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As filed with the Securities and Exchange Commission on April 6, 2000
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-8/S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(INCLUDING REGISTRATION OF SHARES FOR RESALE BY MEANS OF A
FORM S-3 PROSPECTUS)
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AVANEX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3285348
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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)
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1998 STOCK PLAN, AS AMENDED
1999 EMPLOYEE STOCK PURCHASE PLAN
1999 DIRECTOR OPTION PLAN
(FULL TITLE OF THE PLANS)
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WALTER ALESSANDRINI
CHIEF EXECUTIVE OFFICER
AVANEX CORPORATION
40919 ENCYCLOPEDIA CIRCLE
FREMONT, CA 94538
(510) 897-4188
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
JUDITH M. O'BRIEN, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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Common Stock, $0.001 per
share par value: Available
for issuance under the
1998 Stock Plan, as amended.. 7,518,117 shares $103.44(1) $777,674,022.48(1) $205,306.00(1)
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Common Stock, $0.001 per
share par value: To be
issued under the 1998 Stock
Plan, as amended............. 3,871,255 shares $ 4.65(2) $ 18,001,335.75(2) $ 4,753.00(2)
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Common Stock, $0.001 per
share par value: Issued
under the 1998 Stock Plan,
as amended................... 465,000 shares $103.44(1) $ 48,099,600(1) $ 12,699.00(1)
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Common Stock, $0.001 per
share par value: To be
issued under the 1999
Employee Stock Purchase
Plan......................... 525,000 shares $103.44(1) $ 54,306,000(1) $ 14,337.00(1)
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 per
share par value: To be
issued under the 1999
Director Option Plan....... 300,000 shares $103.44(1) $31,032,000(1) $ 8,193.00(1)
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(1) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee based upon the average of the high and
low prices of the Common Stock as reported on the Nasdaq National Market
on April 4, 2000.
(2) The registration fee for the shares of Common Stock to be issued pursuant
to outstanding options under the 1998 Stock Plan, as amended, an employee
stock option plan, was calculated in accordance with Rule 457(h) of the
Securities Act based upon the basis of the weighted average price per
share at which the options may be exercised.
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EXPLANATORY NOTE
This Registration Statement relates to (i) 12,214,372 shares of Common
Stock to be issued in the future upon the exercise of options or the purchase of
stock under the Company's employee benefit plans and (ii) the resale of 465,000
shares of Common Stock previously issued under the Company's employee benefit
plans.
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PROSPECTUS
465,000 SHARES
AVANEX CORPORATION
COMMON STOCK
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This Prospectus relates to 465,000 shares of the common stock of Avanex
Corporation, which may be offered from time to time by certain selling
stockholders of the Company. We will receive no part of the proceeds from sales
of the shares. The shares were acquired by the selling stockholders under the
Company's employee benefit plans.
The Company's common stock is listed on the Nasdaq National Market under
the symbol "AVNX." The Company's common stock was initially sold to the public
at a price of $36.00 per share on February 4, 2000.
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SEE "RISK FACTORS" ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
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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.
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The date of this Prospectus is April 6, 2000
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. CERTAIN SELLING
STOCKHOLDERS ARE OFFERING TO SELL SHARES AND SEEKING OFFERS TO BUY SHARES ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE
DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS
OR ANY SALE OF THE SHARES.
TABLE OF CONTENTS
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PAGE
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Where You Can Find Additional Information................................. 4
Information Incorporated by Reference..................................... 4
The Company............................................................... 5
Special Note Regarding Forward-Looking Statements......................... 6
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 23
Selling Stockholders...................................................... 23
Plan of Distribution...................................................... 24
Legal Matters............................................................. 25
Experts................................................................... 25
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the
Commission, in accordance with the Securities and Exchange Act of 1934. You may
read and copy our reports, proxy statements and other information filed by us at
the public reference facilities of the Commission in Washington, D.C., New York,
New York, and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330
for further information about the public reference rooms. Our reports, proxy
statements and other information filed with the Commission are available to the
public over the Internet at the Commission's World Wide Web site
http://www/sec/gov.
