<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NEW FOCUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA
(PRIOR TO REINCORPORATION)
DELAWARE 3674 33-0404910
(AFTER REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
2630 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051-0905
(408) 980-8088
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KENNETH E. WESTRICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2630 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051-0905
(408) 980-8088
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JUDITH M. O'BRIEN, ESQ. NORA L. GIBSON, ESQ.
ALISANDE M. ROZYNKO, ESQ. LAURA M. DE PETRA, ESQ.
MARGO M. EAKIN, ESQ. LORA D. BLUM, ESQ.
EDWARD F. VERMEER, ESQ. BROBECK PHLEGER & HARRISON LLP
WILSON SONSINI GOODRICH & ROSATI ONE MARKET, SPEAR STREET TOWER
PROFESSIONAL CORPORATION SAN FRANCISCO, CALIFORNIA 94105
650 PAGE MILL ROAD (415) 442-0900
PALO ALTO, CA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value.............................. $86,250,000 $22,770.00
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares which the underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of Rule 457(o) 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 SECURITIES AND EXCHANGE 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 IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 1, 2000
Shares
[NEW FOCUS LOGO]
NEW FOCUS, INC.
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We applied to have our common stock
quoted on The Nasdaq Stock Market's National Market under the symbol "NUFO."
The underwriters have an option to purchase a maximum of additional shares
to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS NEW FOCUS
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share...................................... $ $ $
Total.......................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
DAIN RAUSCHER WESSELS
U.S. BANCORP PIPER JAFFRAY
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
[INSIDE FRONT COVER]
The inside front cover page of the prospectus starts with the heading "Smart
Optics for Networks." To the right of the heading is the New Focus logo with
the name of the company next to it.
Underneath it is the text that reads "Fiber optic products that enable
next-generation optical networks with:" below this text are 5 bullet points
that read
"Increased channel counts
Higher data rates
Longer reach lengths
New services
Cost-effectiveness"
Under the bullet points is a diagram of a typical optical network containing
DWDM terminals represented by blue boxes with text "DWDM Terminal" on them,
routers represented by white cylinders with text "ROUTERS" on them and fiber
amplifiers with text "Fiber Amplifiers" next to them represented by small
rectangular green boxes. These elements in the network are connected by red and
black lines representing fiber optic interconnections.
Underneath this diagram are 5 circles each containing a photograph of a New
Focus product. Under the first circle is text "Fiber Amplifier Products", under
the second "Wavelength Management Products", under the third "High-Speed
Opto-Electronics", under the fourth "Tunable Laser Modules" and under the fifth
"Advanced Photonic Tools". From each of these circles is a black dotted line
that goes to the network element in which each of these products are used.
[INSIDE BACK COVER]
The inside back cover page of the prospectus at the top has the New Focus logo
with the name of the company next to it.
To the right of the entire page are 5 photographs of New Focus products. To the
left of each of photograph is text describing the product.
The first product has the heading "Fiber Amplifier Products". Under this
heading are 4 bullet points that read
"For advanced fiber amplifiers
Extended wavelength range for more channels
Low loss and high pump power for longer reach
Compact size"
The second product has the heading "Wavelength Management Products". Under this
heading are 4 bullet points that read
"For management of many channels
Efficient processing of densely packed channels
Requires no active cooling
Flexibility for enabling new services"
The third product has the heading "High-Speed Opto-Electronics". Under this
heading are 3 bullet points that read
"For connecting network equipment within a site
High data rate of 10 Gbps
Compact, efficient and cost-effective"
The fourth product has the heading "Tunable Laser Modules". Under this heading
are 4 bullet points that read
"For testing fiber optic products
Rapid and precise for high throughput
Rugged and reliable design"
The fifth product has the heading "Advanced Photonic Tools". Under this heading
is 1 bullet point that reads
"Enables development and manufacturing of next-generation fiber optic products"
<PAGE> 4
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 7
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 19
USE OF PROCEEDS....................... 20
DIVIDEND POLICY....................... 20
CAPITALIZATION........................ 21
DILUTION.............................. 22
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
</TABLE>
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PAGE
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BUSINESS.............................. 32
MANAGEMENT............................ 45
CERTAIN TRANSACTIONS.................. 55
PRINCIPAL STOCKHOLDERS................ 58
DESCRIPTION OF CAPITAL STOCK.......... 60
SHARES ELIGIBLE FOR FUTURE SALE....... 62
UNDERWRITING.......................... 64
NOTICE TO CANADIAN RESIDENTS.......... 66
LEGAL MATTERS......................... 67
EXPERTS............................... 67
ADDITIONAL INFORMATION................ 67
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary highlights information we present more fully
elsewhere in this prospectus. This prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of factors described under the heading "Risk Factors" and elsewhere in this
prospectus.
NEW FOCUS, INC.
We design, manufacture and market innovative fiber optic products for
next-generation optical networks under the Smart Optics for Networks brand. We
leverage our ten years of experience in developing advanced photonics tools and
opto-electronic products to enable networking solutions with increased channel
counts, higher data rates, longer reach lengths and new services, and which
reduce overall network cost of ownership. Our high performance products are
compact, consume less power and are designed to be manufacturable in high
volumes. Our products include fiber amplifier products, wavelength management
products, high-speed opto-electronics, tunable laser modules and advanced
photonics tools. We sell our products to over 50 customers including Alcatel
USA, Avanex Corporation, Corning Incorporated, Corvis Corporation, Lucent
Technologies, Nortel Networks Corporation and Qtera Corporation (a wholly-owned
subsidiary of Nortel Networks).
The increase in data traffic, coupled with demand for enhanced services and
improved connection times, has increased demand for high-bandwidth
communications networks. Network service providers have had difficulty in
meeting this increased demand due to significant constraints of the existing
communications infrastructure, which was originally designed to carry only voice
traffic. To alleviate this bottleneck, network service providers are
increasingly deploying next-generation optical networks. Next-generation optical
networks will depend on systems and components that enable extremely long reach,
high data rates, increased channel counts and new services at a low network cost
of ownership. The optical networking market is one of the fastest growing
portions of the telecommunications market. Ryan, Hankin & Kent estimates that
the market for fiber optic components was approximately $6.6 billion in 1999 and
is expected to grow to over $22.5 billion by 2003.
Our Smart Optics for Networks products enable systems providers to meet the
dynamic demands of next-generation optical networks. Our fiber amplifier
products are widely deployed in dense wavelength division multiplexing, or DWDM,
networks to enable the transmission of an increased amount of information at
very high speeds over extended distances. Our wavelength management products
enable network equipment providers to increase the number of channels
transmitted and to accurately, efficiently and reliably manage a vast number of
optical signals. We offer high-speed opto-electronic products that enable
interconnections between equipment in a network service provider's site at 10
gigabits per second. Our high performance tunable laser modules enable rapid
development, manufacturing and testing of fiber optic components and systems. We
also offer advanced photonics tools that enable network service and equipment
providers to develop their next-generation products. These products leverage our
core competencies for a variety of optical networking applications.
We are committed to designing and manufacturing high quality products that
have been thoroughly tested for reliability and performance. We perform
extensive in-house testing to industry accepted Telcordia, or Bellcore,
standards and have also been recommended for ISO-9001 quality certification. Our
in-house manufacturing capabilities include optical assembly, integration and
testing of our fiber optic products and advanced photonics tools. To meet the
growing demand for our products, we are continuing to expand our manufacturing
capacity while leveraging our capabilities in rapid prototyping, automation,
proprietary tools and processes.
3
<PAGE> 6
Our objective is to be the leading provider of innovative, fiber optic
products that enable our customers to deploy and optimize next-generation
optical networks. Key elements of our strategy include:
- leveraging our position as a leading market innovator;
- focusing our research and development efforts on continuing to broaden
our product offerings;
- collaborating with leading innovative systems companies;
- continuing to expand manufacturing capacity and improve process
efficiency; and
- pursuing strategic acquisitions.
