Landlord, Tenant, or
other, in the event of any such interference or conflict, Tenant, upon demand of
Landlord, shall cause all contractors, mechanics, or laborers causing such
interference or conflict to leave the Building immediately.
(c) All appurtenances, fixtures, improvements, and other
property attached to or installed in the Leased Premises, whether by Landlord or
Tenant or others, and whether at Landlord's expense or Tenant's expense, or the
joint expense of Landlord and Tenant, shall be and remain the property of
Landlord, except that any such fixtures, improvements, additions, and other
property which have been installed at the sole expense of Tenant and which are
removable without material damage to the Leased Premises shall be and remain the
property of Tenant. At Landlord's option. Tenant shall remove any property
belonging to Tenant at the end of the term hereof, and Tenant shall repair or,
at Landlord's option, shall pay to
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Landlord the cost of repairing any damage arising from such removal. Any
replacements of any property of Landlord, whether made at Tenant's expense or
otherwise, shall be and remain the property of Landlord.
17. CONDEMNATION:
(a) If, during the term (or any extension or renewal) of this
Lease, all or a substantial part of the Leased Premises are taken for any public
or quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or by private purchase in lieu thereof, and the taking
would prevent or materially interfere with the then current use of the Leased
Premises, this Lease shall terminate and the Rent shall be abated during the
unexpired portion of this Lease effective on the date physical possession is
taken by the condemning authority.
(b) If a portion of the Leased Premises is taken as described
above and this Lease is not terminated as provided in subparagraph (a) above the
Rent payable under this Lease during the unexpired portion of the term shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances.
(c) In the event of such taking or private purchase in lieu
thereof. Landlord and Tenant shall each be entitled to receive any sums
separately awarded to each party by the condemning authority. In the event
separate awards to Landlord and Tenant are not made, Landlord shall be entitled
to receive any and all sums by the condemning authority.
18. FIRE AND CASUALTY:
(a) If the Building should be damaged or destroyed by fire,
tornado, or other casualty, Tenant shall give immediate written notice thereof
to Landlord.
(b) If the Building should be totally destroyed by fire,
tornado, or other casualty, or if it should be so damaged thereby that
rebuilding or repairs cannot in Landlord's estimation be completed within one
hundred eighty (180) days after the date on which Landlord is notified by Tenant
of such damage, this Lease shall terminate and the Rent shall be abated during
the unexpired portion of this Lease, effective upon the date of occurrence of
such damage.
(c) If the Building should be damaged by any peril covered by
the insurance maintained by Landlord, but only to such extent that rebuilding or
repairs can in Landlord's estimation be completed within one hundred eighty
(180) days after the date on which Landlord is notified by Tenant of such
damage, this Lease shall not terminate and Landlord shall, to the extent of
insurance proceeds received, then proceed with reasonable diligence to rebuild
and repair the Building to substantially the same condition in which it existed
prior to such damage. Landlord shall not be required, however, to rebuild,
repair, or replace any part of the partitions, fixtures, additions, and other
improvements which may have been placed in, on, or about the Leased Premises by
Tenant. If the Leased Premises are untenantable in whole or in part following
such damage, the Rent payable hereunder during the period in which they are
untenatable shall be reduced to such extent as may be fair and reasonable under
all of the circumstances. If Landlord should fail to complete such repairs and
rebuilding within one hundred eighty (180) days after the date on which Landlord
is notified by Tenant of such damage, Tenant may terminate this Lease by
delivering written notice of termination to Landlord. Such termination shall be
Tenant's exclusive remedy and all rights and obligations of the parties under
this Lease shall then cease. Notwithstanding the foregoing provisions of this
subparagraph (c). Tenant agrees that if the Leased Premises, the Building and/or
Project are damaged by fire or other casualty caused by the fault or negligence
of Tenant or Tenant's agents, employees or invitees, Tenant shall have no option
to terminate this Lease, even if the damage cannot be repaired within one
hundred eighty (180) days, and the Rent shall not be abated or reduced before or
during the repair period.
(d) Notwithstanding anything herein to the contrary, if the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Building and/or Project requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made. All rights and obligations under this Lease
shall then cease.
19. CASUALTY INSURANCE: Landlord shall at all times during the term of
this Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company, insuring the
Building against loss or damage by fire, explosion, or other hazards and
contingencies. Landlord shall not be obligated, however, to insure any personal
property (including, but not limited to, any furniture, machinery, goods, or
supplies) of Tenant or which Tenant may have in the Leased Premises or any
fixtures installed by or paid for b Tenant upon or within the Leased Premises or
any improvements which Tenant may construct or install on the Leased Premises or
any signs identifying Tenant's business located on the exterior of the Building.
20. WAIVER OF SUBROGATION: To the extent that Landlord or Tenant
receives casualty insurance proceeds, such recipient hereby waives and releases
any and all rights, claims, demands and causes of action such recipient may have
against the other on account of any loss or damage occasioned to such recipient
or its businesses, real and personal properties, the Leased Premises, the
Building, the Project, or its contents, arising from any risk or peril covered
by any insurance policy carried by either party. Inasmuch as the above mutual
waivers will preclude the assignment of any such claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each party hereto
hereby agrees immediately to give to its respective insurance companies written
notice of the terms of such mutual waivers and to have their respective
insurance policies properly endorsed, if necessary, to prevent the invalidation
of such insurance coverages by reason of such waivers. This provision shall be
cumulative of Paragraph 21 below.
21. HOLD HARMLESS: Landlord shall not be liable to Tenant, Tenant's
employees, agents, invitees, licensees or visitors, or to any other person, for
any injury to person or damage to property on or about the Leased Premises or
the Project caused by the negligence or misconduct of Tenant, its agents,
employees, invitees, or of any other persons entering upon the Leased Premises
or the Project under express or implied invitation by Tenant. Tenant agrees to
indemnify and hold Landlord harmless from any and all loss, attorney's fees,
expenses, or claims arising out of any such damage or injury.
22. QUIET ENJOYMENT: Landlord warrants that it has full right to execute
and to perform this Lease and to grant the estate demised and that Tenant, upon
payment of the required Rent and performing the covenants and agreements
contained in this Lease, shall peaceably and quietly have, hold, and enjoy the
Leased Premises during the full term of this Lease, including any extensions or
renewals thereof.
23. LANDLORD'S RIGHT OF ENTRY: Landlord shall have the right, at all
reasonable hours, to enter the Leased Premises for the
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Following reasons: inspection, cleaning or making repairs, making such
alterations or additions as Landlord may deem necessary or desirable:
installation of utility lines servicing the Leased Premises or any other space
in the Building: determining Tenant's use of the Leased Premises, or for
determining it any act of default under this Lease has occurred. Landlord shall
give twenty-four (24) hours written notice to Tenant prior to such ?? except in
cases of emergency when Landlord may enter the Leased Premises at any time and
without prior notice. During the period that is six (6) months prior to the end
of the Lease term. Landlord and Landlord's agents and representatives shall have
the right to enter the Leased Premises at any reasonable time during business
hours, without notice, for the purpose of showing the Leased Premises and shall
have the right to erect on the Leased Premises a suitable sign indicating the
Leased Premises are available for lease. Tenant shall give written notice to
Landlord at least thirty (30) days prior to vacating the Leased Premises and
shall arrange to meet with Landlord for a joint inspection of the Leased
Premises prior to vacating. In the event of Tenant's failure to give such notice
or arrange such joint inspection, Landlord's inspection at or after Tenant's
vacating the Leased Premises shall be conclusively deemed correct for purposes
of determining Tenant's responsibility for repairs and restoration.
