<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2000
REGISTRATION NO. 333-92097
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
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:
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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>
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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
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<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE(2)
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Common stock,
$.001 par value per share... 6,900,000 shares(1) $15.00 $103,500,000 $27,324
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</TABLE>
(1) Includes 900,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Registrant previously paid a registration fee of $25,502.40. Estimated
pursuant to Rule 457(a) of the Securities Act of 1933 solely for the purpose
of computing the amount of the registration fee.
------------------------
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 HEREAFTER 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 January 14, 2000
6,000,000 Shares
LOGO
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 $13 AND $15
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.
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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
900,000 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 data transmission over optical networks and
the deployment of next-generation, all-optical network services."]
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 4
Risk Factors.......................... 7
Special Note Regarding Forward-Looking
Statements.......................... 21
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Financial Data............... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
</TABLE>
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PAGE
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<S> <C>
Business.............................. 35
Management............................ 47
Certain Transactions.................. 60
Principal Stockholders................ 65
Description of Capital Stock.......... 68
Shares Eligible for Future Sale....... 70
Underwriters.......................... 72
Legal Matters......................... 74
Experts............................... 74
Additional Information................ 74
Index to Financial Statements......... F-1
</TABLE>
------------------------
We were incorporated in California in October 1997 and intend to
reincorporate in Delaware in January 2000. 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 December
31, 1999 into 35,019,134 shares of common stock effective upon the
closing of this offering; and
- reflects the exercise of warrants to purchase 337,500 shares of common
stock prior to the closing of this offering;
- gives effect to the sale of 769,230 shares of common stock to MCI
WorldCom and Microsoft Corporation. The shares will be sold directly by
us in a private placement at a price of $13.00 per share
contemporaneously with this offering, for an aggregate of $9,999,990.00;
and
- reflect a 3 for 2 stock split in the form of a stock dividend to be
effective upon the completion 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 consolidated 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 capacity, or 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 terabytes, or trillions of bytes, per month, at the end of
1999 to over 15 million terabytes per month 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
by many common carriers, including MCI, AT&T and Sprint. 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, a phenomenon known
as attenuation, by converting it into an electrical signal and back into
an optical signal at frequent intervals across a network;
- the need to compensate for chromatic dispersion, a negative effect caused
by different wavelengths of light traveling down the optical filter at
different velocities and reaching the destination at different times;
- 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 maximize the capacity of optical networks to facilitate
next generation services and applications, such as virtual private networking
and business-to-business 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........................ 6,000,000 shares
Common stock to be outstanding after this
offering.................................... 62,529,320 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 December 31, 1999 and assumes the exercise of warrants to
purchase 337,500 shares of common stock at an exercise price of $4.00 per share
prior to this offering, the subsequent conversion of all of our outstanding
preferred stock as of December 31, 1999 into an aggregate of 35,019,134 shares
of common stock on completion of this offering and the sale of 769,230 shares of
common stock to two corporate investors at a price of $13.00 per share for an
aggregate of $9,999,990.00 in a private placement that will close
contemporaneously with this offering. It excludes 3,401,427 shares of common
stock issuable upon exercise of outstanding options with a weighted-average
exercise price of $1.40 per share, 29,347 shares of common stock issuable upon
exercise of an outstanding warrant with an exercise price of $3.83 per share and
1,245,117 shares of common stock reserved for future awards under our stock
plans. It also excludes 525,000 shares of stock to be reserved for issuance
under our Employee Stock Purchase Plan and excludes 300,000 shares of stock to
be reserved for issuance under our 1999 Director Option Plan. Both of these
plans will become effective upon the closing of this offering.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 24, 1997 ----------------------------
(INCEPTION) TO YEAR ENDED DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 JUNE 30, 1999 1998 1999
---------------- ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue................................ $ -- $ 510 $ -- $ 10,916
Gross profit (loss)........................ -- (21) -- 2,722
Stock compensation expense................. 362 3,464 673 15,697
Total operating expenses................... 1,133 9,229 2,609 22,490
Loss from operations....................... (1,133) (9,250) (2,609) (19,768)
Net loss................................... (1,137) (9,221) (2,607) (19,794)
Net loss attributable to common
stockholders............................. (1,137) (9,221) (2,607) (39,845)
Pro forma basic and diluted net loss per
common share (unaudited)................. $ (.39) $ (1.02)
Weighted average shares used in computing
pro forma basic and diluted net loss per
common share (unaudited)................. 23,628 39,110
</TABLE>
The following table presents our summary consolidated balance sheet data as
of December 31, 1999. The pro forma as adjusted information reflects:
- the assumed exercise of warrants to purchase 337,500 shares of common
stock at an exercise price of $4.00 per share prior to this offering and
the subsequent conversion of all of our outstanding preferred stock as of
December 31, 1999 into an aggregate of 35,019,134 shares of common stock
upon completion of this offering;
- our sale of 6,000,000 shares of our common stock in this offering, at an
assumed initial public offering price of $14.00 per share, after
deducting estimated underwriting discounts and commissions and our
estimated offering expenses; and
5
<PAGE> 7
- the sale of 769,230 shares of common stock to two corporate investors at
a price of $13.00 per share for an aggregate of $9,999,990.00 in a
private placement that will close contemporaneously with this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $14,379 $101,824
Working capital............................................. 14,313 101,758
Total assets................................................ 28,152 115,597
Long-term obligations, excluding current portion............ 1,320 1,320
Redeemable convertible preferred stock...................... 30,408 --
Total other stockholders' equity (deficit).................. (10,498) 107,355
</TABLE>
6
<PAGE> 8
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, $7.5 million in the quarter
ended October 1, 1999 and $12.3 million in the quarter ended December 31, 1999.
As of December 31, 1999, we had an accumulated deficit of $50.2 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 $10.9 million in the six months
ended December 31, 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, WE MAY BE UNABLE TO ACCURATELY EVALUATE OUR BUSINESS AND FORECAST OUR
PROSPECTS, WHICH MAY PREVENT US FROM MEETING THE PRODUCT DEMANDS OF OUR
POTENTIAL CUSTOMERS IN A TIMELY MANNER
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 AND YOU MAY LOSE ALL
OR PART OF YOUR INVESTMENT
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors, many of which are more fully discussed
in other risk factors, are likely to cause these variations, including:
- fluctuations in demand for and sales of our products, which will depend
on the speed and magnitude of the transition to an all-optical network;
- 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;
7
<PAGE> 9
- 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;
- competitive factors, including introductions of new products and product
enhancements by potential competitors, entry of new competitors into the
photonic processor market, including Lucent Technologies, Nortel Networks
and Fujitsu, and pricing pressures;
- our ability to develop, introduce, manufacture and ship new and enhanced
fiber optic products in a timely manner without defects;
- our ability to control expenses, particularly in light of our limited
operating history;
- availability of components for our products and increases in the price of
these components;
- mix of our products sold; and
- economic conditions 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 REVENUES AND IF
WE ARE UNSUCCESSFUL IN COMMERCIALLY SELLING OUR POWERMUX PRODUCT, OUR REVENUES
WILL NOT GROW SIGNIFICANTLY
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 each of the quarters ended
October 1, 1999 and December 31, 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. Three
customers accounted for an aggregate of 94% of our net revenue in the quarter
ended June 30, 1999, an aggregate of 95% of our net revenue in the quarter ended
October 1, 1999 and an aggregate of 96% of our net revenue in the quarter ended
December 31, 1999. MCI WorldCom accounted for 92% of our net revenue in the
quarter ended October 1, 1999 and 85% in the quarter
8
<PAGE> 10
ended December 31, 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.
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 HAVE DIFFICULTIES OBTAINING A
SUFFICIENT AMOUNT OF HIGH QUALITY PRODUCTS, WHICH WOULD DELAY OUR ABILITY TO
FULFILL CUSTOMER ORDERS
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
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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 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.
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.
UNDER OUR LICENSE AGREEMENT WITH CMI, CMI CAN MANUFACTURE AND SELL OPTICAL
SUBCOMPONENTS BASED ON OUR TECHNOLOGY TO OUR POTENTIAL COMPETITORS, WHICH COULD
HARM OUR MARKET POSITION IN THE FUTURE
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 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, WHICH COULD CAUSE
CUSTOMERS TO CANCEL ORDERS
We currently purchase several key components used in our products from
single or limited sources of supply, including Nippon Sheet Glass, Hoya USA,
Inc., CMI, Sumitomo Corporation of America, Casix, Inc. and Browave Corporation.
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, WHICH MAY CAUSE US
TO HAVE EXCESS MANUFACTURING CAPACITY OR INVENTORY AND NEGATIVELY IMPACT OUR
OPERATING RESULTS
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
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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.
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, WHICH COULD CAUSE US TO
LOSE ORDERS OR CUSTOMERS AND RESULT IN LOWER REVENUES
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 and could cause us to lose orders or
customers.
IF WE DO NOT ACHIEVE ACCEPTABLE MANUFACTURING YIELDS IN A COST-EFFECTIVE MANNER
OR ACHIEVE SUFFICIENT PRODUCT RELIABILITY, THIS COULD DELAY PRODUCT SHIPMENTS TO
OUR CUSTOMERS OR REQUIRE US TO DEVELOP NEW MANUFACTURING PROCESSES, WHICH WOULD
IMPAIR OUR OPERATING RESULTS
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.
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WE WILL LOSE SIGNIFICANT CUSTOMER SALES AND OPPORTUNITIES AND MAY NOT BE
SUCCESSFUL IF OUR CUSTOMERS DO NOT QUALIFY OUR PRODUCTS TO BE DESIGNED INTO
THEIR PRODUCTS AND SYSTEMS
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, which is known as a design-in win. 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.
WE WILL NOT ATTRACT ORDERS AND CUSTOMERS OR WE MAY LOSE CURRENT ORDERS AND
CUSTOMERS AND WILL NOT BE SUCCESSFUL IN OUR INDUSTRY IF WE ARE UNABLE 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 PRODUCTS MAY BE DROPPED FROM SUPPLY PROGRAMS AND 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.
IF WE ARE UNABLE TO DEVELOP PRODUCTS AND PRODUCT ENHANCEMENTS THAT ACHIEVE
MARKET ACCEPTANCE, SALES OF OUR PRODUCTS WILL SUFFER AND WE WILL NOT BE
SUCCESSFUL
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
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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.
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 AND OUR
REVENUES WILL SUFFER
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
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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.
IF THE COMMUNICATIONS INDUSTRY DOES NOT ACHIEVE A RAPID AND WIDESPREAD
TRANSITION TO OPTICAL NETWORKS, OUR BUSINESS WILL NOT SUCCEED
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.
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
WILL NOT ACHIEVE MARKET ACCEPTANCE
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.
OUR PRODUCTS MAY HAVE DEFECTS THAT ARE NOT DETECTED UNTIL FULL DEPLOYMENT OF A
CUSTOMER'S SYSTEM, WHICH COULD RESULT IN A LOSS OF CUSTOMERS, DAMAGE TO OUR
REPUTATION AND SUBSTANTIAL COSTS
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.
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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, $4.4 million in
the quarter ended October 1, 1999 to $6.5 million in the quarter ended December
31, 1999. At March 31, 1999, we had a total of 45 employees, at October 1, 1999,
we had a total of 132 employees and at December 31, 1999, we had 251 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. In addition, we have a sales office with a regional sales director in
Newtown, Pennsylvania. 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 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
ACCESSING DATA THAT IS CRITICAL TO THE MANAGEMENT OF OUR BUSINESS
We rely on a single application service provider, Aristasoft Corporation,
to provide an Internet-based management information system and support for this
system. Aristasoft 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
Aristasoft'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 Aristasoft 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 Aristasoft 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
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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, THESE CLAIMS COULD DIVERT THE
ATTENTION OF OUR MANAGEMENT AWAY FROM OUR OPERATIONS AND COULD CAUSE US TO 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.
For instance, in December 1999, E-Tek Dynamics, Inc. filed a lawsuit against us.
E-Tek's complaint alleges that we have participated in the illegal recruiting of
E-Tek employees. Despite the fact that we believe this complaint is without
merit, we will incur costs in defending this lawsuit, including management time
and attention. 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.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, THIS TECHNOLOGY COULD BE
MISAPPROPRIATED, WHICH WOULD MAKE IT DIFFICULT TO COMPETE 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 DEVELOP NEW PRODUCTS AND PRODUCT
ENHANCEMENTS, WHICH WOULD PREVENT US FROM OPERATING 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 prevent us from operating our business.
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 DIVERT MANAGEMENT ATTENTION, CAUSE US TO INCUR SIGNIFICANT COSTS AND
PREVENT US FROM SELLING OR USING THE CHALLENGED TECHNOLOGY
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. As a result of the
proliferation of the Internet and other networking technologies, there has been,
and we expect that there will continue to be, an increasing amount of this
litigation in our industry. Many companies in the high-technology industry
aggressively use their patent portfolios to bring infringement claims against
their competitors. As a result, it is possible that we may be a party to
litigation in
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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.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAT COULD PREVENT US
FROM SUCCESSFULLY MANUFACTURING, MARKETING AND DISTRIBUTING OUR PRODUCTS
INTERNATIONALLY
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 with
personnel who have expertise in optical network technology;
- unexpected changes in regulatory or certification requirements for
optical systems or networks;
- reduced protection for intellectual property rights in some countries,
including China, where some of our subcomponents will be manufactured;
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.
IF WE ARE UNABLE TO RAISE ANY NEEDED ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO
GROW OUR BUSINESS, WHICH COULD LOWER THE VALUE OF YOUR INVESTMENT
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
17
<PAGE> 19
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. Despite
the passing of January 1, 2000, 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 31, 1999, our executive officers, directors and
substantially all of our stockholders, who held an aggregate of 55,391,841
shares of our common stock, or over 98.0% 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
46,147,818 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
13,847,960 shares, subject to these lock-up restrictions, including 3,644,690
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 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, 11,315,945 will be eligible for
sale, in some cases subject only to the volume, manner of sale and notice
requirements of Rule 144.
18
<PAGE> 20
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.
The 769,230 shares of common stock that we agreed on January 14, 2000 to
sell to MCI WorldCom and Microsoft will be "restricted securities" and the one
year holding period for these shares will expire one year from the date of sale.
We anticipate that the date of sale will occur in February 2000. However, each
of MCI WorldCom and Microsoft may, beginning 180 days after the completion of
this offering, exercise their registration rights.
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE AND THIS MAY CAUSE THE VALUE OF YOUR STOCK TO
DECLINE
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, WHICH COULD MAKE IT MORE DIFFICULT
FOR YOU TO SELL YOUR STOCK
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, WHICH MAY
NEGATIVELY AFFECT YOUR INVESTMENT
We anticipate that our executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately 88%
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 AND YOUR INVESTMENT MAY BE
NEGATIVELY AFFECTED
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
$12.28 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 $14.00 per share.
PROVISIONS OF OUR CHARTER DOCUMENTS, DELAWARE LAW AND A LICENSE WE HAVE WITH A
THIRD PARTY MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD PREVENT A CHANGE IN
CONTROL WHICH COULD NEGATIVELY AFFECT YOUR INVESTMENT
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.
19
<PAGE> 21
WE EXPECT TO EXPERIENCE SIGNIFICANT VOLATILITY IN OUR STOCK PRICE, WHICH COULD
CAUSE YOU TO LOSE ALL OR PART OF YOUR INVESTMENT
We expect the market price of our common stock to fluctuate significantly
in response to a number of company specific factors, some of which are beyond
our control, including:
- quarterly variations in our operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of Internet-related companies;
- announcements by our competitors of new products or of significant
acquisitions, strategic partnerships or joint ventures;
- any loss by us of a major customer;
- additions or departures of key management or engineering personnel;
- any deviations in our net revenues or in losses from levels expected by
securities analysts;
- future sales of our common stock; and
- volume fluctuations, which are particularly common among highly volatile
securities of Internet-related companies.
20
<PAGE> 22
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.
21
<PAGE> 23
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 6,000,000 shares of
common stock we are offering, at an assumed initial offering price of $14.00 per
share, will be approximately $76.1 million, or $87.8 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.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
The pro forma information reflects (1) the conversion of all shares of preferred
stock outstanding as of December 31, 1999 into 35,019,134 shares of common stock
on completion of this offering, (2) the exercise of warrants to purchase 337,500
shares of common stock at an exercise price of $4.00, and (3) the sale of
769,230 shares of common stock to two corporate investors at a price of $13.00
per share for an aggregate of $9,999,990.00 in a private placement that will
close contemporaneously with this offering. 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, at an assumed initial public offering
price of $14.00 per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
The outstanding share information excludes:
- 3,401,427 shares of common stock issuable on exercise of outstanding
options as of December 31, 1999 with a weighted average exercise price of
$1.40 per share;
- 29,347 shares of common stock issuable upon exercise of an outstanding
warrant with an exercise price of $3.83 per share;
- 1,245,117 shares of stock available for future grants under our 1998
Stock Plan as of December 31, 1999 and an additional 7,500,000 shares of
stock reserved for issuance under our 1998 Stock Plan subsequent to
December 31, 1999; and
- 525,000 shares of stock to be reserved for issuance under our Employee
Stock Purchase Plan that will become effective upon the closing of this
offering.
- 300,000 shares of stock to be reserved for issuance under our 1999
Director Option Plan 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>
DECEMBER 31, 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......... $ 1,320 $ 1,320 $ 1,320
Redeemable convertible preferred stock, $.001 par value
per share, 38,100,000 shares authorized, 35,019,134
shares issued and outstanding, actual; no shares issued
and outstanding, pro forma and no shares authorized,
issued and outstanding, pro forma as adjusted............ 30,408 -- --
Other stockholders' equity (deficit):
Preferred stock, $.001 par value, none authorized,
issued and outstanding actual and pro forma;
10,000,000 shares authorized, no shares issued and
outstanding, pro forma as adjusted.................. -- -- --
Common stock, $.001 par value per share, 75,000,000
shares authorized, actual and pro forma, 300,000,000
shares authorized, pro forma as adjusted; 20,403,456
shares issued and outstanding, actual; 56,529,320
shares issued and outstanding, pro forma; 62,529,320
shares issued and outstanding, pro forma as
adjusted............................................ 20 57 63
Additional paid-in capital............................. 93,007 134,728 210,817
Notes receivable from stockholders..................... (2,633) (2,633) (2,633)
Deferred stock compensation............................ (50,689) (50,689) (50,689)
Accumulated deficit.................................... (50,203) (50,203) (50,203)
-------- -------- --------
Total other stockholders' equity (deficit).......... (10,498) 31,260 107,355
-------- -------- --------
Total capitalization.............................. $ 21,230 $ 32,580 $108,675
======== ======== ========
</TABLE>
23
<PAGE> 25
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 December 31, 1999, was $31.3
million, or $.55 per share, based on 56,529,320 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, the
exercise of warrants to purchase 337,500 shares of common stock at an exercise
price of $4.00 per share prior to this offering, and the sale of 769,230 shares
of common stock to two corporate investors at $13.00 per share, for an aggregate
of $9,999,990.00 in a private placement contemporaneously with this offering.
After giving effect to the sale of the 6,000,000 shares of common stock by
us at an assumed initial public offering price of $14.00 per share, less the
estimated underwriting discounts and commissions and our estimated offering
expenses, our pro forma net tangible book value at December 31, 1999, would be
$107.4 million, or $1.72 per share. This represents an immediate increase in the
pro forma net tangible book value of $1.16 per share to existing stockholders
and an immediate dilution of $12.28 per share to new investors purchasing shares
at the assumed initial public offering price of $14.00 per share. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share at December
31, 1999............................................... $ .55
Increase per share attributable to new investors.......... 1.16
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.72
------
Dilution per share to new investors in this offering........ $12.28
======
</TABLE>
The following table shows on a pro forma basis at December 31, 1999, after
giving effect to the conversion of all outstanding shares of our preferred stock
into an aggregate of 35,019,134 shares of common stock upon the closing of this
offering, the exercise of warrants to purchase 337,500 shares of common stock at
an exercise price of $4.00 per share prior to this offering, and the sale of
769,230 shares of common stock to two corporate investors at $13.00 per share,
for an aggregate of $9,999,990.00 in a private placement contemporaneously with
this offering. The table also shows 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........ 56,529,320 90.4% $ 44,455,000 34.6% $ 0.79
New investors................ 6,000,000 9.6 84,000,000 65.4 14.00
---------- ----- ------------ ------
Total................... 62,529,320 100.0% $128,455,000 100.0% $ 2.05
========== ===== ============ ======
</TABLE>
The above information is based on shares outstanding as of December 31,
1999. It excludes 3,401,427 shares of common stock reserved for issuance upon
exercise of outstanding options at December 31, 1999 with a weighted average
exercise price of $1.40 per share, 29,347 shares of common stock issuable upon
exercise of an outstanding warrant with an exercise price of $3.83 per share;
and 8,745,117 shares available for issuance under our 1998 Stock Plan including
7,500,000 shares authorized in January 2000, 1999 Employee Stock Purchase Plan
and 1999 Director Stock Option Plan. Assuming the exercise price of all
outstanding options and warrants as of December 31, 1999, our pro forma net
tangible book value at December 31, 1999 would be $36.1 million, or $.60 per
share, which would represent an immediate increase in the pro forma net tangible
book value of $1.10 per share to existing stockholders and an immediate dilution
of $12.30 per share to new investors.
24
<PAGE> 26
SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this prospectus. The consolidated statement of operations
data set forth below for the period from October 24, 1997 (inception) to June
30, 1998, for the year ended June 30, 1999 and for the six months ended December
31, 1999 and the consolidated balance sheet data as of June 30, 1998, June 30,
1999 and December 31, 1999 have been derived from our consolidated financial
statements included elsewhere in this prospectus, which have been audited by
Ernst & Young LLP, independent auditors. 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
consolidated 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 consolidated financial statements.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
OCTOBER 24, 1997 ---------------------------
(INCEPTION) TO YEAR ENDED DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 JUNE 30, 1999 1998 1999
---------------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue.................................. $ -- $ 510 $ -- $ 10,916
Cost of revenue.............................. -- 531 -- 8,194
------- -------- -------- --------
Gross profit (loss)........................ -- (21) -- 2,722
Operating expenses:
Research and development................... 515 4,086 1,427 2,988
Sales and marketing........................ 125 956 265 1,676
General and administrative................. 131 723 244 2,129
Stock compensation......................... 362 3,464 673 15,697
------- -------- -------- --------
Total operating expenses................ 1,133 9,229 2,609 22,490
------- -------- -------- --------
Loss from operations......................... (1,133) (9,250) (2,609) (19,768)
Other income (expense), net.................. (4) 29 2 (26)
------- -------- -------- --------
Net loss..................................... (1,137) (9,221) (2,607) (19,794)
Preferred stock accretion.................... -- -- -- (20,051)
------- -------- -------- --------
Net loss attributable to common
stockholders............................... $(1,137) $ (9,221) $ (2,607) $(39,845)
======= ======== ======== ========
Basic and diluted net loss per common
share...................................... $ -- $ (4.97) $ (4.14) $ (6.41)
Weighted-average shares used in computing
basic and diluted net loss per common
share...................................... -- 1,857 630 6,215
Pro forma basic and diluted net loss per
common share (unaudited)................... $ (.39) $ (1.02)
Weighted-average shares used in computing pro
forma basic and diluted net loss per common
share (unaudited).......................... 23,628 39,110
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
------------------ DECEMBER 31,
1998 1999 1999
------ -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $2,874 $ 3,724 $ 14,379
Working capital............................................. 2,637 2,660 14,313
Total assets................................................ 3,339 6,816 28,152
Long-term obligations, excluding current portion............ 341 563 1,320
Redeemable convertible preferred stock...................... 3,529 10,357 30,408
Total other stockholders' equity (deficit).................. (805) (6,534) (10,498)
</TABLE>
25
<PAGE> 27
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 consolidated 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
initial product 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 and the quarter ended December 31,
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 quarter ended June 30, 1999, Osicom accounted for 34% of
our net revenue, MCI Telecommunications accounted for 33% of net revenue and
Hitachi accounted for 30% of net revenue. Sales to MCI WorldCom accounted for
92% of our total net revenue for the quarter ended October 1, 1999 and 85% of
net revenue for the quarter ended December 31, 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 and to 163 as of December 31, 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
26
<PAGE> 28
assurance, manufacturing engineering, documentation control and repairs of our
products at our Fremont facility.
We generally recognize revenue when we ship products, some of which are
evaluation units, to our customers and there are no significant uncertainties
with respect to customer acceptance. Evaluation units consist of prototype units
sent to customers for evaluation. The customers have the right of return through
the end of the evaluation period. We recognize revenue on these shipments at the
end of the evaluation period if the units have not been returned. 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 granting stock purchase rights
or granting stock options to our employees, directors or consultants with
purchase or exercise prices per share subsequently determined to be below the
deemed fair value 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 purchase rights
lapse or over the vesting period of the applicable options, which, in each case,
is generally a maximum of four years. We expect to record additional deferred
stock compensation expense for the quarter ended March 31, 2000.
27
<PAGE> 29
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 $20.1 million for the six months ending December 31, 1999 to accrete the
value of the Series D preferred stock to its deemed 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.
In connection with the sale of 769,230 shares of common stock, subject to
completion of our initial public offering, we will record an accretion charge
equal to the difference between the initial public offering price and $13.00 per
share multiplied by 769,230 shares of common stock.
Despite growing revenue, we have not been profitable for any quarter since
October 24, 1997 (inception). As of December 31, 1999, we had an accumulated
deficit of $50.2 million. These losses have resulted primarily from developing
our products, increasing manufacturing capacity, promoting brand recognition,
developing our sales channels, establishing our management team and amortization
of deferred stock compensation. As of December 31, 1999, we had net operating
loss carryforwards for federal income tax purposes of approximately $9.0
million, which expire in years 2013 through 2020.
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.
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
Net Revenue. Net revenue for the six months ended December 31, 1999 was
$10.9 million. One customer, MCI WorldCom, which placed a large order in July
1999, accounted for 88% of net revenue while revenues from the other large
customers remained relatively constant in dollar amount. We did not have any
revenue in the comparable period ended December 31, 1998.
Cost of Revenue. Cost of revenue for the six months ended December 31, 1999
was $8.2 million. Cost of revenue for the six months ended December 31, 1999 as
a percentage of net revenue was 75%. Because we had no revenue in the six months
ended December 31, 1999, we had no cost of revenue during that period.
Research and Development. Research and development expenses for the six
months ended December 31, 1999 were $3.0 million or 27.4% of net revenue.
Research and development expenses for the six months ended December 31, 1998
were $1.4 million. The increase of $1.6 million over the comparable period in
1998 was primarily due to the $856,000 increase in personnel-related costs, the
$298,000 increase in prototype expenses for PowerMux and PowerShaper and costs
for other development projects and the $328,000 increase in professional
services. Research and development personnel increased by 54 employees from
December 31, 1998 to December 31, 1999. We expect our research and development
expenses to increase in the future.
Sales and Marketing. Sales and marketing expenses for the six months ended
December 31, 1999 were $1.7 million or 15.4% of net revenue. Sales and marketing
expenses for the six months ended December 31, 1998 were $265,000. The increase
of $1.4 million over the comparable period in 1998 was due to the $313,000
increase in sales and marketing personnel and related costs, the $447,000
increase in commission expenses and the $630,000 increase in trade show,
advertising and other customer-related costs. We expect our sales and marketing
expenses to increase in absolute dollar amount, but to decline as a percentage
of net revenue, in the future to support our existing customers and to acquire
new customers.
General and Administrative. General and administrative expenses for the six
months ended December 31, 1999 were $2.1 million or 19.5% of net revenue.
General and administrative expenses for the six months ended December 31, 1998
were $244,000. The increase of $1.9 million over the comparable period in 1998
was primarily due to the $632,000 increase in personnel and related costs, the
$506,000 increase in professional services for information systems, legal and
facilities management. Additionally, $298,000 of bad
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<PAGE> 30
debt provision was incurred in the six months ended December 31, 1999, while
none was incurred in the comparable period in 1998. We expect our general and
administrative expenses to increase in absolute dollar amount in the future, but
to decline as a percentage of net revenue.
Stock Compensation. Stock compensation expense for the six months ended
December 31, 1999 was $15.7 million, an increase of $15.0 million over the
comparable period in 1998. From inception through December 31, 1999, we have
expensed a total of $19.5 million of stock compensation, leaving an unamortized
balance of $50.7 million on our December 31, 1999 consolidated balance sheet.
This increase was due to additional employees and stock purchase rights.
Other Income (Expense), Net. Other income (expense) for the six months
ended December 31, 1999 was $26,000 of expense as compared to $2,000 of income
for the comparable period in 1998. This was primarily due to interest expense
associated with borrowings under our line of credit and the other expense
related to the issuance of stock to consultants. The expenses are offset by
higher interest income due to larger cash balances from the proceeds of our
preferred stock financing in September and October 1999.
YEARS ENDED JUNE 30, 1998 AND 1999
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. In fiscal 1999, Osicom
accounted for 34% of net revenue, MCI Telecommunications accounted for 33% of
net revenue and Hitachi accounted for 30% of net revenue.
Cost of Revenue. Cost of revenue for fiscal 1999 was $531,000. 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. As a percentage
of net revenue, cost of revenue for fiscal 1999 was 104%.
Research and Development. Research and development expenses for fiscal 1999
were $4.1 million, or 44% of total operating expenses. Research and development
expenses for fiscal 1998 were $515,000, or 45% of total operating expenses. The
increase in dollar amount in fiscal 1999 over fiscal 1998 was primarily due to
the significant increase in personnel and related costs, which amounted to an
increase of $855,000 over fiscal 1998, prototype expenses for PowerMux,
PowerShaper and a network testing model, which amounted to an increase of
$621,000 over fiscal 1998, and process development for PowerFilter, which
amounted to an increase of $1.7 million over fiscal 1998. Research and
development personnel at the end of fiscal 1999 increased by 18 employees over
the end of fiscal 1998.