We were incorporated in April 1990 in California. We intend to
reincorporate in Delaware prior to the completion of this offering. Our
principal executive offices are located at 2630 Walsh Avenue, Santa Clara,
California 95051, and our telephone number is (408) 980-8088. Our web site is
located at "www.newfocus.com." Information contained on our web site does not
constitute a part of this prospectus.
"New Focus," our logo, and "Smart Optics for Networks" are some of the
trademarks, trade names or service marks that we use. This prospectus contains
other trademarks and trade names of our company and other entities.
4
<PAGE> 7
THE OFFERING
Common stock offered.................. shares
Common stock to be outstanding after
this offering......................... shares
Use of proceeds....................... General corporate purposes, including
working capital, capital
expenditures, and potential
acquisitions.
Proposed Nasdaq National Market
symbol................................ NUFO
The total number of outstanding shares of our common stock is as of
December 31, 1999, and excludes:
- 9,239,000 shares issuable upon exercise of outstanding stock options as
of December 31, 1999, with a weighted average exercise price of $0.41 per
share;
- 5,882,000 shares reserved for future issuance under our stock option,
executive option and employee stock purchase plans, including amounts
authorized for issuance subsequent to December 31, 1999; and
- 140,000 shares of common stock issuable upon exercise of an outstanding
warrant at an exercise price of $1.00 per share.
Except as otherwise indicated, information in this prospectus:
- reflects the 2-for-1 stock split of our common and preferred stock in
October 1999 and the 2-for-1 stock split of our common and preferred
stock in February 2000 (all share and per share amounts have been
restated to reflect the stock splits), see note 8 of notes to
consolidated financial statements regarding these stock splits;
- assumes the exercise of warrants to purchase 121,140 shares of common
stock at an exercise price of $1.20 per share prior to this offering;
- reflects the conversion of the 41,939,144 outstanding shares of our
preferred stock into 41,939,144 shares of common stock immediately prior
to the closing of this offering; and
- assumes no exercise of the underwriters' over-allotment option.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should be aware that we recently changed our fiscal year end to
December 31. Our previous fiscal years ended March 31. Fiscal year 1999 refers
to the twelve-month period ended March 31, 1999. Fiscal year 1998 refers to the
twelve-month period ended March 31, 1998.
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NINE-MONTH
PERIOD
FISCAL YEAR ENDED MARCH 31, ENDED
-------------------------------------------- DECEMBER 31,
1996 1997 1998 1999 1999
----------- ------- ------- ------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues.......................... $10,394 $10,543 $15,482 $17,285 $18,101
Cost of net revenues.................. 5,095 5,946 8,186 9,225 12,525
Gross profit.......................... 5,299 4,597 7,296 8,060 5,576
Operating income (loss)............... 678 (1,449) 27 (4,666) (7,594)
Net income (loss)..................... 457 (1,661) (286) (4,971) (7,677)
Historical net income (loss) per
share:
Basic(1)............................ $ 0.45 $ (1.52) $ (0.25) $ (2.18) $ (3.11)
======= ======= ======= ======= =======
Diluted(1).......................... $ 0.02 $ (1.52) $ (0.25) $ (2.18) $ (3.11)
======= ======= ======= ======= =======
Weighted average shares:
Basic(1)......................... 1,011 1,096 1,148 2,284 2,468
======= ======= ======= ======= =======
Diluted(1)....................... 18,768 1,096 1,148 2,284 2,468
======= ======= ======= ======= =======
Pro forma net loss per share:
Basic and diluted (1)............... $ (0.24)
=======
Weighted average shares(1).......... 32,223
=======
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DECEMBER 31, 1999
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $28,067 $
Working capital........................................... 29,026
Total assets.............................................. 44,852
Long term debt, less current portion...................... 368
Total stockholders' equity................................ 35,013
</TABLE>
- -------------------------
(1) See note 10 of notes to consolidated financial statements for an explanation
of the determination of the number of shares used in completing per share
data.
(2) The pro forma as adjusted amounts above give effect to the sale of shares of
common stock in this offering at an assumed initial public offering price of
$ per share, less estimated underwriting discounts and commissions and
estimated offering expenses.
6
<PAGE> 9
RISK FACTORS
This offering and any investment in our common stock involves 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.
RISKS RELATED TO OUR FINANCIAL RESULTS
WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES FOR THE
FORESEEABLE FUTURE.
We incurred net losses of $7.7 million for the nine-month period ended
December 31, 1999, $5.0 million for our fiscal year ended March 31, 1999, and
$286,000 for our fiscal year ended March 31, 1998. As of December 31, 1999, we
had an accumulated deficit of $15.5 million. We may not be able to sustain the
recent growth in our revenues, and we may not realize sufficient revenues to
achieve or maintain profitability. We also expect to incur significant product
development, sales and marketing and administrative expenses, and, as a result,
we will need to generate increased revenues to achieve profitability. Even if we
achieve profitability, given the competition in, and the evolving nature of, the
optical networking market, we may not be able to sustain or increase
profitability on a quarterly or annual basis. As a result, we will need to
generate significantly higher revenues while containing costs and operating
expenses if we are to achieve profitability.
WE HAVE A HISTORY OF QUARTERLY AND ANNUAL FLUCTUATIONS IN OUR NET REVENUES AND
OPERATING RESULTS AND EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY RESULT IN
VOLATILITY IN OUR STOCK PRICE.
Our quarterly and annual net revenues and operating results have varied
significantly in the past and are likely to vary significantly in the future. A
number of factors, many of which are outside of our control, are likely to cause
these variations, including:
- fluctuations in demand for, and sales of, our products;
- timing or cancellations of customer orders and shipment scheduling;
- the ability of our customers to sell their products that incorporate our
products;
- our ability to significantly expand our manufacturing capacity, in
particular our facility in Shenzhen, China, which is expected to commence
operations during 2000;
- the ability of our suppliers and subcontractors to timely produce and
deliver components and parts including sole or limited source components
in the quantity and quality desired and at the prices we have budgeted;
- our ability to develop, introduce, manufacture and ship new and enhanced
products in a timely manner without defects;
- introductions of new products and product enhancements by our
competitors, entry of new competitors into our market, pricing pressures
and other competitive factors;
- the rate of adoption of optical networks as an alternative to existing
networking systems;
- our ability to control expenses;
- the potential obsolescence of our inventory; and
- costs related to acquisitions of technology or businesses.
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 any quarter as an indication of our future performance. Our
operating results in future quarters may be below public market analysts' or
investors' expectations, which would likely cause the price of our common stock
to fall.
7
<PAGE> 10
WE HAVE ONLY RECENTLY BEGUN SELLING FIBER OPTIC PRODUCTS TO THE
TELECOMMUNICATIONS INDUSTRY, AND WE MAY NOT ACCURATELY PREDICT OUR REVENUES FROM
THESE PRODUCTS, WHICH COULD CAUSE QUARTERLY FLUCTUATIONS IN OUR NET REVENUES AND
RESULTS OF OPERATIONS AND MAY RESULT IN VOLATILITY OR A DECLINE IN OUR STOCK
PRICE.
We have only recently begun selling our fiber optic products to the
telecommunications industry, and we have only begun to generate revenues
associated from the sale of these products since March 1999. Because we have
only recently begun to sell these products, we may be unable to accurately
forecast our revenues from sales of these products, and we have limited
meaningful historical financial data upon which to plan future operating
expenses. Many of our expenses are fixed in the short term, and we may not be
able to quickly reduce spending if our revenue is lower than we project. Major
new product introductions will also result in increased operating expenses in
advance of generating revenues, if any. Therefore, net losses in a given quarter
could be greater than expected. We may not be able to address the risks
associated with limited operating history in an emerging market and our business
strategy may not be sustainable. Failure to accurately forecast our revenues and
future operating expenses could seriously harm our business, financial condition
and results of operations.
SALES TO ANY SINGLE CUSTOMER MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER,
WHICH MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE.