24. ASSIGNMENT OF LANDLORD'S INTEREST IN LEASE: Landlord shall have the
right to transfer and assign, in whole or in part, its rights and obligations
with respect to the Project and premises that are the subject of this Lease,
including Tenant's security deposit. In such event, Landlord shall be released
from any further obligation under this Lease and Tenant agrees to look solely to
Landlord's successor for the performance of such obligations.
25. LANDLORD'S LIEN: In addition to any statutory lien for Rent in
Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a
continuing security interest for all Rentals and other sums of money becoming
due under this Lease from Tenant upon all goods, wares, equipment, fixtures,
furniture, inventory, accounts, contract rights, and other personal property of
Tenant situated on or (arising from the Leased Premises. Such property shall not
be removed without the consent of Landlord In the event of a default under this
Lease, Landlord shall have in addition to any other remedies provided in this
lease or by law, all rights and remedies under the Texas Uniform Commercial
Code, including without limitation the right to sell the property described in
this Paragraph at public or private sale upon five (5) days notice to Tenant.
Tenant hereby agrees to execute such financing statements and other instruments
necessary or desirable in Landlord's discretion to perfect the security interest
hereby created. The express contractual lien herein granted, is in addition and
supplementary to any statutory lien for Rent. * which consent may be withheld by
Landlord without cause so long as any of Tenant's duties or obligations
hereunder have not been fully performed.
26. DEFAULT BY TENANT: The following shall be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay when due any installment of Rent or
other payment required pursuant to this Lease;
(b) Tenant shall abandon or vacate any substantial portion of
the Leased Premises, whether or not Tenant is in default of the Rental payments
due under this Lease;
(c) Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than the defaults listed in this paragraph 26, and
the failure is not cured within ten (10) days after written notice thereof to
Tenant;
(d) Tenant shall file a petition or be adjudged a debtor or
bankrupt or insolvent under the National Bankruptcy Code, as amended, or any
similar law or statute of the United States or any state: or a receiver or
trustee shall be appointed for all or substantially all of the assets of Tenant:
or Tenant shall make a transfer in fraud of creditors or shall make an
assignment for the benefit of creditors:
(e) Tenant shall do or permit to be done any act which results
in a lien being filed against the Leased Premises.
27. REMEDIES FOR TENANT'S DEFAULT: Upon the occurrence of any event of
default set forth in this Lease, Landlord shall have the option to pursue any
one or more of the following remedies without any prior notice or demand:
(a) Landlord may terminate this Lease, in which event Tenant
shall immediately surrender the Leased Premises to Landlord, and if Tenant fails
to do so. Landlord may, without prejudice to any other remedy which it may have,
enter upon and take possession of the Leased Premises, and expel or remove
Tenant and any other person who may be occupying all or any part of the Leased
Premises. Landlord shall not be liable for prosecution or any claim for damages
as a result of such actions. Tenant agrees to pay on demand the amount of all
losses, costs, expenses, deficiencies, and damages, including, without
limitation, reconfiguration expenses, rental concessions and other inducements
to new tenants, advertising expenses and broker's commissions, which Landlord
may incur or suffer by reason of Tenant's default or the termination of the
lease under this subparagraph, whether through inability to relet the Leased
Premises on satisfactory terms or otherwise. Tenant acknowledges that its
obligation to pay Base Rent and all additional Rent hereunder is not only
compensation for use of the Leased Premises but also compensation for sums
already expended and/or being expended by Landlord with respect to its
obligations hereunder and with respect to the Leased Premises, and Tenant
acknowledges that Tenant's default in timely payment of all sums due hereunder
shall constitute significant financial loss to Landlord. Tenant further
acknowledges that any failure to pay any sum due hereunder shall evidence
Tenant's inability to meet its debts as they become due. In such event, in
addition to Landlord's other remedies hereunder. Landlord shall be entitled to
accelerate all Base Rental remaining unpaid hereunder, the entirety of which
shall, at the option of Landlord, be immediately due and payable.
(b) Landlord may enter upon and take possession of the Leased
Premises and expel or remove Tenant and any other person who may be occupying
all or any part of the Leased Premises (without being liable for prosecution or
any claim for damages therefor) and relet the Leased Premises on behalf of
Tenant and receive directly the rent of the reletting. Tenant agrees to pay
Landlord on demand any deficiency that may arise by reason of any reletting of
the Leased Premises and to reimburse Landlord on demand for any losses, costs,
and expenses, including without limitation, reconfiguration expenses, rental
concessions and other inducements to new tenants, advertising costs or broker's
commissions, which Landlord may incur or suffer as a result of Tenant's default
or in reletting the Leased Premises. Tenant further agrees to reimburse Landlord
for any expenditures made by if for remodeling or repairs necessary in order to
relet the Leased Premises. In the event Landlord is successful in reletting the
Leased Premises at a rental in excess of that agreed to be paid by Tenant
pursuant to this Lease. Landlord and Tenant agree that Tenant shall not be
entitled under any circumstances, to such excess rental, and Tenant does hereby
specifically waive any claim to such excess rental.
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(c) Landlord may enter upon the Leased Premises (without being
liable for prosecution or any claim for damages therefor) and do whatever Tenant
is obligated to do under the terms of this Lease. Tenant agrees to reimburse
Landlord on demand for any losses, costs and expenses which Landlord may incur
in effecting compliance with Tenant's obligations under this Lease. Tenant
further agrees that Landlord shall not be liable for any damages resulting to
Tenant from effecting compliance with Tenant's obligations under this
subparagraph, whether caused by the negligence of Landlord or otherwise.
(d) Landlord may pursue any remedy provided at law or in equity.
(e) Landlord shall have no duty to relet the Premises, and the
failure of Landlord to do so shall not release or affect Tenant's liability for
Rentals and other charges due hereunder or for damages.
(f) No re-entry or reletting of the Premises or any filing or
service of an unlawful detainer action or similar action shall be construed as
an election by Landlord to terminate Tenant's right to possession under this
Lease unless a written notice of such intention is given by Landlord to Tenant.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease and Tenant's right to possession
hereunder.
28. TERMINATION OF OPTIONS: If there exist any options or special rights
which Landlord may have granted Tenant under this lease including, but not
limited to, options or rights regarding extensions of the lease term, expansion
of the Leased Premises, or acquisition of any other interest in the Leased
Premises or the Building, then all such options and rights are independent of
the leasehold estate hereby granted to Tenant by Landlord. Landlord and Tenant
agree and acknowledge that the negotiated consideration for any such options or
special rights is Tenant's entry into this Lease and that no portion of any sums
due and payable by Tenant to Landlord hereunder is attributable thereto. In
addition to, and not in lieu of, the above remedies of Landlord for Tenant's
default, any and all such options or special rights shall be automatically
terminated upon the occurrence of the following events:
(a) Tenant shall have failed to pay when due any installment of
Rent or other sums payable under this Lease for any three (3) consecutive months
during the Lease term or any renewal or extension thereof, or for any five (5)
months during the Lease term or any renewal or extension thereof, whether or not
said defaults are cured by Tenant; or
(b) Tenant shall have received two (2) or more notices of
default under Paragraph 26(c) above with respect to any other covenant of this
Lease, whether or not such default(s) is/are cured; or
(c) Tenant shall have committed or suffered to exist any other
event of default described under Paragraph 26 above, whether or not such default
is cured by Tenant.