This Prospectus constitutes a part of a Registration Statement on Form
S-8/S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by us with the Commission under the Securities
Act. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to us and the 465,000 shares (the "Shares") refer to the Registration
Statement. The Registration Statement may be inspected at the public reference
facilities maintained by the Commission at the locations set forth in the
preceding paragraph. Statements contained herein concerning any document filed
as an exhibit are not necessarily complete, and, in each instance, refer to the
copy of such document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission are hereby incorporated
by reference in this Prospectus:
(1) The Company's Registration Statement on Form S-1 (Registration No.
333-92097) under the Securities Act of 1933, as amended (the "Securities Act"),
in the form declared effective on February 3, 2000, including the Prospectus
dated February 3, 2000 as filed by the Company pursuant to Rule 424(b) on
February 4, 2000.
(2) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed January 26, 2000 pursuant to
Section 12(g) of the Exchange Act and declared effective January 26, 2000.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of this offering shall be deemed to
be incorporated by reference in this Prospectus and to be part hereof from the
date of filing of such reports and other documents.
You may request a copy of these filings, at no cost, by writing or
telephoning Anthony Florence, Vice President, Corporate Marketing and Investor
Relations, Avanex Corporation, 40919 Encyclopedia Circle, Fremont, California,
94538. The Company's telephone number at that location is (510) 897-4188.
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THE COMPANY
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. 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
fiber at different velocities and reaching their 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, PowerMux and PowerShaper 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.
The Company was incorporated in California in October 1997 and
reincorporated in Delaware in January 2000. The Company's principal executive
office is located at 40919 Encyclopedia Circle, Fremont, California 94538 and
its telephone number at this location is (510) 897-4188.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "The Company," "Risk Factors," 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.
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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.
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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;
- 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.
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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 on a commercial basis, 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. 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. 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 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 99% 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 Telecommunications and MCI Worldcom, collectively MCI Worldcom,
accounted for 92% of our net revenue in the quarter ended October 1, 1999 and
85% in the quarter 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,
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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 may expect CMI to manufacture a significant portion of
our subcomponents and products in the future. Although CMI is building a larger
manufacturing facility in Tianjin, it will not be operational until at least the
quarter ending September 29, 2000. If this larger facility is not completed on
time, or at all, it may be more difficult to grow our business.
To successfully meet our overall production goals, we will also have to
coordinate effectively our operations in California and CMI's operations in
China. We have no experience in coordinating and
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<PAGE> 13
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.
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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 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
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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.
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.
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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
introduced our PowerShaper product, which is currently in the beta testing
stage, in March 2000. If the development of any future products takes longer
than we anticipate, or if we are unable to develop and introduce these products
to the commercial market, our revenues could suffer and we will not gain market
share. Even if we are able to develop and commercially introduce new products
and enhancements, we cannot assure you that the new products or enhancements
will achieve widespread market acceptance. Any failure of PowerMux, PowerShaper
or our other future products to achieve market acceptance could significantly
harm our business.
WE MAY EXPERIENCE INCREASED COMPETITION FROM COMPANIES IN THE PHOTONIC PROCESSOR
MARKET AND IN THE OPTICAL SYSTEMS AND COMPONENT INDUSTRY, 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 better positioned than we are to acquire
other companies in order to gain new technologies or products that may displace
our product lines.
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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, one distributor in
Israel and one sales representative in Italy. These distributors and sales
representative also sell products that compete with our products. We cannot be
certain that we will be able to reach agreement with additional distribution
partners or sales representatives on a timely basis or at all, or that our
distribution partners will devote adequate resources to selling our products.
Even if we enter into agreements with additional distribution partners, they may
not result in increased product sales.
If we are unable to expand our direct and indirect sales operations, we
may not be able to increase market awareness or sales of our products, which may
prevent us from increasing our revenues.
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.
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IF THE INTERNET DOES NOT CONTINUE TO EXPAND AS A WIDESPREAD COMMUNICATION AND
COMMERCE MEDIUM, DEMAND FOR OUR PRODUCTS MAY DECLINE SIGNIFICANTLY
Our future success depends on the continued growth of the Internet as a
widely-used medium for commerce and communication and the continuing demand for
increased bandwidth over communications networks. If the Internet does not
continue to expand as a widespread communication medium and commercial
marketplace, the need for significantly increased bandwidth across networks and
the market for optical transmission products may not develop. As a result, it
would be unlikely that our products would achieve commercial success.