Customers in our industry tend to order large quantities of products on an
irregular basis. 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 may result in significant quarterly
fluctuations in our revenues and operating results.
If current customers do not continue to place significant orders, we may
not be able to replace these orders with orders from new customers. None of our
current customers have any minimum purchase obligations, and they may stop
placing orders with us at any time, regardless of any forecast they may have
previously provided. The loss of any of our key customers or a significant
reduction in sales to those customers could significantly reduce our net
revenues. Any downturn in the business of existing customers could significantly
decrease sales of our products to these customers, which could seriously harm
our revenues and results of operations.
RISKS RELATED TO THE OPTICAL NETWORKING INDUSTRY
IF THE INTERNET DOES NOT CONTINUE TO EXPAND AND OPTICAL NETWORKS ARE NOT
DEPLOYED TO SATISFY THE INCREASED BANDWIDTH REQUIREMENTS AS WE ANTICIPATE, THE
DEMAND FOR OUR PRODUCTS MAY NOT INCREASE SUFFICIENTLY, AND OUR BUSINESS MAY
SUFFER.
Our future success depends on the continued growth of the Internet as a
widely-used medium for commerce and communications, the continuing increase in
the amount of data transmitted over communications networks, or bandwidth, and
the growth of optical networks to meet the increased demand for bandwidth. If
the Internet does not continue to expand as a widespread communications medium
and commercial marketplace, the need for significantly increased bandwidth
across networks and the market for optical networking products may not continue
to develop. Future demand for our products is uncertain and will depend to a
great degree on the continued growth and upgrading of optical networks. If this
growth does not continue, sales of our products may decline and our business and
results of operations will be harmed.
THE OPTICAL NETWORKING MARKET IS NEW AND UNPREDICTABLE AND CHARACTERIZED BY
RAPID TECHNOLOGICAL CHANGES AND EVOLVING STANDARDS, AND IF THIS MARKET DOES NOT
DEVELOP AND EXPAND AS WE ANTICIPATE, OUR BUSINESS WILL SUFFER.
The optical networking market is new and characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. Because this market is new, it is
difficult to predict its potential size or future growth rate. Widespread
adoption of
8
<PAGE> 11
optical networks is critical to our future success. Potential end-user customers
who have invested substantial resources in their existing copper lines or other
systems may be reluctant or slow to adopt a new approach, like optical networks.
Our success in generating net revenues in this emerging market will depend on,
among other things:
- maintaining and enhancing our relationships with our customers;
- the education of potential end-user customers and network service
providers about the benefits of optical networks; and
- our ability to accurately predict and develop our products to meet
industry standards.
If we fail to address changing market conditions, our business and
operating results will be harmed.
IF WE CANNOT INCREASE OUR SALES VOLUMES, REDUCE OUR COSTS OR INTRODUCE HIGHER
MARGIN PRODUCTS TO OFFSET ANTICIPATED REDUCTIONS IN THE AVERAGE SELLING PRICE OF
OUR PRODUCTS, OUR OPERATING RESULTS WILL SUFFER.
We have experienced decreases in the average selling prices of some of our
products. We anticipate that as products in the optical networking market become
more commoditized, the average selling price of our products may decrease in the
future in response to competitive pricing pressures, new product introductions
by us or our competitors or other factors. If we are unable to offset the
anticipated decrease in our average selling prices by increasing our sales
volumes or product mix, our net revenues and gross margins will decline. In
addition, to maintain our gross margins, we must continue to reduce the
manufacturing cost of our products. Further, as average selling prices of our
current products decline, we must develop and introduce new products and product
enhancements with higher margins. If we cannot maintain our gross margins, our
business could be seriously harmed.
RISKS RELATED TO OUR BUSINESS
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED.
Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to expand the scope of our operations domestically and
internationally and have increased the number of our employees substantially in
the past year. At March 31, 1999, we had a total of 144 employees and at January
31, 2000, we had a total of 390 employees. In addition, we plan to hire a
significant number of employees over the next few quarters. We currently operate
facilities in Santa Clara, California and Madison, Wisconsin and are in the
process of establishing additional manufacturing facilities in San Jose,
California, Middleton, Wisconsin and Shenzhen, China. The growth in employee
headcount 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 continue
to expand, train and manage our work force worldwide. The failure to effectively
manage our growth could harm our operating results.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND SUCCESSFULLY INTRODUCE
NEW AND ENHANCED PRODUCTS THAT MEET THE NEEDS OF OUR CUSTOMERS.
Our future success depends on our ability to anticipate our customers'
needs and develop products that address those needs. Introduction of new
products and product enhancements will require that we effectively transfer
production processes from research and development to manufacturing and
coordinate our efforts with those of our suppliers to rapidly achieve volume
production. If we fail to effectively transfer production processes, develop
product enhancements or introduce new products that meet the
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needs of our customers as scheduled, our net revenues may be reduced and our
business may be harmed. Some of the risks associated with the development and
sales of our products include:
- the evolving and unpredictable nature of the telecommunications industry;
- the uncertain rate of growth in usage and acceptance of optical networks;
- the uncertain demand for our new telecom products; and
- increased competition in the fiber optic components market for optical
networking systems.
COMPETITION MAY INCREASE, WHICH COULD CAUSE REDUCED SALES LEVELS AND RESULT IN
REDUCED GROSS MARGINS OR LOSS OF MARKET SHARE.
Competition in the optical networking market in which we compete is
intense. We face competition from public companies, such as, E-Tek Dynamics, JDS
Uniphase Corporation, Lucent Technologies and Nortel Networks Corporation. Many
of the large public companies with which we compete 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 than we can to the development, promotion, sale and support of
their products. In addition, several of our competitors have large market
capitalizations, or cash reserves, and 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, more extensive
customer bases, better developed distribution channels and broader product
offerings than we have. These companies can leverage their customer bases and
broader product offerings and adopt aggressive pricing policies to gain market
share. Additional competitors may enter the market, and we are likely to compete
with new companies in the future. 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 of the foregoing factors, we
expect that competitive pressures may result in price reductions, reduced
margins and loss of market share. For a more detailed discussion of our
competition, see "Business -- Competition."
WE HAVE LIMITED PRODUCT OFFERINGS, AND OUR BUSINESS MAY SUFFER IF DEMAND FOR
THESE PRODUCTS DECLINES OR FAILS TO DEVELOP AS WE EXPECT.
We derive a substantial portion of our net revenues from a limited number
of products. Specifically, in the nine-month period ended December 31, 1999, we
derived more than 15% of our net revenues from our tunable laser module
products. We expect that net revenues from these products will continue to
account for a substantial portion of our total net revenues for the foreseeable
future. Continued and widespread market acceptance of these products is critical
to our future success. We cannot assure you that our current products will
achieve market acceptance at the rate at which we expect, or at all, which could
harm our business and financial results.
WE MUST EXPAND SUBSTANTIALLY OUR DIRECT AND INDIRECT SALES OPERATIONS IN ORDER
TO INCREASE MARKET AWARENESS AND SALES OF OUR PRODUCTS.
Our products and services require a long, involved sales effort targeted at
several key departments within our prospective customers' organizations.
Therefore, our sales effort requires the prolonged efforts of executive
personnel and specialized systems and applications engineers working together
with a small number of dedicated salespersons. Currently, our sales and
marketing organization is limited. We will need to grow our sales force in order
to increase market awareness and sales of our products. Competition for these
individuals is intense, and we might not be able to hire the kind and number of
sales personnel and applications engineers we need. 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 would prevent us from increasing our
revenues.
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OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN DEFECTS THAT ARE NOT DETECTED UNTIL
FULL DEPLOYMENT OF THE CUSTOMER'S SYSTEM, WHICH COULD INCREASE OUR COSTS AND
REDUCE OUR REVENUES.
Some of our products are designed to be deployed in large and complex
optical networks. Because of the nature of these products, they can only be
fully tested for reliability when deployed in networks for long periods of time.