29. WAIVER OF DEFAULT OR REMEDY: Failure of Landlord to declare a
default immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not be waiver of the default.
Landlord shall have the right to declare the default at any time and take such
action as is lawful or authorized under this Lease. Pursuit of any one or more
of the remedies set forth in Paragraphs 27 or 28 above shall not preclude
pursuit of any one or more of the other remedies provided therein or elsewhere
in this Lease provided by law, nor shall pursuit of any remedy be a forfeiture
or waiver of any Rent or damages accruing to Landlord by reason of the violation
of any of the terms of this Lease. Failure by Landlord to enforce one or more of
its remedies upon an event of default shall not be construed as a waiver of the
default or of any other violation or breach of any of the terms contained in
this Lease.
30. ATTORNEY'S FEES: In the event any litigation arises hereunder, it is
specifically stipulated that this Lease shall be interpreted and construed
according to the laws of the State in which the Leased Premises are located.
Further, the prevailing party in any such litigation between the parties shall
be entitled to recover, as a part of its judgment, reasonable attorney's fees.
31. HOLDING OVER: Tenant will, at the termination of this Lease by lapse
of time or otherwise, surrender immediate possession to Landlord. If Landlord
agrees in writing that Tenant may hold over after the expiration or termination
of this Lease and if the parties do not otherwise agree, the hold over tenancy
shall be subject to termination by Landlord at any time upon not less than five
(5) days advance written notice, or by Tenant at any time upon not less than
thirty (30) days advance written notice. Further, all of the terms and
provisions of this Lease shall be applicable during the hold over period, except
that Tenant shall pay Landlord from time to time upon demand, as Base Rent for
the period of any hold over, an amount equal to one and one-half times (1-1/2)
the Base Rent in effect on the termination date, computed on a daily basis for
each day of the hold over period, plus all additional rental and other sums due
hereunder. If Tenant shall fail immediately to surrender possession of the
Leased Premises to Landlord upon termination of this Lease, by lapse of time or
otherwise, and Landlord has not agreed to such continued possession as above
provided, then, until Landlord can dispossess Tenant under the terms hereof or
otherwise. Tenant shall pay Landlord from time to time upon demand, as Base Rent
for the period of any such holdover, an amount equal to twice the Base Rent in
effect on the termination date, computed on a daily basis for each day of the
hold over period, plus all additional rental and other sums due hereunder. No
holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease except as otherwise expressly agreed by the
parties. The preceding provisions of this Paragraph shall not be construed as
Landlord's consent for Tenant to hold over.
32. RIGHTS OF MORTGAGEE: Tenant accepts this Lease subject and
subordinate to any recorded mortgage, deed of trust or other lien presently
existing or hereafter to exist with respect to the Leased Premises. Landlord is
hereby irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any mortgage, deed of trust or other hen hereafter
placed on the Leased Premises, and Tenant agrees upon demand to execute such
additional instruments subordinating this Lease as Landlord or the holder of any
such mortgage, deed of trust, or lien may require. If the interests of Landlord
under this Lease shall be transferred by reason of foreclosure or other
proceedings for enforcement of any mortgage on the Leased Premises. Tenant shall
be bound to the transferee (sometimes called the "Purchaser") under the terms
and conditions of this Lease for the balance of the remaining lease term,
including any extensions or renewals, with the same force and effect as if the
Purchaser were Landlord under this Lease. Tenant further agrees to attorn to the
Purchaser, including the mortgagee under any such mortgagee if it be the
Purchaser, as its Landlord. Such attornment shall be effective without the
execution of any further instruments upon the Purchaser succeeding to the
interest of Landlord under this Lease. The respective rights and obligations of
Tenant and the Purchaser upon the attornment, to the extent of the then
remaining
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balance of the term of this Lease, and any extensions and renewals, shall be and
are the same as those set forth in this Lease. Each such holder of any mortgage,
deed of trust, or lien, and each such Purchaser, shall be a third-party
beneficiary of the provisions of this Paragraph.
33. ESTOPPEL CERTIFICATES: Tenant agrees to furnish within (10) days,
from time to time, upon request of Landlord or Landlord's mortgagee, a statement
certifying that Tenant is in possession of the Leased Premises; the Leased
Premises are acceptable; the Lease is in full force and effect; the Lease is
unmodified; Tenant claims no present charge, lien, or claim of offset against
Rent; the Rent is paid for the current month, but is not paid and will not be
paid for more than one month in advance; there is no existing default by reason
of some act or omission by Landlord; and such other matters as may be reasonably
required by Landlord or Landlord's mortgagee.
34. SUCCESSORS: This Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed that
should Landlord's interest in the Leased Premises cease to exist for any reason
during the term of the Lease, then notwithstanding the happening of such event
this Lease shall nevertheless remain unimpaired and in full force and effect and
Tenant hereunder agrees to attorn to the then owner of the Leased Premises.
35. REAL ESTATE COMMISSION: Tenant represents and warrants that it has
dealt with no broker, agent, or other person in connection with this transaction
and that no other broker, agent, or other person brought about this transaction
other than Ken Boyd of Jackson-Cooksey; and Tenant agrees to indemnify and hold
Landlord harmless from and against any claims by any other broker, agent, or
other person claiming a commission or other form of compensation by virtue of
having dealt with Tenant with regard to this leasing transaction. The provisions
of this paragraph shall survive the termination of this Lease.
36. EXPANSION: If during the term of this Lease, Tenant occupies, under
a new written lease with Landlord, space of a size substantially larger than the
present Leased Premises within any development owned by Landlord, this Lease
shall be terminated upon execution of the Lease for such substitute space.
Notwithstanding the above-stated, Tenant shall remain obligated to pay for any
Rents or other sums due Landlord as a result of Tenant's tenancy hereunder, and
such obligation shall survive the termination of this Lease pursuant to this
Paragraph 36.
37. MECHANIC'S LIENS: Tenant shall have no authority, express or
implied, to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the interest of Landlord in the
Leased Premises or to charge the Rentals payable hereunder for any claim in
favor of any person dealing with Tenant, including those who may furnish
materials or perform labor for any construction or repairs. Each such claim
shall affect and each such lien shall attach to, if at all, only the leasehold
interest granted to Tenant by this Lease. Tenant covenants and agrees that it
will pay or cause to be paid all sums legally due and payable by it on account
of any labor performed or materials furnished in connection with any work
performed on the Leased Premises on which any lien is or can be validly and
legally asserted against its leasehold interest in the Leased Premises or the
improvements thereon. Tenant further agrees to save and hold Landlord harmless
from any and all loss, cost, or expense based on or arising out of asserted
claims or liens against the leasehold estate or against the right, title and
interest of the Landlord in the Leased Premises or under the terms of this
Lease. Under no circumstances shall Tenant be or hold itself out to be the agent
or representative of Landlord with respect to any alteration of the Leased
Premises whether or not consented to or approved by Landlord hereunder.
38. ENTIRE AGREEMENT, AND LIMITATION OF WARRANTIES: It is expressly
agreed by Tenant, as a material consideration for the execution of this Lease,
that this Lease is the entire agreement of the parties and that there are and
were no verbal representations, warranties, understandings, stipulations,
agreements, or promises pertaining to this Lease not incorporated in this Lease.
Landlord and Tenant expressly agree that there are and shall be no implied
warranties of merchantability of fitness or of any other kind arising out of
this Lease and that Tenant's acceptance of the Leased Premises shall be "as is".
It is likewise agreed that this Lease may not be altered, waived, amended, or
extended except by an instrument in writing signed by both Landlord and Tenant.