Sales and Marketing. Sales and marketing expenses for fiscal 1999 were
$956,000, or 10% of total operating expenses. Sales and marketing expenses for
fiscal 1998 were $125,000, or 11% of total operating expenses. This increase in
dollar amount was primarily due to an increase in the number of sales and
marketing personnel, which increased to two employees from one employee over
fiscal 1998, sales commissions, which amounted to an increase of $195,000 over
fiscal 1998 when no sales commissions were paid, increased marketing expenses
and other customer-related costs, which amounted to an increase of $574,000 over
fiscal 1998 when no marketing expenses were incurred.
General and Administrative. General and administrative expenses for fiscal
1999 were $723,000, or 8% of total operating expenses. General and
administrative expenses for fiscal 1998 were $131,000, or 12% of total operating
expenses. This increase was primarily due to an increase in the number of
general and administrative personnel, which increased by four employees over
fiscal 1998, and increased legal, accounting, recruiting and facilities costs
incurred in connection with our growing business activities, which amounted to
an increase of $318,000 over fiscal 1998.
Stock Compensation. Stock compensation expense for fiscal 1999 was $3.5
million, or 38% of total operating expenses. Stock compensation expense for
fiscal 1998 was $362,000, or 32% of total operating
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<PAGE> 31
expenses. This increase was due to additional employees and additional grants of
stock options and stock purchase rights.
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 in
expense, as compared to $29,000 in income for fiscal 1999. This was caused by an
increase in interest income due to larger cash balances resulting from the
proceeds from the sale of our preferred stock in private financings, which was
partially offset by interest charges on capital lease obligations and bank debt.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for the last six
quarters. The information for each of these quarters is unaudited but has been
prepared on the same basis as the audited consolidated 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 consolidated 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, DECEMBER 31,
1998 1998 1999 1999 1999 1999
------------- ------------ --------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenue................... $ -- $ -- $ -- $ 510 $ 4,417 $ 6,499
Cost of revenue............... -- -- -- 531 3,431 4,763
------- ------- ------- ------- -------- --------
Gross profit (loss)........... -- -- -- (21) 986 1,736
Operating expenses:
Research and development.... 473 954 1,432 1,227 950 2,038
Sales and marketing......... 116 149 203 488 714 962
General and
administrative........... 132 112 150 329 614 1,515
Stock compensation.......... 323 350 746 2,045 6,107 9,590
------- ------- ------- ------- -------- --------
Total operating
expenses.......... 1,044 1,565 2,531 4,089 8,385 14,105
------- ------- ------- ------- -------- --------
Loss from operations.......... (1,044) (1,565) (2,531) (4,110) (7,399) (12,369)
Other income (expense), net... 7 (5) 21 6 (71) 45
------- ------- ------- ------- -------- --------
Net loss...................... (1,037) (1,570) (2,510) (4,104) (7,470) (12,324)
Preferred stock accretion..... -- -- -- -- (14,961) (5,090)
------- ------- ------- ------- -------- --------
Net loss attributable to
common stockholders......... $(1,037) $(1,570) $(2,510) $(4,104) $(22,431) $(17,414)
======= ======= ======= ======= ======== ========
</TABLE>
Net Revenue. Our first volume shipments of our initial product began in the
quarter ended October 1, 1999. Net revenue for the quarter ended June 30, 1999
was $510,000, for the quarter ended October 1, 1999 was $4.4 million, and for
the quarter ended December 31, 1999 was $6.5 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, nine customers in the quarter
ended October 1, 1999, and 12 customers in the quarter ended December 31, 1999.
Evaluation units consist of prototype units sent to customers for evaluation.
The customers have the right of return through the end of the evaluation period.
We recognize revenue on these shipments at the end of the evaluation period if
the units have not been returned.
Cost of Revenue. Cost of revenue for the quarter ended June 30, 1999 was
$531,000, for the quarter ended October 1, 1999 was $3.4 million, and for the
quarter ended December 31, 1999 was $4.8 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, and 73% for the quarter ended
December 31, 1999. This decrease in the
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<PAGE> 32
cost of revenue as a percentage was primarily attributable to fixed
manufacturing costs being allocated over a larger revenue base and the decreased
cost of materials associated with the expansion of our manufacturing capacity to
produce subcomponents internally.
Research and Development. Research and development expenses have fluctuated
over the last six quarters. 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 product as this
product was gradually transitioned to manufacturing. In the quarter ended
December 31, 1999, research and development expenses increased in dollar amount
due to significant increases in personnel and related costs, the commencement of
manufacturing prototypes for PowerMux, and development costs for the PowerShaper
and other projects.
Sales and Marketing. Sales and marketing expenses increased in each of the
six quarters ended December 31, 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 six quarters ended December 31, 1999. General and
administrative expenses increased in the quarters ended October 1, 1999, and
December 31, 1999 primarily due to an increase in the number of personnel, costs
related to the move to a new and larger facility and costs related to building
an infrastructure for a public company, which includes increased legal,
accounting, recruiting and information systems costs.
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, which will depend
on the speed and magnitude of the transition to an all-optical network;
- 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;
- competitive factors, including introductions of new products and product
enhancements by potential competitors, entry of new competitors into the
photonic processor market, including Lucent Technologies, Nortel Networks
and Fujitsu, and pricing pressures;
- our ability to develop, introduce, manufacture and ship new and enhanced
fiber optic products in a timely manner without defects;
- our ability to control expenses, particularly in light of our limited
operating history;
- availability of components for our products and increases in the price of
these components;
- mix of our products sold; and
- economic conditions 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
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<PAGE> 33
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.
LIQUIDITY AND CAPITAL RESOURCES
From inception on October 24, 1997 through December 31, 1999, we have
financed our operations primarily through private sales of approximately $30.4
million of convertible preferred stock. We have also financed our operations
through bank borrowings as well as through equipment lease financing. As of
December 31, 1999, we had outstanding equipment lease financing and bank
borrowings of $3.7 million.
At December 31, 1999, we had cash, cash equivalents and short-term
investments of $14.4 million, an increase from $3.7 million at June 30, 1999,
and $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. The increase was primarily due to the receipt of $26.9
million in proceeds from the sale of preferred stock in February, September and
October 1999.
Cash used in operating activities was $590,000 in fiscal 1998, $5.4 million
in fiscal 1999 and $6.9 million for the six months ended December 31, 1999. The
increase was primarily due to the increase in our net loss from $1.1 million in
fiscal 1998, to $9.2 million in fiscal 1999, to $19.8 million for the six months
ended December 31, 1999, and, to a lesser extent, inventory purchases and
increased accounts receivable. This was offset in part by increased accounts
payable, accrued expenses and non-cash charges.
Cash used in investing activities was $301,000 in fiscal 1998, $2.8 million
in fiscal 1999 and $13.7 million for the six months ended December 31, 1999,
which was primarily used for the investment in marketable securities, production
equipment, research and development equipment, computers and facilities to
support the expansion of our operations.
We generated $3.8 million in cash from financing activities in fiscal 1998,
$7.1 million in fiscal 1999, and $21.1 million in the six months ended December
31, 1999, primarily from private sales of convertible preferred stock and
borrowings under revolving lines of credit. We financed capital purchases
primarily through leases or equipment credit lines. In addition, we had
capitalized lease obligations outstanding of $123,000 at June 30, 1998, $768,000
at June 30, 1999, and $1.8 million at December 31, 1999. In July 1999, we
obtained a revolving credit line from a financial institution, which allows for
maximum borrowings of up to $3.8 million at an interest rate equal to the prime
rate plus .75%. During the six months ended December 31, 1999, we drew down $2.2
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 December 31, 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, 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.
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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.
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.
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.
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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 or 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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<PAGE> 36
BUSINESS
OVERVIEW
Avanex designs, manufactures and markets fiber optic-based products, known
as photonic processors, which are miniaturized, or 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 virtual private networking and business-to-business
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. 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.
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 terabytes, or trillions of bytes, per month at the end of
1999, to over 15 million terabytes per month 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.
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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 medium over which data
traffic is transmitted, or 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 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 technology allows the transmission of data on different wavelength
channels, or a specified range of wavelengths, down the same optical fiber so
that at the destination, the different wavelength channels can be separated and
the different data streams extracted. As a result, DWDM technology can increase
the bandwidth of a single optical fiber by an amount equal to the number of
different wavelength channels that can be transmitted down the optical fiber.
However, current DWDM technology has limitations. One limitation is caused by
the fact that the greater the number of different wavelength channels traveling
down the same optical fiber, the closer the wavelengths will have to be to each
other. Because current light sources, such as lasers, emit light across an
imprecise wavelength range, the number of different wavelength channels that can
be transmitted down a single fiber is limited because these channels interfere
with one another, preventing extraction of the different data streams at the
destination. Another limitation results from the fact that different wavelengths
of light, which compose the wavelength channels, travel down the optical fiber
at different velocities and reach the destination at different times, making it
difficult to extract the data streams. This is known as chromatic dispersion,
and this effect increases with the distance the wavelength channels travel down
an optical fiber. Therefore, the distance a wavelength channel can travel down
an optical fiber is limited in current DWDM technologies.
Despite the improvements in the existing communications infrastructure,
such as the DWDM technology described above, 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 current 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 following diagram, bandwidth is under-utilized
because wavelength channels are not densely packed.
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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 by placing a greater number of wavelength channels into a single
optical fiber.
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 optical signal. This conversion is required in order to
regenerate the signal to overcome the limitations of chromatic 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 velocities. Because these wavelengths travel at
different velocities, 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.
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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.
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- 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, or
micro-optic, 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.
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
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synchronous optical networks, or SONET, Internet protocol, or IP, and
asynchronous transfer mode or 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 transmissions over
the Internet, virtual private networking and business-to-business 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 solutions that are cost-effective, scalable and flexible. We plan to
increase our research and development efforts, including the expansion of The
Photonics Center, which is a 6,000 square foot customer demonstration and
testing facility in Richardson, Texas, as well as 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 was recently
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
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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.
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.
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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.
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 at any point in the transmission path,
known as OADM. 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
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see "Risk Factors -- If We Are Unable to Develop Products and Product
Enhancements That Achieve Market Acceptance, Sales of Our Products Will Suffer
and We Will Not Be Successful."
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 34%, 33%, and 30% of
net revenue, respectively. In the quarter ended October 1, 1999 sales to MCI
WorldCom accounted for 92% of net revenue and in the quarter ended December 31,
1999, accounted for 85% 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. Our direct sales organization currently consists
of one sales representative operating in the United States, three regional sales
directors operating in the western, central and eastern regions of 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.
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. We currently have three 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 have established The Photonics Center in
Richardson, Texas, which 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
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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 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 Have Difficulties Obtaining a Sufficient Amount of High Quality Products,
Which Would Delay Our Ability to Fulfill Customers Orders."
We currently purchase several key components used in our photonic
processors from single or limited sources of supply, including Nippon Sheet
Glass, Hoya USA, Inc., CMI, Sumitomo Corporation of America, Casix, Inc. and
Browave Corporation. 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.
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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 December 31, 1999, we had 59 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 $30.0 million for the six months ended
December 31, 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. 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.
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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 requires us to pay a royalty to
Fujitsu in exchange for receiving a non-exclusive and non-transferable license
to use Fujitsu patents to make, use, lease or sell licensed products. The
license agreement expires, unless earlier terminated, when the last patent
expires. Currently, the latest issued patent under this agreement will expire on
October 10, 2017, and this license agreement will terminate on that date, unless
more patents are added under this license agreement. 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 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 December 31, 1999, we had 251 full-time employees, 59 of whom were
engaged in product development, 163 in manufacturing, six in quality, six in
sales, marketing, application support and customer service, and 17 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
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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 until April 2000, which we have exercised,
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. On December
6, 1999, E-Tek Dynamics, Inc. filed a complaint against us in the Santa Clara
Superior Court alleging that we have participated in the illegal recruiting of
E-Tek employees. We believe that the complaint is without merit and we intend to
vigorously defend against it. We believe this complaint will not have a material
effect on our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors as of December 31, 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............. 58 Vice President, Quality
Margaret Quinn.............. 46 Vice President, Human Resources and Administration
Todd Brooks................. 39 Director
Vint Cerf................... 56 Director
Federico Faggin............. 58 Director
Michael Goguen.............. 35 Director
Seth Neiman................. 45 Director
Gregory Reyes, Jr........... 38 Director
Joel Smith.................. 54 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 &
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<PAGE> 50
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 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.
Vint Cerf has served on our board of directors since December 1999. Dr.
Cerf has served as the Senior Vice President for Internet Architecture and
Technology for MCI WorldCom Corporation, a telecommunications company, since
September 1998. From January 1996 to September 1998, Dr. Cerf was the Senior
Vice President for Internet Architecture and Engineering at MCI Communications
Corporation, a telecommunications company. Dr. Cerf was Senior Vice President
for Data Architecture at MCI Telecommunications Corporation, a
telecommunications company, from February 1994 to December 1995. Dr. Cerf
received a B.S. degree in Math from Stanford University, an M.S. degree in
Computer Science from the University of California, Los Angeles, and a Ph.D.
degree in Computer Science from the University of California, Los Angeles.
Federico Faggin has served on our board of directors since December 1999.
Dr. Faggin has served as Chairman of the board of directors of Synaptics, Inc.,
a creator of human interface technologies and products using neural networks and
mixed signal technologies, from January 1999 to the present. From 1986 to
January 1999, Dr. Faggin served as a director, President and Chief Executive
Officer of Synaptics. Dr. Faggin is also a director of Integrated Device
Technology, Inc., a producer of integrated circuits, GlobeSpan Inc., a producer
of DSL integrated circuits, and several other private companies. Dr. Faggin
received a doctorate degree in Physics from the University of Padua, Italy.
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
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<PAGE> 51
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.
Gregory Reyes, Jr. has served on our board of directors since December
1999. Mr. Reyes has served as a director and President and Chief Executive
Officer of Brocade Communications Systems, Inc., a developer of products for
storage area networks, from July 1998 to the present. From January 1994 to June
1998, Mr. Reyes served as President, Chief Executive Officer and Chairman of the
board of directors of Wireless Access, Inc., a wireless data communications
products company. Mr. Reyes has also served as a director of Proxim, Inc., a
wireless networking company, from April 1998 to the present. Mr. Reyes received
a B.S. in Business Administration from Saint Mary's College.
Joel Smith has served on our board of directors since December 1999. Mr.
Smith has served as the President of Bank of America East, a financial
institution, from October 1998 to the present. From July 1991 to October 1998,
Mr. Smith served as President of Nations Bank Carolinas, a financial
institution. Mr. Smith served on the board of directors of Ansaldo Signal, N.V.
from November 1996 to April 1999. Mr. Smith received a B.A. degree from the
University of the South in Sewanee, Tennessee.
BOARD OF DIRECTORS
Our board of directors currently consists of nine 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, three of the nominees to the board of directors
will be elected to a one-year term, three will be elected to two-year terms and
three will be elected to a three-year term. After that, directors will be
elected for three-year terms. Dr. Alessandrini and Messrs. Goguen and Reyes, Jr.
have been designated Class I Directors, whose terms expire at the 2000 annual
meeting of stockholders. Messrs. Cerf, Neiman and Brooks have been designated
Class II Directors, whose terms expire at the 2001 annual meeting of
stockholders. Dr. Cao and Messrs. Faggin and Smith have been designated the
Class III Directors, 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."
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. Brooks, 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. Faggin, Reyes, Jr. and Smith. The
audit committee reviews our internal accounting procedures and consults with and
reviews the services provided by our independent accountants.
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<PAGE> 52
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Brooks, 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.
Brooks is a general partner of the Mayfield Fund, a holder of approximately 9.3%
of our outstanding stock that has purchased shares of our Series C preferred
stock and Series D preferred stock. Mr. Goguen is a general partner of Sequoia
Capital, a holder of approximately 17.9% 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 17.9% 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. Some of our non-employee directors have received grants
of options to purchase shares of our common stock. See "Principal Stockholders"
and "Certain Transactions -- Stock Option Grants to Certain Directors." 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 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
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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.............................. 1,904(6) 100,000(6) -- -- --
Vice President, Worldwide Sales
William Lanfri............................. --(7) -- -- --(7) 112,500
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 5,215,589 shares of restricted
stock at $.05 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 that date. As of June 30, 1999, Dr.
Alessandrini held 5,215,589 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 2,700,000 shares of restricted stock at
$.0007 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 2,700,000 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.
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(5) In February 1998, Mr. Jiang exercised an option to purchase 1,800,000 shares
of stock at $.0007 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 2,250,000 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 on June 28, 1999 and received $1,904 in salary during
the fiscal year ended June 30, 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) Mr. Lanfri did not receive a salary during the fiscal year ended June 30,
1999. In August 1998, Mr. Lanfri exercised an option to purchase 341,101
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 112,500 shares of our common stock at an exercise price
of $.03 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 415,703 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 37,899 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 $14.00 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.
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
1,069,050 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 10,206,690 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
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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........ 112,500 10.49% .03 12/07/08 2,562,134 4,081,769
</TABLE>
In December 1998, we granted Mr. Lanfri an option to purchase 112,500
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.............................................. 415,702 7,043
</TABLE>
In June 1998, we granted Mr. Lanfri an option to purchase 341,101 shares of
our common stock. Of the shares subject to this option, 227,401 shares vested
ratably over six months beginning on August 1, 1998. The remaining 113,700
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 341,101 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 75,801 shares of Mr. Lanfri's bonus shares and we repurchased
from him, at the original exercise price, the 37,899 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.
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 January 2000.
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As of December 31, 1999, a total of 8,745,117 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
6,000,000 shares, 4.9% of our outstanding shares or a lesser amount determined
by our board. The 1998 Stock Plan has 29,550,000 shares of our common stock
reserved for issuance, of which options to acquire 3,401,427 shares have been
issued and are outstanding as of December 31, 1999 and a total of 20,056,980
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 1,500,000 shares. In addition, in connection with an optionee's
initial employment with us, the optionee may be granted an option covering an
additional 4,500,000 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 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,
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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 January 2000. A total of 525,000 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 750,000 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 3,000 shares.
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
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<PAGE> 58
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 January 2000, 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
300,000 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 150,000 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 40,000 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 10,000 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.
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
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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 $.05
per share, 5,215,589 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.
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 521,559 shares of our common
stock, at a price of $.39 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.
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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 $.0007 per share, 2,700,000 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 $.10 per share, 900,000
shares of our common stock and in October 1999 purchased, at a price of $.39 per
share, 1,020,726 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 1,800,000 shares of our common stock, at
an exercise price of $.0007 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 450,000 shares of our common stock, at a
price of $.03 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 150,000 shares of our common stock, at a price of $2.67 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 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 $.10 per share, 825,000 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
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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
112,500 shares of our common stock, at a price of $.03 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 112,500 shares of our common
stock.
In June 1998, Mr. Lanfri was granted an additional option to purchase
341,101 shares of our common stock. Of the shares subject to this option,
227,401 shares vested ratably over a six-month period beginning in August 1998.
The remaining 113,700 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 341,101 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 75,801 shares of Mr. Lanfri's bonus shares and we repurchased from him the
remaining 37,899 shares of common stock that remained subject to repurchase.
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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. The price per
share for each of the following common stock purchases was equal to the fair
market value of our common stock on the date of each purchase. In determining
the fair market value of our common stock, our board of directors, in each case,
took into consideration a number of factors, including our operating results and
financial condition at the time of each purchase, key developments affecting our
business and, where relevant, the most recent price of our preferred stock in
connection with financing transactions with independent investors.
<TABLE>
<CAPTION>
SHARES OF
DATES OF PRICE PER COMMON
PURCHASER PURCHASE SHARE STOCK
--------- --------- --------- ---------
<S> <C> <C> <C>
Walter Alessandrini.............................. 4/30/99* $ .05 5,215,589
10/8/99* .39 521,559
Simon Cao........................................ 1/13/98 .0007 2,700,000
8/4/99* .10 900,000
10/12/99 .39 1,020,726
Paul Jiang....................................... 2/4/98 .0007 1,800,000
7/22/99* .03 450,000
11/26/99* 2.67 150,000
Peter Maguire.................................... 8/4/99* .10 825,000
William Lanfri................................... 8/31/98 .013 341,102
3/31/99 .03 112,500
Jessy Chao....................................... 2/5/98 .0007 1,350,000
11/26/99* 2.67 150,000
James Pickering.................................. 10/1/99* .39 263,880
Anthony Florence................................. 11/19/99* 2.33 195,000
</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 $.149 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...... 2,250,000
Entities affiliated with Sequoia Capital.................. 2,250,000
Entities affiliated with JAFCO America Ventures, Inc. .... 2,250,000
</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.
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Series B Preferred Stock. On June 29, 1998, we sold Series B preferred
stock at a price of $.27 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...... 3,127,500
Entities affiliated with Sequoia Capital.................. 3,127,500
Entities affiliated with JAFCO America Ventures, Inc...... 3,127,500
</TABLE>
Series C Preferred Stock. On February 19, 1999 and March 25, 1999, we sold
our Series C preferred stock, at a price of $.504 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 3,174,603
Entities affiliated with Sequoia Capital.............. 2/19/99 3,174,603
Entities affiliated with JAFCO America Ventures,
Inc. ............................................... 2/19/99 1,194,127
Entities affiliated with the Mayfield Fund............ 3/25/99 4,464,285
William Lanfri........................................ 2/19/99 588,000
</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 $3.83 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 1,542,387
Entities affiliated with Sequoia Capital.............. 9/14/99 1,542,387
Entities affiliated with JAFCO America Ventures,
Inc. ............................................... 10/15/99 1,327,683
Entities affiliated with the Mayfield Fund............ 9/14/99 805,142
</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 1,350,000 shares of our common stock, at an
exercise price of $.0007 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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In November 1999, Mr. Chao purchased 150,000 shares of our common stock, at
a price of $2.67 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 5,215,589 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 521,559
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 of
Mr. Alessandrini's loans during the fiscal year ended June 30, 1999 was $578,165
and the principal amount outstanding on December 31, 1999 was $779,834.
Simon Cao. In August 1999, in connection with Simon Cao's purchase of
900,000 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 1,020,726 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.
Dr. Cao had no principal amounts outstanding on his loans during the fiscal year
ended June 30, 1999. The principal amount outstanding on his loans on December
31, 1999 was $484,681.
Paul Jiang. In July 1999, in connection with Paul Jiang's purchase of
450,000 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
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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 150,000 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.
Mr. Jiang had no principal amounts outstanding on his loans during the fiscal
year ended June 30, 1999. The principal amount outstanding on his loans on
December 31, 1999 was $411,700.
Peter Maguire. In August 1999, in connection with Peter Maguire's purchase
of 825,000 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. Mr. Maguire had no principal amounts outstanding on his loan
during the fiscal year ended June 30, 1999. The principal amount outstanding on
his loan on December 31, 1999 was $82,500.
Jessy Chao. In November 1999, in connection with Jessy Chao's purchase of
150,000 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. Mr. Chao had no principal amounts outstanding on his loan
during the fiscal year ended June 30, 1999. The principal amount outstanding on
his loan on December 31, 1999 was $400,000.
James Pickering. In October 1999, in connection with James Pickering's
purchase of 263,880 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. Mr. Pickering had no principal amounts
outstanding on his loan during the fiscal year ended June 30, 1999. The
principal amount outstanding on his loan on December 31, 1999 was $102,034.
Anthony Florence. In November 1999, in connection with Anthony Florence's
purchase of 195,000 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. Mr. Florence had no principal amounts outstanding on his
loans during the fiscal year ended June 30, 1999. The principal amount
outstanding on his loans on December 31, 1999 was $580,000.
STOCK OPTION GRANTS TO CERTAIN DIRECTORS
In December 1999, we granted to each of Vint Cerf, Federico Faggin, Gregory
Reyes, Jr. and Joel Smith options to purchase 40,000 shares of our common stock
at $3.34 per share. These options were granted under our 1998 Stock Plan. Each
of these options vests over a four year period with one-fourth of the shares
under each option vesting on December 10, 2000 and the remaining shares vesting
ratably monthly after that date.
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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.
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> 67
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 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 December 31, 1999, other than Vint
Cerf, Federico Faggin, Gregory Reyes, Jr. and Joel Smith, 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 56,529,320 shares of common stock
outstanding on December 31, 1999 and 62,529,320 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, reflects the exercise of warrants to
purchase 337,500 shares of common stock prior to the closing of this offering
and the issuance of 769,230 shares of common stock to two corporate investors.
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)................................ 10,094,490 17.9% 16.1%
2925 Woodside Road
Woodside, CA 94062
Entities affiliated with Sequoia
Capital(2)............................ 10,094,490 17.9 16.1
3000 Sand Hill Road, Bldg. 4, Suite
280,
Menlo Park, CA 94025
Entities affiliated with JAFCO America
Ventures, Inc.(3)..................... 8,689,310 15.4 13.9
505 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Entities affiliated with the Mayfield
Fund(4)............................... 5,269,427 9.3 8.4
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
</TABLE>
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<PAGE> 68
<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(5)................... 5,711,648 10.1% 9.1%
Simon Cao................................ 3,608,226 6.4 5.8
Paul Jiang(6)............................ 2,160,000 3.8 3.5
Peter Maguire............................ 825,000 1.5 1.3
William Lanfri(7)........................ 890,401 1.6 1.4
Vint Cerf................................ -- * *
Todd Brooks(4)........................... 5,269,427 9.3 8.4
c/o the Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Federico Faggin.......................... -- * *
Michael Goguen(2)........................ 10,094,490 17.9 16.1
c/o Sequoia Capital
3000 Sand Hill Road, Bldg. 4, Suite
280
Menlo Park, CA 94025
Seth Neiman(1)........................... 10,094,490 17.9 16.1
c/o Crosspoint Venture Partners
2925 Woodside Road
Woodside, CA 94062
Gregory Reyes, Jr. ...................... -- * *
Joel Smith............................... -- * *
All directors and executive officers as a
group (15 persons).................... 40,537,561 71.7 64.8
</TABLE>
- ------------
* Less than 1% of the outstanding shares of common stock.
(1) Represents 8,552,103 shares held by Crosspoint Venture Partners 1997 and
1,542,387 shares held by Crosspoint Venture Partners LS 1999. The general
partner of Crosspoint Venture Partners 1997 is Crosspoint Associates 1997.
The general partner of Crosspoint Venture Partners LS 1999 is Crosspoint
Associates 1999. The general partners of Crosspoint Associates 1997 and
Crosspoint Associates 1999 are John Mumford, Rich Shapero, Robert Hoff, Don
Milder and Seth Neiman, one of our directors. Each of the general partners
of Crosspoint Associates 1997 and Crosspoint Associates 1999 disclaim
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 8,607,692 shares held by Sequoia Capital VII; 618,459 shares held
by Sequoia Capital Franchise Fund; 376,293 shares held by Sequoia Technology
Partners VII, a California Limited Partnership; 174,600 shares held by SQP
1997; 150,518 shares held by Sequoia International Partners; 98,211 shares
held by Sequoia 1997 LLC and 68,718 shares held by Sequoia Capital Franchise
Partners. SC VII-A Management LLC is the general partner of Sequoia Capital
VII, Sequoia Technology Partners VII and Sequoia International Partners. The
general partners of SC VII-A Management are Douglas Leone, Michael Moritz,
Mark Stevens and Thomas Stephenson. Each of the general partners of SC VII-A
Management LLC disclaim beneficial ownership of the shares held by Sequoia
Capital VII, Sequoia Technology Partners VII and Sequoia International
Partners, except to the extent of their pecuniary interest in these shares.
The general partner of Sequoia Capital Franchise Fund and Sequoia Capital
Franchise Partners is SCFF Management LLC. The general partners of SCFF
Management
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<PAGE> 69
LLC are Douglas Leone, Michael Moritz, Mark Stevens, Thomas Stephenson and
Michael Goguen, one of our directors. Each of the general partners of SCFF
Management LLC disclaim beneficial ownership of the shares held by Sequoia
Capital Franchise Fund and Sequoia Capital Franchise Partners, except to the
extent of his pecuniary interest in these shares.
(3) Represents 5,888,634 shares held by U.S. Information Technology No. 2
Investment Enterprise Partnership, 612,059 shares held by JAFCO Co., Ltd.,
215,234 shares held by JAFCO G6-(A) Investment Enterprise Partnership,
215,234 shares held by JAFCO G6-(B) Investment Enterprise Partnership,
215,234 shares held by JAFCO JS-3 Investment Enterprise Partnership and
215,234 held by JAFCO R-3 Investment Enterprise Partnership. The general
partners of U.S. Information Technology No. 2 Investment Enterprise
Partnership are JAFCO America Ventures, Inc., a California corporation, and
JAFCO Co., Ltd., a Japanese corporation. The general partner of JAFCO G6-(A)
Investment Enterprise Partnership, JAFCO G6-(B) Investment Enterprise
Partnership, JAFCO JS-3 Investment Enterprise Partnership and JAFCO R-3
Investment Partnership is JAFCO Co., Ltd.
(4) Represents 5,005,956 shares held by Mayfield IX and 263,471 shares held by
Mayfield Associates Fund IV. Mayfield IX Management LLC is the general
partner of Mayfield IX and Mayfield Associates Fund IV. The managing
directors of Mayfield IX Management LLC are Yogen K. Dalal, Kevin A. Fong,
A. Grant Heidrich, Mike J. Levinthal, Russell C. Hirsch, Wende S. Hutton,
George A. Pavlov, F. Gib Myers, Bill D. Unger and Van Van Auken. The
non-managing directors of Mayfield IX Management LLC are David J. Ladd,
Allen L. Morgan and Todd A. Brooks, one of our directors. Each of the
managing directors and non-managing directors of Mayfield IX Management LLC
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.
(5) Represents 5,258,648 shares held by Mr. Alessandrini individually; 225,000
shares held by the Walter Alessandrini Annuity Trust u/i dtd. November 22,
1999, of which Mr. Alessandrini is trustee and has voting and dispositive
power over; 225,000 shares held by the Anna Rita Alessandrini Annuity Trust
u/i dtd. November 22, 1999, of which Mr. Alessandrini is trustee and has
voting and dispositive power over; and 2,000 shares held by the Laura
Graziani-Trust 1999 u/i dtd. December 2, 1999, of which Mr. Alessandrini is
a trustee and has voting and dispositive power over.