Our fiber optic products may contain undetected defects when first introduced or
as new versions are released. Our customers may discover defects in our products
after they have been fully deployed and operated under peak stress conditions.
In addition, our products are combined with products from other vendors. As a
result, should problems occur, it may be difficult to identify the source of the
problem. If we are unable to fix defects or other problems, we could experience,
among other things:
- loss of customers;
- damage to our brand reputation;
- failure to attract new customers or achieve market acceptance;
- diversion of development and engineering resources; and
- legal actions by our customers.
The occurrence of any one or more of the foregoing factors could seriously
harm our business, financial condition and results of operations.
THE LONG SALES CYCLES FOR OUR PRODUCTS MAY CAUSE REVENUES AND OPERATING RESULTS
TO VARY FROM QUARTER TO QUARTER.
The timing of our revenue is difficult to predict because of the length and
variability of the sales and implementation cycles for our products. We do not
generally recognize revenue until a product has been shipped to a customer, all
significant vendor obligations have been performed and collection is considered
probable. Customers often view the purchase of our products as a significant and
strategic decision. As a result, customers typically expend significant effort
in evaluating, testing and qualifying our products and manufacturing process.
This customer evaluation and qualification process frequently results in a
lengthy initial sales cycle of up to one year or more. In addition, some of our
customers require that our products be subjected to Telcordia, or Bellcore,
qualification testing, which can take up to nine months or more. 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
to customize our products to the customer's needs. We may also expend
significant management efforts, increase manufacturing capacity and order long
lead time components or materials prior to receiving an order. Even after this
evaluation process, a potential customer may not purchase our products. Because
of the evolving nature of the optical networking market, we cannot predict the
length of these sales and development cycles. As a result, these long sales
cycles may cause our revenues and operating results to vary significantly and
unexpectedly from quarter to quarter.
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 and other key engineering, sales, marketing, manufacturing and support
personnel. None of our officers or key employees are bound by an employment
agreement for any specific term and these individuals 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 2000,
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. Many of the members
of our management team have only been with us for a relatively short period of
time. For example, our chief
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financial officer joined us in February 2000. Failure of the new management team
to work effectively together could seriously harm our business.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
We have in the past made strategic acquisitions of intellectual property
and anticipate that in the future, as part of our business strategy, we will
continue to make strategic acquisitions of complementary companies, products or
technologies. In the event of any future acquisitions, we could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- incur debt;
- assume liabilities; or
- incur expenses related to in-process research and development,
amortization of goodwill and other intangible assets.
These acquisitions also involve numerous risks, including:
- problems combining the acquired operations, technologies or products;
- unanticipated costs or liabilities;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees, particularly those of the acquired
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, which may harm our business.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES THAT COULD HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
For the quarter ended December 31, 1999, 19% of our net revenues were from
international sales. We plan to increase our international sales activities. Our
international sales will be limited if we cannot establish relationships with
international distributors, establish additional foreign operations, expand
international sales channel management, hire additional personnel and develop
relationships with international service providers. Even if we are able to
successfully continue international operations, we may not be able to maintain
or increase international market demand for our products. Our international
operations are subject to a number of risks, including:
- greater difficulty in accounts receivable collection and longer
collection periods;
- difficulties and costs of staffing and managing foreign operations;
- the impact of recessions in economies outside the United States;
- unexpected changes in regulatory requirements;
- certification requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences; and
- political and economic instability.
While we expect our international revenues and expenses to be denominated
predominantly in U.S. dollars, a portion of our international revenues and
expenses may be denominated in foreign currencies in
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the future. Accordingly, we could experience the risks of fluctuating currencies
and could choose to engage in currency hedging activities.
RISKS RELATED TO MANUFACTURING OUR PRODUCTS
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.
We currently manufacture substantially all of our products in our
facilities located in Santa Clara, California. We plan to devote significant
resources to expand our manufacturing capacity at this facility and initiate
manufacturing at our facilities in San Jose, California, Middleton, Wisconsin
and Shenzhen, China, which will be costly and will require management time. We
could experience difficulties and disruptions in the manufacture of our products
while we transition to these new facilities, which could prevent us from
achieving timely delivery of products and could result in lost revenues. There
are numerous risks associated with rapidly increasing capacity, including the
inability to procure and install the necessary capital equipment, the shortage
of raw materials we use in our products, the lack of availability of
manufacturing personnel to work in our facility, the difficulties in achieving
adequate yields from new manufacturing lines and the inability to predict future
order volumes. We may experience delays, disruptions, capacity constraints or
quality control problems in our manufacturing operations, and, as a result,
product shipments to our customers could be delayed, which would negatively
impact our revenues, competitive position and reputation. 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. For a more detailed discussion about our
manufacturing, see "Business -- Manufacturing."
OUR PLANS TO BEGIN MANUFACTURING OPERATIONS IN CHINA SUBJECT US TO CERTAIN RISKS
INHERENT IN DOING BUSINESS IN CHINA, WHICH MAY HARM OUR BUSINESS.
We have a manufacturing facility located in Shenzhen, China that we expect
to become operational in 2000. This facility may be adversely affected by
changes in the laws and regulations of the People's Republic of China, such as
those relating to taxation, import and export tariffs, environmental
regulations, land use rights, property and other matters. Our manufacturing
facility in Shenzhen, China is located in a premise, on land leased from China's
government by a third party under land use certificates and agreements with
terms of 50 years. We lease our manufacturing facility from this third party
under a lease agreement that will expire in November 2002, subject to our option
to renew for an additional three-year period. Our assets and facility located in
China are subject to the laws and regulations of China and our results of
operations in China are subject to the economic and political situation there.
We believe that our operations in Shenzhen, China are in compliance with
China's applicable legal and regulatory requirements. However, there can be no
assurance that China's central or local governments will not impose new,
stricter regulations or interpretations of existing regulations which would
require additional expenditures. China's economy differs from the economies of
many countries in such respects as structure, government involvement, level of
development, growth rate, capital reinvestment, allocation of resources,
self-sufficiency, rate of inflation and balance of payments position, among
others. In the past, China's economy has been primarily a planned economy
subject to state plans. Since 1978, China's government has been reforming its
economic and political systems. Such reforms have resulted in significant
economic growth and social change. We can not assure you that China's policies
for economic reforms will be consistent or effective. Our results of operations
and financial position may be harmed by changes in the political, economic or
social conditions in China.
We plan to export substantially all the products manufactured at our
facility in Shenzhen, China. Accordingly, upon application to and approval by
the relevant government authorities, we will not be subject to certain of
China's taxes and are exempt from customs duties on imported components or
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materials and exported products. We are also required to pay income tax in
China, subject to certain tax holidays. We can not assure you that we will not
become subject to other taxes in China or will not be required to pay customs
duties in the future. In the event that we are required to pay taxes in China or
customs duties, our results of operations could be materially and adversely
affected.
To successfully meet our overall production goals, we will have to
coordinate and manage effectively between our facilities in the United States
and in China. We have no experience in coordinating and managing production
facilities that are located on different continents or in the transfer of
manufacturing operations from one facility to another. Our failure to
successfully coordinate and manage multiple sites on different continents or to
transfer our manufacturing operations could seriously harm overall production.
IF WE FAIL TO ACCURATELY FORECAST COMPONENT AND MATERIAL REQUIREMENTS FOR OUR
MANUFACTURING FACILITIES, WE COULD INCUR ADDITIONAL COSTS OR EXPERIENCE
MANUFACTURING DELAYS.