Not in limitation upon the foregoing, Landlord agrees that to the extent
assignable, all warranties, if any shall exist, from contractors or suppliers
with respect to the improvements to the Leased Premises hereunder are hereby
assigned to Tenant.
39. MISCELLANEOUS:
(a) Words of any gender used in this Lease shall be held and
construed to include any other gender; and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
(b) Each party agrees to furnish to the other, promptly upon
demand, a corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization and power of such
party to enter into this Lease.
(c) The captions inserted in this Lease are for convenience only
and in no way define, limit, or otherwise describe the scope or intent of this
Lease or any provision hereof, or in any way affect the interpretation of this
Lease.
(d) If any clause or provision of this Lease is illegal,
invalid, or unenforceable under present or future laws effective during the term
of this Lease, then and in that event, it is the intention of the parties hereto
that the remainder of this Lease shall not be affected thereby; and it is also
the intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid, or unenforceable there be
added as a part of this Lease a clause as similar in terms to such illegal,
invalid, or unenforceable clause or provision as may be possible and be legal,
valid, and enforceable.
(e) Because the Leased Premises are on the open market and are
presently being shown, this Lease shall be treated as an offer to lease only.
Unless and until this Lease is accepted by Landlord and Tenant in writing and a
fully executed copy delivered to both parties, this offer is subject to
withdrawal or non-acceptance by Landlord and the Leased Premises may be leased
to another party or used for another purpose by Landlord without notice.
(f) All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this Lease.
-9-
<PAGE> 10
(g) If the Commencement Date shall be determined under
Paragraphs 4(b) or (c) of this Lease. Landlord and Tenant shall enter into an
agreement in recordable form setting forth the Commencement Date and Termination
Date of the Lease term.
(h) In the event that Tenant shall fail to perform any duty or
obligation hereunder, whether maintenance, repair or replacement of the Leased
Premises, maintenance of insurance, or otherwise, then Landlord may, but shall
in no event be obligated to, without notice of any kind, take such actions as
Landlord deems necessary or appropriate to remedy such Tenant failure, and any
sums expended by Landlord and fair and just compensation for the time and effort
of Landlord shall be deemed additional Rental hereunder due and payable by
Tenant on demand.
(i) If Tenant shall fail to pay, when the same is due and
payable, any Rent, any additional Rent, or any other sum due hereunder, such
unpaid amount shall bear interest from the due date thereof to the date of
payment at the highest non-usurious rate permitted by applicable law.
(j) Landlord does not in any way or for any purpose become a
partner of Tenant in the conduct of its business or otherwise, nor a member of a
joint venture with Tenant.
(k) Tenant shall not record this Lease without the prior written
consent of Landlord. However, upon the request of either party hereto, the other
party shall join in the execution of a memorandum or so-called "short form" of
this Lease for the purposes of recordation.
(l) Time is of the essence in the performance of all the
covenants, conditions, and agreements contained in this Lease.
(m) Any duty, obligation, or debt and any right or remedy
arising hereunder and not otherwise consummated and/or extinguished by the
express terms hereof at or as of the time of termination of this Lease, whether
at the end of the term hereof or otherwise, shall survive such termination as
continuing duties, obligations, and debts of the obligated party to the other or
continuing rights and remedies of the benefited party against the other.
(n) This Agreement may be executed in one or more counterparts,
each of which counterparts shall for all purposes be deemed to be an original;
but all such counterparts together shall constitute but one instrument.
(o) Attached hereto, marked Exhibit "A" through Exhibit "D", are
certain exhibits to this Lease all of which are hereby incorporated herein by
reference.
40. NOTICE:
(a) All Rent and other payments required to be made by Tenant
shall be payable to Landlord at the address set forth below or any other address
Landlord may specify from time to time by written notice delivered to Tenant.
(b) All payments, if any, required to be made by Landlord to
Tenant shall be payable to Tenant at the address set forth below or at any other
address within the United States as Tenant may specify from time to time by
written notice
(c) Any notice or document required or permitted to be delivered
by this Lease shall be deemed to be delivered (whether or not actually received)
when deposited in the United States Mail, postage prepaid, certified mail, or
return receipt requested, addressed to the parties at the respective addresses
set out below or such other address as hereinafter specified by notice given in
accordance with this paragraph.
LANDLORD: TENANT:
Jackson-Shaw Partners No. 33, Ltd. KLA Instruments Corporation
- ---------------------------------- ---------------------------
3860 West Northwest Highway, Suite 300 405 International Parkway, Suite 209
- -------------------------------------- ------------------------------------
Dallas, Texas 75220 Richardson, Texas
- ------------------- -----------------
EXECUTED by Landlord and Tenant on the date below stated as their
respective Dates of Execution.
LANDLORD TENANT
Jackson-Shaw Partners No. 33, Ltd. KLA Instruments Corporation
- ---------------------------------- ---------------------------
By: /s/ JOHN M. FITZGIBBONS By: /s/
-------------------------------- ---------------------------------
John M. Fitzgibbons, Attorney-in-Fact /s/
- ------------------------------------- ------------------------------------
(Type Name and Title) (Type Name and Title)
Date of Execution: Date of Execution:
4/21/89, 198__ ______, ____________________, 1989
-10-
<PAGE> 11
EXHIBIT "A"
Being a tract of land situated in the Baurch Cantrell Survey, Abstract No. 265
City of Richardson, Dallas County, Texas and being more particularly describes
as follows:
BEGINNING at an Iron rod set for corner situated In the intersection of the
North line of Apollo Road and the West line of International Parkway;
THENCE S 89 degree 22' 17" W along the North line of said Apollo Road a distance
of 185.95 feet to an Iron rod set for corner, said rod also being the beginning
of a curve to the right and having a central angle of 08 degree 35' 53", a
radius of 1300.32', and a tangent of 97.75':
THENCE along said curving line of Apollo Road an are distance of 195.13 feet to
an Iron rod set for corner;
THENCE N 82 degree 01' 50" W and continuing along said North line of Apollo Road
a distance of 1.95 feet to an Iron rod set for corner, said rod also being the
beginning of a curve to the left and having a central angle of 03 degree 36'
58", a radius of 1456.13', and a tangent of 45.97';
THENCE along said curving line of Apollo Road an are distance of 91.90 feet to
an Iron rod set for corner;
THENCE N 00 degree 37' 43" W departing the North line of Apollo Road a distance
of 569.19 feet to an Iron rod set for corner;
THENCE N 89 degree 22' 17" E a distance of 473.52 feet to an Iron rod set for
corner, said rod also being on the West line of aforementioned International
Parkway;
THENCE S 00 degree 37' 43" E along said West line of International Parkway a
distance of 594.96 feet to the POINT OF BEGINNING and containing 6.4016 acres of
278,852 square feet of land more or less.
[CHART OMITTED]
<PAGE> 12
EXHIBIT "B"
See Space Plans
Plans and Specifications for Construction to follow!
<PAGE> 13
EXHIBIT "C"
RULES AND REGULATIONS
The following Rules and Regulations are prescribed by Landlord in order
to provide and maintain, to the best of Landlord's ability, orderly, clean and
desirable leased premises building and parking facilities for the Tenants
therein and to regulate conduct in and use of leased premises, the building and
parking facilities in such a manner as to minimize interference by others in the
proper use of leased premises by Tenant. In the following Rules and Regulations,
all references to Tenant include not only the Tenant, but, also, Tenant's
agents, servants, employees, invitees, licensees, visitors, assignees, and/or
sublessees:
1. Tenant shall not block or obstruct any of the entries, passages,
doors, hallways, or stairways of building or parking area, or place, empty, or
throw any rubbish, litter, trash, or material of any nature into such areas, or
permit such areas to be used at any time except for ingress or egress of
Tenants.