(6) Represents 1,860,000 shares held by Mr. Jiang individually and 300,000
shares held by the Eric W.Z. Jiang Trust -- 1999 u/i dtd. October 22, 1999
of which he is a trustee and has voting and dispositive power over.
(7) Represents 632,401 shares held by Mr. Lanfri individually; 15,000 shares
held by the LMR Charitable Remainder Trust of which his wife is trustee and
has voting and dispositive power over; 15,000 shares held by the JAL
Charitable Remainder Trust of which Mr. Lanfri is trustee and has voting and
dispositive power over; and 228,000 shares held by Mr. Lanfri's wife.
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<PAGE> 70
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 December 31, 1999, there were 56,529,320 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 141
stockholders, and assuming the exercise of warrants to purchase 337,500 shares
of common stock prior to the closing of this offering and including the issuance
of 769,320 shares of common stock to two corporate investors.
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 December 31, 1999, there were warrants outstanding to purchase a total
of 337,500 shares of common stock and a warrant outstanding to purchase a total
of 29,347 shares of Series D preferred stock. The warrant to purchase 29,347
shares of Series D preferred stock will remain outstanding after the completion
of this offering and will become exercisable to purchase an aggregate of 29,347
shares of common stock. It will expire on July 8, 2004, unless earlier
exercised.
REGISTRATION RIGHTS
The holders of 35,788,364 shares of common stock, as converted, and the
holder of a warrant to purchase 29,347 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
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<PAGE> 71
12 months after the closing of this offering and at our expense, may require
that we register their shares for 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.
In addition to the registration rights described above, MCI WorldCom and
Microsoft, at their own expense, are each entitled to one demand registration
for the 384,615 shares of common stock that each of them hold at any time after
180 days following the closing of this offering.
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 BankBoston, N.A.
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<PAGE> 72
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 62,529,320
shares of common stock, assuming the issuance of 6,000,000 shares of common
stock offered by us and no exercise of options outstanding and assuming no
exercise of the underwriters' over-allotment option and assuming the issuance of
769,230 shares of common stock to two corporate investors. All of the 6,000,000
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 31, 1999, the remaining 56,529,320 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, 55,391,841 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.......... 6,000,000 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)........ 46,147,818 701
</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.
The 769,230 shares of common stock that we agreed on January 14, 2000 to
sell to MCI WorldCom and Microsoft will be "restricted securities" and the one
year holding period for these shares will expire one year from the date of sale.
We anticipate that the date of sale will occur in February 2000. However, each
of MCI WorldCom and Microsoft may, beginning 180 days after the completion of
this offering, exercise their registration rights.
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 625,293 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.
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<PAGE> 73
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 31, 1999, there were a total of 3,401,427 shares of common
stock subject to outstanding options under our 1998 Stock Plan, 169,717 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 591,917 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 55,391,841 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
14,040,268 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.
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<PAGE> 74
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., FleetBoston
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. .......................................
FleetBoston Robertson Stephens Inc. ........................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total............................................. 6,000,000
=========
</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 900,000
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."
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,
73
<PAGE> 75
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 300,000 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.
On January 14, 2000, we agreed to sell 384,615 shares of common stock to
each of MCI WorldCom and Microsoft Corporation for $13.00 per share in a private
placement.
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.
74
<PAGE> 76
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
418,419 shares of Avanex common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at June 30, 1998 and 1999, and December 31, 1999, for the
period from October 24, 1997 (inception) to June 30, 1998, for the year ended
June 30, 1999, and for the six months ended December 31, 1999, as set forth in
their reports. We have included our consolidated 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.
75
<PAGE> 77
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 78
AVANEX CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Financial Statements:
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Other Stockholders' Equity
(Deficit)................................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 79
AVANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY AT
------------------ DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
------- -------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 2,874 $ 1,756 $ 2,219
Short-term investments.................................... -- 1,968 12,160
Accounts receivable (net of allowance for doubtful
accounts of $30 at June 30, 1999 and $328 December 31,
1999)................................................... -- 272 2,753
Inventories............................................... -- 626 2,693
Employee receivables and other current assets............. 37 468 1,410
------- -------- --------
Total current assets................................ 2,911 5,090 21,235
Property and equipment, net................................. 408 1,671 5,632
Other assets................................................ 20 55 1,285
------- -------- --------
Total assets........................................ $ 3,339 $ 6,816 $ 28,152
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings..................................... $ -- $ 735 $ 1,963
Accounts payable.......................................... 97 990 2,166
Accrued compensation and related expenses................. 66 242 306
Warranty provision........................................ -- 51 604
Other accrued expenses.................................... 44 207 1,309
Deferred revenue.......................................... -- -- 137
Current portion of capital lease obligations.............. 67 205 437
------- -------- --------
Total current liabilities........................... 274 2,430 6,922
Capital lease obligations................................... 56 563 1,320
Long-term debt.............................................. 285 -- --
Commitments
Redeemable convertible preferred stock, $0.001 par value,
38,100,000 shares authorized (none pro forma), issuable in
series (stated at liquidation preference):
Series A, 6,900,000 shares designated, 6,795,120 shares
issued and outstanding at June 30, 1998 and 1999 and
December 31, 1999 (none pro forma)...................... 1,010 1,010 1,010 $ --
Series B, 9,525,000 shares designated, 9,445,116 shares
issued and outstanding at June 30, 1998 and 1999 and
December 31, 1999 (none pro forma)...................... 2,519 2,519 2,519 --
Series C, 16,275,000 shares designated, no shares issued
and outstanding at June 30, 1998; 13,548,253 shares
issued and outstanding at June 30 and December 31, 1999
(none pro forma)........................................ -- 6,828 6,828 --
Series D, 5,400,000 shares designated, no shares issued
and outstanding at June 30, 1998 and 1999; 5,230,645
shares issued and outstanding at December 31, 1999 (none
pro forma).............................................. -- -- 20,051 --
------- -------- -------- --------
Total redeemable convertible preferred stock........ 3,529 10,357 30,408 --
Other stockholders' equity (deficit):
Preferred stock, $0.001 par value, none authorized, issued
and outstanding (10,000,000 shares authorized pro forma)
Common stock, $0.001 par value, 75,000,000 shares
authorized (300,000,000 shares pro forma); 7,050,000
shares issued and outstanding at June 30, 1998;
18,141,290 shares issued and outstanding at June 30,
1999 and 20,403,456 shares issued and outstanding at
December 31, 1999 (55,422,590 shares pro forma)......... 7 18 20 55
Additional paid-in capital................................ 2,105 14,483 93,007 123,380
Notes receivable from stockholders.......................... (6) (326) (2,633) (2,633)
Deferred compensation..................................... (1,774) (10,351) (50,689) (50,689)
Accumulated deficit....................................... (1,137) (10,358) (50,203) (50,203)
------- -------- -------- --------
Total other stockholders' equity (deficit).......... (805) (6,534) (10,498) $ 19,910
------- -------- -------- ========
Total liabilities and stockholders' equity
(deficit)......................................... $ 3,339 $ 6,816 $ 28,152
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 80
AVANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY AT
------------------ DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
------- -------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 2,874 $ 1,756 $ 2,219
Short-term investments.................................... -- 1,968 12,160
Accounts receivable (net of allowance for doubtful
accounts of $30 at June 30, 1999 and $328 December 31,
1999)................................................... -- 272 2,753
Inventories............................................... -- 626 2,693
Employee receivables and other current assets............. 37 468 1,410
------- -------- --------
Total current assets................................ 2,911 5,090 21,235
Property and equipment, net................................. 408 1,671 5,632
Other assets................................................ 20 55 1,285
------- -------- --------
Total assets........................................ $ 3,339 $ 6,816 $ 28,152
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings..................................... $ -- $ 735 $ 1,963
Accounts payable.......................................... 97 990 2,166
Accrued compensation and related expenses................. 66 242 306
Warranty provision........................................ -- 51 604
Other accrued expenses.................................... 44 207 1,309
Deferred revenue.......................................... -- -- 137
Current portion of capital lease obligations.............. 67 205 437
------- -------- --------
Total current liabilities........................... 274 2,430 6,922
Capital lease obligations................................... 56 563 1,320
Long-term debt.............................................. 285 -- --
Commitments
Redeemable convertible preferred stock, $0.001 par value,
38,100,000 shares authorized (none pro forma), issuable in
series (stated at liquidation preference):
Series A, 6,900,000 shares designated, 6,795,120 shares
issued and outstanding at June 30, 1998 and 1999 and
December 31, 1999 (none pro forma)...................... 1,010 1,010 1,010 $ --
Series B, 9,525,000 shares designated, 9,445,116 shares
issued and outstanding at June 30, 1998 and 1999 and
December 31, 1999 (none pro forma)...................... 2,519 2,519 2,519 --
Series C, 16,275,000 shares designated, no shares issued
and outstanding at June 30, 1998; 13,548,254 shares
issued and outstanding at June 30 and December 31, 1999
(none pro forma)........................................ -- 6,828 6,828 --
Series D, 5,400,000 shares designated, no shares issued
and outstanding at June 30, 1998 and 1999; 5,230,646
shares issued and outstanding at December 31, 1999 (none
pro forma).............................................. -- -- 20,051 --
------- -------- -------- --------
Total redeemable convertible preferred stock........ 3,529 10,357 30,408 --
Other stockholders' equity (deficit):
Preferred stock, $0.001 par value, none authorized, issued
and outstanding (10,000,000 shares authorized pro forma)
Common stock, $0.001 par value, 75,000,000 shares
authorized (300,000,000 shares pro forma); 7,050,000
shares issued and outstanding at June 30, 1998;
18,141,290 shares issued and outstanding at June 30,
1999 and 20,403,456 shares issued and outstanding at
December 31, 1999 (55,422,590 shares pro forma)......... 7 18 20 55
Additional paid-in capital................................ 2,105 14,483 93,007 123,380
Notes receivable from stockholders.......................... (6) (326) (2,633) (2,633)
Deferred compensation..................................... (1,774) (10,351) (50,689) (50,689)
Accumulated deficit....................................... (1,137) (10,358) (50,203) (50,203)
------- -------- -------- --------
Total other stockholders' equity (deficit).......... (805) (6,534) (10,498) $ 19,910
------- -------- -------- ========
Total liabilities and stockholders' equity
(deficit)......................................... $ 3,339 $ 6,816 $ 28,152
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 81
AVANEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 24, 1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED ---------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
---------------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue................................ $ -- $ 510 $ -- $ 10,916
Cost of revenue............................ -- 531 -- 8,194
------- ----------- -------- -----------
Gross profit (loss)........................ -- (21) -- 2,722
Operating expenses:
Research and development................. 515 4,086 1,427 2,988
Sales and marketing...................... 125 956 265 1,676
General and administrative............... 131 723 244 2,129
Stock compensation....................... 362 3,464 673 15,697
------- ----------- -------- -----------
Total operating expenses......... 1,133 9,229 2,609 22,490
------- ----------- -------- -----------
Loss from operations....................... (1,133) (9,250) (2,609) (19,768)
Interest income............................ -- 148 30 239
Interest expense........................... (4) (119) (28) (265)
------- ----------- -------- -----------
Net loss................................... (1,137) (9,221) (2,607) (19,794)
Preferred stock accretion.................. -- -- -- (20,051)
------- ----------- -------- -----------
Net loss attributable to common
stockholders............................. $(1,137) $ (9,221) $ (2,607) $ (39,845)
======= =========== ======== ===========
Basic and diluted net loss per common
share.................................... $ (7.20) $ (4.97) $ (4.14) $ (6.41)
======= =========== ======== ===========
Weighted-average shares used in computing
basic and diluted net loss per common
share.................................... 157,831 1,856,688 629,553 6,215,219
======= =========== ======== ===========
Pro forma basic and diluted net loss per
common share (unaudited)................. $ (0.39) $ (1.02)
=========== ===========
Weighted-average shares used in computing
pro forma basic and diluted net loss per
common share (unaudited)................. 23,627,581 39,109,946
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE> 82
AVANEX CORPORATION
CONSOLIDATED STATEMENT OF OTHER STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 24, 1997 (INCEPTION) TO DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES TOTAL
ADDITIONAL RECEIVABLE STOCKHOLDERS'
COMMON PAID-IN FROM DEFERRED ACCUMULATED EQUITY
STOCK CAPITAL SHAREHOLDERS COMPENSATION DEFICIT (DEFICIT)
------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 2,700,000 shares of
common stock to founder......... $ 3 $ (1) $ -- $ -- $ -- $ 2
Issuance of 4,050,000 shares of
common stock upon exercise of
share purchase rights............. 4 5 (6) -- -- 3
Issuance of 300,000 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...... 7 2,105 (6) (1,774) (1,137) (805)
Issuance of 11,129,190 shares of
common stock upon exercise of
stock options and share purchase
rights.......................... 11 350 (342) -- -- 19
Issuance costs associated with
issuance of preferred shares.... -- (13) -- -- -- (13)
Repurchase of 37,899 shares of
common stock.................... -- -- -- -- -- --
Forgiveness of stockholders' notes
receivable...................... -- -- 22 -- -- 22
Issuance of common stock options
to consultants.................. -- 539 -- -- -- 539
Deferred compensation............. -- 11,502 -- (11,502) -- --
Amortization of deferred
compensation.................... -- -- -- 2,925 -- 2,925
Net loss.......................... -- -- -- -- (9,221) (9,221)
--- ------- ------- -------- -------- --------
Balance at June 30, 1999...... 18 14,483 (326) (10,351) (10,358) (6,534)
Issuance costs associated with
issuance of preferred shares.... -- (24) -- -- -- (24)
Issuance of 4,877,790 shares of
common stock upon exercise of
stock options and share purchase
rights.......................... 5 2,376 (2,340) -- -- 41
Repurchase of 2,615,625 shares of
common stock.................... (3) (32) 33 -- -- (2)
Issuance of warrants.............. -- 118 -- -- -- 118
Issuance of common stock options
to consultants.................. -- 3,707 -- -- -- 3,707
Preferred stock accretion......... -- 20,051 -- -- (20,051) --
Deferred compensation............. -- 52,328 -- (52,328) -- --
Amortization of deferred
compensation.................... -- -- -- 11,990 -- 11,990
Net loss.......................... -- -- -- -- (19,794) (19,794)
--- ------- ------- -------- -------- --------
Balance at December 31,
1999........................ $20 $93,007 $(2,633) $(50,689) $(50,203) $(10,498)
=== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 83
AVANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 24, 1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED ---------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
---------------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $(1,137) $(9,221) $(2,607) $(19,794)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation..................................... 21 102 120 269
Amortization..................................... 12 278 30 480
Stock compensation expense....................... 364 3,464 673 15,756
Forgiveness of stockholders' notes receivable.... -- 22 -- --
Changes in operating assets and liabilities:
Accounts receivable............................ -- (272) -- (2,481)
Inventories.................................... -- (626) (274) (2,067)
Employee receivables and other current
assets....................................... (37) (431) (28) (942)
Other assets................................... (20) (35) (20) (1,171)
Accounts payable............................... 97 893 481 1,176
Accrued compensation and related expenses...... 66 176 (9) 64
Warranty provision............................. -- 51 -- 553
Other accrued expenses and deferred revenue.... 44 163 112 1,239
------- ------- ------- --------
Net cash used in operating activities.......... (590) (5,436) (1,522) (6,918)
INVESTING ACTIVITIES
Purchases of available-for-sale securities......... -- (3,968) -- --
Maturities of available-for-sale securities........ -- 2,000 -- --
Purchases of held-to-maturity securities........... -- -- -- (17,238)
Maturities of held-to-maturity securities.......... -- -- -- 7,046
Purchases of property and equipment................ (301) (863) (230) (3,494)
------- ------- ------- --------
Net cash used for investing activities....... (301) (2,831) (230) (13,686)
FINANCING ACTIVITIES
Payments on debt and capital lease obligations..... (17) (135) (16) (1,149)
Proceeds from issuance of convertible notes
payable.......................................... 50 -- -- --
Proceeds from short-term and long-term debt........ 285 450 450 2,150
Proceeds from issuance of common stock............. 4 19 -- 41
Repurchases of common stock........................ -- -- -- (2)
Net proceeds from issuance of preferred stock...... 3,443 6,815 -- 20,027
------- ------- ------- --------
Net cash provided by financing activities.... 3,765 7,149 434 21,067
------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 2,874 (1,118) (1,318) 463
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 $ 1,556 $ 2,219
======= ======= ======= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS
Equipment acquired under capital leases............ $ 140 $ 780 $ 286 $ 1,216
======= ======= ======= ========
Conversion of notes payable to convertible
preferred stock.................................. $ 50 $ -- $ -- $ --
======= ======= ======= ========
Common stock issued for notes receivable........... $ 6 $ 342 $ 68 $ 2,340
======= ======= ======= ========
Preferred stock accretion.......................... $ -- $ -- $ -- $ 20,051
======= ======= ======= ========
Warrants issued in connection with securing a line
of credit........................................ $ -- $ -- $ -- $ 118
======= ======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid...................................... $ 2 $ 117 $ 11 $ 206
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 84
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Avanex Corporation (the "Company") was incorporated on October 24, 1997.
The Company manufactures and markets fiber optic-based products, known as
photonic processors, which are designed to increase the performance of optical
networks.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Intercompany accounts and transactions have
been eliminated in consolidation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION
The accompanying consolidated financial statements and related notes for
the six months ended December 31, 1998 are unaudited, but include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of its consolidated financial
position, operating results, and cash flows for the interim date and the period
presented. Results for the six months ended December 31, 1999 are not
necessarily indicative of results for the entire fiscal year or future periods.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ materially from
those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. The
Company considers all highly liquid investments with original maturities of
greater than three months but less than one year when purchased to be short-term
investments. Cash equivalents at June 30, 1998 and 1999 and at December 31, 1999
consisted primarily of money market funds.
SHORT-TERM INVESTMENTS
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
based upon quoted market prices of the securities, with the unrealized gains and
losses reported in a separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization and interest on the securities
are included in interest income. The cost of securities sold is based on the
specific identification method.
Short-term investments at June 30, 1999 and December 31, 1999 consisted
primarily of commercial paper, are classified as available-for-sale and
held-to-maturity, respectively, and are carried at amortized cost.
F-7
<PAGE> 85
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Gross unrealized gains and losses and realized gains and losses on securities
have not been significant to date. There have been no sales of short-term
investments to date.
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. The Company sells primarily to large communications vendors. The
Company extends reasonably short collection terms but does not require
collateral. The Company provides reserves for potential credit losses. The
Company has not experienced significant losses to date. 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
six months ended December 31, 1999, one customer individually accounted for over
88% of net revenue. The outstanding receivable from this customer approximated
71% of total gross accounts receivable at December 31, 1999. International
revenue was not significant for the six months ended December 31, 1999.
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. For evaluation units where the customer has the right of return
through the end of the evaluation period, the Company recognizes revenue on
these shipments at the end of the evaluation period if not returned. 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
F-8
<PAGE> 86
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
accounting for its stock option grants and share purchase rights to employees.
Accordingly, deferred compensation is recognized for the difference between the
option price or share purchase right at the date of grant and the deemed fair
value of the Company's common shares at that date when the option or share
purchase right exercise price is less than the fair value of the common shares.
Such deferred compensation is amortized over the vesting period, generally a
maximum of four years. Option grants to all others are accounted for under the
fair value method prescribed by FAS 123.
INVENTORIES
Inventories consist of raw materials, work-in-process and finished goods
and are 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 for the period ended June 30,
1998, the year ended June 30, 1999 and the six months ended December 31, 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 six months
ended December 31, 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 six
months ended December 31, 1999 were none, $76,000 and $347,000, respectively,
and are included in sales and marketing expenses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of long-term debt obligations is 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.
F-9
<PAGE> 87
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
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 December 31, 1999, as
adjusted for the assumed conversion of preferred stock based on the shares of
preferred stock outstanding at December 31, 1999, is set forth on the
consolidated 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 consolidated
financial position, results of operations, or cash flows as the Company has not
entered into any derivative contracts.
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 consolidated 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.
On January 14, 2000, the Company's stockholders approved a three-for-two
stock split in the form of a stock dividend. Accordingly, all share and
per-share data for all prior periods presented have been restated to reflect
this event.
F-10
<PAGE> 88
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
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 SIX MONTHS ENDED
OCTOBER 24, 1997 YEAR ENDED ----------------------------
(INCEPTION) TO JUNE 30, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1999 1998 1999
---------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders........................ $ (1,137) $ (9,221) $ (2,607) $ (39,845)
Basic and diluted:
Weighted-average shares of common
stock outstanding.............. 4,327,109 12,850,622 11,829,848 19,092,293
Less: weighted-average shares
subject to repurchase.......... (4,169,278) (10,993,934) (11,200,295) (12,877,074)
----------- ----------- ----------- -----------
Weighted-average shares used in
computing basic and diluted net
loss per common share............. 157,831 1,856,688 629,553 6,215,219
=========== =========== =========== ===========
Basic and diluted net loss per
common share...................... $ (7.20) $ (4.97) $ (4.14) $ (6.41)
=========== =========== =========== ===========
Pro forma unaudited:
Shares used above................. 1,856,688 6,215,219
Pro forma adjustment to reflect
weighted effect of the assumed
conversion of preferred
stock.......................... 21,770,893 32,894,727
----------- -----------
Weighted-average shares used in
computing pro forma basic and
diluted net loss per common
share.......................... 23,627,581 39,109,946
=========== ===========
Pro forma basic and diluted net
loss per common share.......... $ (0.39) $ (1.02)
=========== ===========
Potentially dilutive securities
excluded from computations
because they are
anti-dilutive.................. 5,643,602 2,676,300 1,074,750 3,578,925
=========== =========== =========== ===========
</TABLE>
3. CONSOLIDATED BALANCE SHEET DETAILS
Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------ DECEMBER 31,
1998 1999 1999
---- ---- ------------
<S> <C> <C> <C>
Raw materials............................................... $-- $364 $1,329
Work-in-process............................................. -- 219 1,364
Finished goods.............................................. -- 43 --
-- ---- ------
$-- $626 $2,693
== ==== ======
</TABLE>
F-11
<PAGE> 89
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------- DECEMBER 31,
1998 1999 1999
---- ------ ------------
<S> <C> <C> <C>
Software and computer equipment............................. $ 34 $ 211 $ 540
Equipment and machinery..................................... 344 1,713 5,427
Furniture and fixtures...................................... 63 160 827
---- ------ -------
441 2,084 6,794
Accumulated depreciation.................................... (33) (413) (1,162)
---- ------ -------
$408 $1,671 $ 5,632
==== ====== =======
</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 (i)
six months from the date on which the employee can sell shares of the Company's
common stock for an amount equal to the principal and interest on the note, or
(ii) the termination of employment with the Company.
On November 19, 1999, the Company loaned $125,000 to an employee. The
promissory note, which bears interest at 5.57% per annum, and accrued interest
are payable in full to the Company on the earliest of (i) May 19, 2001, (ii) six
months from the date on which the employee can sell shares of the Company's
common stock for an amount equal to the principal and interest on the note, or
(iii) the termination of employment with the Company.
In connection with the exercise of certain stock options and share purchase
rights granted under the Company's stock option plan, the Company has received
promissory notes equal to the total exercise price of these stock options and
share purchase rights. These full recourse promissory notes, which bear interest
at 4.99% - 6.20% per annum, and accrued interest are payable in full to the
Company, generally four to five years from the date each of the promissory notes
was issued. Promissory notes for the exercise of certain stock options and share
purchase rights totaling $6,000, $326,000, and $2,633,000 were outstanding as of
June 30, 1998, June 30, 1999, and December 31, 1999. These notes are classified
as a reduction of other stockholders' equity (deficit).
5. COMMITMENTS
In September 1999, the Company entered into an operating lease for a new
corporate headquarters and manufacturing facility. The Company has the right of
first refusal on the purchase of the building until April 1, 2000. Upon the
expiration of the lease in October 2009, the Company has an option to extend the
lease term for an additional five year period.
The Company leases equipment under capital leases. Such leases include a
lease facility entered into during May 1999 which made available to the Company
up to $3,000,000 to finance equipment purchases at an interest rate of 14.9% per
annum. As of December 31, 1999, the Company had an outstanding obligation of
$1,101,000 under this facility. Subsequent to December 31, 1999, the Company
drew down an additional $1,545,000 on this lease facility.
F-12
<PAGE> 90
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
As of December 31, 1999, payments due under capital leases and future
minimum lease payments under noncancelable operating leases having initial terms
in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Six months ending June 30, 2000............................. $ 351 $ 641
Year ending June 30,
2001...................................................... 667 1,219
2002...................................................... 717 1,091
2003...................................................... 527 1,109
2004...................................................... -- 1,143
Remaining Years........................................... -- 5,360
------ -------
Total minimum lease payments...................... 2,262 10,563
Amount representing interest................................ (505) --
------ -------
Present value of net minimum lease payments................. 1,757 $10,563
=======
Less current portion........................................ 437
------
Long-term portion........................................... $1,320
======
</TABLE>
At June 30, 1998 and 1999 and December 31, 1999, equipment amounting to
approximately $140,000, $920,000, and $2,136,000 respectively, was capitalized
under capital leases. Related accumulated amortization at June 30, 1998 and 1999
and December 31, 1999 amounted to approximately $12,000, $290,000, and $770,000
respectively. The lease agreements are payable in monthly installments through
February 2003, bearing interest at 12.00%-19.47% 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,
$346,000 for the year ended June 30, 1999, and $466,000 for the six months ended
December 31, 1999.
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%. The Company has pledged all of its assets as collateral for
this line. At December 31, 1999, the Company had outstanding borrowings of
$1,963,000 against this line. This line of credit requires the Company to comply
with specified covenants.
In connection with this line of credit, the Company issued a warrant
agreement to the financial institution, which entitles the holder to purchase
29,347 shares of the Company's common stock with an aggregate purchase price
equal to $112,000, or approximately $3.83 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 years, volatility of 0.75 and no dividend yield. The
fair value of this warrant was estimated to be $118,000 and is recorded as
deferred interest expense. This amount 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.
F-13
<PAGE> 91
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A, B, C, and D preferred stock have a liquidation preference of
$0.149, $0.267, $0.504, and $3.833 per share, respectively, plus all declared
but unpaid dividends. Series A, B, C, and D preferred shareholders are entitled
to noncumulative dividends at the rate of $0.011, $0.021, $0.040, and $0.192 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, C, and D 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, C, and D
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, C, and D 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 $2.67, with aggregate proceeds in excess of $10,000,000, 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 connection with the issuance of the Series D preferred stock, the
Company recorded a non-cash charge of $20,051,000 during the six months ended
December 31, 1999 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.
8. OTHER STOCKHOLDERS' EQUITY
Shares Issued to Founder
In January 1998, the Company issued 2,700,000 shares of stock to one of its
founders pursuant to a restricted stock purchase agreement which permits the
Company to repurchase the shares at the original sales price. These rights
expire at a rate of 25% after one year and 1/48 per month thereafter. At
December 31, 1999, 1,350,000 shares remained subject to repurchase under these
agreements.
Common Stock to be Issued
In January 2000, the Company entered into agreements to sell shares of
common stock in a private placement with two separate corporate investors. Each
corporate investor will acquire 384,165 shares of common stock at $13.00 per
share contemporaneously with the initial public offering.
Stock Option/Rights Plan
The Company adopted the 1998 Stock Plan (the "Option 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.
The Option Plan permits ISOs and NSOs to be granted at an exercise price of
not less than 100% 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 Option Plan. The term of the Option
Plan is ten years. 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.
F-14
<PAGE> 92
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Stock option activity under the Option Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Balance at inception (October 24, 1997)..................... -- --
Options granted............................................. 348,602 $0.01
--------- -----
Balance at June 30, 1998.................................... 348,602 $0.01
Options granted........................................... 1,297,050 $0.03
Options exercised......................................... (618,602) $0.02
Options canceled.......................................... (38,250) $0.05
--------- -----
Balance at June 30, 1999.................................... 988,800 $0.05
--------- -----
Options granted........................................... 2,678,352 $1.84
Options exercised......................................... (116,625) $0.35
Options canceled.......................................... (149,100) $0.57
--------- -----
Balance at December 31, 1999................................ 3,401,427 $1.40
========= =====
</TABLE>
<TABLE>
<CAPTION>
OUTSTANDING
-------------------------------------------------- EXERCISABLE
WEIGHTED -------------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/99 EXERCISE PRICE
EXERCISE PRICES -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.000 - $0.013 97,500 9.82 $0.001 92,969 $0.001
$0.027 - $0.027 809,400 9.02 $0.027 28,170 $0.027
$0.053 - $0.200 186,600 9.39 $0.090 45,000 $0.100
$0.387 - $0.387 657,975 9.76 $0.387 78,124 $0.387
$0.720 - $4.333 1,649,952 9.91 $2.858 120,000 $3.792
- --------------- --------- ---- ------ ------- ------
$0.000 - $4.333 3,401,427 9.63 $1.404 364,263 $1.347
</TABLE>
Under the Option Plan, the Company may also grant share purchase rights
either alone, in addition to, or in tandem with other awards granted under the
Option Plan and/or cash awards granted outside the Option Plan. Exercise of
these share purchase rights are made pursuant to restricted stock purchase
agreements containing provisions established by the Board of Directors. These
provisions give the Company the right to repurchase the shares at the original
sales price. This right expires at a rate determined by the Board of Directors,
generally at a rate of 25% after one year and 1/48 per month thereafter. During
the period from October 24, 1997 to June 30, 1998, the year ended June 30, 1999,
and the six months ended December 31, 1999, the Company issued 4,050,000 shares,
10,510,589 shares, and 4,761,165 shares under the Option Plan. Shares subject to
repurchase were 4,050,000 shares as of June 30, 1998, 11,730,902 shares as of
June 30, 1999, and 12,889,566 shares as of December 31, 1999. For the year ended
June 30, 1999 and the six months ended December 31, 1999, the Company
repurchased 37,899 shares and 2,615,625 shares under the Option Plan.