We use rolling forecasts based on anticipated product orders to determine
our component requirements. It is very important that we accurately predict both
the demand for our products and the lead times required to obtain the necessary
components and materials. Lead times for components and materials that we order
vary significantly and depend on factors such as specific supplier requirements,
the size of the order, contract terms and current market demand for such
components. Lead times vary significantly and depend on numerous factors,
including the specific supplier, the size of the order, contract terms and
market demand for components or materials at a given time. For substantial
increases in production levels, some suppliers may need six months or more lead
time. If we overestimate our component and material requirements, we may have
excess inventory, which would increase our costs. If we underestimate our
component and material requirements, we may have inadequate inventory, which
could interrupt our manufacturing and delay delivery of our products to our
customers. Any of these occurrences would negatively impact our business and
operating results.
WE DEPEND ON SINGLE OR LIMITED SOURCE SUPPLIERS FOR SOME OF THE KEY COMPONENTS
AND MATERIALS IN OUR PRODUCTS, WHICH MAKES US SUSCEPTIBLE TO SUPPLY SHORTAGES OR
PRICE FLUCTUATIONS THAT COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
We currently purchase several key components and materials used in the
manufacture of our products from single or limited source suppliers. For
example, we purchase a specialized type of garnet crystal from Mitsubishi, the
world's only commercial supplier of this type of garnet crystal. In addition,
Conet is our sole supplier of critical components used in several of our
products. We typically purchase our components and materials through purchase
orders and we have no guaranteed supply arrangements with any of these
suppliers. We may fail to obtain these supplies in a timely manner in the
future. We may experience difficulty identifying alternative sources of supply
for certain components used in our products. We would experience further delays
from evaluating and testing the products of these potential alternative
suppliers. Furthermore, financial or other difficulties faced by these suppliers
or significant changes in demand for these components or materials could limit
the availability. Any interruption or delay in the supply of any of these
components or materials, or the inability to obtain these components and
materials 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.
IF WE DO NOT ACHIEVE ACCEPTABLE MANUFACTURING YIELDS OR SUFFICIENT PRODUCT
RELIABILITY, OUR ABILITY TO SHIP PRODUCTS TO OUR CUSTOMERS COULD BE DELAYED AND
OUR REVENUES MAY SUFFER.
The manufacture of our products involves complex and precise processes.
Changes in our manufacturing processes or those of our suppliers, or the use of
defective components or materials, could significantly reduce our manufacturing
yields and product reliability. Our manufacturing costs are relatively fixed,
and, thus, manufacturing yields are critical to our results of operations. We
have experienced problems related to product yields in the past, which resulted
in delays of customer shipments and lost revenue. We may experience similar
problems in the future, which could result in lower than expected production
yields, delayed product shipments and impaired gross margins. In some cases,
existing
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manufacturing techniques involve substantial manual labor. In addition, we may
experience manufacturing delays and reduced manufacturing yield upon introducing
new products to our manufacturing lines. In order to maintain our gross margins,
we may need to develop new, more cost-effective manufacturing processes and
techniques, and if we fail to do so, our gross margins may be adversely
affected.
IF OUR CUSTOMERS DO NOT QUALIFY OUR MANUFACTURING LINES FOR VOLUME SHIPMENTS,
OUR OPERATING RESULTS COULD SUFFER.
Generally, customers do not purchase our products, other than limited
numbers of evaluation units, prior to qualification of the manufacturing line
for volume production. Our existing manufacturing lines, as well as each new
manufacturing line, must pass through varying levels of qualification with our
customers. Customers may require that we be registered under international
quality standards, such as ISO 9001. This customer qualification process
determines whether our manufacturing lines meet the customers' quality,
performance and reliability standards. If there are delays in qualification of
our products, our customers may drop the product from a long-term supply
program, which would result in significant lost revenue opportunity over the
term of that program.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WHICH WOULD SERIOUSLY
HARM OUR ABILITY TO USE OUR PROPRIETARY TECHNOLOGY TO GENERATE REVENUE.
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 our patent applications will be approved, that any
patents that may issue will protect our intellectual property or that any issued
patents will not be challenged by third parties. Other parties may independently
develop similar or competing technology or design around any patents that may be
issued to us. We cannot be certain that the steps we have taken will prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. For a more detailed discussion about our intellectual property, see
"Business -- Intellectual Property."
WE ARE CURRENTLY DEFENDING A CLAIM THAT WE HAVE INFRINGED KAIFA'S INTELLECTUAL
PROPERTY RIGHTS, AND IF WE ARE UNSUCCESSFUL IN DEFENDING THIS CLAIM, WE MAY HAVE
TO EXPEND A SUBSTANTIAL AMOUNT OF RESOURCES TO MAKE OUR PRODUCTS NON-INFRINGING
AND MAY HAVE TO PAY A SUBSTANTIAL AMOUNT IN DAMAGES.
Kaifa Technology, Inc., recently acquired by E-Tek Dynamics, Inc., filed a
complaint against us in December 1999 in the United States District Court,
alleging, among other things, that we have infringed some of their intellectual
property rights. We cannot be certain that we will be successful in our defense.
If we are unsuccessful in defending this action, any remedies awarded to Kaifa
may harm our business. Furthermore, defending this action will be costly and
divert management's attention regardless of whether we successfully defend the
action. On February 23, 2000, we filed a motion to dismiss Kaifa's complaint and
joined one of our employees named in the complaint in filing another motion to
dismiss Kaifa's complaint. On the same date, certain of our employees named in
the complaint also filed a motion to dismiss Kaifa's complaint. These motions
are scheduled to be heard on March 31, 2000. For more information about current
legal proceedings, see "Business -- Legal Proceedings."
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS,
WHICH COULD SERIOUSLY HARM OUR BUSINESS.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We are currently
defending a claim alleging that we are violating a third party's intellectual
property rights. In the future, we may be a party to litigation 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
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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 to protect these rights or 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. For more information about
current legal proceedings, see "Business -- Legal Proceedings."
NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY
BE VERY EXPENSIVE.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third-party licenses will be available to us on commercially reasonable
terms, if at all. The inability to obtain any third-party license required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost, either of which could seriously harm our business, financial condition and
results of operations.
RESIDUAL YEAR 2000 ISSUES MAY DISRUPT OUR OPERATIONS, SUBJECT US TO LIABILITIES
AND COSTS AND AFFECT THE TIMING OF OUR REVENUES.
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, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. In
addition, programs may fail to recognize February 29, 2000, as a leap year date
as a result of an exception to the calculation of leap years that will occur in
the year 2000 and otherwise occurs only once every 400 years. This problem could
result in miscalculations, data corruption, system failures or disruptions of
operations.
Because our components are used in connection with products designed and
manufactured by others, residual Year 2000 problems affecting these products
could cause our products to fail. If residual Year 2000 problems cause the
failure of any of the technology, software or systems used with our products, we
could lose customers, suffer significant disruptions in our business, lose
revenues and incur substantial liabilities and expenses. We could also become
involved in costly litigation resulting from Year 2000 problems. This could
seriously harm our business, financial condition and results of operations.
RISKS RELATED TO THIS OFFERING
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE, AND OUR ABILITY TO
GROW MAY BE LIMITED AS A RESULT.
We believe that the net proceeds of this offering, together with our
existing cash balances, credit facilities and cash flow expected to be generated
from future operations, will be sufficient to meet our capital requirements at
least through the next 12 months. However, we may be required, or could elect,
to seek additional funding prior to that time. The development and marketing of
new products and the
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expansion of our manufacturing facilities and associated support personnel and
our sales and marketing organizations will require a significant commitment of
resources. In addition, if the market for our products develops at a slower pace
than anticipated, or if we fail to establish significant market share and
achieve a meaningful 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 additional capital. In the event we are required
to raise additional funds, we may not be able to do so on favorable terms, or at
all. Further, if we issue new equity securities, stockholders may experience
additional dilution or the new equity securities may have rights, preferences or
privileges senior to those of existing holders of common stock. If we cannot
raise funds on acceptable terms, we may not be able to develop or enhance our
products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. Any inability to raise additional
capital when we require it would seriously harm our business.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND A PUBLIC MARKET FOR OUR
SECURITIES MAY NOT DEVELOP OR BE SUSTAINED.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price at which the common stock will trade upon 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.