2. Landlord will not be responsible for lost or stolen personal
property, equipment, money, or any article taken from the leased premises,
building, or parking facilities regardless of how or when loss occurs.
3. The plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no foreign substance of any kind shall
be placed therein, and the expense of any breakage, stoppage, or damage
resulting from a violation of this provision shall be borne by Tenant.
4. Tenant shall permit Landlord, during the six (6) months prior to the
termination of this lease to show leased premises during business or nonbusiness
hours to prospective lessees and to advertise leased premises for rent.
5. Any additional keys required by Tenant during the term of the lease
shall be requested from Landlord and shall be paid for by Tenant upon delivery
of keys to premises, In the event new locks are requested by Tenant, then all
costs associated with such request (including hardware, installation and keys)
shall be paid by Tenant.
6. The common parking facilities are available for use by any and all
Tenants. Landlord reserves the right to assign or allocate parking in the event
of conflicts, abuse or improper use of these common parking facilities. It is
generally understood that any Tenant should utilize only those parking spaces
immediately adjacent to that Tenant's specific leased premises.
Proper use of the common parking facilities is deemed to be that use
which is occasioned by the normal in and out traffic required by the Tenant, in
the normal course of the Tenant's business operations.
Vehicles that are abandoned, disabled, have expired registration
stickers, obstructing any means of ingress or egress to any leased premises, or
in any way a general nuisance or hazard are subject to removal without notice by
Landlord's designated wrecker and towing service. All costs associated with such
removal shall be at the Tenant's/Vehicle Owner's expense.
7. Tenant shall not use the building, leased premises, or parking
facilities for housing, lodging, or sleeping purposes without the express
consent of Landlord in writing.
<PAGE> 14
EXHIBIT "D"
Options
Right of First Refusal
Landlord will provide Tenant with notice that adjacent space has been offered to
another prospective user.
Tenant shall have five (5) business days to execute this Right of First Refusal
by signing a new Lease Agreement for the adjacent area.
If Tenant elects not to lease adjacent space, this Right of First Refusal is
then cancelled and considered null and void.
Renewal option
Tenant shall have, and is hereby granted, one (1) option to renew and to extend
the term of this Lease for a period of thirty-six (36) months (the "Renewal
Term"), such option to follow consecutively upon the expiration of the initial
sixty (60) month term of this Lease, provided that at the time such option to
renew is exercised, this Lease shall be in full force and effect and Tenant
shall not be in default hereunder. Such option shall be exercised, if at all, by
Tenant giving written notice of its intention to renew and extend the term of
this Lease to Landlord at least one hundred eighty (180) days before the
expiration of the initial sixty (60) month term of this Lease. Any assignment or
subletting by Tenant in violation or breach of Paragraph 10 of this Lease shall
terminate all rights of renewal and extension set forth herein. The renewal, if
elected by Tenant, shall be under all of the terms and conditions of this Lease
except Basic Rental (below provided), except the amount of Security Deposit,
which will be increased in an amount corresponding to the new Basic Rental, and
except that no further renewal option shall exist.
Commencing with the first (1st) day of the first (1st) calendar month for the
Renewal Term, the applicable annual Basic Rental for each calendar month for the
Renewal Term shall be adjusted so that it is equal to the prevailing market rate
per annum for comparable space available in buildings of a quality similar to
the Building within reasonable proximity thereto at such time, provided however,
in no event shall such adjusted Basic Rental be less than the product of
multiplying the number of months of the Renewal Term by the Monthly Rental
Payment for the last full month of the Lease Term.
[?? Text Illegible ??]
<PAGE> 15
AMENDMENT, MODIFICATION AND RATIFICATION OF LEASE
July 13, 1989
This Amendment, Modification and Ratification of Lease is executed on
the date last below stated by and between Jackson-Shaw Partners No. 33, Ltd.
("Landlord"), and KLA Instruments Corporation ("Tenant").
By Commercial Lease Agreement (the "Lease"), dated June 21, 1989,
Landlord leased to Tenant 3,151 square feet of office space in the building
described as International Corporate Park II, located at 405 International
Parkway, Suite 209, Richardson, Texas, for a term of Sixty (60) months,
beginning January 1, 1990. Tenant has requested that additional space in the
building be added to the Lease, and Landlord and Tenant have agreed upon such
expansion in accordance with the terms of this Amendment. References in this
Amendment are to the numbered Paragraphs in the Lease.
In consideration of the mutual obligations and benefits hereof, Landlord
and Tenant agree as follows:
1. Beginning January 1, 1990, and ending on the Termination date, December 31,
1994, the 840 square foot portion of the building marked on a floor plan
thereof and attached hereto as Exhibit "A" dated July 13, 1989 incorporated
herein by reference, shall be added to the Leased Premises under all the
terms, conditions and obligations of the Lease, except as otherwise herein
expressly provided. Total square footage leased to Tenant shall be 3,991 s.f.
and Tenant's address shall not change.
2. Base Rentals for this Sixty month (60) period with respect to the Total
Leased Premises is One Hundred Thirty Seven Thousand Seven Hundred and No/100
Dollars ($137,700.00) payable as Base Rentals under the Lease in monthly
installments of Two Thousand Two Hundred Ninety-five and No/100 ($2,295.00)
each beginning January 1, 1990.
3. With respect to the Total Rentable Space, the expense stop (Paragraph 6(a))
shall be $0.75 p.s.f., and Tenant's pro rata share of Tax and Insurance
expenses with respect to the Total Rentable Space shall now be Twenty-four
and 2/10 24.2%.
4. Except as expressly hereby modified, the Lease is hereby ratified and
affirmed in all respects.
LANDLORD: TENANT:
JACKSON-SHAW PARTNERS NO. 33, LTD. KLA INSTRUMENTS CORPORATION
/s/ JOHN M. FITZGIBBONS /s/ HOWARD GORE 7-19-89
- ------------------------------------- -------------------------------
John M. Fitzgibbons, Attorney-in-Fact Howard Gore, Treasurer
<PAGE> 16
?? along said curving line of Apollo Road an arc distance of 195.13 feet to an
iron rod set for corner;
THENCE N 82 degree 01' 50" W and continuing along said North line of Apollo Road
a distance of 1.95 feet to an iron rod set for corner, said rod also being the
beginning of a curve to the left and having a central angle of 03 degree 36'
58", a radius of 1456.13', and a tangent of 45.97';
THENCE along said curving line of Apollo Road an arc distance of 91.90 feet to
an iron rod set for corner;
THENCE N 00 degree 37' 43" W departing the North line of Apollo Road a distance
of 569.19 feet to an iron rod set for corner;
THENCE N 89 degree 22' 17" E a distance of 473.52 feet to an iron rod set for
corner, said rod also being on the West line of aforementioned International
Parkway;
THENCE S 00 degree 37' 43" E along said West line of International Parkway a
distance of 594.96 feet to the POINT OF BEGINNING and containing 6,4016 acres of
278,852 square feet of land more or less.
[CHART OMITTED]
<PAGE> 17
SECOND, AMENDMENT, MODIFICATION AND RATIFICATION OF LEASE
June 29, 1990
This Second Amendment, Modification and Ratification of Lease is
executed on the date last below stated by and between Garlan Real Estate
Corporation and KLA Instruments Corporation ("Tenant").