At December 31, 1999, 1,245,117 shares were available for future grant
under the Option Plan which was increased by an additional 7,500,000 shares in
January 2000. In addition, annual increases will be added to the 1998 Stock
Plan, beginning on July 1, 2000, equal to the least of (i) 6,000,000 shares,
(ii) 4.9% of the Company's outstanding shares, and (iii) a lesser amount
determined by the Company's Board of Directors.
The weighted-average deemed fair value of stock options and share purchase
rights granted during 1998 and 1999 was $0.19 and $1.51, respectively. At
December 31, 1999, the weighted-average deemed fair value of stock options and
share purchase rights granted from July 1, 1999 through December 31, 1999 was
$8.87.
F-15
<PAGE> 93
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
For the period from October 24, 1997 to June 30, 1998, the year ended June
30, 1999 and the six months ended December 31, 1999, the Company recorded
deferred stock compensation of $2,136,000, $11,502,000 and $52,328,000,
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 and share repurchase rights were granted. For the period
October 24, 1997 to June 30, 1998, the year ended June 30, 1999 and the six
months ended December 31, 1999, the Company recorded amortization of deferred
stock compensation of $362,000, $2,925,000 and $11,990,000, respectively. At
December 31, 1999, the Company had $50,689,000 of remaining unamortized deferred
compensation. Such amount is included as a reduction of other stockholders'
equity (deficit) and is being amortized over the vesting period.
For the year ended June 30, 1999 and the six months ended December 31,
1999, the Company recorded stock compensation cost of $539,000 and $3,707,000,
respectively 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 5.50%,
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 and
share repurchase rights under the fair value method of FAS 123. The fair value
of these options and share repurchase rights was estimated at the date of grant
using the minimum value method with the following weighted-average assumptions:
<TABLE>
<CAPTION>
JUNE 30,
------------------ DECEMBER 31,
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 deemed
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 deemed 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 deemed 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 six months ended December 31, 1999, the pro forma consolidated net loss
attributable to common stockholders was $(1,147,000), $(9,313,000) and
$(44,374,000), respectively, and the pro forma net loss per common share was
$(7.27), $(5.02) and $(7.14), respectively.
The pro forma impact of options on the consolidated net loss attributable
to common stockholders 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 consolidated net income (loss) attributable to common stockholders for future
years, as future years will include the effects of additional stock option
grants.
F-16
<PAGE> 94
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
1999 Director Option Plan
In January 2000, the Company adopted, subject to completion of the
Company's initial public offering, the 1999 Director Option Plan (the "Director
Option Plan"). Non-employee directors are entitled to participate in the
Director Option Plan. A total of 300,000 shares of the Company's common stock
have been reserved for issuance under the Director Option Plan, plus automatic
annual increases beginning on July 1, 2000 equal to the least of (i) 150,000
shares, (ii) 0.25% of the outstanding shares on that date, and (iii) a lesser
amount determined by the Company's Board of Directors. The Director Option Plan
generally provides for an automatic initial grant of an option to purchase
40,000 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
Director Option Plan; or the date when a person first becomes a non-employee
director. After the initial grant, each non-employee director will automatically
be granted subsequent options to purchase 10,000 shares of common stock each
year on the date of the Company's annual stockholders' meeting. Grants generally
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 the Company's common stock on the date of grant.
1999 Employee Stock Purchase Plan
In January 2000, the Company adopted, subject to completion of the
Company's initial public offering, the 1999 Employee Stock Purchase Plan (the
"Stock Purchase Plan") for its employees. A total of 525,000 shares of the
Company's common stock has been reserved for issuance under the Stock Purchase
Plan, plus automatic annual increases beginning on July 1, 2000 equal to the
least of (i) 750,000 shares, (ii) 1% of the outstanding shares on that date, and
(iii) a lesser amount determined by the Company's Board of Directors. The Stock
Purchase Plan permits participants to purchase the Company's common stock
through payroll deductions of up to 10% of the participant's compensation. The
maximum number of shares a participant may purchase during each offering period
is 3,000 shares. The price of common stock purchased will be 85% of the lower of
the fair market value at the beginning of the offering period and the ending of
the offering period.
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 112,500 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 337,500 shares of common stock in
the event of the exercise of these warrants.
Shares Reserved
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Option Plan................................................. 4,646,544
Reserved for warrants....................................... 366,847
Conversion of preferred stock............................... 35,019,134
----------
Total common stock reserved for future issuance... 40,032,525
==========
</TABLE>
F-17
<PAGE> 95
AVANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
In January 2000, the Company reserved 7,500,000 additional shares for
future issuance under the Option Plan, and, in addition, reserved shares for
future issuance, subject to completion of its initial public offering, of
300,000 shares related to the 1999 Director Option Plan and 525,000 shares
related to the 1999 Employee Stock Purchase Plan.
9. 401(k) PLAN
The Company maintains a savings and retirement plan under Section 401(k) of
the Internal Revenue Code. All employees are eligible to participate on the
first day of the month following their hire date with the Company. Under the
plan, employees may contribute up to 15% of their pretax salaries per year but
not more than the statutory limits. The Company has not contributed to the plan.
10. 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,
---------------- DECEMBER 31,
1998 1999 1999
----- ------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 288 $ 2,330 $ 3,593
Stock option compensation.................................. -- 988 5,640
Other...................................................... 32 480 994
----- ------- -------
Total............................................ 320 3,798 10,227
Valuation allowance........................................ (320) (3,798) (10,227)
----- ------- -------
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, $3,478,000 and $6,429,000 in the
period ended June 30, 1998, the year ended June 30, 1999, and the six months
ended December 31, 1999.
As of December 31, 1999, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $8,982,000, which expire in
years 2013 through 2020. The Company also had net operating loss carryforwards
for state income tax purposes of approximately $8,993,000 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-18
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 96
[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 Tuning capability to accommodate different wavelengths
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 Efficient use of the available optical wavelength range
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 Dispersion compensation across a broad optical wavelength range"
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> 97
LOGO
<PAGE> 98
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........................................ $ 27,324.00
NASD filing fee............................................. $ 10,850.00
Nasdaq National Market listing fee.......................... $ 95,000.00
Printing and engraving costs................................ $ 200,000.00
Legal fees and expenses..................................... $ 500,000.00
Accounting fees and expenses................................ $ 525,000.00
Blue Sky fees and expenses.................................. $ 10,000.00
Directors and Officers Insurance............................ $ 620,000.00
Transfer Agent and Registrar fees........................... $ 10,000.00
Miscellaneous expenses...................................... $ 26,826.00
-------------
Total............................................. $2,025,000.00
=============
</TABLE>
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
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
II-1
<PAGE> 99
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 December 31, 1999, (the most recent practicable
date) we granted stock options and restricted stock purchase rights to
acquire an aggregate of 15,731,832 shares of our common stock at
prices ranging from $0.001 to $6.50 to employees, consultants and
directors pursuant to our 1998 Stock Plan, as amended.
(2) From inception through December 31, 1999, we issued an aggregate of
13,311,320 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 $2,444,671.54.
(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
Incorporated.
(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.
(11) On October 8, 1999, we granted under our 1998 Stock Plan, as amended,
a right to purchase an aggregate of 4,000 shares of common stock to a
consultant in consideration of past services rendered for an aggregate
value of $2,320.00.
(12) On December 10, 1999, we granted under our 1998 Stock Plan, as
amended, rights to purchase an aggregate of 60,000 shares of common
stock to consultants in consideration of past services rendered for an
aggregate value of $300,000.00.
(13) On January 14, 2000 we agreed to sell 769,230 shares of common stock
to corporate investors for an aggregate purchase price of
$9,999,990.00.
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> 100
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 , 2000
3.2 Amended and Restated Bylaws of the Registrant
3.3 Amended and Restated Certificate of Incorporation to be
filed after effectiveness of this Registration Statement
filed , 2000
4.1 Specimen Common Stock Certificate
4.3 Warrant to Purchase the Stock of the Registrant held by
Comerica Incorporated
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, including Security
Agreement and Promissory Note, between the Registrant and
Walter Alessandrini dated March 26, 1999
10.8++ Form of Restricted Stock Purchase Agreement
10.8.1++ Stock Purchase Agreement, including Security Agreement and
Promissory Note, between the Registrant and Paul Shi-Qi
Jiang dated July 22, 1999
10.8.2++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Simon Xiaofan Cao dated August 4, 1999
10.8.3++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Peter Maguire dated August 4, 1999
10.8.4++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
James Pickering dated September 10, 1999
10.8.5++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Margaret Quinn dated October 8, 1999
10.8.6++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Simon Xiaofan Cao dated October 12, 1999
10.8.7++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Anthony Florence dated November 19, 1999
10.8.8++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Jessy Chao dated November 26, 1999
10.8.9++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Paul Shi-Qi Jiang dated November 26, 1999
10.8.10 Stock Option Agreement, and accompanying exhibits, between
the Registrant and Jessy Chao dated February 3, 1998
10.8.11 Stock Option Agreement, and accompanying exhibits, between
the Registrant and Paul Shi-Qi Jiang dated February 3, 1998
</TABLE>
II-3
<PAGE> 101
<TABLE>
<C> <S>
10.8.12 Form of Stock Option Agreements between the Registrant and
certain directors
10.8.13 Schedule of directors receiving stock options of the
Registrant
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 19, 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
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 May 20, 1999 and amendment to the Secured
Promissory Note dated December 1, 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 January 2, 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
.1024.1*++ Letter clarifying the Patent License Agreement between
Fujitsu Limited and the Registrant dated July 1, 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
10.26.1 Sublease between KLA-Tencor Corporation and Pathnet, Inc.
for 405 International Parkway, Richardson, Texas dated
October 16, 1997
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
</TABLE>
II-4
<PAGE> 102
<TABLE>
<C> <S>
10.32++ Professional Services Agreement between the Registrant and
AristaSoft Corporation dated July 7, 1999
10.33 Cost Sharing Agreement between the Registrant and Avanex
Cayman dated December, 1999
10.34* International Distributor Agreement between the Registrant
and Sun Instruments dated December 20, 1999
10.35+ Subscription Agreement between the Registrant and Microsoft
Corporation dated January 14, 2000
10.36+ Subscription Agreement between the Registrant and MCI
Worldcom Venture Fund dated January 14, 2000
10.37+ Third Amended and Restated Shareholder Rights Agreement
dated January 14, 2000
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-7)
27.1 Financial Data Schedule for six months ended December 31,
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>
- -------------
* Confidential treatment requested.
+ To be filed by amendment.
++ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
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)
II-5
<PAGE> 103
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-6
<PAGE> 104
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 14th day of January, 2000.
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 January 14, 2000
- ------------------------------------------------ Officer (Principal Executive
Walter Alessandrini Officer) and Director
/s/ JESSY CHAO Vice President, Finance and Chief January 14, 2000
- ------------------------------------------------ Financial Officer (Principal
Jessy Chao Financial and Accounting Officer)
/s/ XIAOFAN CAO* Senior Vice President, Product January 14, 2000
- ------------------------------------------------ Development and Director
Xiaofan Cao
/s/ TODD BROOKS* Director January 14, 2000
- ------------------------------------------------
Todd Brooks
/s/ MICHAEL GOGUEN* Director January 14, 2000
- ------------------------------------------------
Michael Goguen
/s/ SETH NEIMAN* Director January 14, 2000
- ------------------------------------------------
Seth Neiman
</TABLE>
II-7
<PAGE> 105
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ VINT CERF Director January 14, 2000
- ------------------------------------------------
Vint Cerf
/s/ JOEL SMITH Director January 14, 2000
- ------------------------------------------------
Joel Smith
/s/ FEDERICO FAGGIN Director January 14, 2000
- ------------------------------------------------
Federico Faggin
/s/ GREGORY REYES, JR. Director January 14, 2000
- ------------------------------------------------
Gregory Reyes, Jr.
*By: /s/ JESSY CHAO
-------------------------------------------
Jessy Chao
Attorney-in-fact
</TABLE>
II-8
<PAGE> 106
SCHEDULE II
AVANEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM OCTOBER 24, 1997 (INCEPTION) TO JUNE 30, 1998, YEAR ENDED JUNE 30,
1999
AND SIX MONTHS 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
Six months ended December 31, 1999........ 30,000 298,000 -- 328,000
</TABLE>
<PAGE> 107
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 , 2000
3.2 Amended and Restated Bylaws of the Registrant
3.3 Amended and Restated Certificate of Incorporation to be
filed after effectiveness of this Registration Statement
filed , 2000
4.1 Specimen Common Stock Certificate
4.3 Warrant to Purchase the Stock of the Registrant held by
Comerica Incorporated
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, including Security
Agreement and Promissory Note, between the Registrant and
Walter Alessandrini dated March 26, 1999
10.8++ Form of Restricted Stock Purchase Agreement
10.8.1++ Stock Purchase Agreement, including Security Agreement and
Promissory Note, between the Registrant and Paul Shi-Qi
Jiang dated July 22, 1999
10.8.2++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Simon Xiaofan Cao dated August 4, 1999
10.8.3++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Peter Maguire dated August 4, 1999
10.8.4++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
James Pickering dated September 10, 1999
10.8.5++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Margaret Quinn dated October 8, 1999
10.8.6++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Simon Xiaofan Cao dated October 12, 1999
10.8.7++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Anthony Florence dated November 19, 1999
10.8.8++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Jessy Chao dated November 26, 1999
10.8.9++ Restricted Stock Purchase Agreement, including Security
Agreement and Promissory Note, between the Registrant and
Paul Shi-Qi Jiang dated November 26, 1999
10.8.10 Stock Option Agreement, and accompanying exhibits, between
the Registrant and Jessy Chao dated February 3, 1998
10.8.11 Stock Option Agreement, and accompanying exhibits, between
the Registrant and Paul Shi-Qi Jiang dated February 3, 1998
10.8.12 Form of Stock Option Agreements between the Registrant and
certain directors
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.8.13 Schedule of directors receiving stock options of the
Registrant
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 19, 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
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 May 20, 1999 and amendment to the Secured
Promissory Note dated December 1, 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 January 2, 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
.1024.1*++ Letter clarifying the Patent License Agreement between
Fujitsu Limited and the Registrant dated July 1, 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
10.26.1 Sublease between KLA-Tencor Corporation and Pathnet, Inc.
for 405 International Parkway, Richardson, Texas dated
October 16, 1997
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
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.32++ Professional Services Agreement between the Registrant and
AristaSoft Corporation dated July 7, 1999
10.33 Cost Sharing Agreement between the Registrant and Avanex
Cayman dated December, 1999
10.34* International Distributor Agreement between the Registrant
and Sun Instruments dated December 20, 1999
10.35+ Subscription Agreement between the Registrant and Microsoft
Corporation dated January 14, 2000
10.36+ Subscription Agreement between the Registrant and MCI
Worldcom Venture Fund dated January 14, 2000
10.37+ Third Amended and Restated Shareholder Rights Agreement
dated January 14, 2000
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-7)
27.1 Financial Data Schedule for six months ended December 31,
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>
- -------------
* Confidential treatment requested.
++ Previously filed.
<PAGE> 1
EXHIBIT 2.1
FORM OF
AGREEMENT AND PLAN OF MERGER OF
AVANEX CORPORATION
(A DELAWARE CORPORATION)
AND
AVANEX CORPORATION
(A CALIFORNIA CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER dated as of January ___, 2000 (the
"Agreement") is between Avanex Corporation, a Delaware corporation
("Avanex-Delaware"), and Avanex Corporation, a California corporation
("Avanex-California"). Avanex-Delaware and Avanex-California are sometimes
referred to herein as the "Constituent Corporations."
RECITALS
A. Avanex-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 338,100,000
shares, $.001 par value, of which 300,000,000 shares are designated as "Common
Stock", 6,900,000 of which are designated as "Series A Preferred Stock,"
9,525,000 of which are designated as "Series B Preferred Stock", 16,275,000 of
which are designated "Series C Preferred Stock" and 5,400,000 of which are
designated "Series D Preferred Stock". As of December 1, 1999, 1,000 shares of
Common Stock were issued and outstanding, all of which are held by
Avanex-California.
B. Avanex-California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital of 75,400,000
shares, $.001 par value, of which 50,000,000 shares are designated as "Common
Stock", 4,600,000 of which are designated as "Series A Preferred Stock,"
6,350,000 of which are designated as "Series B Preferred Stock", 10,850,000 of
which are designated "Series C Preferred Stock" and 3,600,000 of which are
designated "Series D Preferred Stock". As of December 3, 1999, 13,334,554 shares
of Common Stock, 4,530,080 shares of Series A Preferred Stock, 6,296,744 shares
of Series B Preferred Stock, 9,032,169 shares of Series C Preferred Stock and
3,487,097 shares of Series D Preferred Stock were issued and outstanding.
C. The Board of Directors of Avanex-California has determined that, for
the purpose of effecting the reincorporation of Avanex-California in the State
of Delaware, it is advisable and in the best interests of Avanex-California and
its shareholders that Avanex-California merge with and into Avanex-Delaware upon
the terms and conditions herein provided.
D. The respective Boards of Directors of Avanex-Delaware and
Avanex-California, the shareholders of Avanex-California and the sole
stockholder of Avanex-Delaware have approved this Agreement and have directed
that this Agreement be executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Avanex-Delaware and Avanex-California hereby agree, subject to
the terms and conditions hereinafter set forth, as follows:
-1-
<PAGE> 2
1. MERGER
(a) Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
Avanex-California shall be merged with and into Avanex-Delaware (the "Merger"),
the separate existence of Avanex-California shall cease and Avanex-Delaware
shall be, and is herein sometimes referred to as, the "Surviving Corporation,"
and the name of the Surviving Corporation shall be Avanex Corporation
(b) Filing and Effectiveness. The Merger shall become effective when the
following actions shall have been completed:
(i) An executed Certificate of Merger or an executed counterpart
of this Agreement meeting the requirements of the Delaware General Corporation
Law shall have been filed with the Secretary of State of the State of Delaware;
and
(ii) An executed Certificate of Merger or an executed counterpart
of this Agreement meeting the requirements of the California General Corporation
Law shall have been filed with the Secretary of State of the State of
California.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger."
(c) Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Avanex-California shall cease and Avanex-Delaware, as the
Surviving Corporation, (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) shall be subject to all actions previously taken by its and
Avanex-California"s Boards of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Avanex-California
in the manner as more fully set forth in Section 259 of the Delaware General
Corporation Law, (iv) shall continue to be subject to all of its debts,
liabilities and obligations as constituted immediately prior to the Effective
Date of the Merger, and (v) shall succeed, without other transfer, to all of the
debts, liabilities and obligations of Avanex-California in the same manner as if
Avanex-Delaware had itself incurred them, all as more fully provided under the
applicable provisions of the Delaware General Corporation Law and the California
General Corporation Law.
2. CHARTER DOCUMENTS DIRECTORS AND OFFICERS
(a) Certificate of Incorporation. The Certificate of Incorporation in
the form attached hereto as Exhibit A (the "Certificate of Incorporation") shall
be the Certificate of Incorporation of the Surviving Corporation until duly
amended in accordance with the provisions thereof and applicable law.
(b) Bylaws. The Bylaws of Avanex-Delaware as in effect immediately prior
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
-2-
<PAGE> 3
(c) Directors and Officers. The directors and officers of
Avanex-Delaware immediately prior to the Effective Date of the Merger shall be
the directors and officers of the Surviving Corporation until their successors
shall have been duly elected and qualified or until as otherwise provided by
law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws
of the Surviving Corporation.
3. MANNER OF CONVERSION OF STOCK
(a) Avanex-California Common Stock. Upon the Effective Date of the
Merger, every two shares of Common Stock of Avanex-California issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such shares or any
other person, be converted into and exchanged for three shares (rounded up to
the nearest whole share) of fully paid and nonassessable Common Stock, $0.001
par value, of the Surviving Corporation.
(b) Avanex-California Preferred Stock. Upon the Effective Date of the
Merger, every two shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock of Avanex-California
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by the Constituent Corporations, the holder of such
shares or any other person, be converted into and exchanged for three shares of
fully paid and nonassessable Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, $0.001 par value,
respectively, of the Surviving Corporation. Fractional shares will be rounded up
to the nearest whole share.
(c) Avanex-Delaware Common Stock. Upon the Effective Date of the Merger,
each share of Common Stock, $0.001 par value, of Avanex-Delaware issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by Avanex-Delaware, the holder of such shares or any other person, be
canceled and returned to the status of authorized but unissued shares.
(d) Stock Options and Warrants. At the Effective Date of the Merger, the
Avanex-California 1998 Stock Plan (the "Plan"), and all options and stock
purchase rights relating to Common Stock (each a "Avanex Option") then
outstanding under such plan, and all rights to acquire stock pursuant to any
outstanding warrants of Avanex-California (each a "Avanex Warrant"), or
otherwise, shall be assumed by Avanex-Delaware in accordance with provisions
described below.
(i) At the Effective Date of the Merger, each outstanding and
unexercised option, warrant and other right to purchase shares of capital stock
of Avanex-California shall be assumed by the Surviving Corporation and shall
become an option, warrant or right to purchase a number of shares equal to 1.5
times that number of shares subject to Avanex-California's option (rounded down
to the nearest share), at the exercise price equal to the exercise price of
Avanex-California's option multiplied by 2/3 (rounded up to the nearest cent)
and each existing and effective employee stock benefit plan of Avanex-California
(the "Stock Plans") shall similarly be assumed by the Surviving Corporation for
all intents and purposes as if such plan, including the reservation of shares of
-3-
<PAGE> 4
Common Stock for issuance pursuant thereto (multiplied by 1.5), had been
originally adopted and authorized by the Surviving Corporation.
(ii) Each Avanex Option and Avanex Warrant so assumed by
Avanex-Delaware under this Agreement shall continue to have, and be subject to,
the same terms and conditions set forth in the Plan and/or as provided in the
respective agreements governing such Avanex Option or Avanex Warrant immediately
prior to the Effective Date of the Merger.
(iii) It is the intention of the parties that the Avanex Options
assumed by Avanex-Delaware qualify following the Effective Date of the Merger as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), to the extent the Avanex Options qualified as
incentive stock options immediately prior to the Effective Date of the Merger.
(iv) Promptly following the Effective Date of the Merger,
Avanex-Delaware will issue to each holder of an outstanding Avanex Option and
Avanex Warrant a document evidencing the foregoing assumption of such Avanex
Option and Avanex Warrant by Avanex-Delaware.
(v) At the Effective Date of the Merger, Avanex-California shall
assign to Avanex-Delaware any and all rights of repurchase pertaining to shares
of Avanex-California Common Stock issued upon exercise of stock options,
pursuant to stock purchase agreements or otherwise.
(e) Exchange of Certificates. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of
Avanex-California Common Stock may, at such stockholder"s option, surrender the
same for cancellation to such institution as Avanex-Delaware shall appoint at
the time to act as exchange agent (the "Exchange Agent"), and each such holder
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation"s Common Stock
into which the surrendered shares were converted as herein provided. Until so
surrendered, each outstanding certificate theretofore representing shares of
Avanex-California Common shall be deemed for all purposes to represent the
number of whole shares of the Surviving Corporation"s Common Stock into which
such shares of Avanex-California Common were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Avanex-California so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws.
-4-
<PAGE> 5
If any certificate for shares of the Surviving Corporation"s Common Stock
is to be issued in a name other than that in which the certificate surrendered
in exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and that the
person requesting such transfer pay to the Exchange Agent any transfer or other
taxes payable by reason of the issuance of such new certificate in a name other
than that of the registered holder of the certificate surrendered or establish
to the satisfaction of the Surviving Corporation that such tax has been paid or
is not payable.
4. GENERAL
(a) Covenants of Avanex-Delaware. Avanex-Delaware covenants and agrees
that it will, on or before the Effective Date of the Merger:
(i) Qualify to do business as a foreign corporation in the State
of California and in connection therewith irrevocably appoint
an agent for service of process as required under the
provisions of Section 2105 of the California General
Corporation Law;
(ii) File any and all documents with the appropriate tax authority
of the State of California necessary for the assumption by
Avanex-Delaware of all of the corporate and/or franchise tax
liabilities of Avanex-California; and
(iii) Take such other actions as may be required by the California
General Corporation Law.
(b) Further Assurances. From time to time, as and when required by
Avanex-Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Avanex-California such deeds and other instruments, and
there shall be taken or caused to be taken by Avanex-Delaware and
Avanex-California such further and other actions, as shall be appropriate or
necessary in order to vest or perfect in or conform of record or otherwise by
Avanex-Delaware the title to and possession of all the property, interests,
assets, rights, privileges, immunities, powers, franchises and authority of
Avanex-California and otherwise to carry out the purposes of this Agreement, and
the officers and directors of Avanex-Delaware are fully authorized in the name
and on behalf of Avanex-California or otherwise to take any and all such action
and to execute and deliver any and all such deeds and other instruments.
(c) Abandonment. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Avanex-California or
Avanex-Delaware, or both, notwithstanding the approval of this Agreement by the
shareholders of Avanex-California or by the sole stockholder of Avanex-Delaware,
or by both.
(d) Amendment. The Boards of Directors of the Constituent Corporations
may amend this Agreement any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the
-5-
<PAGE> 6
Secretaries of State of the States of California and Delaware, provided that
subsequent to the adoption of this Agreement by the shareholders of either
Constituent Corporation, this Agreement shall not be amended except in
compliance with the requirements of the California General Corporation Law and
the Delaware General Corporation Law.
(e) Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at 1209 Orange Street, in the
city of Wilmington, County of New Castle, and The Corporation Trust Company is
the registered agent of the Surviving Corporation at such address.
(f) Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 40919 Encyclopedia
Circle, Fremont, California 94538, and copies thereof will be furnished to any
shareholder of either Constituent Corporation, upon request and without cost.
(g) Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and the provisions of the California General Corporation Law.
(h) Counterparts. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-6-
<PAGE> 7
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolutions of the Boards of Directors of Avanex-Delaware and Avanex-California,
is hereby executed on behalf of each of such two corporations and attested by
their respective officers thereunto duly authorized.
AVANEX CORPORATION
a Delaware corporation
By:
---------------------------------
Walter Alessandrini, President
and Chief Executive Officer
ATTEST:
- ------------------------------
Judith M. O'Brien, Secretary
AVANEX CORPORATION
a California corporation
By:
---------------------------------
Walter Alessandrini, President
and Chief Executive Officer
ATTEST:
- ------------------------------
Judith M. O'Brien, Secretary
-7-
<PAGE> 8
EXHIBIT A
CERTIFICATE OF INCORPORATION
<PAGE> 1
EXHIBIT 3.1
RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION
OF AVANEX CORPORATION
Avanex Corporation, a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Avanex Corporation. The corporation was
originally incorporated under the same name and the original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
December 1, 1999.
B. This Certificate of Incorporation has been duly adopted in accordance
with the provisions of the General Corporation Law of the State of Delaware by
the Board of Directors and the Stockholders of the corporation.
C. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of Incorporation of this
corporation.
D. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
Article I
The name of this Corporation is Avanex Corporation.
<PAGE> 2
Article II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
Article III
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
Article IV
(a) Authorized Capital. This Corporation is authorized to issue two classes
of stock, designated "Preferred Stock" and "Common Stock." The total number of
shares which this Corporation shall have authority to issue is, 113,100,000 of
which 75,000,000 shares shall be Common Stock, with a par value of $.001 per
share and 38,100,000 shares shall be Preferred Stock, with a par value of $.001
per share. The Preferred Stock shall consist of four series designated Series A
Preferred Stock (the "Series A Preferred"), consisting of 6,900,000 shares,
Series B Preferred Stock (the "Series B Preferred"), consisting of 9,525,000
shares, Series C Preferred Stock (the "Series C Preferred"), consisting of
16,275,000 shares and Series D Preferred Stock (the "Series D Preferred"),
consisting of 5,400,000 shares.
(b) Authorized Capital Following Automatic Conversion Event. Upon the
automatic conversion of all outstanding shares of Preferred Stock in accordance
with the provisions of this Article IV, Section (b)(3)(b) of this Restated and
Amended Certificate of Incorporation (the "Automatic Conversion Event"), the
Company shall immediately thereafter be authorized to issue two classes of stock
to be designated, respectively, Common Stock and Preferred Stock. The total
number of shares of Common Stock which the Company shall have the authority to
issue shall be 300,000,000, $.001 par value, and the total number of shares of
Preferred Stock the Company shall have the authority to issue shall be
10,000,000, $.001 par value. Immediately following any Automatic Conversion
Event, the Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
Board). The Board of Directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding), the number of shares of
any series subsequent to the issue of shares of that series.
-2-
<PAGE> 3
(c) Restatement of Certificate of Incorporation. Immediately following any
Automatic Conversion Event, the Board of Directors of the Company is authorized,
without the further consent or approval of the stockholders of the Company to
amend and restate this Certificate of Incorporation to show the authorized
classes of capital stock as set forth in the preceding paragraph and to
eliminate all references in this Certificate of Incorporation to the rights,
preferences, privileges and restrictions of the series of Preferred Stock
including those set forth in this Article IV (and, in connection with any such
amendment and restatement, to renumber the remaining Articles).
(d) Preferred Stock. A statement of the rights, preferences, privileges and
restrictions granted to or imposed on the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and the
holders thereof is as follows:
(1) Dividends. The holders of the Series A Preferred Stock, the
holders of the Series B Preferred Stock, the holders of the Series C Preferred
Stock and the holders of the Series D Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, dividends at the rate of
$0.011, $0.021, $0.04 and $0.192 respectively, per share, per annum, payable in
preference and priority to any payment of any dividend on Common Stock when and
as declared by the Board of Directors. After payment of such dividends, any
additional dividends declared shall be distributed among all holders of Series A
Preferred Stock, all holders of Series B Preferred Stock, all holders of Series
C Preferred Stock, all holders of Series D Preferred Stock and all holders of
Common Stock in proportion to the number of shares of Common Stock which would
be held by each such holder if all shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock were
converted into Common Stock at the then effective Conversion Prices (as defined
in paragraph 3(a) below). The right to such dividends on the Preferred Stock
shall not be cumulative, and no right shall accrue to holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock by reason of the fact that dividends on such shares are not
declared or paid in any prior year.