Upon completion of this offering, our executive officers, directors and
principal stockholders who hold 5% or more of the outstanding common stock and
their affiliates will beneficially own, in the aggregate, approximately %
of our outstanding common stock. As a result, these stockholders will be able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which could delay or prevent an outside party from acquiring or
merging with us. For a full presentation of the equity ownership of these
stockholders, see "Principal Stockholders."
INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The initial public offering price of our common stock is expected to be
substantially higher than the book value per share of our outstanding common
stock immediately after the offering. Accordingly, if you purchase our common
stock in this offering, you will incur immediate dilution of approximately
$ in the book value per share of our common stock from the price you
pay for our common stock. This calculation assumes that you purchased our common
stock for $ per share. For additional information on this calculation, see
"Dilution."
PROVISIONS OF OUR CHARTER DOCUMENTS, DELAWARE LAW AND CHANGE OF CONTROL
AGREEMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD PREVENT A CHANGE IN
CONTROL.
Provisions of our certificate of incorporation and bylaws may discourage,
delay or prevent a merger or acquisition that a stockholder may consider
favorable. These provisions include:
- authorizing our board of directors to issue preferred stock without
stockholder approval;
- providing for a classified board of directors with staggered, three-year
terms;
- prohibiting cumulative voting in the election of directors;
- requiring super-majority voting to effect significant amendments to our
certificate of incorporation and bylaws;
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- eliminating the ability of stockholders to call special meetings;
- prohibiting stockholder actions by written consent; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline. See "Description of Capital Stock -- Delaware Law
and Certain Provisions of Our Certificate of Incorporation and Bylaws." In
addition, we have a change of control agreement with one of our officers and
option agreements with certain officers which have change of control provisions,
which may discourage, delay or prevent someone from acquiring or merging with
us. For more information about the change of control agreement, see
"Management -- Employment and Change of Control Agreements."
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING THAT 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. 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. You should read
"Shares Eligible for Future Sale" for a full discussion of the shares that may
be sold in the public market in the future.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE, WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR
ABOVE THE INITIAL PUBLIC OFFERING PRICE.
This initial public offering price may vary from the market price of our
common stock after the offering. If you purchase shares of common stock, you may
not be able to resell those shares at or above the initial public offering
price. The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of other optical networking companies;
- announcements by us or our competitors of new products or of significant
technical innovations, contracts, acquisitions, strategic partnerships or
joint ventures;
- any loss of a major customer;
- additions or departures of key personnel;
- any deviations in net revenues or in losses from levels expected by
securities analysts; and
- future sales of common stock or other securities.
In addition, the stock market has experienced extreme volatility that has often
been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
18
<PAGE> 21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements
within the meaning of the federal securities laws that relate to future events
or our future financial performance. 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 the forward-looking statements. These risks
and other factors include those listed under "Risk Factors" and elsewhere in
this prospectus. 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. In addition, these forward-looking
statements include, but are not limited to, statements regarding the following:
- anticipated development and release of new products;
- anticipated sources of future revenues;
- the expansion of our manufacturing capacity;
- anticipated expenditures for research and development, sales and
marketing and general and administrative expenses; and
- the adequacy of our capital resources to fund our operations.
These statements are only predictions. In evaluating these statements, you
should specifically consider various factors, including the risks outlined under
"Risk Factors."
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.
19
<PAGE> 22
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ million from
the sale of the shares of common stock or approximately $
million if the underwriters' over-allotment option is exercised in full, at an
assumed initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including working capital and capital expenditures. The
amounts we actually expend for working capital and other purposes may vary
significantly and will depend on a number of factors, including the amount of
our future revenues and other factors described under "Risk Factors."
Accordingly, our management will retain broad discretion in the allocation of
the net proceeds of this offering. We may also use a portion of the net proceeds
to acquire products, technologies or businesses that are complementary to our
current and future business and product lines. From time to time, we engage in
discussions with companies regarding potential acquisitions; however we
currently have no material commitments or agreements with respect to any
acquisition. Pending use of the net proceeds of this offering, we intend to
invest the net proceeds in interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999:
- on an actual basis;
- on a pro forma basis to give effect to the conversion of 41,939,144
shares of preferred stock into 41,939,144 shares of common stock
automatically upon completion of this offering; and
- on pro forma as adjusted basis to give effect to the sale of
shares of common stock at an assumed initial public offering price of
$ per share (less underwriting discounts and commissions and
estimated offering expenses payable by us), the conversion of 41,939,144
shares of preferred stock into 41,939,144 shares of common stock
automatically upon completion of this offering and assumes the exercise
of warrants to purchase 121,140 shares of common stock at an exercise
price of $1.20 per share prior to this offering.
You should read this table in conjunction with our consolidated financial
statements and the accompanying notes to our consolidated financial statements,
Selected Consolidated Financial Data and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion...................... $ 368 $ 368 $
Stockholders' equity:
Preferred stock, $0.001 par value: 44,083,326
authorized, 41,939,144 issued and outstanding
(actual); 44,083,326 authorized, no shares issued and
outstanding (pro forma); 10,000,000 authorized, no
shares issued and outstanding (pro forma as
adjusted)............................................ 42 --
Common stock, $0.001 par value: 80,000,000 authorized,
2,578,824 issued and outstanding (actual); 80,000,000
authorized, 44,517,968 issued and outstanding (pro
forma); 250,000,000 authorized, shares issued
and outstanding (pro forma as adjusted).............. 2 44
Additional paid-in capital................................ 51,168 51,168
Deferred compensation..................................... (689) (689)
Accumulated deficit....................................... (15,510) (15,510)
-------- -------- ----
Total stockholders' equity......................... 35,013 35,013
-------- -------- ----
Total capitalization............................... $ 35,381 $ 35,381 $
======== ======== ====
</TABLE>
The total number of outstanding shares of our common stock is as of
December 31, 1999, and excludes:
- 9,239,000 shares issuable upon exercise of outstanding stock options as
of December 31, 1999, with a weighted average exercise price of $0.41 per
share;
- 5,882,000 shares reserved for future issuance under our stock option,
executive option and employee stock purchase plans, including amounts
authorized for issuance subsequent to December 31, 1999; and
- 140,000 shares of common stock issuable upon exercise of an outstanding
warrant at an exercise price of $1.00 per share.
21
<PAGE> 24
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma net tangible book value per share of common
stock after this offering. Our pro forma net tangible book value as of December
31, 1999, including proceeds of $145,000 from the assumed exercise of warrants
to purchase 121,140 shares of common stock prior to this offering, was
$35,082,000 or $0.79 per share of common stock. Pro forma net tangible book
value per share was calculated by dividing the sum of total assets less
liabilities, less intangible assets by the total number of common shares
outstanding at December 31, 1999, and the assumed conversion of 41,939,144
shares of preferred stock into 41,939,144 shares of common stock and the
issuance of 121,140 shares of common stock from the assumed exercise of warrants
prior to this offering. Dilution in net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of
common stock in this offering and the net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to the sale of the shares of common stock offered hereby at an
assumed initial public offering price of $ per share less underwriting
discounts and commissions and estimated offering expenses, our pro forma net
tangible book value as of December 31, 1999, would have been $ or
approximately $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors, or
approximately % of the initial public offering price of $ per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at December
31, 1999............................................... $ 0.78
Increase in net tangible book value per share attributable
to this offering.......................................
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution in net tangible book value per share to new
investors................................................. $
========
</TABLE>
The following table shows on a pro forma basis after giving effect to this
offering, based on an assumed initial public offering price of $ per share,
as of December 31, 1999, the differences between the existing holders of common
stock and the new investors with respect to the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid, before deducting the underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. % $ % $
New investors......................................