By Commercial Lease Agreement (the "Lease"), dated June 21, 1989 and
amended on 7-19-89 Landlord leased to Tenant 3,991 square feet of office space
in the building described as International Corporate Park II, located at 405
International Parkway, Suite 209. Richardson, Texas, for a term of Sixty (60)
months, beginning January 1, 1990. Tenant has requested that additional space in
the building be added to the Lease, and Landlord and Tenant have agreed upon
such expansion in accordance with the terms of this second amendment. References
in this Amendment are to the numbered Paragraphs in the Lease.
In consideration of the mutual obligations and benefits hereof, Landlord
and Tenant agree as follows:
1. Beginning November 1, 1990, and ending on the new Termination date September
30, 1995, the 760 square foot portion of the building marked on a floor plan
thereof and attached hereto as Exhibit "A" dated June 29, 1990 Incorporated
herein by reference, shall be added to the Leased Premises under all the
terms, conditions and obligations of the Lease, except as otherwise herein
expressly provided. Total square footage leased to Tenant shall be 4,751 s.f.
and Tenant's address shall not change.
2. Base Rentals for this new sixty month (60) period with respect to the Total
Leased Premises is One Hundred Seventy-five Thousand Seven Hundred Forty and
No/100 ($175,740.00) payable as Base Rentals under the Lease in monthly
Installments of Two Thousand Nine Hundred Twenty-Nine and No/100 ($2,929.00)
each beginning November 1, 1990.
3. With respect to the Total Rentable Space, the expense stop (Paragraph 6(a))
shall be $0.75 p.s.f., and Tenant's pro rata share of Tax and Insurance
expenses and Common Area Maintenance with respect to the Total Rentable Space
shall now be Twenty-eight percent and 8/10 (28.8%).
4. Except as expressly hereby modified, the Lease is hereby ratified and
affirmed in all respects.
LANDLORD: TENANT:
GARLAN REAL ESTATE CORPORATION KLA INSTRUMENTS CORPORATION
/s/ Signature Illegible /s/ F.S. MICHAEL ROM
- ------------------------------ ---------------------------------
Director of F.S. MICHAEL ROM,
/s/ DAVE PEFELY
---------------------------------
CONTROLLER, DAVE PEFELY
<PAGE> 18
[EXHIBIT OMITTED]
<PAGE> 19
THIRD AMENDMENT OF COMMERCIAL LEASE AGREEMENT
THIS THIRD AMENDMENT OF COMMERCIAL LEASE AGREEMENT (the "Amendment"), is
entered into as of the ?? day of ??, 1995 by and between GARLAN REAL ESTATE
CORPORATION, a Delaware corporation ("Landlord"), and KLA INSTRUMENTS
CORPORATION, a DELAWARE corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Jackson-Shaw Partners No. 33, Ltd. ("Original Landlord") and
Tenant, entered into that certain Commercial Lease Agreement executed by
Original Landlord on or about June 21, 1989 (the "Commercial Lease") pursuant to
which Original Landlord agreed to lease to Tenant the premises (the "Original
Premises") consisting of Suite 209 containing approximately 3,151 rentable
square feet of floor area in the Building, as more fully described in the
Commercial Lease, situated in International Corporate Park, Phase II located at
405 International Parkway, Richardson, Texas.
WHEREAS, Original Landlord and Tenant, amended the Commercial Lease by
entering into that certain Amendment, Modification and Ratification of Lease
(the "First Amendment") dated July 13, 1989 pursuant to which 840 rentable
square feet of floor area were added to the Original Premises and the Commercial
Lease was otherwise amended as set forth therein.
WHEREAS, Landlord and Tenant further amended the Commercial Lease by
entering into that certain Second Amendment, Modification and Ratification of
Lease (the "Second Amendment") dated June 29, 1990 pursuant to which 760
rentable square feet of floor area were added to the Leased Premises and the
Commercial Lease was otherwise amended as set forth therein (the Commercial
Lease, the First Amendment and the Second Amendment are collectively referred to
herein as the "Lease").
WHEREAS, Landlord and Tenant desire to (i) extend the term of the Lease
for a period of five (5) years, (ii) add to the Leased Premises the Additional
Premises (as hereinafter defined), and (iii) amend certain other terms and
provisions of the Lease as set forth herein.
NOW, THEREFORE, for and in consideration of the mutual terms and
conditions set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
hereby agree as follows:
1. "Additional Premises" means 1,923 rentable square feet of floor area
in the Building as depicted on Schedule 1 attached hereto and made a part hereof
for all purposes.
2. "Additional Premises Commencement Date" means the earlier of (i)
October 1, 1995, or (ii) the date on which Tenant first occupies the Additional
Premises (or any part thereof) for the conduct of its business.
3. Effective as of the Additional Premises Commencement Date, the
Additional Premises shall be part of the Leased Premises, and all references in
the Lease and herein to the "Leased Premises" and/or the "Premises" shall be
deemed to collectively refer to the Premises and the Additional Premises.
4. Section 4 of the Lease is hereby amended to provide that the
Termination Date is September 30, 2000.
5. From the Additional Premises Commencement Date through the remainder
of the term of the Lease, annual Base Rent for the Leased Premises shall be
$48,386.50, payable in monthly payments of $4,032.21 (pro-rated for partial
calendar months as set forth in the Lease).
6. As of the Additional Premises Commencement Date the pro rata share to
be paid by Tenant (referenced in Subparagraph 6(a)(1) of the Original Lease,
Paragraph 3 of the First Amendment and Paragraph 3 of the Second Amendment) is
changed to reflect that the Leased Premises contain 40.52% of the rentable area
of the Building.
7. The Tax and Insurance Differential (see Paragraph 6(a) of the Lease)
shall be adjusted as of October 1, 1995 to reflect a 1995 base year expense
stop. In other words,
<PAGE> 20
commencing October 1, 1995 for any calendar year (or applicable portion thereof)
the Tax and Insurance Differential shall be the amount by which Tax and
Insurance Expenses for such calendar year (or applicable portion thereof) exceed
the Tax and Insurance Expenses for calendar year 1995 (or the applicable
prorated portion thereof).
8. Paragraph 6(b) of the Lease is hereby amended as follows:
(a) As of October 1, 1995, the first sentence of Paragraph 6(b)
of the Lease is hereby amended to reflect a 1995 base year expense stop.
In other words, commencing October 1, 1995 for any calendar year (or
applicable portion thereof) Tenant shall be obligated to pay its pro
rata share of the amount by which the Common Area Maintenance Expenses
for such calendar year (or applicable portion thereof) exceed the Common
Area Maintenance Expenses for calendar year 1995 (or the applicable
prorated portion thereof).
(b) In the event that during all or any portion of any calendar
year the Building is not fully rented or fully occupied, Landlord may
elect to make an appropriate adjustment in the Common Area Maintenance
Expenses for such calendar year by determining the Common Area
Maintenance Expenses that would have been incurred had the Building been
ninety-five (95%) rented and occupied, and the amount so determined
shall be deemed to have been the Common Area Maintenance Expenses for
the applicable period.
(c) Notwithstanding anything to the contrary contained in this
Amendment or in the Lease, for purposes of calculating Common Area
Maintenance Expenses for the period beginning January 1, 1996 and for
each year thereafter (or portion hereof) for the remainder of the term
of the Lease, the components of Common Area Maintenance Expenses
involving management fees and wages and fringe benefits payable to
employees of Landlord shall not annually increase by more than eight
percent (8%) in the aggregate and calculated on a cumulative and
compounded basis.