OUR MARKET IS NEW AND IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND
EVOLVING STANDARDS, AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR PRODUCTS
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 EFFECTIVELY MANAGE OUR FINANCIAL AND MANAGERIAL CONTROLS,
REPORTING SYSTEMS AND PROCEDURES AS WELL AS EXPAND, TRAIN AND MANAGE OUR
WORKFORCE, 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
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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 and manufacturing personnel. Our ability to
continue to attract and retain highly skilled personnel will be a critical
factor in determining whether we will be successful in the future. Competition
for highly skilled personnel is intense, especially in the San Francisco Bay
Area. We may not be successful in attracting, assimilating or retaining
qualified personnel to fulfill our current or future needs. Our planned growth
will place a significant demand on our management and operational resources.
Many of the members of our management team have only been with us for a
relatively short period of time. For example, our Chief Executive Officer joined
us in March 1999, and six of our ten 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.
Although we have recently been issued one jointly-filed U.S. patent, we cannot
assure you that the remaining 27 U.S. patent applications that we have filed,
seven of which were jointly filed, and six foreign patent applications that we
have filed, one of which was jointly 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
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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 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
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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 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 and February 29, 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.
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Despite the passing of January 1, 2000 and February 29, 2000, our
suppliers, vendors, distributors, customers or service providers could still
experience year 2000 problems. If any year 2000 related failures occur, they
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 with regard to our
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 may have been and may continue to be
affected by year 2000 issues if they needed to expend significant resources to
fix their existing systems to become year 2000 compliant. This situation may
reduce funds available to purchase our products.
RISKS RELATED TO THE SECURITIES MARKETS AND THIS OFFERING
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AS SOON AS MAY 3,
2000 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 97.9% 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 our
initial public offering, or February 3, 2000, without the prior written approval
of Morgan Stanley & Co. Incorporated. These lock-up agreements will expire on
August 1, 2000, and an aggregate of 46,129,693 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 May 3, 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
February 3, 2000. Of these shares to be released on May 3, 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.
Sales of a substantial number of shares of our common stock 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 sold to MCI WorldCom Venture
Fund and Microsoft concurrently with our initial public offering are "restricted
securities" and the one year holding period for these shares will expire one
year from the date of sale. The date of sale was February 9, 2000. However, each
of MCI WorldCom Venture Fund and Microsoft may, beginning 180 days after
February 3, 2000, exercise their registration rights which will enable them to
sell all of their shares in the open market.
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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
Our executive officers, directors and entities affiliated with them, in
the aggregate, beneficially own approximately 65% of our outstanding common
stock. 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.
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 our Registration Statement on Form S-1 (Registration Number
333-92097). 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.
WE HAVE AND EXPECT TO CONTINUE 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.
-22-
<PAGE> 25
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All proceeds from the sale of the Shares will be for the account of the
Selling Stockholders, as described below. See "Selling Stockholders" and "Plan
of Distribution" described below.
SELLING STOCKHOLDERS
Gregory Reyes, Jr., Federico Faggin and Joel Smith are directors of the
Company and each own 40,000 shares of the Company's Common Stock. Brett Casebolt
is the Company's Vice President, Business Development, and Mr. Casebolt owns
197,500 shares of the Company's Common Stock. Lee Bussell and Dennis Fernandez
have served as outside consultants to the Company. Mr. Bussell and Mr. Fernandez
own 45,000 and 105,000 shares of the Company's Common Stock, respectively. The
Selling Stockholders do not beneficially own, individually or in the aggregate,
more than 1% of the outstanding Common Stock of the Company prior to this
offering. The following table shows the names of the Selling Stockholders and
the number of Shares able to be sold by them pursuant to this Prospectus:
<TABLE>
<CAPTION>
NO. OF SHARES TO BE
NAME REGISTERED
---- -------------------
<S> <C>
Gregory Reyes, Jr. 40,000
Federico Faggin 40,000
Joel Smith 40,000
Brett Casebolt 195,000
Lee Bussell 45,000
Dennis Fernandez 105,000
-------
TOTAL 465,000
=======
</TABLE>
-23-
<PAGE> 26
PLAN OF DISTRIBUTION
The selling stockholders may sell all or a portion of the shares from time
to time on the Nasdaq National Market for their own accounts at prices
prevailing in the public market at the times of such sales. The selling
stockholders may also make private sales directly or through one or more
brokers. These brokers may act as agents or as principals. The selling
stockholders will pay all sales commissions and similar expenses related to the
sale of the shares. We will pay all expenses related to the registration of the
shares.