In the event that the Corporation shall have declared but shall not have
paid dividends outstanding immediately prior to, and in the event of, a
conversion of the Preferred Stock (as provided in paragraph 3 hereof), the
Corporation shall, at the option of each holder, pay in cash to each holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock subject to conversion the full amount of any such
dividends or allow such dividends to be converted into Common Stock in
accordance with, and pursuant to the terms specified in, paragraph 3 hereof.
(2) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, the amount of $0.149 per share (as adjusted for stock splits, stock
dividends, recapitalizations and the
-3-
<PAGE> 4
like) for each share of Series A Preferred Stock then held by them, $0.267 per
share (as adjusted for stock splits, stock dividends, recapitalizations and the
like) for each share of Series B Preferred Stock then held by them, $0.504 per
share (as adjusted for stock splits, stock dividends, recapitalizations and the
like) for each share of Series C Preferred Stock then held by them, $3.833 per
share (as adjusted for stock splits, stock dividends, recapitalizations and the
like) for each share of Series D Preferred Stock then held by them, and, in
addition, an amount equal to all declared but unpaid dividends on each such
share of Preferred Stock. If, upon the occurrence of such event the assets and
funds thus distributed among the holders of the Preferred Stock shall be
insufficient to permit the payment to the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock the full preferential amounts to which they respectively shall be entitled
pursuant to this Section 2(a), then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock in proportion to the full
liquidation preference to which such holder is entitled.
(b) After payment has been made to the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock of the respective amounts to which they shall be entitled as
provided in Section 2(a) above, the remaining assets of the corporation
available for distribution to stockholders shall be distributed ratably among
the holders of the Common Stock.
(c) For purposes of this paragraph 2, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which more than fifty percent (50%) of the outstanding shares of the Corporation
are exchanged for securities or other consideration issued, or caused to be
issued, by the acquiring corporation or its subsidiary (other than a transaction
solely for the purpose of reincorporating the Corporation pursuant to the laws
of another jurisdiction) or (ii) the sale of all or substantially all of the
assets of the Corporation, shall be treated as a liquidation, dissolution or
winding up of the Corporation.
(3) Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time, into such number
of fully paid and nonassessable shares of Common Stock, in the case of the
Series A Preferred Stock, as is determined by dividing $0.149 by the then
applicable Series A Conversion Price (as defined below), in the case of the
Series B Preferred, as is determined by dividing $0.267 by the then applicable
Series B Conversion Price (as defined below), in the case of the Series C
Preferred, as is determined by dividing $0.504 by the then applicable Series C
Conversion Price (as defined below) and in the case of the Series D Preferred,
as is determined by dividing $3.833 by the then applicable Series D Conversion
Price (as defined below) determined as hereinafter provided.
The price at which shares of Common Stock shall be deliverable
upon conversion of the Series A Preferred Stock (the "Series A Conversion
Price") shall initially be
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$0.149 per share of Common Stock, the price at which shares of Common Stock
shall be deliverable upon conversion of shares of Series B Preferred Stock (the
"Series B Conversion Price"), shall initially be $0.267 per share of Common
Stock, the price at which shares of Common Stock shall be deliverable upon
conversion of shares of Series C Preferred Stock (the "Series C Conversion
Price"), shall initially be $0.504 per share of Common Stock and the price at
which shares of Common Stock shall be deliverable upon conversion of shares of
Series D Preferred Stock (the "Series D Conversion Price"), shall initially be
$3.833 per share of Common Stock (the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price and the Series D Conversion
Price being collectively referred herein as the "Conversion Prices"). Such
initial Conversion Prices shall be subject to adjustment as hereinafter
provided.
(b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price, as applicable, (i) in the event of the
effectiveness of a 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 Corporation
to the public at a price per share of at least $2.67 (as adjusted for stock
splits, reverse stock splits and the like) and an aggregate offering price to
the public of not less than $10,000,000, or (ii) at the election of the holders
of at least a majority of the outstanding shares of Preferred Stock (voting on
an as converted basis). In the event of such an offering, the person(s) entitled
to receive the Common Stock issuable upon such conversion of Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such underwritten public offering.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
share to which a holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the fair market value of the Common
Stock as determined by the Board of Directors. Before any holder of Preferred
Stock shall be entitled to convert the same into full shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the Corporation at such office that he elects to
convert the same. Such notice shall also state whether the holder elects,
pursuant to paragraph (1) hereof, to receive declared but unpaid dividends on
the Preferred Stock proposed to be converted in cash, or to convert such
dividends into shares of Common Stock at their fair market value as determined
by the Board of Directors. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
a certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid and a check payable to the holder in the
amount of any cash amounts payable as the result of a conversion into a
fractional share of Common Stock, and any declared but unpaid dividends on the
converted Preferred Stock which the holder elected to receive in cash. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
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<PAGE> 6
record holder or holders of such shares of Common Stock on such date. If the
conversion is in connection with an underwritten public offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
shall be conditioned upon the closing of such public offering, in which event
the person(s) entitled to receive the Common Stock issuable upon such conversion
of the Preferred Stock shall not be deemed to have converted such Preferred
Stock until immediately prior to such closing.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this paragraph
(3)(d), the following definitions shall apply.
(1) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock)
or other securities convertible into or exchangeable for Common Stock.
(3) "Series A Original Issue Date" shall mean the date
on which the first share of Series A Preferred Stock was first issued.
(4) "Series B Original Issue Date" shall mean the date
on which the first share of Series B Preferred Stock was first issued.
(5) "Series C Original Issue Date" shall mean the date
on which the first share of Series C Preferred Stock was first issued.
(6) "Series D Original Issue Date" shall mean the date
on which the first share of Series D Preferred Stock was first issued.
(7) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to paragraph 3(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date other than shares of
Common Stock issued or issuable:
(A) upon conversion of shares of the Preferred
Stock;
(B) to officers or employees of, or consultants
to, the Corporation pursuant to a stock grant, option plan or purchase plan or
other employee stock incentive program (collectively, the "Plans") approved by
the Board of Directors.
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<PAGE> 7
(C) as a dividend or distribution on the Preferred
Stock;
(D) upon exercise or conversion of warrants to
purchase shares of Common Stock issued in connection with equipment lease
financing transactions, bank financing transactions or real estate leasing
transactions approved by the Board of Directors, where the issuance of such
warrants is not principally for the purpose of raising additional equity capital
for the Corporation; and
(E) by way of dividend or other distribution on
shares of Common Stock excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), (C) and (D) or on shares of
Common Stock so excluded.
(ii) No Adjustment of Conversion Price. No adjustment in the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price or the Series D Conversion Price shall be made in respect of
the issuance of Additional Shares of Common Stock unless the consideration per
share for an Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price, as applicable, in
effect on the date of, and immediately prior to such issue. No adjustment in the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price shall be made pursuant to paragraph (iv) below as a
result of any stock dividend or subdivision which causes an adjustment in the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price pursuant to Section 3(e) below.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series A
Original Issue Date with respect to the Series A Preferred Stock, after the
Series B Original Issue Date with respect to the Series B Preferred Stock, after
the Series C Original Issue Date with respect to the Series C Preferred Stock
and after the Series D Original Issue Date with respect to the Series D
Preferred Stock shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued: with
respect to the Series A Preferred Stock, unless the consideration per share
(determined pursuant to paragraph 3(d)(v) hereof) of such Additional Shares of
Common Stock would be less
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<PAGE> 8
than the Series A Conversion Price; with respect to the Series B Preferred
Stock, unless the consideration per share (determined pursuant to paragraph
3(d)(v) hereof) of such Additional Shares of Common Stock would be less than the
Series B Conversion Price; with respect to the Series C Preferred Stock, unless
the consideration per share (determined pursuant to paragraph 3(d)(v) hereof) of
such Additional Shares of Common Stock would be less than the Series C
Conversion Price; or with respect to the Series D Preferred Stock, unless the
consideration per share (determined pursuant to paragraph 3(d)(v) hereof) of
such Additional Shares of Common Stock would be less than the Series D
Conversion Price, as applicable, in effect on the date of and immediately prior
to such issue, or such record date, as the case may be, and provided further
that in any case in which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment in the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price
or the Series D Conversion Price, as applicable, shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as
applicable, computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities; and
(C) on the expiration or cancellation of any
Options or the termination of the right to convert or exchange any Convertible
Securities which shall have not been exercised, if the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price, as applicable, shall have been adjusted upon the original
issuance thereof or shall have been subsequently adjusted pursuant to clause (B)
above, the Series A Conversion Price, Series B Conversion Price, the Series C
Conversion Price or Series D Conversion Price, as applicable, shall be
recomputed as if:
(1) in the case of Convertible Securities or
Options for Common, the only Additional Shares of Common Stock issued were
shares of Common, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, and the consideration
received therefor was the consideration actually received by the corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged plus the
consideration actually received by the corporation upon such conversion or
exchange, if any, and
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<PAGE> 9
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clauses (B) and
(C) above shall have the effect of increasing the Series A Conversion Price,
Series B Conversion Price, the Series C Conversion Price or the Series D
Conversion Price, as applicable, to an amount which exceeds the lower of (i) the
initial Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as applicable, or (ii) the Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as applicable, that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event this Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to paragraph 3(d)(iii)) without consideration or
for a consideration per share less than the Series A Conversion Price, Series B
Conversion Price, the Series C Conversion Price and/or the Series D Conversion
Price in effect on the date of and immediately prior to such issue, then and in
such event, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price and/or the Series D Conversion Price, as applicable, shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price and/or the Series D Conversion
Price, as applicable, by a fraction, the numerator of which shall be the sum of
(i) the number of shares of Common Stock outstanding or Common Stock issuable
upon conversion of the Preferred Stock outstanding immediately prior to such
issue (excluding shares of Common Stock deemed issued pursuant to paragraph
3(d)(iii) but not actually issued and outstanding) plus (ii) the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price; and the denominator of which shall be
the sum of (A) the number of shares of Common Stock outstanding or Common Stock
issuable upon conversion of the Preferred Stock outstanding immediately prior to
such issue (excluding shares of Common Stock deemed issued pursuant to paragraph
3(d)(iii) but not actually issued and outstanding) plus (B) the number of such
Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
paragraph 3(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
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(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of securities (i) if
the securities are then traded on a national securities exchange or the NASDAQ
Stock Market (or a similar national quotation system), then the value shall be
computed based on the average of the closing prices of the securities on such
exchange or system over the thirty-day period ending three (3) days prior to
receipt by the Corporation, (ii) if the securities are actively traded
over-the-counter, then the value shall be computed based on the average of the
closing bid prices over the thirty-day period ending three (3) days prior to the
receipt by the Corporation, and (iii) if there is no active public market, then
the value shall be computed based on the fair market value thereof on the date
of receipt by the Corporation, as determined in good faith by the Board of
Directors of the Corporation;
(C) insofar as it consists of property other than
cash and securities, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(D) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A), (B) and (C)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to paragraph 3(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock
(as set forth in the instrument relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
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(e) Adjustments for Stock Dividends, Subdivisions, Combinations,
or Consolidations. In the event the Corporation shall pay a stock dividend on
the Common Stock, or the outstanding shares of Common Stock shall be subdivided,
combined or consolidated, by reclassification, stock split or otherwise, into a
greater or lesser number of shares of Common Stock, the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price and Series D
Conversion Price in effect immediately prior to such dividend, subdivision,
combination or consolidation shall, concurrently with the effectiveness of such
dividend, subdivision, combination or consolidation, be proportionately
adjusted.
(f) No Impairment. The Corporation will not, by amendment of its
Amended and Restated Certificate of Incorporation or through any reorganization,
transfer of assets, 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 hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this paragraph (3) and in the taking of all such action as may be necessary
or appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against impairment.
(g) Recapitalization. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this paragraph (3) or paragraph (2)) provision shall be made so that the holders
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation to which a holder of Common Stock deliverable upon
conversion of each share of such Series would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this paragraph (3) with respect to the rights
of the holders of the Preferred Stock after the recapitalization to the end that
the provisions of this paragraph (3) (including adjustment of the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price then in effect and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable.
(4) Voting Rights and Directors.
(a) Voting Rights. Except as otherwise required by law and as
provided in paragraph (4)(b) below and paragraph (5) below, the holders of
Preferred Stock and the holders of Common Stock shall be entitled to notice of
any stockholders' meeting and to vote as a single class upon any matter
submitted to the stockholders for a vote, as follows: (i) each holder of
Preferred Stock shall have one vote for each full share of Common Stock into
which its respective shares of Preferred Stock would be convertible on the
record date for the vote and (ii) the holders of Common Stock have one vote per
share of Common Stock.
(b) Directors.
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(i) For so long as at least 6,750,000 shares of Preferred
Stock are outstanding (as adjusted for stock splits, reverse splits,
recapitalizations and the like), the holders of shares of Preferred Stock,
voting as a separate class, shall be entitled to elect three directors. If,
however, at least 2,250,000 shares of Preferred Stock (but less than 6,750,000
shares of Preferred Stock) are outstanding (as adjusted for stock splits,
reverse splits, recapitalizations and the like), the holders of shares of
Preferred Stock, voting as a separate class, shall be entitled to elect only two
directors.
(ii) The holders of shares of Common Stock voting as a
separate class shall be entitled to elect two directors.
(iii) The remaining directors shall be elected by the
holders of the Preferred Stock and the holders of Common Stock voting as a
single class.
(iv) In the case of a vacancy in the office of any director
occurring among the directors elected by the Preferred Stock or the Common Stock
or by the holders of the Preferred Stock and the holders of Common Stock voting
as a single class, as the case may be, at any annual or special meeting or by
unanimous written consent thereof, such vacancy shall be filled by the
affirmative vote of the holders of such Preferred Stock or such Common Stock, or
by the holders of the Preferred Stock and the holders of Common Stock voting as
a single class, as the case may be, given at a special meeting of stockholders
duly called or by an action by written consent for that purpose. Any director
elected by the holders of a particular class or Series of stock may be removed
during such director's term of office, either for or without cause, by and only
by the affirmative vote of the holders of the outstanding shares of such class
or Series of stock given at a special meeting of stockholders duly called or by
an action by written consent for that purpose.
(v) At any time after the number of directors that the
holders of the Preferred Stock are entitled to elect is reduced to two pursuant
to (b)(i) above, the holders of 30% or more of the outstanding shares of
Preferred Stock, have a right to call a special meeting of stockholders for the
purpose of electing all of the members of the board of directors, such right to
be exercisable by delivering a request in writing for the calling of the special
meeting to the president or secretary, or to the chairman of the board or a
vice-president if there be such. The officer receiving the request shall
forthwith cause notice to be given to the stockholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less than 35 nor more than 60 days after the receipt of the
request. If the notice is not given within 20 days after receipt of the request,
the stockholders calling the meeting shall have the rights accorded to them
pursuant to subdivision (c) of Section 601 of the California Corporations Code.
Upon the election of directors by the stockholders (voting in accordance with
this Section IV(d) 4(b)) at a special meeting, the terms of all persons who were
directors immediately prior thereto shall terminate and the directors elected by
the Preferred Stock, together with the directors elected at the special meeting
by the Common Stock, and the directors elected at the special meeting by the
Preferred Stock and the Common Stock together voting as a single class shall
constitute the directors of the corporation, to serve as such until the next
annual meeting.
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(5) Protective Provisions. In addition to any other rights provided by
law and except as provided by law, so long as any Preferred Stock shall be
outstanding, this Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of a majority of the outstanding shares
of Preferred Stock, voting as a single class on an as-converted basis:
(a) authorize or issue shares of any class of stock having any
preference or priority as to voting, dividends or upon liquidation superior to
or on a parity with any such preference or priority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock, or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of this Corporation having
any preference or priority as to voting, dividends or upon liquidation superior
to or on a parity with any such preference or priority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock;
(b) declare or pay any dividends on the Common Stock other than
dividends payable solely in Common Stock;
(c) redeem or purchase any of the Common Stock, provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock at cost (unless a repurchase price other than cost is unanimously
approved by the board of directors) from employees, officers, directors,
consultants or other persons performing services for the Corporation upon the
termination of the employment, consulting or other relationship between the
Corporation and such persons in an amount not to exceed $25,000 in any
twelve-month period;
(d) increase the total number of authorized shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock;
(e) amend or repeal any provision of, or add any provision to,
this Corporation's Certificate of Incorporation or Bylaws if such action would
alter or change adversely the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock;
(f) consummate a sale of all or substantially all of the
Corporation's assets or any transaction or Series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
which would result in the holders of the outstanding voting equity securities of
the Corporation immediately prior to such transaction holding less than fifty
percent (50%) of the voting power of the surviving entity immediately following
such transaction;
(g) redeem or purchase any Preferred Stock except in accordance
with paragraph (9) below;
(h) effect a dissolution, liquidation or winding up of the
Corporation; or
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(i) permit any subsidiary of the Corporation to issue or sell, or
obligate itself to issue or sell, except to the Corporation or any wholly-owned
subsidiary, any stock of such subsidiary.
(6) Status of Converted Stock. In the event any shares of Preferred
Stock shall be converted into Common Stock pursuant to paragraph (3) hereof, the
shares of Preferred Stock so converted shall be canceled and shall not be
issuable by the Corporation, and the Certificate of Incorporation of this
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock.
(7) Residual Rights. All rights accruing to the outstanding shares of
this Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
(8) Consent for Certain Repurchases of Common Stock Deemed to be
Distributions. Each holder of Preferred Stock shall be deemed to have consented,
for purposes of Section 502, 503 and 506 of the California Corporations Code, to
distributions made by the Corporation in connection with the repurchase of
shares of Common Stock issued to or held by employees or consultants upon
termination of their employment or services pursuant to agreements providing for
such right of repurchase between the Corporation and such persons.
(9) Redemption.
(a) On December 31 of each year (the "Redemption Date") beginning
December 31, 2004 and continuing until all shares of Preferred Stock have been
redeemed, at the option of the holders of a majority of the then-outstanding
Preferred Stock and upon the receipt by the Corporation on or before the date
which is thirty (30) days prior to each Redemption Date of a written request for
redemption from each holder of Preferred Stock requesting redemption, the
Corporation shall redeem, from any source of funds legally available therefor,
the number of shares of Preferred Stock (i) set forth in such holder's written
request; provided, however, that the maximum number of shares the Corporation is
required to redeem from all holders of Preferred Stock requesting redemption is
that number of shares determined by multiplying 0.25 by the number of shares of
Preferred Stock outstanding on the first Redemption Date, plus (ii) all shares
of Preferred Stock which such holders had requested to redeem on any prior
Redemption Date but were not redeemed by the Corporation; plus, all declared but
unpaid dividends on such shares of Preferred Stock. The Corporation shall effect
such redemptions on the applicable Redemption Date by paying in cash in exchange
for the Preferred Stock to be redeemed a sum equal to $0.149 per share of Series
A Preferred (as adjusted for any stock dividends, combinations or splits with
respect to the Series A Preferred) plus all declared but unpaid dividends on
such shares (the "Series A Redemption Price"), $0.267 per share of Series B
Preferred (as adjusted for any stock dividends, combinations or splits with
respect to the Series B Preferred) plus all declared but unpaid dividends on
such shares (the "Series B Redemption Price"), $0.504 per share of Series C
Preferred ( as adjusted for any stock dividends, combinations or splits with
respect to the Series C Preferred) plus all declared but unpaid
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<PAGE> 15
dividends on such shares (the "Series C Redemption Price") and $3.833 per share
of Series D Preferred (as adjusted for any stock dividends, combinations or
splits with respect to the Series D Preferred) plus all declared but unpaid
dividends on such shares (the "Series D Redemption Price").
(b) At least fifteen (15) but no more than thirty (30) days prior
to each Redemption Date, the Corporation shall mail, first class postage
prepaid, written notice to each holder of record (at the close of business on
the business day next preceding the day on which notice is given) of the
Preferred Stock to be redeemed, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption to be
effected, specifying the number of shares of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred to be redeemed from such
holder (which shall be determined on a pro rata basis), the Redemption Date, the
Series A Redemption Price, the Series B Redemption Price, the Series C
Redemption Price and the Series D Redemption Price, the place at which payment
may be obtained and calling upon such holder to surrender to the Corporation in
the manner and at the place designated, his or her certificate or certificates
representing the shares to be redeemed (the "Redemption Notice"). Except as
provided in subparagraph 9(c), on or after the Redemption Date each holder of
Preferred Stock to be redeemed shall surrender to this Corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such Preferred Stock shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In the event less than all shares
represented by any such certificate or certificates are redeemed, a new
certificate shall be issued presenting the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price in which case the holders of
Preferred Stock shall not be required to redeem any outstanding shares of
Preferred Stock and shall retain all rights as holders of such shares, all
rights of the holders of Preferred Stock designated for redemption in the
Redemption Notice as holders of Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of shares ratably among the holders of such
shares to be redeemed based upon their holdings of Preferred Stock. The shares
of Preferred Stock not redeemed shall remain outstanding and entitled to all the
right and preferences provided herein.
(d) On or prior to each Redemption Date, the Corporation shall
deposit the Redemption Price of all shares of Preferred Stock designated for
redemption in the Redemption Notice and not yet redeemed with a bank or trust
corporation having an aggregate capital and surplus in excess of One Hundred
Million Dollars ($100,000,000) as a trust fund for the benefit of the respective
holders of the shares designated for redemption and not yet redeemed, with
irrevocable instructions and authority to the bank or trust corporation to pay
the Redemption Price for such
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<PAGE> 16
shares to their respective holders on or after such Redemption Date upon receipt
of notification from the Corporation that such holder has surrendered his share
certificate to the Corporation pursuant to subparagraph 9(b) of this Article IV
above. As of each Redemption Date, the deposit shall constitute full payment of
the shares to their holders, and from and after such Redemption Date the shares
so called for redemption shall be redeemed and shall be deemed to be no longer
outstanding, and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect thereto except the rights
to receive from the bank or trust corporation payment of the Redemption Price of
the shares, without interest, upon surrender of their certificate therefor. Such
instructions shall also provide that any moneys deposited by the Corporation
pursuant to this subparagraph 9(d) for the redemption of shares thereafter
converted into shares of the Corporation's Common Stock pursuant to paragraph
(3) of this Article IV prior to the applicable Redemption Date shall be returned
to the Corporation forthwith upon such conversion. The balance of any moneys
deposited by the Corporation pursuant to this subparagraph 9(d) remaining
unclaimed at the expiration of two (2) years following the Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in a
resolution of its Board of Directors.
Article V
The Corporation is to have perpetual existence.
Article VI
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless the Bylaws of the corporation shall so provide.
Article VII
(a) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which constitute the whole Board of Directors of the corporation shall
be designated in the Bylaws of the corporation.
(b) 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 Board of 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 date hereof, 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 date hereof, 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 date hereof, 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
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<PAGE> 17
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.
(c) Notwithstanding the foregoing provisions of this Article, each
director shall serve until his or her successor is duly elected and qualified or
until his or her death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(d) Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then-outstanding shares of voting stock of the corporation entitled to
vote generally in the election of directors ("Voting Stock") voting together as
a single class; or (ii) by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Newly created directorships resulting from any increase in the number
of directors shall, unless the Board of Directors determines by resolution that
any such newly created directorship shall be filled by the stockholders, be
filled only by the affirmative vote of the directors then in office, even though
less than a quorum of the Board of Directors. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected and
qualified.
(e) The affirmative vote of sixty-six and two-thirds percent (66-2/3%)
of the voting power of the then outstanding shares of Voting Stock, voting
together as a single class, shall be required for the adoption, amendment or
repeal of the following sections of the corporation's Bylaws by the stockholders
of this corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
(f) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of the stockholders called in accordance
with the Bylaws.
(g) Any director, or the entire Board of Directors, may be removed
from office at any time (i) with cause by the affirmative vote of the holders of
at least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
Article VIII
Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
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<PAGE> 18
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Article VII or
this Article VIII.
Article IX
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in Article VIII of this
Certificate, and all rights conferred upon the stockholders herein are granted
subject to this right.
Article X
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
Article XI
(a) To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, no director of the
Corporation or any subsidiary of the Corporation shall be personally liable to
the Corporation or its stockholders and shall otherwise be indemnified by the
Corporation for monetary damages for breach of fiduciary duty as a director of
the Corporation, any predecessor of the Corporation or any subsidiary of the
Corporation.
(b) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation, any predecessor of the Corporation or any subsidiary of the
Corporation or serves or served at any other enterprise as a director or officer
at the request of the Corporation, any predecessor to the Corporation or any
subsidiary of the Corporation.
(c) Neither any amendment nor repeal of this Article XI, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article XI, shall eliminate or reduce the effect of this Article XI,
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article XI, would accrue or arise, prior to such
amendment, repeal, or adoption of an inconsistent provision.
Article XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
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<PAGE> 19
Article XIII
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
Article XIV
Stockholders shall not be entitled to cumulative voting rights for the
election of directors.
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<PAGE> 20
The undersigned declares under penalty of perjury that the matters set forth in
the foregoing certificate are true of his or her own knowledge.
IN WITNESS WHEREOF, the undersigned has executed this certificate in
Fremont, California, this _____ day of December, 1999.
-------------------------------------------
Walter Alessandrini, Chief Executive Officer
-------------------------------------------
Judith M. O'Brien, Secretary
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
AVANEX CORPORATION
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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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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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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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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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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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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3.2 NUMBER
The authorized number of directors of the Corporation shall be nine (9).
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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(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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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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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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<PAGE> 23
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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<PAGE> 24
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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<PAGE> 25
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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<PAGE> 26
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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<PAGE> 27
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 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AVANEX CORPORATION
Avanex Corporation, a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that:
A. The name of this Corporation is Avanex Corporation
B. The date of filing of this Corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was December 1, 1999.
C. Pursuant to Sections 242 and 245 of the Delaware General Corporation
Law, this Restated Certificate of Incorporation restates, integrates and amends
the provisions of the Corporation's Amended and Restated Certificate of
Incorporation as follows:
FIRST: The name of this Corporation is Avanex Corporation
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares to be
designated, respectively, Common Stock and Preferred Stock. The total number of
shares of Common Stock that this corporation is authorized to issue is
300,000,000, with a par value of $0.001 per share, and the total number of
shares of Preferred Stock that this corporation is authorized to issue is
10,000,000, with a par value of $0.001 per share.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
Board). The Board of Directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
such series of Preferred Stock and the designation of any such series of
Preferred Stock. The Board of Directors is authorized, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares thereof then outstanding) the
number of shares of any such series subsequent to the issue of shares of that
series, to determine the designation of any series, and to fix the number of
shares of any series.
<PAGE> 2
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
SEVENTH: The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors constituting the whole Board of Directors shall be designated in the
Bylaws of the Corporation.
The Board of 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
date hereof, 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 date hereof, 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 date hereof, 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 or her successor is duly elected and qualified or until
his or her death, resignation, or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the
then-outstanding shares of voting stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock") voting together as a
single class; or (ii) by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Newly created directorships resulting from any increase in the number
of directors shall, unless the Board of Directors determines by resolution that
any such newly created directorship shall be filled by the stockholders, be
filled only by the affirmative vote of the directors then in office, even though
less than a quorum of the Board of Directors. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected and
qualified.
The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the
voting power of the then outstanding shares of voting stock, voting together as
a single class, shall be required for the adoption, amendment or repeal of the
following sections of the corporation's bylaws by the stockholders of the
corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
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<PAGE> 3
No action shall be taken by the stockholders of the Corporation except at
an annual or special meeting of the stockholders called in accordance with the
Bylaws.
Any director, or the entire Board of Directors, may be removed from office
at any time (i) with cause by the affirmative vote of the holders of at least a
majority of the voting power of all of the then-outstanding shares of the Voting
Stock, voting together as a single class; or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
EIGHTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation or any subsidiary of the Corporation shall not be personally
liable to the Corporation or its stockholders and shall otherwise be indemnified
by the Corporation for monetary damages for breach of fiduciary duty as a
director of the Corporation, any predecessor of the Corporation or any
subsidiary of the Corporation.
B. The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation, any predecessor of the Corporation or any subsidiary of the
Corporation or serves or served at any other enterprise as a director or officer
at the request of the Corporation, any predecessor to the Corporation or any
subsidiary of the Corporation.
C. Neither any amendment nor repeal of this Article EIGHTH, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of
this Article EIGHTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article EIGHTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
NINTH: Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law that might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any rights of designation of Preferred Stock conferred by
the Board of Directors pursuant to Article FOURTH, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Article SEVENTH
or this Article NINTH.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in Article NINTH of this
Certificate, and all rights conferred upon the stockholders herein are granted
subject to this right.
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<PAGE> 4
ELEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation. Exclusive authority to amend the Bylaws to
change the authorized number of Directors shall reside in the Board of
Directors.
TWELFTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
THIRTEENTH: Advance written notice of new business and stockholder
nominations for the election of directors shall be given in the manner and to
the extent provided in the Bylaws of the Corporation.
FOURTEENTH: Stockholders shall not be entitled to cumulative voting rights
for the election of directors.
This Amended and Restated Certificate of Incorporation has been duly
adopted by the stockholders of the Corporation in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of Delaware,
as amended.
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<PAGE> 5
IN WITNESS WHEREOF, Avanex Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Walter Alessandrini, its President,
and attested by Judith M. O'Brien, its Secretary, this ____ day of ________,
2000.
AVANEX CORPORATION
--------------------------------------
Walter Alessandrini, President
Attested:
- --------------------------------------
Judith M. O'Brien, Secretary
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<PAGE> 1
EXHIBIT 4.1
AVN
AVANEX CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP 05348W 10 9
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.001 PER
SHARE, OF AVANEX CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
CORPORATE SECRETARY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
-----------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
A statement of the powers, designations, preferences and 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 as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM as tenants in common
TEN ENT as tenants by the entireties
JT TEN as joint tenants with right of
survivorship and not as tenants
in common
</TABLE>
UNIF GIFT MIN ACT ......................... Custodian .........................