9. Notwithstanding anything in Paragraph 7(a) of the Lease to the
contrary Landlord and Tenant hereby agree as follows:
In the event the maintenance contractor engaged pursuant to
Paragraph 7(d) of the Lease reasonably determines that it is
necessary to replace the heating and air conditioning system(s)
serving the Leased Premises (the "HVAC"), Landlord shall cause
such HVAC to be replaced and the monthly Base Rent payments
under the Lease shall immediately be increased by an amount
which would cause the full amount of all costs incurred by
Landlord for the HVAC replacement, together with interest
thereon at the rate of twelve percent (12%) per annum, to be
repaid to Landlord over a five (5) year period. Nothing in the
immediately preceding sentence shall in any way obviate Tenant's
obligations under the Lease to maintain and repair the HVAC.
10. Notwithstanding anything in the Lease to the contrary, construction
of leasehold improvements (the "Leasehold Improvements") in the Leased Premises
and the Construction Allowance as defined in Schedule 2 hereof, shall be
governed by Schedule 2 attached hereto and made a part hereof for all purposes.
11. Tenant shall be responsible, at Tenant's sole cost and expense, for
compliance with the law commonly known as the "Americans With Disabilities Act",
as amended ("ADA") as such compliance relates to the Leased Premises. Tenant
shall be responsible, at Tenant's sole cost and expense, for compliance with any
and all present and future laws, rules and/or regulations regarding air quality
as such compliance relates to the Leased Premises. Landlord shall be responsible
for compliance with the ADA as such compliance relates to the common areas of
the Building. Any expenses incurred by Landlord in connection with such
compliance shall be included in Common Area Maintenance Expenses.
12. Exhibit D of the Lease is hereby deleted from the Lease in its
entirety. Schedule 3 attached hereto is hereby made a part of the Lease and a
part hereof for all purposes.
13. All capitalized terms used in this Amendment and not otherwise
defined herein, shall have the meaning ascribed to such terms in the Lease.
2
<PAGE> 21
14. The Lease, as amended herein, is hereby ratified and confirmed and
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
LANDLORD:
GARLAN REAL ESTATE CORPORATION,
a Delaware corporation
By: /s/Signature Illegible
--------------------------------
Name: /s/Signature Illegible
------------------------------
Title: /s/Signature Illegible
-----------------------------
TENANT:
KLA INSTRUMENTS CORPORATION,
a ___________ corporation
By: /s/Signature Illegible
--------------------------------
Name:
------------------------------
Title:
-----------------------------
3
<PAGE> 22
SCHEDULE 1
[CHART OMITTED]
1
<PAGE> 23
SCHEDULE 2
LEASEHOLD IMPROVEMENTS
1. Construction of Leasehold Improvements. Tenant shall retain its own
contractor to construct and install leasehold improvements in or respecting the
Leased Premises (the "Leasehold Improvements"), pursuant to a written
construction contract (the "Construction Contract") and subject to and in
accordance with this Schedule 2. Landlord and Tenant expressly understand and
agree (i) that Landlord shall have no responsibility or obligation for the
construction and installation of the Leasehold Improvements in and to or
respecting the Leased Premises, and (ii) Landlord shall have no responsibility
or obligation to pay for any of the Leasehold Improvements, except for the
Construction Allowance.
2. Tenant's Contractor. Landlord shall have the right to approve
Tenant's selection of the contractor ("Tenant's Contractor") to construct the
Leasehold Improvements. Landlord shall have no obligation or duty to ensure
timely completion of, or supervise or manage in any way, the construction of the
Leasehold Improvements, and Landlord shall have no obligation to provide
builder's risk or other insurance on behalf of Tenant or Tenant's Contractor.
Landlord will cooperate with Tenant in the manner provided in subparagraphs (a)
and (b) below.
(a) Access. Tenant shall be entitled to immediate possession of
the Leased Premises for the purpose of constructing Tenant's Leasehold
Improvements. Landlord shall take reasonable steps to provide any
contractors and/or subcontractors engaged by Tenant and approved by
Landlord with access to the common areas of the Building and to the
Leased Premises as is reasonably necessary in order to allow Tenant to
construct the Leasehold Improvements, subject to such requirements,
rules and regulations as Landlord may reasonably impose from time to
time.
(b) Water and Electrical Power. Landlord will provide to Tenant
and Tenant's Contractor water and electrical power to the Leased
Premises 24 hours per day, 7 days per week during the period of
construction of the Leasehold Improvements.
3. Construction Allowance.
(a) Landlord shall provide to Tenant an allowance (the
"Construction Allowance") not to exceed $38,992.00 to be used by Tenant
to construct and install the Leasehold Improvements in the Leased
Premises upon the terms and conditions set forth in this Schedule 2.
Landlord and Tenant agree that Landlord shall own the Leasehold
Improvements as constructed by Tenant and Tenant shall have no right or
interest in the Leasehold Improvements except as a lessee hereunder. The
cost of the Leasehold Improvements shall include all costs of labor and
materials for the physical improvements to the Leased Premises
including, but not limited to, partitioning, doors, frames, hardware,
millwork, finishes, mechanical work and electrical work, plus fees and
overhead to Tenant's Contractor. Any portion of the Construction
Allowance not used for construction of the Leasehold Improvements shall
be forfeited by Tenant and Tenant shall not receive such unused portion
of the Construction Allowance or any credit therefor.
(b) Landlord shall disburse the Construction Allowance to Tenant
to enable Tenant to make progress payments to pay costs of constructing
and installing the Leasehold Improvements until the Construction
Allowance has been fully exhausted; provided, that Landlord shall not be
obligated to disburse funds for materials stored off-site, and provided
further, that Landlord receives from Tenant and is reasonably satisfied
with the form and content of (a) a request for payment, (b) a copy of a
certificate signed by Tenant's architect certifying the percentage of
completion of the Leasehold Improvements and approving payment of an
amount at least equal to the amount set forth in Tenant's request for
payment, (c) partial releases of liens and/or lien waivers from Tenant's
Contractor and subcontractors requesting payment, and (d) a copy of the
Construction Contract (collectively, the "Back-Up"). Landlord shall not
be obligated to make any payment of the Construction Allowance at any
time there is an
1
<PAGE> 24
unbonded lien outstanding against the Building or the Leased Premises or
Tenant's interest therein by reason of work done, or claimed to have
been done, or materials supplied, or claimed to have been supplied, to
or for Tenant or the Leased Premises or if the conditions to advances of
the Construction Allowance are not satisfied. Notwithstanding anything
in this Paragraph 3 to the contrary Landlord shall not be required to
make more than one (1) advance during any calendar month.
4. Compliance of Leased Premises. Tenant shall be responsible for
complying with laws, ordinances and regulations applicable to the Leasehold
Improvements.
5. Plans. Tenant's architect shall, at Tenant's expense, prepare all
plans and documents for the construction of the Leasehold Improvements, it being
understood and agreed, however, that all such plans and documents shall be
subject to Landlord's written approval. Tenant shall submit to Landlord final
working drawings for all Leasehold Improvements and such final working drawings
shall be subject to Landlord's prior approval. If there are any significant
changes by Tenant from the improvements set forth in the final working drawings
referred to above, each such change must receive the prior written approval of
Landlord. In the event of any change in the working drawings, Tenant shall, upon
completion of the Leasehold Improvements, furnish Landlord with an accurate
"as-built" plan of the portion of the Leasehold Improvements covered by such
changes as constructed. All design, construction and installation of the
Leasehold Improvements shall conform to the requirements of applicable building,
plumbing and electrical codes and the requirements of any authority having
jurisdiction with respect to such work. All plans and working drawings submitted
to Landlord for approval shall be deemed approved by Landlord on the fifteenth
(15th) business day after submission unless Landlord notifies Tenant to the
contrary.