-------- ----- -------- ------
Total............................................ 100.0% $ 100.0%
======== ===== ======== ======
</TABLE>
The foregoing discussion and table are based on the number of shares of
common stock outstanding after this offering and excludes the following:
- 9,239,000 shares issuable upon exercise of outstanding stock options as
of December 31, 1999, with a weighted average exercise price of $0.41 per
share;
- 5,882,000 shares reserved for issuance under our stock option plan,
executive option plan and employee stock purchase plan including amounts
authorized for issuance subsequent to December 31, 1999; and
- 140,000 shares of common stock issuable upon exercise of an outstanding
warrant at an exercise price of $1.00 per share.
New investors will suffer additional dilution upon exercise of outstanding
options. At December 31, 1999, assuming exercise and payment of all outstanding
options, net tangible book value per share would be $ representing dilution
of $ per share to new investors. See "Capitalization," "Management -- Stock
Plans," "Description of Capital Stock" and note 8 of notes to consolidated
financial statements for more information about dilution.
22
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes included elsewhere in this prospectus. The statement of operations data
for the fiscal years ended March 31, 1998 and 1999, and the nine-month period
ended December 31, 1999, and the consolidated balance sheet data at March 31,
1999, and December 31, 1999, are derived from, and are qualified by reference
to, our audited consolidated financial statements and notes thereto included
elsewhere in this prospectus. The statement of operations data for the years
ended March 31, 1996 and 1997, and the consolidated balance sheet data as of
March 31, 1996, 1997 and 1998, are derived from, and are qualified by reference
to, consolidated financial statements not appearing in this prospectus.
Historical results are not necessarily indicative of results that may be
expected for any future period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD
FISCAL YEAR ENDED MARCH 31, ENDED
----------------------------------------- DECEMBER 31,
1996 1997 1998 1999 1999
----------- ------- ------- ------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.......................................... $10,394 $10,543 $15,482 $17,285 $18,101
Cost of net revenues.................................. 5,095 5,946 8,186 9,225 12,525
------- ------- ------- ------- -------
Gross profit....................................... 5,299 4,597 7,296 8,060 5,576
Operating expenses:
Research and development........................... 1,724 3,115 3,721 7,379 7,352
Sales and marketing................................ 1,289 1,662 2,193 2,987 2,982
General and administrative......................... 1,608 1,269 1,355 2,360 2,704
Deferred compensation.............................. -- -- -- -- 132
------- ------- ------- ------- -------
Total operating expenses...................... 4,621 6,046 7,269 12,726 13,170
------- ------- ------- ------- -------
Operating income (loss)............................... 678 (1,449) 27 (4,666) (7,594)
Interest expense and other income, net................ (200) (210) (303) (303) (81)
------- ------- ------- ------- -------
Income (loss) before provision for income taxes....... 478 (1,659) (276) (4,969) (7,675)
Provision for income taxes............................ 21 2 10 2 2
------- ------- ------- ------- -------
Net income (loss)..................................... $ 457 $(1,661) $ (286) $(4,971) $(7,677)
======= ======= ======= ======= =======
Historical net income (loss) per share:
Basic.............................................. $ 0.45 $ (1.52) $ (0.25) $ (2.18) $ (3.11)
======= ======= ======= ======= =======
Diluted............................................ $ 0.02 $ (1.52) $ (0.25) $ (2.18) $ (3.11)
======= ======= ======= ======= =======
Weighted average shares:
Basic............................................ 1,011 1,096 1,148 2,284 2,468
======= ======= ======= ======= =======
Diluted.......................................... 18,768 1,096 1,148 2,284 2,468
======= ======= ======= ======= =======
Pro forma net loss per share:
Basic and diluted.................................. $ (0.24)
=======
Weighted average shares............................ 32,223
=======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------- DECEMBER 31,
1996 1997 1998 1999 1999
------ ------ ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 376 $ 250 $ 196 $ 51 $28,067
Working capital......................................... 2,066 616 (1,166) 479 29,026
Total assets............................................ 5,186 5,564 8,197 8,240 44,852
Long-term debt, less current portion.................... 60 129 79 588 368
Total stockholders' equity (net capital deficiency)..... 1,229 (431) (702) (1,183) 35,013
</TABLE>
See note 10 of notes to consolidated financial statements for an
explanation of the determination of the weighted average common and common
equivalent shares used to compute net loss per share.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this prospectus. The results described below are not necessarily indicative of
the results to be expected in any future period. This discussion and analysis
contains forward-looking statements within the meaning of the federal securities
laws. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or our predictions. See "Special Note Regarding
Forward-Looking Statements."
OVERVIEW
We design, manufacture and market innovative fiber optic products for
next-generation optical networks under the Smart Optics for Networks brand. We
were founded in April, 1990 and initially developed and offered advanced
photonics tools and opto-electronic products principally for research and
commercial applications. In January 1997, we began development of a high
performance tunable laser module for test and measurement in the manufacturing
and development of optical networking products. In May 1998, we began leveraging
our extensive experience in developing advanced photonics tools and
opto-electronic products to enable networking solutions with increased channel
counts, higher data rates, longer reach lengths and new services, and which
reduce overall network cost of ownership. Our high-performance products are
compact, consume less power and are designed to be manufacturable in high
volumes.
We currently derive revenues from the sales of two groups of products,
telecom products and commercial photonics products. Through fiscal 1999,
comprised of the twelve-month period ended March 31, 1999, substantially all of
our revenues were generated from sales of commercial photonics products. Our
commercial photonics products include advanced photonics tools, which are
primarily used for commercial and research applications in a wide variety of
industries. Beginning in 1999, we began to derive an increasing amount of our
revenues from sales of telecom products. Our telecom products include fiber
amplifier products, wavelength management products, high-speed opto-electronics
and tunable laser modules. We sell these products primarily to manufacturers of
networking and test equipment in the optical telecommunications market. For the
nine-month period ended December 31, 1999, sales of our telecom products
accounted for 27.6% of overall net revenues, and are expected to continue to
increase as a percentage of our overall net revenues. We sell our products to
over 50 customers including Alcatel USA, Avanex Corporation, Corning
Incorporated, Corvis Corporation, Lucent Technologies, Nortel Networks
Corporation and Qtera Corporation (a wholly owned subsidiary of Nortel
Networks). In the nine-month period ended December 31, 1999, none of our
customers accounted for more than 10% of our net revenues.
We market and sell our telecom products predominantly through our direct
sales force. To date, most of our direct sales have been in North America,
however, we recently began marketing and selling our telecom products
internationally. We market and sell our commercial photonics products through a
combination of catalog sales, international distributors and direct sales. We
recognize revenue on all of our products on shipment, provided there are no
remaining obligations and collectability is probable. We accrue reserves for
product returns and potential warranty expenses at the time revenue is
recognized.
Our cost of net revenues consists of raw materials, direct labor and
manufacturing overhead, which includes, among other costs, production start-up
and prototype costs. In addition, we rely on contract manufacturers for some of
our key components, which are included in our cost of net revenues. As we expand
our manufacturing capacity to meet demand and introduce new products, we expect
our cost of net revenues as a percentage of net revenues to increase in the near
term.
Research and development expenses consist primarily of salaries and related
personnel expenses, fees paid to consultants and outside service providers,
materials costs and test units and other expenses related to the design,
development, testing and enhancements of our products. We expense our research
and development costs as they are incurred. In addition, from time to time, we
receive funding for research
24
<PAGE> 27
and development projects. For fiscal years 1998 and 1999 and the nine-month
period ended December 31, 1999, we received an aggregate of $5.2 million for
research and development activities, which was used to offset research and
development costs. We believe that a significant level of investment for product
research and development is required to remain competitive. Accordingly, we
expect to continue to devote substantial resources to product research and
development, and we expect our research and development expenses to continue to
increase in absolute dollars.