(Cust) (Minor)
under Uniform Gifts to Minors
Act ..............................................................
(State)
UNIF TRF MIN ACT ................... Custodian (until age ................)
(Cust)
............................ under Uniform Transfers
(Minor)
to Minors Act ...............................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X
X
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<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 INCORPORATED ("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 5.1
January 14, 2000
Avanex Corporation
40919 Encyclopedia Circle
Fremont, CA 94538
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and exchange Commission on January 14, 2000 (Registration No.
333-92097), as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to 6,900,000
shares of your Common Stock, $0.001 par value per share (the "Shares"). The
Shares include an over-allotment option granted to the underwriters of the
offering to purchase up to 900,000 shares. We understand that the Shares are to
be sold to the underwriters of the offering for resale to the public as
described in the Registration Statement. As your legal counsel, we have examined
the proceedings taken, and are familiar with the proceedings proposed to be
taken, by you in connection with the sale and issuance of the Shares to be sold
by you.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We are members of the Bar of the State of California only and express no
opinion as to any matter relating to the laws of any jurisdiction other than the
laws of the State of California and the federal laws of the United States.
Without limiting the foregoing, we express no opinion as to the securities laws
of the State of Delaware.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<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 29,550,000 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) 6,000,000 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 1,500,000 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 January 2000, 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
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<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.
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<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
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<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.
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<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
40919 Encyclopedia Circle
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
- ---------------------------- 40919 Encyclopedia Circle
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
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<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.
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<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
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<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
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<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
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<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
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<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
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<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
40919 Encyclopedia Circle
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.
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<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
40919 Encyclopedia Circle
Fremont, CA 94538
PURCHASER:
--------------------------------------------
--------------------------------------------
--------------------------------------------
ESCROW AGENT: Corporate Secretary
Avanex Corporation
40919 Encyclopedia Circle
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.
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<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
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<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 3,000
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 525,000 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)
750,000 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:
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Signature of Employee
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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:
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<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 300,000 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) 150,000 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 40,000 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 10,000 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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EXHIBIT 10.8.10
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
Jessy Chao
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:
Date of Grant February 3, 1998
Vesting Commencement Date February 3, 1998
Exercise Price per Share $0.001
Total Number of Shares Granted 900,000
Total Exercise Price $900.00
Type of Option: X Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date: February 2, 2008
Exercise and Vesting Schedule:
This Option shall be exercisable immediately in its entirety on or after
the Vesting Commencement Date, conditioned upon Optionee entering into a
Restricted Stock Purchase Agreement, substantially in the form attached hereto
as Exhibit C-1, with respect to any unvested Shares. The minimum number of
shares with respect to which an Option may be exercised in part at any time is
one thousand (1,000) unless the Option grants the right to purchase, or the
number of remaining shares subject to the Option, is fewer than one thousand
(1,000) shares. Notwithstanding the foregoing, the Option may not be exercised
more frequently than twice in any continuous twelve (12) month period; provided,
however, that the foregoing restriction shall not apply so as to prevent an
exercise following the Optionee's termination of employment as set forth in the
Option Agreement. The Shares subject to
<PAGE> 2
this Option shall vest and be released from the Company's repurchase option, as
set forth in the Restricted Stock Purchase Agreement.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and 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
as defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated
as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be 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 with respect to which the Option is being exercised, and such other
representations and agreements as may be required by 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 the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Lock-Up Period. Optionee 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, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
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<PAGE> 3
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.
5. 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:
(a) cash or check;
(b) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
(c) 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.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. 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 Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. 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.
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. 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.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an
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<PAGE> 4
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases
to be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a
regular federal income tax liability upon the exercise of a Nonstatutory Stock
Option. 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 Shares on the date of exercise over the Exercise Price. If
Optionee is an Employee or a former Employee, the Company will be required to
withhold from Optionee's 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 honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if 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. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
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 of 1933, as amended (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 longer 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; provided, however, that
such restriction shall apply only to the first registration statement of the
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<PAGE> 5
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. 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.
12. 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 (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING 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 IN ANY WAY 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.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: AVANEX CORPORATION
/S/ JESSY CHAO /S/ JESSY CHAO
- ------------------------------- -------------------------------
Jessy Chao By:
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<PAGE> 6
EXHIBIT A
AVANEX CORPORATION
1998 STOCK PLAN
EXERCISE NOTICE
Avanex Corporation
2202 Ensenada Way
San Mateo, CA 94403
Attention: Secretary
1. Exercise of Option. Effective as of today, Jessy Chao ("Optionee")
hereby elects to exercise Optionee's option to purchase 900,000 shares of the
Common Stock (the "Shares") of Avanex Corporation (the "Company") under and
pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
granted February 3, 1998 (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee 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 of the Shares (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 Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall 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 11 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
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 Section (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).
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<PAGE> 7
(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 the Offered Price. 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), in cash (by check), 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 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 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that 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 Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "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 Section, 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 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
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the
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<PAGE> 8
purchase or disposition of the Shares and that Optionee is not relying on the
Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee 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 state
or federal 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.
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.
(b) Stop-Transfer Notices. Optionee 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.
8. 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 Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee 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.
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<PAGE> 9
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 of 1933, as amended (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 longer 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; provided, however, that
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. Governing Law; Severability. This Agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
12. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement 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 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.
Submitted by: Accepted by:
OPTIONEE: AVANEX CORPORATION
/S/ JESSY CHAO BY: /S/ SIMON CAO
- ----------------------------- -------------------------------------
Jessy Chao
Title: PRESIDENT
----------------------------------
Address: Address:
2202 Ensenada Way
San Mateo, CA 94403
February 5, 1998
----------------------------------------
Date Received
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<PAGE> 10
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: JESSY CHAO
COMPANY: AVANEX CORPORATION
SECURITY: COMMON STOCK
AMOUNT: 900,000 SHARES
DATE: February 5, 1998
------------------------------------
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee 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 Securities. Optionee
is acquiring these Securities for investment for Optionee'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").
(b) Optionee 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 Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee'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 year or any other fixed
period in the future. Optionee 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. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee 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.
(c) Optionee 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
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<PAGE> 11
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
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 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 Option, 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 two years 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 three years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee 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. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
/S/ JESSY CHAO
------------------------------------
Jessy Chao
Date: February 5, 1998
------------------------------
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<PAGE> 12
EXHIBIT C-1
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between Jessy Chao (the "PURCHASER") and Avanex
Corporation, a California corporation (the "COMPANY") as of February 5, 1998.
RECITALS
(1) Pursuant to the exercise of the stock option granted to Purchaser
under the Company's 1998 Stock Plan and pursuant to the Stock Option Agreement
(the "OPTION AGREEMENT") dated February 3, 1998 by and between the Company and
Purchaser with respect to such grant, which Option Agreement is hereby
incorporated by reference, Purchaser has elected to purchase 900,000 of those
shares which have not become vested under the vesting schedule set forth in the
Option Agreement ("UNVESTED SHARES"). The Unvested Shares and the shares subject
to the Option Agreement which have become vested are sometimes collectively
referred to herein as the "SHARES".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
(a) If Purchaser's Continuous Status as a Service Provider is
terminated for any reason, including for cause, death, and disability, the
Company shall have the right and option to purchase from Purchaser, or
Purchaser's personal representative, as the case may be, all of the Purchaser's
Unvested Shares as of the date of such termination at the price paid by the
Purchaser for such Shares (the "REPURCHASE Option").
(b) Upon the occurrence of such a termination, the Company may
exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be),
within ninety (90) days of the termination, a notice in writing indicating the
Company's intention to exercise the Repurchase Option and setting forth a date
for closing not later than thirty (30) days from the mailing of such notice. The
closing shall take place at the Company's office. At the closing, the holder of
the certificates for the Unvested Shares being transferred shall deliver the
stock certificate or certificates evidencing the Unvested Shares, and the
Company shall deliver the purchase price therefor.
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<PAGE> 13
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase
Option conferred above by giving the requisite notice within ninety (90) days
following the termination, the Repurchase Option shall terminate.
2. Release of Shares From Repurchase Option.
(a) The Shares shall vest to Purchaser and be released from the
Company's repurchase option as follows: Provided that Purchaser maintains a
continuous status as a Service Provider of the Company, 25% of the Shares shall
be released from the Company's Repurchase Option on the one year anniversary of
the Vesting Commencement Date and an additional 1/48th of the Shares shall be
released from the Company's Repurchase Option on the last day of each full
calendar month thereafter. Notwithstanding the foregoing, upon any Change of
Control (as herein defined) 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 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.
(b) "Change of Control" shall mean any of the following: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent (50%)
of the voting stock of the Company, (ii) a merger or consolidation of the
Company with any other corporation which results in the voting securities of the
Company outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or its parent) less than 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 (iii)
the approval by the shareholders of the Company of a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(c) Any of the Shares which have not yet been released from the
Company's repurchase option are referred to herein as "Unreleased Shares."
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<PAGE> 14
(d) The Shares which have been released from the Company's
Repurchase Option shall be delivered to the Purchaser at the Purchaser's request
(see Section 3).
(e) Acceleration Upon Termination of Employment. In addition to
the Shares released from the Company's Repurchase Option pursuant to Section
2(a) 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, any remaining Unreleased Shares shall be released from the
Company's Purchase Option upon the date of such termination.
For the purposes of this Section 2(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
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<PAGE> 15
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 2(f)
below.
(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 2 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
2(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 2
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.
3. Transferability of the Shares; Escrow.
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option
under Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as Purchaser's attorney-in-fact to
sell, assign and transfer unto the Company, such Unvested Shares, if any,
repurchased by the Company pursuant to the Repurchase Option and shall, upon
execution of this Agreement, deliver and deposit with the secretary of the
Company, or such other person designated by the Company, the share certificates
representing the Unvested Shares, together with the stock assignment duly
endorsed in blank, attached hereto as Exhibit C-2. The Unvested Shares and stock
assignment shall be held by the secretary in escrow, pursuant to the Joint
Escrow Instructions of the Company and Purchaser attached as Exhibit C-3 hereto,
until the Company exercises its purchase right as provided in Section 1, until
such Unvested Shares are vested, or until such time as this Agreement no longer
is in effect. Upon vesting of the Unvested Shares, the escrow agent shall
promptly deliver to the Purchaser the certificate or certificates representing
such Shares in the escrow agent's possession belonging to the Purchaser, and the
escrow agent shall be discharged of all further obligations hereunder; provided,
however, that the escrow agent shall nevertheless retain such certificate or
certificates as escrow agent if so required pursuant to other restrictions
imposed pursuant to this Agreement.
- 4 -
<PAGE> 16
(c) The Company, or its designee, shall not be liable for any
act it may do or omit to do with respect to holding the Shares in escrow and
while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any Unvested Shares
purchased by Purchaser and shall acknowledge the same by signing a copy of this
Agreement.
4. Ownership, Voting Rights, Duties. This Agreement shall not affect in
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
5. Legends. The share certificate evidencing the Shares 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.
6. 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 which may be made by the Company after the date of this Agreement.
7. Notices. Notices required hereunder shall be given in person or by
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
8. Survival of Terms. This Agreement shall apply to and bind Purchaser
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
9. Section 83(b) Elections.
(a) Election for Unvested Shares Purchased Pursuant to
Nonqualified Stock Options. Purchaser hereby acknowledges that he or she has
been informed that, with respect to the exercise of a nonqualified stock option
for Unvested Shares, that unless an election is filed by the Purchaser with the
Internal Revenue Service and, if necessary, the proper state taxing authorities,
WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b)
of the Internal Revenue Code of 1986, as amended (the "CODE") to be taxed
currently on any difference between the purchase price of the Shares and their
fair market value on the date of purchase, there will be a recognition of
taxable income to the
- 5 -
<PAGE> 17
Purchaser, measured by the excess, if any, of the fair market value of the
Shares, at the time the Company's Repurchase Option lapses over the purchase
price for the Shares. Purchaser represents that Purchaser has consulted any tax
consultant(s) Purchaser deems advisable in connection with the purchase of the
Shares or the filing of the Election under Section 83(b). A form of Election
under Section 83(b) is attached hereto as Exhibit C-4 for reference.
(b) Election for Unvested Shares Purchased Pursuant to Incentive
Stock Options. Purchaser hereby acknowledges that he or she has been informed
that, with respect to the exercise of an incentive stock option for Unvested
Shares, that unless an election is filed by the Purchaser with the Internal
Revenue Service WITHIN 30 DAYS of the purchase of the Shares, electing pursuant
to Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their fair market value on the date of
purchase, there will be a recognition of income to the Purchaser, for
alternative minimum tax purposes, measured by the excess, if any, of the fair
market value of the Shares, at the time the Company's Repurchase Option lapses
over the purchase price for the Shares. Purchaser represents that Purchaser has
consulted any tax consultant(s) Purchaser deems advisable in connection with the
purchase of the Shares or the filing of the Election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) for alternative
minimum tax purposes is attached hereto as Exhibit C-5 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON
PURCHASER'S BEHALF.
10. Representations. Purchaser has reviewed with his own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with California law.
Purchaser represents that he has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
- 6 -
<PAGE> 18
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first
set forth above.
"COMPANY"
AVANEX CORPORATION
By: /S/ SIMON CAO
---------------------------------
Title: PRESIDENT
------------------------------
"PURCHASER"
/S/ JESSY CHAO
------------------------------------
Jessy Chao
Address:
<PAGE> 19
CONSENT OF SPOUSE
I, ________________________, spouse of ___________________________, 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: ___________________
/S/ [SIGNATURE ILLEGIBLE]
------------------------------------
<PAGE> 20
EXHIBIT C-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 between________________________ and the undersigned
dated ______________, 199__.
Dated: _______________, 199__
Signature: /S/ JESSY CHAO
-----------------------------------
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> 21
EXHIBIT 3
JOINT ESCROW INSTRUCTIONS
February 5, 1998
Avanex Corporation
Judith M. O'Brien
Corporate Secretary
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Dear Corporate Secretary:
As Escrow Agent for both Avanex 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 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
<PAGE> 22
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
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 120 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.
- 2 -
<PAGE> 23
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.
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
2202 Ensenada Way
San Mateo, CA 94403
PURCHASER: Jessy Chao
------------------------------------
------------------------------------
ESCROW AGENT: Avanex Corporation
Judith M. O'Brien
Corporate Secretary
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
- 3 -
<PAGE> 24
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.
AVANEX CORPORATION
By: /S/ SIMON CAO
------------------------------------
Title: PRESIDENT
---------------------------------
PURCHASER:
/S/ JESSY CHAO
---------------------------------------
Jessy Chao
ESCROW AGENT:
/S/ JUDITH M. O'BRIEN
---------------------------------------
Judith M. O'Brien
- 4 -
<PAGE> 1
EXHIBIT 10.8.11
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
Paul Shi-Qi Jiang
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:
Date of Grant February 3, 1998
Vesting Commencement Date February 3, 1998
Exercise Price per Share $0.001
Total Number of Shares Granted 1,200,000
Total Exercise Price $1,200.00
Type of Option: X Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date: February 2, 2008
Exercise and Vesting Schedule:
This Option shall be exercisable immediately in its entirety on or after
the Vesting Commencement Date, conditioned upon Optionee entering into a
Restricted Stock Purchase Agreement, substantially in the form attached hereto
as Exhibit C-1, with respect to any unvested Shares. The minimum number of
shares with respect to which an Option may be exercised in part at any time is
one thousand (1,000) unless the Option grants the right to purchase, or the
number of remaining shares subject to the Option, is fewer than one thousand
(1,000) shares. Notwithstanding the foregoing, the Option may not be exercised
more frequently than twice in any continuous twelve (12) month period; provided,
however, that the foregoing restriction shall not apply so as to prevent an
exercise following the Optionee's termination of employment as set forth in the
Option Agreement. The Shares subject to
<PAGE> 2
this Option shall vest and be released from the Company's repurchase option, as
set forth in the Restricted Stock Purchase Agreement.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and 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
as defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated
as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be 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 with respect to which the Option is being exercised, and such other
representations and agreements as may be required by 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 the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Lock-Up Period. Optionee 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, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
- 2 -
<PAGE> 3
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.
5. 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:
(a) cash or check;
(b) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
(c) 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.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. 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 Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. 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.
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. 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.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an
- 3 -
<PAGE> 4
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases
to be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a
regular federal income tax liability upon the exercise of a Nonstatutory Stock
Option. 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 Shares on the date of exercise over the Exercise Price. If
Optionee is an Employee or a former Employee, the Company will be required to
withhold from Optionee's 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 honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if 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. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
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 of 1933, as amended (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 longer 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; provided, however, that
such restriction shall apply only to the first registration statement of the
- 4 -
<PAGE> 5
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. 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.
12. 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 (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING 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 IN ANY WAY 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.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: AVANEX CORPORATION
/S/ PAUL SHI-QI JIANG /S/ SIMON CAO
- -------------------------------- --------------------------------
Paul Shi-Qi Jiang By:
- 5 -
<PAGE> 6
EXHIBIT A
AVANEX CORPORATION
1998 STOCK PLAN
EXERCISE NOTICE
Avanex Corporation
2202 Ensenada Way
San Mateo, CA 94403
Attention: Secretary
1. Exercise of Option. Effective as of today, Paul Shi-Qi Jiang
("Optionee") hereby elects to exercise Optionee's option to purchase 1,200,000
shares of the Common Stock (the "Shares") of Avanex Corporation (the "Company")
under and pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option
Agreement granted February 3, 1998 (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee 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 of the Shares (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 Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall 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 11 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
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 Section (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).
- 1 -
<PAGE> 7
(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 the Offered Price. 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), in cash (by check), 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 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 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that 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 Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "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 Section, 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 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
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that
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<PAGE> 8
Optionee has consulted with any tax consultants Optionee deems advisable in
connection with the purchase or disposition of the Shares and that Optionee is
not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee 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 state
or federal 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.
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.
(b) Stop-Transfer Notices. Optionee 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.
8. 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 Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee 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.
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<PAGE> 9
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 of 1933, as amended (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 longer 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; provided, however, that
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. Governing Law; Severability. This Agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
12. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement 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 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.
Submitted by: Accepted by:
OPTIONEE: AVANEX CORPORATION
/s/ PAUL SHI-QI JIANG By: /s/ SIMON CAO
- ----------------------------- -------------------------------------
Paul Shi-Qi Jiang
Title: PRESIDENT
----------------------------------
Address: Address:
2202 Ensenada Way
San Mateo, CA 94403
February 4, 1998
----------------------------------------
Date Received
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<PAGE> 10
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: PAUL SHI-QI JIANG
COMPANY: AVANEX CORPORATION
SECURITY: COMMON STOCK
AMOUNT: 1,200,000 SHARES
DATE: February 4, 1998
------------------------------------
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee 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 Securities. Optionee
is acquiring these Securities for investment for Optionee'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").
(b) Optionee 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 Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee'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 year or any other fixed
period in the future. Optionee 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. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee 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.
(c) Optionee 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
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<PAGE> 11
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
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 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 Option, 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 two years 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 three years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee 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. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
/S/ PAUL SHI-QI JIANG
------------------------------------
Paul Shi-Qi Jiang
Date: February 4, 1998
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<PAGE> 12
EXHIBIT C-1
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between Paul Shi-Qi Jiang (the "PURCHASER") and
Avanex Corporation, a California corporation (the "COMPANY") as of
February 4, 1998.
RECITALS
(1) Pursuant to the exercise of the stock option granted to Purchaser
under the Company's 1998 Stock Plan and pursuant to the Stock Option Agreement
(the "OPTION AGREEMENT") dated February 3, 1998 by and between the Company and
Purchaser with respect to such grant, which Option Agreement is hereby
incorporated by reference, Purchaser has elected to purchase 1,200,000 of those
shares which have not become vested under the vesting schedule set forth in the
Option Agreement ("UNVESTED SHARES"). The Unvested Shares and the shares subject
to the Option Agreement which have become vested are sometimes collectively
referred to herein as the "SHARES".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
(a) If Purchaser's Continuous Status as a Service Provider is
terminated for any reason, including for cause, death, and disability, the
Company shall have the right and option to purchase from Purchaser, or
Purchaser's personal representative, as the case may be, all of the Purchaser's
Unvested Shares as of the date of such termination at the price paid by the
Purchaser for such Shares (the "REPURCHASE OPTION").
(b) Upon the occurrence of such a termination, the Company may
exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be),
within ninety (90) days of the termination, a notice in writing indicating the
Company's intention to exercise the Repurchase Option and setting forth a date
for closing not later than thirty (30) days from the mailing of such notice. The
closing shall take place at the Company's office. At the closing, the holder of
the certificates for the Unvested Shares being transferred shall deliver the
stock certificate or certificates evidencing the Unvested Shares, and the
Company shall deliver the purchase price therefor.
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<PAGE> 13
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase
Option conferred above by giving the requisite notice within ninety (90) days
following the termination, the Repurchase Option shall terminate.
2. Release of Shares From Repurchase Option.
(a) The Shares shall vest to Purchaser and be released from the
Company's repurchase option as follows: Provided that Purchaser maintains a
continuous status as a Service Provider of the Company, 25% of the Shares shall
be released from the Company's Repurchase Option on the one year anniversary of
the Vesting Commencement Date and an additional 1/48th of the Shares shall be
released from the Company's Repurchase Option on the last day of each full
calendar month thereafter. Notwithstanding the foregoing, upon any Change of
Control (as herein defined) 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 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.
(b) "Change of Control" shall mean any of the following: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent (50%)
of the voting stock of the Company, (ii) a merger or consolidation of the
Company with any other corporation which results in the voting securities of the
Company outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or its parent) less than 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 (iii)
the approval by the shareholders of the Company of a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(c) Any of the Shares which have not yet been released from the
Company's repurchase option are referred to herein as "Unreleased Shares."
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<PAGE> 14
(d) The Shares which have been released from the Company's
Repurchase Option shall be delivered to the Purchaser at the Purchaser's request
(see Section 3).
(e) Acceleration Upon Termination of Employment. In addition to
the Shares released from the Company's Repurchase Option pursuant to Section
2(a) 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, any remaining Unreleased Shares shall be released from the
Company's Purchase Option upon the date of such termination.
For the purposes of this Section 2(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
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<PAGE> 15
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 2(f)
below.
(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 2 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
2(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 2
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.
3. Transferability of the Shares; Escrow.
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option
under Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as Purchaser's attorney-in-fact to
sell, assign and transfer unto the Company, such Unvested Shares, if any,
repurchased by the Company pursuant to the Repurchase Option and shall, upon
execution of this Agreement, deliver and deposit with the secretary of the
Company, or such other person designated by the Company, the share certificates
representing the Unvested Shares, together with the stock assignment duly
endorsed in blank, attached hereto as Exhibit C-2. The Unvested Shares and stock
assignment shall be held by the secretary in escrow, pursuant to the Joint
Escrow Instructions of the Company and Purchaser attached as Exhibit C-3 hereto,
until the Company exercises its purchase right as provided in Section 1, until
such Unvested Shares are vested, or until such time as this Agreement no longer
is in effect. Upon vesting of the Unvested Shares, the escrow agent shall
promptly deliver to the Purchaser the certificate or certificates representing
such Shares in the escrow agent's possession belonging to the Purchaser, and the
escrow agent shall be discharged of all further obligations hereunder; provided,
however, that the escrow agent shall nevertheless retain such certificate or
certificates as escrow agent if so required pursuant to other restrictions
imposed pursuant to this Agreement.
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<PAGE> 16
(c) The Company, or its designee, shall not be liable for any
act it may do or omit to do with respect to holding the Shares in escrow and
while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any Unvested Shares
purchased by Purchaser and shall acknowledge the same by signing a copy of this
Agreement.
4. Ownership, Voting Rights, Duties. This Agreement shall not affect in
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
5. Legends. The share certificate evidencing the Shares 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.
6. 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 which may be made by the Company after the date of this Agreement.
7. Notices. Notices required hereunder shall be given in person or by
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
8. Survival of Terms. This Agreement shall apply to and bind Purchaser
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
9. Section 83(b) Elections.
(a) Election for Unvested Shares Purchased Pursuant to
Nonqualified Stock Options. Purchaser hereby acknowledges that he or she has
been informed that, with respect to the exercise of a nonqualified stock option
for Unvested Shares, that unless an election is filed by the Purchaser with the
Internal Revenue Service and, if necessary, the proper state taxing authorities,
WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b)
of the Internal Revenue Code of 1986, as amended (the "CODE") to be taxed
currently on any difference between the purchase price of the Shares and their
fair market value on the date of purchase, there will be a recognition of
taxable income to the
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<PAGE> 17
Purchaser, measured by the excess, if any, of the fair market value of the
Shares, at the time the Company's Repurchase Option lapses over the purchase
price for the Shares. Purchaser represents that Purchaser has consulted any tax
consultant(s) Purchaser deems advisable in connection with the purchase of the
Shares or the filing of the Election under Section 83(b). A form of Election
under Section 83(b) is attached hereto as Exhibit C-4 for reference.
(b) Election for Unvested Shares Purchased Pursuant to Incentive
Stock Options. Purchaser hereby acknowledges that he or she has been informed
that, with respect to the exercise of an incentive stock option for Unvested
Shares, that unless an election is filed by the Purchaser with the Internal
Revenue Service WITHIN 30 DAYS of the purchase of the Shares, electing pursuant
to Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their fair market value on the date of
purchase, there will be a recognition of income to the Purchaser, for
alternative minimum tax purposes, measured by the excess, if any, of the fair
market value of the Shares, at the time the Company's Repurchase Option lapses
over the purchase price for the Shares. Purchaser represents that Purchaser has
consulted any tax consultant(s) Purchaser deems advisable in connection with the
purchase of the Shares or the filing of the Election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) for alternative
minimum tax purposes is attached hereto as Exhibit C-5 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON
PURCHASER'S BEHALF.
10. Representations. Purchaser has reviewed with his own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with California law.
Purchaser represents that he has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
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<PAGE> 18
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first
set forth above.
"COMPANY"
AVANEX CORPORATION
By: /s/ SIMON CAO
---------------------------------
Title: PRESIDENT
------------------------------
"PURCHASER"
/s/ PAUL SHI-QI JIANG
------------------------------------
Paul Shi-Qi Jiang
Address:
<PAGE> 19
CONSENT OF SPOUSE
I, MARY P.L. CHIANG, spouse of PAUL SHI-QI JIANG, 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: ___________________
/S/ MARY P.L. CHIANG
------------------------------------
<PAGE> 20
EXHIBIT C-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 between________________________ and the undersigned
dated ______________, 199__.
Dated: _______________, 199__
Signature: /s/ [SIGNATURE ILLEGIBLE]
------------------------------------
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> 21
EXHIBIT 3
JOINT ESCROW INSTRUCTIONS
February 4, 1998
Avanex Corporation
Judith M. O'Brien
Corporate Secretary
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Dear Corporate Secretary:
As Escrow Agent for both Avanex 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 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
<PAGE> 22
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
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 120 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.
- 2 -
<PAGE> 23
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.
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
2202 Ensenada Way
San Mateo, CA 94403
PURCHASER: Paul Shi-Qi Jiang
------------------------------------
------------------------------------
ESCROW AGENT: Avanex Corporation
Judith M. O'Brien
Corporate Secretary
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
- 3 -
<PAGE> 24
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.
AVANEX CORPORATION
By: /s/ SIMON CAO
------------------------------------
Title: PRESIDENT
---------------------------------
PURCHASER:
/s/ PAUL SHI-QI JIANG
---------------------------------------
Paul Shi-Qi Jiang
ESCROW AGENT:
/s/ JUDITH M. O'BRIEN
---------------------------------------
Judith M. O'Brien
- 4 -
<PAGE> 1
EXHIBIT 10.8.12
FORM OF
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.
1. NOTICE OF STOCK OPTION GRANT
________________________
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:
Date of Grant: December 10, 1999
Vesting Commencement Date: December 10, 1999
Exercise Price Per Share: $5.00
Total Number of Shares Granted: 26,667
Total Exercise Price: $133,335.00
Type of Option: Incentive Stock Option
X Nonstatutory Stock Option
Term/Expiration Date: December 9, 2009
Exercise and Vesting Schedule:
The Shares subject to this Option shall vest according to the following
schedule:
Provided that Optionee maintains a continuous status as a Service
Provider of the Company, Optionee shall vest and the Option shall be exercisable
as to 12/48ths of the Shares on the one year anniversary of the Vesting
Commencement Date and at the rate of 1/48th of the Shares on the last day of
each full calendar month thereafter, provided that the Purchaser is a Service
Provider of the Company as of such date.
<PAGE> 2
Termination Period:
This Option shall be exercisable for thirty (30) days after Optionee ceases to
be a Service Provider. Upon Optionee's death or disability, this Option may be
exercised for such longer period as provided in the Plan. In no event may
Optionee exercise this Option after the Term/Expiration Date as provided above.
2. AGREEMENT
(a) Grant of Option. The Plan Administrator of the Company
hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an
option (the "Option") to purchase the number of Shares set forth in the Notice
of Grant, at the exercise price per Share set forth in the Notice of Grant (the
"Exercise Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and 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 as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
(b) Exercise of Option.
(i) Right to Exercise. This Option shall be
exercisable during its term in accordance with the Vesting Schedule set out in
the Notice of Grant and with the applicable provisions of the Plan and this
Option Agreement.
(ii) Method of Exercise. This Option shall be
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 with respect to which the Option is being exercised, and
such other representations and agreements as may be required by 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 the
aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless such
issuance and such exercise complies with Applicable laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
(c) Optionee's Representations. In the event the Shares have
not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver to
the Company his or her Investment Representation Statement in the form attached
hereto as Exhibit B.
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<PAGE> 3
(d) Lock-Up Period. Optionee 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, Optionee 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.
(e) 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:
(i) cash or check;
(ii) consideration received by the Company under
a formal cashless exercise program
adopted by the Company in connection with the Plan; or
(iii) 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.
(f) Restrictions on Exercise. This Option may not be exercised
until such time as the Plan has been approved by the shareholders of the
Company, or if the issuance of such Shares upon such exercise or the method of
payment of consideration for such shares would constitute a violation of any
Applicable Law.