The selling stockholders and any broker executing selling orders on behalf
of the selling stockholders may be considered "an underwriter" under the
Securities Act. As a result, commissions received by a broker may be treated as
underwriting commissions under the Securities Act. Any broker-dealer
participating as an agent in that kind of transaction may receive commissions
from the selling stockholders and from any purchaser of shares.
Underwriters, dealers and agents may be entitled to indemnification by us
against certain civil liabilities, including liabilities under the Securities
Act. Underwriters, dealers and agents also may be entitled to contribution with
respect to payments made by the underwriters, dealers or agents, under
agreements between us and the underwriters, dealers and agents.
Any securities covered by this Prospectus that qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus. There can be no assurance that the Selling
Stockholders will sell any or all of the Shares of Common Stock offered
hereunder.
-24-
<PAGE> 27
LEGAL MATTERS
The validity of the Shares of Common Stock offered hereby will be passed
upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, counsel to the Company.
EXPERTS
The consolidated financial statements and schedule of Avanex Corporation
appearing in Avanex Corporation's Registration Statement (Form S-1 No.
333-92097) filed with the Securities and Exchange Commission, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given on the authority of such firm as experts in accounting and
auditing.
-25-
<PAGE> 28
AVANEX CORPORATION
465,000 SHARES
OF
COMMON STOCK
-----------------------------------------
PROSPECTUS
-----------------------------------------
April 6, 2000
<PAGE> 29
REGISTRATION STATEMENT ON FORM S-8/S-3
PART II
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents and information previously filed with the
Securities and Exchange Commission by Avanex Corporation (the "Company") are
hereby incorporated by reference in this Registration Statement:
(1) The Company's Registration Statement on Form S-1 (Registration No.
333-92097) under the Securities Act, in the form declared effective on February
3, 2000, including the Prospectus dated February 3, 2000 as filed by the Company
pursuant to Rule 424(b) on February 4, 2000.
(2) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed January 26, 2000 pursuant to
Section 12(g) of the Exchange Act and declared effective January 26, 2000.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities registered have
been sold or which de-registers all securities then remaining unsold, shall be
deemed to be incorporated by reference in this Registration Statement and to be
part hereof from the date of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the shares of Common Stock offered hereby has been passed
upon for Avanex Corporation by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. As of the date of this registration
statement, WS Investment Company 98A, WS Investment Company 99A and WS
Investment Company 99B, each 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 423,419 shares of Avanex
Corporation Common Stock.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides in relevant part that "[a] corporation may 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 in the right of the corporation) by
reason of the fact that he is or was
II-2
<PAGE> 30
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 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." With respect to
derivative actions, Section 145(b) of the DGCL provides in relevant part that
"[a] corporation may 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 his service in one of the capacities specified in the preceding sentence]
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit 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 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 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 Court of Chancery or such other court shall deem proper."
Article EIGHTH of the Company's 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 the Company's bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of Avanex Corporation if
such person acted in good faith and in a manner reasonably believed to be in and
not opposed to the Company's 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.
The Company has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in the
Company's bylaws, and intends 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 the Company's
directors, and officers against certain liabilities that may arise by reason of
their status or service as directors and officers (other than liabilities
arising from willful misconduct of culpable nature) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
The Company carries officer and director liability insurance with respect
to certain matters, including matters arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
II-3
<PAGE> 31
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
The issuance of the Shares being offered by the Form S-3 resale
prospectus were deemed exempt from registration under the Securities Act in
reliance upon Section 4(2) of the Securities Act.
ITEM 8. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENTS
------ ---------
<S> <C>
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.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as to the validity of the securities being
registered.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-7).
</TABLE>
* Incorporated by reference to Exhibit 10.2 filed with Avanex
Corporation's Registration Statement on Form S-1 (Registration No.
333-92097).