6. Construction Contractors. Landlord shall have the right to approve
the mechanical, electrical and structural contractors and engineers retained by
Tenant or Tenant's Contractor. The mechanical, electrical and structural
contractors and engineers retained by Tenant or Tenant's Contractor shall be
deemed approved by Landlord on the fifteenth (15th) business day after their
names are submitted to Landlord unless Landlord notifies Tenant to the contrary.
Any contractors and/or subcontractors engaged shall comply with all standards
and regulations established by Landlord in its reasonable discretion, provided
that same have been furnished to Tenant in advance by Landlord. Such contractors
and subcontractors shall coordinate their efforts to ensure timely completion of
all work. During construction of any improvements, all contractors and
subcontractors shall coordinate with Landlord the movement of equipment and
materials. All contractors and subcontractors shall ensure that the work be
conducted in such manner so as to maintain harmonious labor relations and not to
interfere with Landlord's operation of the Building and/or the use of the
Building by other tenants. Tenant shall provide Landlord with a copy of the
Construction Contract for Landlord's approval, prior to full execution thereof.
In addition, Tenant shall provide Landlord with all reasonable information that
Landlord may request concerning the construction and installation of the
Leasehold Improvements. Tenant shall maintain builder's risk and other insurance
during the construction of the Leasehold Improvements in conformity with
Tenant's obligations to maintain insurance as set forth in the Lease and shall
provide Landlord with certificates evidencing such builder's risk and other
insurance.
7. Landlord's Approval. Any approval by Landlord or its architects of
any of Tenant's drawings, plans and specifications which are prepared in
connection with the construction of the Leasehold Improvements or any inspection
by Landlord of the Leasehold Improvements shall not in any way be construed or
operate to bind Landlord or to constitute a representation or warranty of
Landlord as to the adequacy of sufficiency of such drawings, plans and
specifications or the Leasehold Improvements to which they relate, for any use,
purpose or condition, but such approval shall merely be the consent of Landlord
as may be required hereunder in connection with the construction of Leasehold
Improvements.
2
<PAGE> 25
SCHEDULE 3
RENEWAL OPTION
Tenant shall have the right to renew and extend the term of this Lease
with respect to the Leased Premises then subject to this Lease for the Renewal
Term (herein so called) upon and subject to the following terms and conditions:
1. Tenant may extend this Lease for one (1) Renewal Term of five (5)
years by Tenant's giving written notice thereof to Landlord no later than April
1, 2000. The Renewal Term shall commence immediately upon the expiration of the
original term of this Lease (as extended by the Third Amendment of Commercial
Lease Agreement), and upon exercise of the renewal option the date of expiration
of the term of this Lease shall automatically become the last day of the Renewal
Term.
2. The exercise by Tenant of the renewal option set forth herein must be
made, if at all, by written notice executed by Tenant and delivered to Landlord
on or before the date set forth hereinabove. Once Tenant shall exercise the
renewal option, Tenant may not thereafter revoke such exercise. Tenant shall not
have the right to exercise the renewal option if Tenant is in default under this
Lease, either at the time Tenant gives notice of its election to renew, or
immediately prior to the commencement of the Renewal Term. Tenant's failure to
exercise timely the renewal option for any reason whatsoever shall conclusively
be deemed a waiver of such renewal option.
3. Tenant shall take the Leased Premises "as is" for the Renewal Term
and Landlord shall have no obligation to make any improvements or alterations to
the Leased Premises.
4. Base Rent for the Renewal Term shall be at the Fair Market Value Rate
(hereinafter defined) multiplied by the number of net rentable square feet of
floor space in the Leased Premises, provided, however, that in no event shall
the Base Rent for the Renewal Term be less than the Base Rent in effect
immediately prior to the expiration of the original term of this Lease (as
extended by the Third Amendment of Commercial Lease Agreement). For purposes
hereof the "Fair Market Value Rate" means the fair market rental rate per square
foot of net rentable square feet of floor space in the Leased Premises which
Landlord is charging for a comparable lease term at the appropriate time for
comparable tenants leasing space of comparable size similarly situated in the
Building.
5. Except as set forth in this Schedule 3, the leasing of the Leased
Premises for the Renewal Term shall be upon the same terms and conditions as are
applicable for the original term of this Lease (as extended by the Third
Amendment of Commercial Lease Agreement), and shall be upon and subject to all
of the provisions of this Lease, including without limitation the obligation of
Tenant to pay the amounts set forth in Paragraph 4 above.
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 2, 1999 in the Registration Statement (Form
S-1) and related prospectus of Avanex Corporation for the registration of shares
of its common stock.
Our audits also included the financial statement schedule of Avanex
Corporation listed in Schedule II. The schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referenced to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
December 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE REGISTRATION STATEMENT ON FORM S-1 OF AVANEX
CORPORATION FOR THE QUARTER ENDED OCTOBER 1, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> OCT-01-1999
<CASH> 6,632
<SECURITIES> 8,006
<RECEIVABLES> 3,454
<ALLOWANCES> 345
<INVENTORY> 1,261
<CURRENT-ASSETS> 20,290
<PP&E> 4,047
<DEPRECIATION> 688
<TOTAL-ASSETS> 25,068
<CURRENT-LIABILITIES> 6,116
<BONDS> 26,751
0
0
<COMMON> 14
<OTHER-SE> 24,976
<TOTAL-LIABILITY-AND-EQUITY> 25,068
<SALES> 4,417
<TOTAL-REVENUES> 4,417
<CGS> 3,431
<TOTAL-COSTS> 3,431
<OTHER-EXPENSES> 950
<LOSS-PROVISION> 315
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (7,470)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,470)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,431)
<EPS-BASIC> (6.06)
<EPS-DILUTED> (6.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE REGISTRATION STATEMENT ON FORM S-1 OF AVANEX
CORPORATION FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,756
<SECURITIES> 1,968
<RECEIVABLES> 302
<ALLOWANCES> 30
<INVENTORY> 626
<CURRENT-ASSETS> 5,090
<PP&E> 2,084
<DEPRECIATION> 413
<TOTAL-ASSETS> 6,816
<CURRENT-LIABILITIES> 2,430
<BONDS> 10,920
0
0
<COMMON> 12
<OTHER-SE> 3,812
<TOTAL-LIABILITY-AND-EQUITY> 6,816
<SALES> 510
<TOTAL-REVENUES> 510
<CGS> 531
<TOTAL-COSTS> 531
<OTHER-EXPENSES> 4,086
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> (9,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,221)
<EPS-BASIC> (8.68)
<EPS-DILUTED> (8.68)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE REGISTRATION STATEMENT ON FORM S-1 OF AVANEX
CORPORATION FOR THE PERIOD FROM OCTOBER 24, 1997 (INCEPTION) TO JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-24-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,874
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,911
<PP&E> 441
<DEPRECIATION> 33
<TOTAL-ASSETS> 3,339
<CURRENT-LIABILITIES> 274
<BONDS> 3,870
0
0
<COMMON> 5
<OTHER-SE> 327
<TOTAL-LIABILITY-AND-EQUITY> 3,339
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (1,137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,137)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