(g) 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
Optionee. The terms of the Plan and this Option Agreement shall be binding upon
the executors, administrators, heirs, successors and assigns of the Optionee.
(h) 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.
(i) Tax Consequences. Set forth below is a brief summary as of
the date of this Option of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. 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.
-3-
<PAGE> 4
(i) Exercise of ISO. If this Option qualifies
as an ISO, there will be no regular federal income tax liability upon the
exercise of the Option, although the excess, if any, of the Fair Market Value of
the Shares on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(ii) Exercise of ISO Following Disability. If the
Optionee ceases to be an Employee as a result of a disability that is not a
total and permanent disability as defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Optionee must exercise an
ISO within three months of such termination for the ISO to be qualified as an
ISO.
(iii) Exercise of Nonstatutory Stock Option.
There may be a regular federal income tax liability upon the exercise of a
Nonstatutory Stock Option. 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 Shares on the date of exercise over the
Exercise Price. If Optionee is an Employee or a former Employee, the Company
will be required to withhold from Optionee's 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 honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.
(iv) Disposition of Shares. In the case of an
NSO, if 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. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and of at least two years after
the Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal income tax purposes. If Shares
purchased under an ISO are disposed of within one year after exercise or two
years after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (1) the Fair
Market Value of the Shares on the date of exercise, or (2) the sale price of the
Shares. Any additional gain will be taxed as capital gain, short-term or
long-term depending on the period that the ISO Shares were held.
(v) Notice of Disqualifying Disposition of ISO
Shares. If the Option granted to Optionee herein is an ISO, and if Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on
or before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that Optionee
may be subject to income tax withholding by the Company on the compensation
income recognized by the Optionee.
(j) 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 of 1933, as amended (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 longer period
as may be requested in writing by the Managing Underwriter and agreed to in
writing by the Company) (the "Market
-4-
<PAGE> 5
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act; provided, however, that 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.
(k) 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.
(l) 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 (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING 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 IN ANY WAY 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.
Optionee acknowledges receipt of a copy of the Plan and represents that he or
she is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
OPTIONEE: AVANEX CORPORATION
_____________ ___________________
________ By:
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<PAGE> 6
EXHIBIT A
AVANEX CORPORATION
1998 STOCK PLAN
EXERCISE NOTICE
Avanex Corporation
40919 Encyclopedia Circle
Fremont, CA 94538
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________ ("Optionee")
hereby elects to exercise Optionee's option to purchase _____________ shares of
the Common Stock (the "Shares") of Avanex Corporation (the "Company") under and
pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
granted December 10, 1999 (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee 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 of the Shares (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 Shares shall be issued to the Optionee as soon
as practicable after the Option is exercised. No adjustment shall 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 11 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee 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 Section (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,
-6-
<PAGE> 7
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 the Offered Price. 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), in cash (by check), 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 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 120 days after the date of the Notice, that any
such sale or other transfer is effected in accordance with any applicable
securities laws and that 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 Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "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 Section, 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 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
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse tax
consequences as a result of Optionee's purchase or disposition of the Shares.
Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
-7-
<PAGE> 8
(a) Legends. Optionee 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 state
or federal 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.
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.
(b) Stop-Transfer Notices. Optionee 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.
8. 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
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this Agreement
shall be submitted by Optionee 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.
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 of 1933, as amended (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 longer period as may be requested
in writing by the
-8-
<PAGE> 9
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; provided, however, that 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. Governing Law; Severability. This Agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
12. Entire Agreement. The Plan and Option Agreement are incorporated herein by
reference. This Agreement, the Plan, the Option Agreement 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 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.
Submitted by: Accepted by:
OPTIONEE: AVANEX CORPORATION
By:
- ---------------- -----------------------------------
- ----------------
Title:
-------------------------------
Address: Address:
40919 Encyclopedia Circle
Fremont, CA 94538
--------------------------------------
Date Received
-9-
<PAGE> 10
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: ________________
COMPANY: AVANEX CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
DATE: ____________________________________
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee 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 Securities. Optionee
is acquiring these Securities for investment for Optionee'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").
(b) Optionee 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 Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee'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 year or any other fixed
period in the future. Optionee 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. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee 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.
(c) Optionee 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 Option to the Optionee,
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
-10-
<PAGE> 11
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 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 Option, 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 two years 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 three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee 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. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
---------------------------
--------------
Date:
----------------------
-11-
<PAGE> 1
EXHIBIT 10.8.13
Schedule of Directors Receiving Options
o Vint Cerf
o Gregory Reyes, Jr.
o Joel Smith
o Frederico Faggin
<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 /s/ [SIGNATURE ILLEGIBLE]
------------------------------ -----------------------------
PRESIDENT OR VICE PRESIDENT
Title AVP
--------------------------
<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 8/17/98 (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 36 equal
monthly installments of principal, plus interest,
commencing on 9/17/98 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 /s/ [SIGNATURE ILLEGIBLE]
---------------------- -------------------------
PRESIDENT OR VICE PRESIDENT Title AVP
----------------------
</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 [SIGNATURE ILLEGIBLE]
---------------------- ----------------------
PRESIDENT OR VICE PRESIDENT Title AVP
-------------------
</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 [SIGNATURE ILLEGIBLE]
------------------------------
Title AVP
-------------------------
<PAGE> 1
EXHIBIT 10.26
ASSIGNMENT OF SUBLEASE
THIS ASSIGNMENT OF SUBLEASE (this "Assignment") is entered into as of the
17th day of September, 1998, by and between PATHNET, INC., a Delaware
corporation ("Assignor") and AVANEX, INC., a California corporation
("Assignee").
RECITALS
A. Jackson-Shaw Partners No. 33 Ltd., as landlord ("Jackson-Shaw") and
KLA Instruments Corporation, n/k/a KLA-Tencor Corporation, as tenant
("Sublessor") are parties to that certain Commercial Lease Agreement executed
by Landlord on June 21, 1989, concerning certain premises located at 405
International Parkway, Richardson, Texas (the "Building"), as amended by an
Amendment, Modification and Ratification of Lease Between Jackson-Shaw and
Sublessor dated July 13, 1989, a Second Amendment Modification and Ratification
of Lease dated June 29, 1990 between Garlan Real Estate Corporation, successor
in interest to Jackson-Shaw, as landlord ("Garlan") and Sublessor, and a Third
Amendment of Commercial Real Estate Lease Agreement dated on or about August
28, 1995 between Garlan and Sublessor (together, the "Master Lease", a copy of
which is attached hereto as Exhibit A).
B. Sublessor, as sublessor, and Assignor, as sublessee, are parties to
that certain Sublease Agreement dated October 16, 1997, as amended by an
Amendment to Sublease dated January, 1998 (as amended, the "Sublease"), a copy
of which is attached hereto as Exhibit B, concerning certain premises
designated as Suite 209 at the Building, as more particularly described in the
Sublease (the "Premises").
C. Assignor has entered into a lease of certain other space (the "New
Lease") and desires to vacate the Premises and assign the Sublease to Assignee
as of the commencement of the New Lease.
D. The parties hereto desire that the Sublease be assigned to Assignee
and that Assignee assume all obligations under the Sublease, each on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises of the parties and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Assignment. Effective as October 1, 1998 (the "Effective Date"),
Assignor hereby assigns to Assignee all of Assignor's right, title and
interest in the Sublease, and Assignee hereby assumes from Assignor
all of the obligations of the sublessee accruing under the Sublease
from and after the Effective Date.
-1-
<PAGE> 2
2. Terms of Assignment. All provisions, terms and conditions of the
Sublease shall apply to Assignee's occupancy of the Premises,
including, without limitation, the Sublease Term, Minimum Monthly
Rent, Additional Rent and any other charges, payments or rent owed by
the sublessee thereunder, but excluding the Security Deposit set forth
in Article 6 of the Sublease, and the Prepaid Rent set forth in
Section 5.4 of the Sublease. Assignee shall pay all Minimum Monthly
Rent, Additional Rent, and any other charges, payments or rent owed
under the Sublease directly to Sublessor as required by the Sublease.
3. Security Deposit. Within ten (10) days after the date hereof, Assignee
will deposit with Assignor a security deposit in the amount of TWELVE
THOUSAND FOUR HUNDRED AND EIGHTY AND 39/100 DOLLARS (12,480.39) (the
"Security Deposit"). The Security Deposit, which shall not bear
interest to Assignee, shall be considered as security for the payment
and performance by Assignee of all of Assignee's obligations,
covenants, conditions and agreements under the Sublease. In the event
of any breach or default by Assignee of any of the terms of the
Sublease, Assignor shall have the right, but shall not be obligated,
to apply all or any portion of the Security Deposit to cure such
breach or default, in which event Assignee shall be obligated promptly
to deposit with Assignor the amount necessary to restore the Security
Deposit to the amount held by Assignor immediately prior to such
advance by Assignor. Upon the expiration of the Sublease Term,
Assignor shall (provided that Assignee is not in default under the
terms of the Sublease) return and pay back the Security Deposit to
Assignee, less such portion thereof as Assignor shall have retained to
make good any breach or default by Assignee with respect to any of
Assignee's aforesaid obligations, covenants, conditions or agreements.
4. Acceptance of Premises. Assignee hereby agrees to accept the Premises
in their "as-is, where-is" condition, and acknowledges that Assignor
has made no representation or warranty concerning the Premises or the
suitability of the Premises for Assignee's intended uses. Assignor
will leave the Premises broom clean but is under no obligation to make
any other improvements, or perform any other activities, in
preparation for Assignee's occupancy of the Premises.
5. Modification of Sublease: Extension of Term. Notwithstanding anything
herein or in the Sublease to the contrary, Assignee shall have no
right or authority to modify or amend the Sublease in any manner, and
shall have no right or authority to extend the Sublease beyond the
Termination Date.
6. Notices under Lease. Assignor and Assignee each agrees to provide to
the other copies of any and all notices received by such party in
connection
-2-
<PAGE> 3
with the Sublease or the Premises within twenty four (24) hours of
receipt thereof.
7. Indemnity by Assignor. Assignor hereby agrees to indemnify and hold
Assignee harmless from and against any and all loss, claims, damages
or expenses, including, without limitation, reasonable attorneys' fees
and costs of suit, arising out of Assignor's occupancy of the Premises
or under the Sublease, to the extent accruing prior to the Effective
Date. This paragraph shall survive the expiration or sooner
termination of the Sublease.
8. Indemnity by Assignee. Assignee hereby agrees to indemnify and hold
Assignor harmless from and against any and all loss, claims, damages
or expense, including, without limitation, reasonable attorneys' fees
and costs of suit, arising out of Assignee's occupancy of the Premises
or under the Sublease, to the extent accruing on or after the
Effective Date. This paragraph shall survive the expiration or sooner
termination of the Sublease.
9. Assignor's Remedies. In addition to all other remedies available to
Assignor at law, equity or set forth herein, in the event of a breach
or default by Assignee of any of the provisions of the Sublease,
Assignor shall have all the remedies of Sublessor as set forth in the
Sublease.
10. Brokerage. Each of Assignor and Assignee represents and warrants that
it has dealt with no broker, finder, agent or other person in
connection with this transaction except that Assignor has dealt with
The Enright Company, and Assignee has dealt with The Staubach Company.
Each party shall pay its respective broker a fee pursuant to a
separate agreement. Each party hereby agrees to indemnify and hold the
other party harmless from a breach of the representation in this
paragraph. The terms of this paragraph shall survive the expiration or
sooner termination of the Sublease.
11. Consent of Landlord. The effectiveness of this Assignment shall be
contingent on the approval of Sublessor and the landlord under the
Master Lease.
12. No Amendment. This Assignment may not be modified except by an
agreement in writing executed by both parties hereto.
13. Entire Agreement. This Assignment contains the entire agreement of the
parties as to the matters described herein, and no other
representations, warranties, promises or agreements, whether oral or
written, have been made or relied upon by either party.
-3-
<PAGE> 4
14. Successors and Assigns. This Assignment shall be binding upon, and shall
inure to the benefit of, Assignor and Assignee and their respective
successors and assigns.
15. Governing Law. This Assignment shall be governed by the laws of the State
of Texas, other than its choice of law principles.
16. Definitions. All capitalized terms not defined herein shall have the
meanings given to such terms in the Sublease.
EXECUTED as of the day and year first written above.
ASSIGNOR:
PATHNET, INC.
By: /s/ MICHAEL A. LUBIN
-------------------------------------
Name: Michael A. Lubin
Title: Vice President & General
Counsel
ASSIGNEE:
AVANEX, INC.
By: /s/ SIMON CAO
-------------------------------------
Name: Simon Cao
Title: President
-4-
<PAGE> 1
EXHIBIT 10.33
DRAFT
COST SHARING AGREEMENT
THIS AGREEMENT is entered into on this __ date of December, 1999
(Effective Date), by and between Avanex Corporation, a California, United States
corporation, and Avanex Cayman, a Cayman Islands corporation (collectively the
Members, and separately the Member).
W I T N E S S E T H:
WHEREAS, the Members are engaged in the business of designing,
manufacturing, and marketing photonic processors;
WHEREAS, on the Effective Date each Member owned Intangible Property
relating to certain photonics technology, as reflected in Exhibit A to this
Agreement (the Initial Intangible Property);
WHEREAS, the portions of the communications industry in which the
Members are engaged are extremely competitive on a worldwide basis, so it is
imperative that the Members be in the forefront of the acquisition or
development of new generations of technology in their respective businesses;
WHEREAS, Avanex Corporation has to date been responsible for research
and development; and
WHEREAS, the Members desire to develop a new technology for use in the
photonic processors manufactured by the Members, and to share the costs and
benefits of such development.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and intending to be legally bound, the parties hereby agree as
follows.
<PAGE> 2
ARTICLE 1
DEFINITIONS
Affiliate or Affiliates. "Affiliate" or "Affiliates" shall mean any
corporation, firm, partnership, or other entity, whether de jure or de facto,
that directly or indirectly owns, is owned by, or is under common ownership with
a party to this Agreement to the extent of at least 50 percent of the equity
having the power to vote on or direct the affairs of the entity and any person,
firm, partnership, corporation, or other entity actually controlled by,
controlling, or under common control with a party to this Agreement.
Confidential Matters. "Confidential Matters" is as defined in Section
6.3 of this Agreement.
Developed Intangible Property. "Developed Intangible Property" shall
mean Intangible Property developed as part of the Research Program.
Effective Date. "Effective Date" is as defined immediately prior to the
Recitals at the beginning of this Agreement.
Group. "Group" shall include the legal entities that are Members, as
long as they remain in such status.
Improvements. "Improvements" shall mean any findings, discoveries,
inventions, additions, modifications, formulations, or changes made during the
term of this Agreement that relate to Intangible Property, Developed Intangible
Property, Initial Intangible Property, Know-How, or Product.
Initial Intangible Property. "Initial Intangible Property" is as defined
in the Second Recital at the beginning of this Agreement.
Intangible Property. "Intangible Property" shall mean and include any
and all patents and similar industrial property rights (including, but not
limited to, existing patent and pending patent applications, improvement
patents, patents of addition, as well as
<PAGE> 3
divisions, reissues, contributions, and extensions of any of the foregoing),
copyrights, process technology, inventions, computer programs, enhancements,
updates, improvements, translations, adaptations, secret and confidential
Know-How, information, data, specifications, designs, manufacturing techniques
and descriptions, or other intangible property (whether or not in documentary
form and whether or not patentable or copyrightable).
Know-How. "Know-How" shall mean any and all technical information
presently available or generated during the term of this Agreement that related
to Product or Improvements and shall include, without limitation, all
manufacturing data and any other information relating to Products or
Improvements and useful for the development, manufacture, or effectiveness of
Product.
Member or Members. "Member" or "Members" is as defined immediately prior
to the recitals at the beginning of this Agreement.
Product. "Product" shall mean the property listed in Exhibit B to this
Agreement using the Intangible Property.
Research Committee. "Research Committee" shall mean the Committee
composed or representatives of the Members that shall have responsibility for
making determinations relating to value of valuation under the terms of this
Agreement and the Research Program. Each Member shall have the right to appoint
one representative to serve on the Research Committee. Each representative shall
continue to serve as a member of the Research Committee until such time as the
respective Member shall notify Avanex Corporation, and the other Members, if any
other, of the appointment of a successor representative. Each member of the
Research Committee shall have one vote. All decisions of the Research Committee
shall be made by a vote of a majority of its members. In the event that there
should be a tie vote, because of the presence of an even number of members or
otherwise, Avanex Corporation shall have one additional vote for purposes only
of breaking such tie. The members of the Research Committee shall annually elect
a Chair from among its members, who shall have responsibility for
<PAGE> 4
maintaining the records of the Committee, including, without limitation, minutes
of meetings and actions taken. All decisions of the Research Committee shall be
binding on the Members for all purposes of this Agreement.
Territory. "Territory" shall mean the following geographic areas
relating to each Member:
Member Geographic Area
Avanex Corporation United States
Avanex Cayman Cayman Islands
All Members on a nonexclusive Rest of the world (not separately
basis listed above)
Third Party or Third Parties. "Third Party" or "Third Parties" shall
mean any entity other than a party to this Agreement, a Member, or an Affiliate.
Year. "Year" shall mean the 12-month period ending on [December 31].
<PAGE> 5
ARTICLE 2
TERM AND FUNDING
Section 2.1. Term. The term of this Agreement shall be for a period of
ten (10) years from the Effective Date, or for as long as a Research Project is
in existence, whichever is later, unless terminated earlier as provided in
Article 8 of this Agreement.
Section 2.2. Funding. Each Member shall commit up to [US$________] to
accomplish the purposes of this Agreement over the ten year period beginning
with the Effective Date. The funds so committed shall be expended in a manner
and on a schedule as determined by the Research Committee.
Section 2.3. Additional Funding. The Research Committee shall determine
the extent to which additional funding is required to conduct the activities
contemplated by this Agreement, and shall advise the parties of the amount of
such additional funding and timing for contribution.
ARTICLE 3
GRANT OF RIGHTS TO USE INITIAL INTANGIBLE PROPERTY
Section 3.1. Grant by Grantor Members. Each Member (Grantor Member)
hereby grants to each other Member (Grantee Members) the reciprocal
nonexclusive, royalty-free right to use the Initial Intangible Property and any
Developed Intangible Property owned by the Grantor Member outside the Territory
of the Grantor Member during the term of this Agreement.
Section 3.2. Grant of Third-Party Rights. Each Grantor Member hereby
grants to the Grantee Members the reciprocal nonexclusive, royalty-free right to
use any and all rights that the Grantor Member shall have with respect to
Intangible Property licensed to the Grantor Member by any Third Party, to the
extent authorized by the documents pursuant to which such Intangible Property
was licenses or otherwise granted to the
<PAGE> 6
Grantor Member (Third Party Intangibles). In the event that the Grantor Member
is obligated to pay, or has paid, a royalty with respect to such Third Party
Intangibles, each Grantee Member shall be obligated to make an appropriate
payment to the Grantor Members, which amount shall de determined by the Research
Committee.
Section 3.3. No Further Transfer. A Grantee Member may not further
assign, sublicense, make available, or otherwise transfer or disclose any right
to use, develop, or otherwise enjoy any of the Initial Intangible Property or
Developed Intangible Property granted to such Grantee Member under Section 3.1
of this Article, or any of the Third-Party Intangibles granted to such Grantee
Member under Section 3.2 of this Article, without the express written consent of
the respective Grantor Member, provided that this restriction shall not apply to
any transactions entered by Avanex Corporation pursuant to Article 4 of this
Agreement.
Section 3.4. Compensation. In return for the grants made in Sections 3.1
and 3.2 of this Article, each Member shall be entitled to receive the following:
a. The royalty-free right to use the Initial Intangible Property or
Developed Intangible Property granted to it under Section 3.1 of this
Article.
b. The royalty-free right to use the Third-Party Intangibles granted to
it under Section 3.2 of the Article.
ARTICLE 4
RESEARCH PROGRAM
Section 4.1. Research Program. The Research Program shall include
research and development activity performed by the Members, or performed by
Third Parties and funded by the Members, including, without limitation, (1)
basic research, (2) product specific development, and (3) Improvements to
existing Product of manufacturing processes, relating to the Research Program. A
list of those products included in the Research Program is attached as Exhibit C
to this Agreement. Those projects specifically
<PAGE> 7
excluded from the Research Program are listed in Exhibit D to this Agreement.
Research activity not listed in Exhibit C but not excluded in Exhibit D shall be
included in the Research Program. Exhibits C and D shall be updated as of the
last day of a Year by Avanex Corporation.
Section 4.2. Projects Conducted Prior to the Effective Date. The
Research Program shall include no research project conducted by a Member prior
to the Effective Date.
Section 4.3. Acquired Products or Projects. A product or project may be
added to the Research Program on the acquisition of the product or a portion
thereof by purchase, license, or otherwise.
Section 4.4. Research Program and Budget.
a. Annual Operation Plan. The Research Committee shall prepare an
annual operation plan for the Research Program (Annual Operation
Plan), which shall set forth in detail the objectives to be
accomplished during such Year and project future operations and
objectives. The Annual Operating Plan may be changed at any time by
the Research Committee. In the event that the Policy Committee
should fail to adopt an Annual Operation Plan for any Year, the
preceding Annual Operation Plan shall continue in force.
b. Budget. The Annual Operating Plan shall include a budget of planned
expenditures for sources and uses of funds for the current Year and
a forecast for the two subsequent years.
Section 4.5. Cost Sharing.
a. Cost Share. Each Member shall be responsible for its proportional
share of the costs of the Research Program for each Year in which
this Agreement is effective, as defined in Section 4.5(b).
<PAGE> 8
b. Proportional Share. The proportional share of each Member for a Year
shall be determined by its respective proportion of the sales of
Product by the Group, which amount shall be a fraction the numerator
of which shall be the net sales of Products by each Member during
the ten years preceding the Year in question and the denominator of
which shall be the net sales of Products by all Members of the Group
during the ten years preceding the Year in question. The Research
Committee shall determine the proportional share of each Member for
each year and shall notify each Member of such determination as soon
as possible after the end of each Year.
c. Contribution. The Research Committee shall advise the Members of the
dates when cost contributions are to be made, subject to Section 2.2
of this Agreement.
Section 4.6. Roles of Parties. The role of each party in performing its
activities under this Agreement will be set forth in the Annual Operating Plan.
Initially, it is contemplated that the parties will:
a. Use their expertise in materials developed and concentrate on
research to develop advanced materials that can effectively be used
in Product; and
b. Use their design, manufacturing, and marketing expertise in
photonics technologs to direct research into areas where Product is
needed and to coordinate efforts to obtain any necessary government
approvals to market resultant Product.
Section 4.7. Research and Development Responsibilities. The Research
Committee shall determine the nature of the research and development work that
needs to be completed by one or both parties to achieve the purposes of this
Agreement, and such projects shall be included in the Annual Operation Plan
(Project or Projects).
a. Each Project shall separately identify the nature of the work to be
performed by each party, the particular use to which the work is
expected to be put, the
<PAGE> 9
total cost of such work, the amount to be billed to and paid for by
each party, and an estimate of the date by which such work is to be
completed.
b. The parties shall perform the work specified for each Project. Each
party covenants with the other that all such work will be performed
as specified in the Project and that each will cause such work to be
performed by its employees utilizing the level of skill, care, and
diligence as is exercised by its respective employees in their own
internal projects of the same or similar nature.
c. Until such time as a Product is developed, all research,
development, and other work contemplated by this agreement shall be
performed by the parties via Projects. Each party shall be
reimbursed for its total direct costs incurred in such work.
d. In the event that the Research Committee shall decide to contract
with a Third Party for work relating to Projects, the services of
any such Third Party shall be obtained by the Research Committee
under circumstances that will Protect the confidentiality of
Intangible Property and Improvements developed by the Third Party
under the same conditions as those set forth in Section 6.3 of this
Agreement.
e. Whether the work of a Project is done by the parties or by agreement
with a Third Party, such Project will be set forth in the Annual
Operating Plan along with an estimate of the cost thereof and must
be approved by the Research Committee before becoming effective.
f. A research manager (Research Manager) will be appointed by the
Research Committee and will direct the research and development
being carried out by the parties and coordinate activities under
this Agreement subject to the oversight of the Research Committee.
The Research Manager will normally attend the meetings of the
Research Committee but will not vote.
<PAGE> 10
ARTICLE 5
OWNERSHIP OF DEVELOPED INTANGIBLES
Section 5.1. Legal Title. Legal title to Developed Intangible Property
shall be in the name of the Member responsible for the portion of the Research
Program that produced such Developed Intangible Property (Developing Member)
subject to the rights and obligations of the other members under this Agreement.
The Developing Member shall take such action as may, from time to time, be
necessary to protect the worldwide intellectual property rights in Developed
Intangible Property, unless the Research Committee directs to the contrary.
Section 5.2. Beneficial Rights. Each Member shall have the exclusive
right to use the Developed Intangible Property for manufacturing, marketing, and
other purposes in its Territory, except as otherwise provided in this Agreement.
ARTICLE 6
EXCHANGE OF INFORMATION, CONFIDENTIALITY, AND TRANSFER
Section 6.1. Know-How. During the term of this Agreement, each member
shall promptly disclose to the other Members its Know-How.
Section 6.2. Improvements. During the term of this Agreement, each
Member shall promptly inform the other Members of any information that it
obtains or develops regarding Product and Improvements.
Section 6.3. Confidentiality. During the Term of this Agreement, and for
a period of ten years from the date of expiration or termination of this
Agreement, each Member shall treat this Agreement, Know-How, Intangible
Property, Initial Intangible Property, Developed Intangible Property,
Improvements, and all information, data, reports, and other records that it
receives from another Member (collectively, the Confidential Matters) as secret,
confidential, and proprietary and shall not disclose or use such
<PAGE> 11
Confidential Matters without the prior written consent of such other Member.
Each Member shall develop and implement such procedures as may be required to
prevent the intentional or negligent disclosure to Third Parties of Confidential
Matters communicated to it and its employees by other Members, including, but
not limited to, requiring each of its employees having access to such
information under this Agreement to enter into an appropriate secrecy agreement.
Nothing in this Agreement shall prevent the disclosure by a Member or
its employees of confidential information that:
a. Prior to the transmittal thereof to the Member was of general public
knowledge;
b. Becomes, subsequent to the time of transmittal to the Member, a
matter of general public knowledge otherwise than as a consequence
of a breach by the Member of any obligation under this Agreement;
c. Is made public by the disclosing Member;
d. Was in the possession of a Member in documentary form prior to the
time of disclosure thereof to it by the disclosing Member, and was
held by the Member free of any obligation of confidence to the
disclosing Member or any Third Party; or
e. Is received in good faith from a Third Party having the right to
disclose it, who, to the best of the Member's knowledge, did not
obtain the same from a Member and who imposed no obligation of
secrecy on the Member with respect to such information.
<PAGE> 12
ARTICLE 7
INDEMNIFICATION
Each Member (a Defending Member) shall save, hold harmless, and defend
each other Member from and against any loss, cost, or expense, including
reasonable attorney fees, damages, or penalties of any kind on account of or
resulting from any claim or action for infringement of any existing or future
patent, or misappropriation of any trade secret or other intellectual property
right with respect to Initial Intangible Property, Developed Intangible
Property, Intangible Property, or other Confidential Matters owned, developed,
or held by such Defending Member. A Defending Member shall defend any such claim
or action at its own expense provided that the other Member promptly notifies
such Defending Member upon learning of any such claim or action and cooperates
with such Defending Member in defending any such claim or action.
ARTICLE 8
TERM AND TERMINATION
Section 8.1. Termination With Respect to All Members. This Agreement may
be terminated at any time by the unanimous written consent of the Members.
Section 8.2. Termination With Respect to Fewer Than All Members. The
interest of a Member in this Agreement shall terminate on the occurrence of any
of the following events, the determination of which shall be in the sole
discretion of Avanex Corporation, and any such determination shall be effective
immediately upon giving notice thereof to the Members of Avanex Corporation.
a. The giving of notice by a Member of a desire to terminate its
participation in this Agreement, but where a majority of Members do
not provide a similar notice.
b. The transfer of a substantial portion of the stock or assets of a
Member.
<PAGE> 13
c. The default of a Member with respect to any of its obligations under
this Agreement and its failure to cure any such default within sixty
(60) days following the date of notice to it from Avanex Corporation
identifying such default.
d. Any act, determination, filing, judgment, declaration, notice,
appointment of receiver or trustee, failure to pay debts, or other
events under any law applicable to a Member indicating the
insolvency or bankruptcy of the Member.
e. The taking of any extraordinary governmental action, including,
without limitation, seizure or nationalization of assets, stock, or
other property relating to a Member.
f. Any other event that shall cause Avanex Corporation to have concern
about the financial stability of a Member.
Section 8.3. Effect of Termination of the Interest of Fewer Than All
Members.
a. On the occurrence of an event of termination of the interest of a
Member (the Terminated Member) under Section 8.2 of this Article,
where there are at least two Members that are not Terminated
Members, the Terminated Member shall continue to have the rights
granted to it hereunder with respect to Know-How, Initial Intangible
Property, Developed Intangible Property, Improvements, and other
Confidential Matters that it actually used as of that date of such
event of termination during the life of such intangibles, provided
that the Terminated Member shall have no right to assign,
sublicense, or otherwise transfer such rights to any person or
entity without the express written consent of Avanex Corporation.
b. In the event that the Terminated Member shall make any assignment,
sublicense, or other transfer of the items noted in Subsection (a)
of this Section without the express written consent of Avanex
Corporation, then the
<PAGE> 14
interest of the Terminated Member in such right shall immediately
terminate, and the Terminated Members shall have no further interest
in such rights whatsoever.
c. The Terminated Member shall have no interest in any Developed
Intangible Property resulting from the Research Program subsequent
to the date of such event of termination.
d. The Members other than the Terminated Member shall continue to have
the rights granted to them under this Agreement with respect to
Know-How, Initial Intangible Property, Developed Intangible
Property, Improvements, and other Confidential Matters owned,
developed, or held by the Terminated Member during the life of such
intangibles, which rights shall not be affected by the termination
stated in Subsection (b) of this Section.