** Incorporated by reference to Exhibit 10.3 filed with Avanex
Corporation's Registration Statement on Form S-1 (Registration No.
333-92097).
*** Incorporated by reference to Exhibit 10.4 filed with Avanex
Corporation's Registration Statement on Form S-1 (Registration No.
333-92097).
ITEM 9. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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-4
<PAGE> 32
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted for directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, 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 such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8/S-3 and 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 this 6th day of
April, 2000.
AVANEX CORPORATION
By: /s/ Jessy Chao
----------------------------------
Jessy Chao
Chief Financial Officer
II-6
<PAGE> 34
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, as his or her attorney-in-fact, with full power of substitution in each,
for him in any and all capacities, to sign any amendments to this Registration
Statement on Form S-8/S-3 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES ON THE 6TH
DAY OF APRIL, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Walter Alessandrini President, Chief Executive Officer
- ------------------------------------- (Principal Executive Officer) and
Walter Alessandrini Director
/s/ Jessy Chao Chief Financial Officer (Principal
- ------------------------------------- Financial and Accounting Officer)
Jessy Chao
/s/ Xiaofan Cao Senior Vice President, Product
- ------------------------------------- Development and Director
Xiaofan Cao
/s/ Todd Brooks Director
- -------------------------------------
Todd Brooks
/s/ Michael Goguen Director
- -------------------------------------
Michael Goguen
/s/ Seth Neiman Director
- -------------------------------------
Seth Neiman
/s/ Vint Cerf Director
- -------------------------------------
Vint Cerf
/s/ Joel Smith Director
- -------------------------------------
Joel Smith
/s/ Federico Faggin Director
- -------------------------------------
Federico Faggin
/s/ Gregory Reyes, Jr. Director
- -------------------------------------
Gregory Reyes, Jr.
</TABLE>
II-7
<PAGE> 35
AVANEX CORPORATION
REGISTRATION STATEMENT ON FORM S-8/S-3
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENTS
------- ---------
<S> <C>
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.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-7).
</TABLE>
* Incorporated by reference to Exhibit 10.2 filed with Avanex
Corporation's Registration Statement on Form S-1 (Registration No.
333-92097).
** Incorporated by reference to Exhibit 10.3 filed with Avanex
Corporation's Registration Statement on Form S-1 (Registration No.
333-92097).
*** Incorporated by reference to Exhibit 10.4 filed with Avanex
Corporation's Registration Statement on Form S-1 (Registration No.
333-92097).
II-8
<PAGE> 1
EXHIBIT 5.1
April 6, 2000
Avanex Corporation
40919 Encyclopedia Circle
Fremont, California 94538
RE: REGISTRATION STATEMENT ON FORM S-8/S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-8/S-3 (the
"Registration Statement") to be filed by you with the Securities and Exchange
Commission on or about April 6, 2000, in connection with the registration under
the Securities Act of 1933, as amended, of an aggregate of 12,214,372 shares of
your Common Stock (the "Future Issuance Shares"), reserved for future issuance
pursuant to your 1998 Stock Plan, as amended, 1999 Employee Stock Purchase Plan
and 1999 Director Option Plan (collectively, the "Plans") and an aggregate of
465,000 shares registered on behalf of certain selling stockholders listed in
the Registration Statement (the "Selling Stockholder Shares"). As your legal
counsel, we have reviewed the actions proposed to be taken by you in connection
with the issuance and sale of the Future Issuance Shares and the sale of the
Selling Stockholder Shares.
It is our opinion that the Future Issuance Shares, when issued and sold in
the manner referred to in the Plans and pursuant to the agreements which
accompany the Plans, will be legally and validly issued, fully paid and
nonassessable. It is also our opinion that the selling stockholder shares are
legally and validly issued, fully paid and nonassessable.
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 any Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-8/S-3) and related Prospectus of Avanex
Corporation for the registration of 465,000 shares of its common stock and to
the incorporation by reference therein pertaining to the Avanex Corporation 1998
Stock Plan, as amended, the 1999 Employee Stock Purchase Plan and the 1999
Director Option Plan of our reports dated January 14, 2000, with respect to the
consolidated financial statements and schedule of Avanex Corporation included in
its Registration Statement (Form S-1 No. 333-92097) filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
San Jose, California
April 4, 2000