Section 8.4. Effect of Termination of This Agreement. In the event of a
termination of this Agreement pursuant to Section 8.1 of this Article, the
Avanex Corporation shall determine a winding-up procedure that will have the
effect of allowing each Member to continue to enjoy the rights granted to it
hereunder with respect to Know-How, Initial Intangible Property, Developed
Intangible Property, Improvements, and Confidential Matter as of the effective
date of such termination of this Agreement.
ARTICLE 9
MISCELLANEOUS
Section 9.1. Notices. Any and all notices, elections, offers,
acceptances, and demands permitted or required to be made under this Agreement
shall be in writing, signed by the person giving such notice, election, offer,
acceptance, or demand and shall be delivered personally, or sent by registered
or certified mail, with a copy by facsimile, to the party, addressed as follows:
Avanex Corporation
<PAGE> 15
40919 Encyclopedia Circle
Fremont, CA 94538
Attn: Jessy Chao
Fax: 510-897-4189
Avanex Cayman
40919 Encyclopedia Circle
Fremont, CA 94538
Attn: Jessy Chao
Fax: 510-897-4189
The date of personal delivery or the date of mailing, as the case may
be, shall be the date of such notice, election, offer, acceptance, or demand.
Section 9.2. Force Majeure. If the performance of any part of this
Agreement by either party, or of any obligation under this Agreement, is
prevented, restricted, interfered with, or delayed by reason of any cause beyond
the reasonable control of the party liable to perform, unless conclusive
evidence to the contrary is provided, the party so affected shall, on giving
written notice to the other party, be excused from such performance to the
extent of such prevention, restriction, interference, or delay, provided that
the affected party shall use its reasonable best efforts to avoid or remove such
causes of nonperformance and shall continue performance with the utmost dispatch
whenever such causes are removed. When such circumstances arise, the parties
shall discuss what, if any, modification of the terms of this Agreement may be
required in order to arrive at an equitable solution.
Section 9.3. Binding Effect, Assignment. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their permitted
assigns and successors-in-interest. Neither party may assign any right, or
delegate any obligation hereunder without the express prior written consent of
the other, which consent shall be strictly at the discretion of such other party
and may be contingent, if given, upon such terms and conditions as it sees fit.
<PAGE> 16
Section 9.4. Amendment. No change, modification, or amendment of this
Agreement shall be valid or binding on the parties unless such change or
modification shall be in writing signed by the party or parties against whom the
same is sought to be enforced.
Section 9.5. Remedies Cumulative. The remedies of the parties under this
Agreement are cumulative and shall not exclude any other remedies to which the
party may be lawfully entitled.
Section 9.6. Further Assurances. Each party hereby covenants and agrees
that it shall execute and deliver such deeds and other documents as may be
required to implement any of the provisions of this Agreement.
Section 9.7. No Waiver. The failure of any party to insist on strict
performance of a covenant hereunder or of any obligation hereunder shall not be
a waiver of such party's right to demand strict compliance therewith in the
future, nor shall the same be construed as a novation of this Agreement.
Section 9.8. Integration. This Agreement constitutes the full and
complete agreement of the parties.
Section 9.9. Captions. Titles or captions of articles and paragraphs
contained in this Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend, or describe the scope of this
Agreement or the intent of any provision hereof.
Section 9.10. Number and Gender. Whenever required by the context, the
singular number shall include the plural, the plural number shall include the
singular, and the gender of any pronoun shall include all genders.
Section 9.11. Counterparts. This Agreement may be executed in multiple
copies, each of which shall for all purposes constitute an Agreement, binding on
the parties, and
<PAGE> 17
each partner hereby covenants and agrees to execute all duplicates or
replacement counterparts of this Agreement as may be required.
Section 9.12. Computation of Time. Whenever the last day for the
exercise of any privilege or the discharge of any duty hereunder shall fall on a
Saturday, Sunday, or any public or legal holiday, whether local or national, the
person having such privilege or duty shall have until 5:00 p.m. PST on the next
succeeding business day to exercise such privilege or to discharge such duty.
Section 9.13. Costs and Expenses. Unless otherwise provided in this
Agreement, each party shall bear all fees and expenses incurred in performing
its obligations under this Agreement.
Section 9.14. Governing Law, Jurisdiction, Etc.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of California applicable to contracts performed wholly within
California, without regards to conflict of laws principles. Any dispute arising
in connection with the present Agreement shall be finally settled under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce.
The arbitral proceedings shall be held in Alameda County, California, USA and
conducted in the English language. Any award so entered shall be final and
binding upon the Parties and may be entered by any court of competent
jurisdiction.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above by their duly authorized officers.
AVANEX CORPORATION
/s/ JESSY CHAO
----------------------------------
Jessy Chao, CFO
AVANEX CAYMAN
/s/ JESSY CHAO
----------------------------------
Jessy Chao, Director
<PAGE> 19
[ATTACH EXHIBIT A, LIST OF INITIAL INTANGIBLE PROPERTY; EXHIBIT B, PRODUCTS;
EXHIBIT C, RESEARCH PROGRAM; AND EXHIBIT D, EXCLUDED PROJECTS; SAMPLES NOT
PROVIDED]
<PAGE> 1
EXHIBIT 10.34
INTERNATIONAL DISTRIBUTOR AGREEMENT
This International Distributor Agreement (the "Agreement") is made and entered
into this 20th day of December, 1999, by and between Avanex Corporation, a
corporation duly organized and existing under the laws of California, having its
principal place of business at 40919 Encyclopedia Circle, Fremont, California
94538 (hereinafter referred to as "Manufacturer") and Sun Instruments, a
corporation duly organized and existing under the laws of Japan, having its
principal place of business at Shinsho-Bldg. 1-4-2, Minami-Yukigaya, Ohtu-ku,
Tokyo, 145-0066, Japan (hereinafter referred to as "Sun" or "Distributor"),
WITNESSETH:
WHEREAS, Manufacturer is engaged in the business of the manufacture of various
photonic processors including the Products hereinafter defined; and
WHEREAS, Sun is engaged in the business of the sale and marketing of merchandise
throughout the world, including products similar or related to the Products of
Manufacturer; and
WHEREAS, Sun is desirous of being appointed distributor of the Products in the
Territory hereinafter defined.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, Manufacturer and Sun do hereby agree the terms and conditions set
forth below:
1. Distributorship, Products and Territory
1.01 Distributorship. Manufacturer hereby grants to Sun during the term of this
Agreement the non-exclusive right to sell the Products in the Territory all in
accordance with the terms and conditions herein set forth. Distributor shall
pursue aggressive sales policies and procedures to realize the maximum sales
potential for the Products in the Territory. Manufacturer reserves the right to
market its products directly to the House Accounts set forth on Exhibit A.
1.02 Products. The term Products as used herein shall refer to the equipment set
forth on Exhibit B attached hereto and made a part hereof, as well as all
accessories, attachments, spare parts and renewal parts therefor. Manufacturer
shall have the right to modify, alter, improve, change or discontinue any or all
of the Products covered by this Agreement but only upon [*] prior written notice
to Sun. In the event Manufacturer manufactures any new or additional products
similar to or related to the Products hereunder, said products, at the option of
Sun, shall be added to the Products covered by this Agreement.
1.03 Territory. Territory shall have the meaning set forth in Exhibit C.
1.04 Conflict of Interest. Distributor warrants to Manufacturer that it does not
currently represent or promote any lines or products that compete with the
Products. During the term of this Agreement, Distributor shall not, without
Manufacturer's prior written consent, represent, promote or otherwise try to
sell within the Territory any lines or products that, in Manufacturer's
judgment, compete with the Products covered by this Agreement.
2. Orders and Shipment
2.01 Order and Acceptance. Before accepting order from its customers, Sun shall
place written order inquiry for the Products with Manufacturer on Sun's standard
order inquiry form setting forth the quantity of Products, the specifications
therefor, and the desired delivery date. Manufacturer shall use its reasonable
best efforts to notify Distributor of the acceptance or rejection of an order
inquiry and of the assigned delivery date for accepted orders within five (5)
days after
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<PAGE> 2
receipt of the order inquiry. Upon acceptance of the order inquiry by the
Manufacturer, Sun shall place written orders for the Products with Manufacturer
on Sun's standard purchase order form setting forth the quantity of Products,
the specifications therefor, and the desired delivery date as agreed by
Manufacturer. To facilitate Manufacturer's production scheduling, Distributor
shall submit purchase orders to Manufacturer at least sixty (60) days prior to
the first day of the requested month of delivery. No order shall be binding upon
Manufacturer until accepted by Manufacturer in writing, and Manufacturer shall
have no liability to Distributor with respect to purchase orders that are not
accepted. No partial shipment of an order shall constitute the acceptance of the
entire order, absent the written acceptance of such entire order. Manufacturer
shall use its reasonable best efforts to deliver Products at the times specified
either in its quotation or in its written acceptance of Distributor's purchase
orders. The Products sold to Sun by Manufacturer shall be shipped F.O.B. (as
defined in Section 2319 of the California Uniform Commercial Code)
Manufacturer's factory at Fremont, CA to the destination in the Territory
designated by Sun in the purchase order, unless otherwise agreed by the parties.
Sun will supply [*] rolling forecast throughout the agreement.
2.02 Reservation of Title. Title to and all risks of loss or damage of the
Products shipped to Sun from Manufacturer shall be subject to full payment of
the Purchase Price therefor. Until such full payment, the Product shall remain
the property of Manufacturer. For all Products to which Manufacturer retains
title, Distributor shall (i) carry full insurance on the Products throughout the
time they are in Distributor's possession and (ii) segregate those Products from
other products in Distributor's inventory.
2.03 Terms of Purchase Orders. Distributor's purchase orders submitted to
Manufacturer from time to time with respect to Products to be purchased
hereunder shall be governed by the terms of this Agreement, and nothing
contained in any such purchase order shall in any way modify such terms of
purchase or add any additional terms or conditions.
2.04 Import and Export Requirements. Distributor shall, at its own expense, pay
all import and export licenses and permits, pay customs charges and duty fees,
and take all other actions required to accomplish the export and import of the
Products purchased by Distributor. Distributor understands that Manufacturer is
subject to regulation by agencies of the U.S. government, including the U.S.
Department of Commerce, which prohibit export or diversion of certain technical
products to certain countries. Distributor warrants that it will comply in all
respects with the export and re-export restrictions set forth in the export
license for every Product shipped to Distributor.
3. Price and Terms of Payment
3.01 Prices. The difference between Distributor's purchase price and
Distributor's selling price to its customers shall be Distributor's sole
remuneration for sale of the Products. The initial prices for Manufacturer's
Products shall be delivered by Manufacturer to Distributor within a reasonable
time after the date of this Agreement. Said price shall be subject to change by
Manufacturer from time to time by [*] days' prior written notice to Sun;
provided, however, that no such price change shall affect purchase orders
accepted by Manufacturer prior to notification of Sun of the price change by
Manufacturer. Sun shall pay all freight, insurance, taxes, duty and customs, and
any other charges associated with transportation after shipment and import of
the Products.
3.02 Terms of Payment. Unless otherwise agreed by the parties, payment shall be
made by Sun separately for each purchase order accepted by Manufacturer. Payment
by Sun to Manufacturer for Products shall be made by cash remittance within
thirty (30) days from the invoice date.
3.03 Currency. Currency for payments covered by this Agreement shall be in U.S.
Dollars.
3.04 Taxes. Distributor's Purchase Price does not include any federal, state or
local taxes that may be applicable to the Products. When Manufacturer has the
legal obligation to collect such taxes, the appropriate
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
amount shall be added to Distributor's invoice and paid by Distributor unless
Distributor provides Manufacturer with a valid tax exemption certificate
authorized by the appropriate taxing authority.
4. Marketing and Advertising
4.01 Sun's Undertaking. Sun shall exert best efforts to vigorously promote the
sale of the Products in the Territory during the term of this Agreement and to
develop a market demand for the same in the Territory. Sun shall advertise the
Products throughout the Territory in appropriate advertising media and in a
manner insuring proper and adequate publicity for the Products. Sun will ensure
the translation into the Japanese language of the following: the leaflets,
catalogues, technical literatures and maintenance manuals. Sun shall participate
training program offered by Manufacturer. Sun shall maintain a sales
organization which can be best utilized for the promotion of the sales of the
Products and shall have the right, at its own discretion, to appoint a
sub-dealer or sub-dealers to exploit the Products. The prices at which the
Products are resold in the Territory shall be at the sole discretion of Sun. Sun
shall provide a rolling [*] forecast at [*] basis.
4.02 Manufacturer's Undertaking. Manufacturer shall, from time to time, make
available to Sun free of charge advertising materials for the marketing of the
Products, such as pamphlets, leaflets, calendars, catalogues, posters, and the
like. Manufacturer shall also provide Sun free of charge service manuals, parts
lists and any other servicing information as may be currently available to
Manufacturer.
4.03 Fairs and Exhibitions. Sun agrees to participate in fairs and exhibitions
to exploit the Products in the Territory. The cost of the fairs or exhibitions
and displays and the responsibility therefor shall be discussed by the parties
prior to the fair or exhibition.
5. [Intentionally Left Blank].
6. Warranty to Distributor's Customers
6.01 Distributor shall pass on to its customers Manufacturer's standard limited
warranty for the Products, including the limitations set forth in 6.02 and 6.03
below. Manufacturer warranty shall state that the Products shall be free from
defects in design, materials and workmanship for a period of twelve (12) months
after the date of customer's acceptance. Manufacturer shall replace free of
charge all Products or parts found to be defective during said period. Sun will
supply the manpower to detect the faulty parts, and replace it with the new one
supplied by Manufacturer. Manufacturer further warrants that all the Products
shall meet the technical specifications of applicable governmental authorities
of Japan. Manufacturer shall be responsible for and shall pay all transportation
charges for the return of defective Products or parts thereof, and all
transportation charges for the replacement Products or parts thereof.
Manufacturer shall supply Sun free of charge replacement parts necessary for the
after-sale warranty servicing performed by Sun and Manufacturer shall provide to
Sun for replacement parts necessary for post-warranty servicing at a reasonable
price. This warranty is contingent upon proper use of a Product in the
application for which it was intended and does not cover Products that were
modified without Manufacturer's approval or that were subjected by the customer
to unusual physical or electrical stress.
6.02 No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH ABOVE,
MANUFACTURER GRANTS NO OTHER WARRANTIES, EXPRESS OR IMPLIED, BY STATUTE OR
OTHERWISE, REGARDING THE PRODUCTS, THEIR FITNESS FOR ANY PURPOSE, THEIR QUALITY,
THEIR MERCHANTABILITY, OR OTHERWISE.
6.03 Limitation of Liability. MANUFACTURER'S LIABILITY UNDER THE WARRANTY SHALL
BE LIMITED TO A REFUND OF THE CUSTOMER'S PURCHASE PRICE. IN NO EVENT SHALL
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 4
MANUFACTURER BE LIABLE FOR THE COST OF PROCUREMENT OF SUBSTITUTE GOODS BY THE
CUSTOMER OR FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES FOR BREACH OF
WARRANTY.
7. [Intentionally Left Blank]
8. Report
Sun agrees to furnish to Manufacturer quarterly reports regarding sales to
customers or to prospective customers in the Territory.
9. Intellectual Property Rights
9.01 Property Rights. Distributor agrees that Manufacturer owns all right,
title, and interest in the product lines that include the Products and in all of
Manufacturer's patents, trademarks, trade names, inventions, copyrights,
know-how, and trade secrets relating to the design, manufacture, operation or
service of the Products. The use by Distributor of any of these property rights
is authorized only for the purposes herein set forth, and upon termination of
this Agreement for any reason such authorization shall cease.
9.02 Sale Conveys no Right to Manufacture or Copy. The Products are offered for
sale and are sold by Manufacturer subject in every case to the condition that
such sale does not convey any license, expressly or by implication, to
manufacture, duplicate or otherwise copy or reproduce any of the Products.
Distributor shall take appropriate steps with its customers, as Manufacturer may
request, to inform them of and assure compliance with the restrictions.
9.03 Confidentiality. Distributor acknowledges that by reason of its
relationship to Manufacturer hereunder it will have access to certain
information and materials concerning Manufacturer's business, plans, customers,
technology, and products that are confidential and of substantial value to
Manufacturer, which value would be impaired if such information were disclosed
to third parties. Distributor agrees that it will not use in any way for its own
account or the account of any third party, nor disclose to any third party, any
such confidential information revealed to it by Manufacturer. Distributor shall
take every reasonable precaution to protect the confidentiality of such
information. Upon request by Distributor, Manufacturer shall advise whether or
not it considers any particular information or materials to be confidential.
Distributor shall not publish any technical description of the Products beyond
the description published by Manufacturer (except to translate that description
into appropriate languages for the Territory). In the event of termination of
this Agreement, there shall be no use or disclosure by Distributor of any
confidential information of Manufacturer, and Distributor shall not manufacture
or have manufactured any devices, components or assemblies utilizing any of
Manufacturer's confidential information. Distributor expressly consents to
Manufacturer's use of Distributor's name in promotional materials and other
documents delivered to government agencies and otherwise.
9.04 Trademarks and Trade Names.
(a) Use. During the term of this Agreement, Distributor shall
have the right to indicate to the public that it is an authorized distributor of
Manufacturer's Products and to advertise within the Territory such Products
under the trademarks, marks, and trade names that Manufacturer may adopt from
time to time ("Manufacturer's Trademarks"). Distributor shall not alter or
remove any Manufacturer's Trademark applied to the Products at the factory.
Except as set forth in this Section 9.04, nothing contained in this Agreement
shall grant to Distributor any right, title or interest in Manufacturer's
Trademarks. At no time during or after the term of this Agreement shall
Distributor challenge or assist others to challenge Manufacturer's Trademarks or
the registration thereof or attempt to register any trademarks, marks or trade
names confusingly similar to those of Manufacturer.
(b) Approval of Representations. All representations of
Manufacturer's Trademarks that Distributor intends to use shall first be
submitted to Manufacturer for approval (which shall not be unreasonably
withheld) of design, color, and other details or shall be exact copies of those
used by Manufacturer. If any of Manufacturer's Trademarks are to be used in
conjunction with another trademark on or in relation to the
<PAGE> 5
Products, then Manufacturer's mark shall be presented equally legibly, equally
prominently, and of greater size than the other but nevertheless separated from
the other so that each appears to be a mark in its own right, distinct from the
other mark.
9.05 Patent, Copyright and Trademark Indemnity.
(a) Indemnification. Distributor agrees that Manufacturer has
the right to defend, or at its option to settle, and Manufacturer agrees, at its
own expense, to defend or at its option to settle, any claim, suit or proceeding
brought against Distributor or its customer on the issue of infringement of any
United States or Japan patent, copyright or trademark by the Products sold
hereunder or the use thereof, subject to the limitations hereinafter set forth.
Manufacturer shall have sole control of any such action or settlement
negotiations, and Manufacturer agrees to pay, subject to the limitations
hereinafter set forth, any final judgment entered against Distributor or its
customer on such issue in any such suit or proceeding defended by Manufacturer.
Distributor agrees that Manufacturer at its sole option shall be relieved of the
foregoing obligations unless Distributor or its customer notifies Manufacturer
promptly in writing of such claim, suit or proceeding and gives Manufacturer
authority to proceed as contemplated herein, and, at Manufacturer's expense,
gives Manufacturer proper and full information and assistance to settle and/or
defend any such claim, suit or proceeding. If the Products, or any part thereof,
are, or in the opinion of Manufacturer may become, the subject of any claim,
suit or proceeding for infringement of any United States or Japan patent,
copyright or trademark, or if it is adjudicatively determined that the Products,
or any part thereof, infringe any United States or Japan patent, copyright or
trademark, or if the sale or use of the Products, or any part thereof, is, as a
result, enjoined, then Manufacturer may, at its option and expense either: (i)
procure for Distributor and its customers the right under such patent, copyright
or trademark to sell or use, as appropriate, the Products or such part thereof;
or (ii) replace the Products, or part thereof, with other suitable Products or
parts; or (iii) suitably modify the Products, or part thereof; or (iv) if the
use of the Products, or part thereof, is prevented by injunction, remove the
Products, or part thereof, and refund the aggregate payments paid therefor by
Distributor, less a reasonable sum for use and damage. Manufacturer shall not be
liable for any costs or expenses incurred without its prior written
authorization.
(b) Limitation. Notwithstanding the provisions of Subsection
9.05(a) above, Manufacturer assumes no liability for (i) infringements covering
completed equipment or any assembly, circuit, combination, method or process in
which any of the Products may be used but not covering the Products when used
alone; (ii) trademark infringements involving any marking or branding not
applied by Manufacturer or involving any marking or branding applied at the
request of Distributor; or (iii) infringements involving the modification or
servicing of the Products, or any part thereof, unless such modification or
servicing was done by Manufacturer.
(c) Entire Liability. The foregoing provisions of this Section
9.05 state the entire liability and obligations of Manufacturer and the
exclusive remedy of Distributor and its customers, with respect to any alleged
infringement of patents, copyrights, trademarks or other intellectual property
rights by the Products or any part thereof.
10. Relationship of Parties
The relationship between Manufacturer and Sun shall not be that of a principal
and an agent, but shall be that of a seller and purchaser, each acting as an
independent contractor. Sun shall have no right or authority to incur, assume or
create, in writing or otherwise, any warranty, liability, or obligation of any
kind, express or implied, in the name of or on behalf of Manufacturer.
11. Assignment
Neither party shall assign, transfer or otherwise dispose of this Agreement or
any of its rights or obligations hereunder in whole or in part to any
individual, firm or corporation without the prior written consent of the other
party.
12. Term of Agreement
<PAGE> 6
12.01 Term and Renewal. This Agreement shall become effective on the date
mentioned above, remain effective for a period of [*] and shall thereafter be
automatically renewed from [*] unless terminated by either party giving to the
other ninety (90) days' written notice prior to the expiration of the term or
renewal term of this Agreement.
13. Events of Termination
13.01 Cancellation. In addition to the right of termination set forth in
paragraph 12.01, either party may cancel this Agreement as follows:
(a) Termination for Convenience. This Agreement may be cancelled by either party
for any reason or no reason, whether or not extended beyond the first year, by
giving the other party written notice [*] in advance. If Manufacturer terminates
this Agreement under the provisions of this Subsection 13.01(a) and 12.01, then
Manufacturer shall, at Distributor's option, repurchase Distributor's
then-current inventory at the lower of the current Purchase Price or
Distributor's original Purchase Price and shall bear all shipping costs for the
return to Manufacturer of that inventory.
(b) Bankruptcy etc. By either party immediately and without
prior written notice to the other party in the event that proceedings in
bankruptcy or insolvency are instituted by or against the other party, or a
receiver is appointed, or if any substantial part of the assets of the other
party is the object of attachment, sequestration or other type of comparable
proceeding, and such proceeding is not vacated or terminated within thirty (30)
days after its commencement or institution;
(c) Default. By either party immediately if one party defaults
in the performance of any of the provisions of this Agreement and does not cure
the default within thirty (30) days after receipt of written notice given by the
other party; or
(d) Licenses. By either party immediately if either party is
unable to obtain or renew any permit, license, patent or other governmental
approval necessary to carry on the business contemplated under this Agreement.
13.02 Fulfillment of Orders upon Termination. Upon termination of this Agreement
for other than Distributor's breach, Manufacturer shall continue to fulfill,
subject to the terms of Sections 2 and 3 above, all orders accepted by
Manufacturer prior to the date of termination.
13.03 Return of Materials. All trademarks, trade names, patents, copyrights,
designs, drawings, formulas or other data, photographs, samples, literature, and
sales aids of every kind shall remain the property of Manufacturer. Within
thirty (30) days after the termination of this Agreement, Distributor shall
prepare all such items in its possession for shipment, as Manufacturer may
direct, at Manufacturer's expense. Distributor shall not make, use, dispose of
or retain any copies of any confidential items or information which may have
been entrusted to it. Effective upon the termination of this Agreement,
Distributor shall cease to use all trademarks, marks, and trade names of
Manufacturer. Notwithstanding the foregoing, Distributor may use all trade
marks, marks, and tradename of Manufacturer in connection with the sales of
Distributor's remaining inventory of Manufacturer's products within 90 days from
the date of termination.
13.04 Limitation on Liability. In the event of termination by either party in
accordance with any of the provisions of this Agreement, neither party shall be
liable to the other, because of such termination, for compensation,
reimbursement or damages on account of the loss of prospective profits or
anticipated sales or on account of expenditures, inventory, investments, leases
or commitments in connection with the business or goodwill of Manufacturer or
Distributor. Termination shall not, however, relieve either party of obligations
incurred prior to the termination.
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<PAGE> 7
13.05 Survival of Certain Terms. The provisions of Sections 2.02, 2.04, 3.02, 6,
9, 10, 13, 14, 15, 16, 17, 18, 19 and 20 shall survive the termination of this
Agreement for any reason. All other rights and obligations of the parties shall
cease upon termination of this Agreement.
<PAGE> 8
14. LIMITATION ON LIABILITY
MANUFACTURER'S LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR SALE OF THE
PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY THE CUSTOMER FOR THE PRODUCTS.
IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE
GOODS. IN NO EVENT SHALL MANUFACTURER BE LIABLE TO DISTRIBUTOR OR ANY OTHER
ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER
CAUSED, ON ANY THEORY OF LIABILITY.
15. Entire Agreement
This Agreement, the exhibits and duly executed addenda thereto constitute the
entire agreement between the parties hereto and supersede all previous
negotiations, agreements and commitments in respect thereto, and shall not be
released, discharged, changed or modified in any manner, except by instruments
signed by duly authorized officers or representatives of each of the parties
hereto.
16. Governing Law
The validity and interpretation of this Agreement and each clause and part
thereof shall be governed by the laws of California without regards to conflict
or laws principles.
17. Arbitration
All disputes, controversies or differences arising between the parties hereto,
out of or in relation to or in connection with this Agreement, or the breach
thereof, which cannot be amicably settled by the parties, shall be referred to
arbitration in accordance with the Commercial Arbitration Rules of the Japan
Commercial Arbitration Association and the decision of such arbitration
proceeding shall be binding and conclusive upon the parties hereto. Arbitration
shall be conducted in Tokyo, Japan. The expense of any such arbitration shall be
borne equally by the parties.
18. Separability of Provisions
A judicial or administrative declaration in any jurisdiction on the invalidity
of any one or more of the provisions hereof shall not invalidate the remaining
provisions of this Agreement in that jurisdiction, nor shall such declaration
have any effect on the validity or interpretation of this Agreement outside of
that jurisdiction.
19. Waiver of Compliance
Any failure by any party hereto to enforce at any time, any term or condition
under this Agreement shall not be considered a waiver of that party's right
thereafter to enforce each and every term and condition of this Agreement.
20. Notices
All notices and other communications in connection with this Agreement shall be
in writing and shall be sent to the respective parties at the following
addresses, or to such other addresses as may be designated by the parties in
writing from time to time by postage prepaid registered or certified mail or
electronic mail, facsimile or other reliable method of transmission:
To Manufacturer: Avanex Corporation
40919 Encyclopedia Circle
<PAGE> 9
Fremont, California 94538
U.S.A.
Attention: Jessy Chao
Phone: (510) 897-4272
Fax: (510) 897-4189
To Sun: Sun Instruments, Inc.
----------------------
----------------------
Japan
Attention: Toshiro Kasai
Phone:
Fax:
21. Force Majeure. Nonperformance of either party shall be excused to the extent
that performance is rendered impossible by strike, fire, flood, governmental
acts or orders or restrictions, failure of suppliers, or any other reason where
failure to perform is beyond the reasonable control of and is not caused by the
negligence of the nonperforming party.
22. 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.
<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized representatives.
Avanex Corporation Sun Instruments
By: By:
------------------------- --------------------------------
Walter Alessandrini Toshiro Kasai
Title: President and CEO Title: President
--------------------- ------------------------
Date: Date:
--------------- ---------------
<PAGE> 11
EXHIBITS
EXHIBIT A HOUSE ACCOUNTS
[*]
EXHIBIT B PRODUCTS
All current Avanex products offered by Avanex as of the date of this
Agreement; provided however, that Avanex has the right, upon [*] days'
prior written notice, to exclude all products that perform [*].
EXHIBIT C TERRITORY
[*]
- --------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<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 January 14, 2000, included in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-92097), 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 our 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 herein.
Ernst & Young LLP
San Jose, California
January 14, 2000
<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 SIX MONTHS 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> DEC-31-1999
<CASH> 2,219
<SECURITIES> 12,160
<RECEIVABLES> 3,081
<ALLOWANCES> 328
<INVENTORY> 2,693
<CURRENT-ASSETS> 21,235
<PP&E> 6,794
<DEPRECIATION> 1,162
<TOTAL-ASSETS> 28,152
<CURRENT-LIABILITIES> 6,922
<BONDS> 31,728
0
0
<COMMON> 20
<OTHER-SE> 39,685
<TOTAL-LIABILITY-AND-EQUITY> 28,152
<SALES> 10,916
<TOTAL-REVENUES> 10,916
<CGS> 8,194
<TOTAL-COSTS> 8,194
<OTHER-EXPENSES> 18,685
<LOSS-PROVISION> 298
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> (19,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,845)
<EPS-BASIC> (6.41)
<EPS-DILUTED> (6.41)
</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> 18
<OTHER-SE> 3,806
<TOTAL-LIABILITY-AND-EQUITY> 6,816
<SALES> 510
<TOTAL-REVENUES> 510
<CGS> 531
<TOTAL-COSTS> 531
<OTHER-EXPENSES> 7,550
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 119
<INCOME-PRETAX> (9,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,221)
<EPS-BASIC> (4.79)
<EPS-DILUTED> (4.79)
</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> 7
<OTHER-SE> 325
<TOTAL-LIABILITY-AND-EQUITY> 3,339
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (1,137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,137)
<EPS-BASIC> (7.20)
<EPS-DILUTED> (7.20)
</TABLE>