Sales and marketing expenses consist primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with trade shows,
promotional activities and travel expenses. We intend to expand our sales and
marketing operations and efforts substantially for our telecom products, both
domestically and internationally, in order to increase market awareness and to
generate sales of our products. However, we cannot be certain that any increased
expenditures will result in higher net revenues. In addition, we believe our
future success depends upon establishing successful relationships with a variety
of key customers. We believe that continued investment in sales and marketing is
critical to our success and expect these expenses to increase in absolute
dollars in the future.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, accounting, information technology,
facilities and human resources personnel, recruiting expenses, professional fees
and costs associated with expanding our information systems. We expect these
expenses to increase in absolute dollars as we continue to add personnel and
incur additional costs related to the growth of our business and our operations
as a public company.
In connection with the grant of stock options to our employees, we recorded
deferred compensation of approximately $821,000 through December 31, 1999,
representing the difference between the estimated fair market value of the
common stock for accounting purposes and the option exercise price of these
options at the date of grant. These amounts are being amortized using the
attribution vesting method over the vesting period of the stock options, which
for us is generally five years from the date of grant. In addition, we have
issued stock options during the first quarter of fiscal 2000 at prices below
deemed fair market value, which will result in additional deferred compensation.
RESULTS OF OPERATIONS
You should be aware that we recently changed our fiscal year end to
December 31. Our previous fiscal years ended March 31. Fiscal year 1999 refers
to the twelve-month period ended on March 31, 1999. Fiscal year 1998 refers to
the twelve-month period ended on March 31, 1998.
<TABLE>
<CAPTION>
NINE-MONTH
FISCAL YEAR ENDED FISCAL YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Net revenues............................. 100.0% 100.0% 100.0%
Cost of net revenues..................... 52.9 53.4 69.2
----- ----- -----
Gross profit............................. 47.1 46.6 30.8
----- ----- -----
Operating expenses:
Research and development.............. 24.0 42.7 40.6
Sales and marketing................... 14.2 17.3 16.5
General and administrative............ 8.8 13.6 14.9
Deferred compensation................. -- -- 0.7
----- ----- -----
Total operating expenses......... 47.0 73.6 72.7
----- ----- -----
Operating income (loss).................. 0.1 (27.0) (41.9)
Interest expense and other income, net... (2.0) (1.8) (0.5)
----- ----- -----
Net loss................................. (1.9)% (28.8)% (42.4)%
===== ===== =====
</TABLE>
25
<PAGE> 28
FISCAL YEARS ENDED MARCH 31, 1998 AND 1999 AND THE NINE-MONTH PERIOD ENDED
DECEMBER 31, 1999
Net Revenues
Net revenues of $15.5 million in fiscal 1998 and $17.3 million in fiscal
1999 were generated from sales of our commercial photonics products. We began
shipping our telecom products in March 1999. Total net revenues for the
nine-month period ended December 31, 1999, were $18.1 million, of which $5.0
million, or 27.6% of total net revenues, were from sales of our telecom
products.
Gross Margins
Gross margin decreased from 47.1% in fiscal 1998 to 46.6% in fiscal 1999.
The absolute dollar amount of manufacturing costs increased by $1.0 million from
fiscal 1998 to fiscal 1999, due primarily to an increase in net revenues. Gross
margin decreased to 30.8% for the nine-month period ended December 31, 1999. The
decrease in gross margin from fiscal 1999 to the nine-month period ended
December 31, 1999, was primarily due to the costs related to the expansion of
our manufacturing facilities for our telecom products. Increases in
manufacturing overhead costs from fiscal 1999 to the nine-month period ended
December 31, 1999, included increases in payroll costs for additional
manufacturing personnel, higher materials costs for manufacturing prototyping,
and higher depreciation costs related to increased investment in plant and
equipment. As we introduce additional new products and expand our manufacturing
capacity to meet anticipated demand, we expect our gross margin to decrease in
the near term.
Research and Development Expenses
Research and development expenses increased from 24.0% of net revenues, or
$3.7 million, in fiscal 1998 to 42.7% of net revenues, or $7.4 million, in
fiscal 1999. This increase was primarily due to the costs related to the
development of our telecom products. Research and development expenses were
40.6% of net revenues, or $7.4 million, for the nine-month period ended December
31, 1999. These expenses were incurred primarily in connection with the
continued development of existing telecom products, as well as for new telecom
products.
Sales and Marketing Expenses
Sales and marketing expenses increased from 14.2% of net revenues, or $2.2
million, in fiscal 1998 to 17.3% of net revenues, or $3.0 million, in fiscal
1999. Sales and marketing expenses were 16.5% of net revenues, or $3.0 million,
for the nine-month period ended December 31, 1999. The expenses in each of these
periods were primarily due to the hiring of additional sales and marketing
personnel and to the expansion of our sales and marketing efforts.
General and Administrative Expenses
General and administrative expenses increased from 8.8% of net revenues, or
$1.4 million, in fiscal 1998 to 13.6% of net revenues, or $2.4 million, in
fiscal 1999. General and administrative expenses increased to 14.9% of net
revenues, or $2.7 million, for the nine-month period ended December 31, 1999.
The increase over these periods was primarily due to increased staffing and
associated expenses necessary to manage and support our increased scale of
operations. In addition, the increase in general and administrative costs for
the nine-month period ended December 31, 1999, was also attributable to hiring
and recruiting expenses for personnel associated with our telecom products.
Amortization of Deferred Compensation
We recorded amortization of deferred compensation of $132,000 during the
nine-month period ended December 31, 1999, leaving an unamortized balance of
$689,000 on our December 31, 1999 consolidated balance sheet. The amortization
expense relates to options awarded to employees in all operating expense
categories.
26
<PAGE> 29
Interest Expense and Other Income, Net
Interest expense and other income, net totalled $303,000 in 1998 and 1999
and $81,000 for the nine-month period ended December 31, 1999. Interest expense
was the largest component of these amounts aggregating to $328,000, $327,000 and
$176,000 for fiscal 1998, 1999 and the nine-month period ended December 31,
1999, respectively. The interest expense for these periods consisted of interest
on debt and capital lease obligations.
Income Taxes
The provision for income taxes of approximately $2,000 for the nine-month
period ended December 31, 1999 and fiscal 1999 consists of current state minimum
taxes. The provision for income taxes of $10,000 for fiscal 1998, reflects
federal alternative minimum taxes and state minimum taxes.
As of December 31, 1999, we had approximately $12 million of federal and
$400,000 of state net operating loss carryforwards for tax purposes and $900,000
and $700,000 of federal and state research and development tax credit
carryforwards available to offset future taxable income. The net operating loss
and tax credit carryforwards will expire at various dates beginning in 2004
through 2019, if not utilized. We have not recognized any benefit from the
future use of loss carryforwards for these periods or for any other periods
since inception.
Financial Accounting Standards Board Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based upon the weight of available evidence, which included our
historical operating performance and the reported cumulative net losses in all
prior years, we have provided a full valuation allowance against our net
deferred tax assets.
27
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data
from our consolidated statement of operations and such data as a percentage of
net revenues. The consolidated statement of operations data have been derived
from our unaudited consolidated financial statements. In the opinion of
management, these statements have been prepared on substantially the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods presented. This
information should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $3,918 $4,251 $ 4,375 $ 4,741 $ 4,581 $ 6,675 $ 6,845
Cost of net revenues...................... 2,097 2,181 2,347 2,600 2,821 4,367 5,337
------ ------ ------- ------- ------- ------- -------
Gross profit............................ 1,821 2,070 2,028 2,141 1,760 2,308 1,508
------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and development................ 1,233 1,633 2,384 2,129 1,592 2,259 3,501
Sales and marketing..................... 683 732 698 874 926 930 1,126
General and administrative.............. 569 605 550 636 605 940 1,159
Deferred compensation................... -- -- -- -- 9 29 94
------ ------ ------- ------- ------- ------- -------
Total operating expenses.............. 2,485 2,970 3,632 3,639 3,132 4,158 5,880
------ ------ ------- ------- ------- ------- -------
Operating income (loss)................... (664) (900) (1,604) (1,498) (1,372) (1,850) (4,372)
Interest expense and other income, net.... (92) (70) (45) (96) (95) 33 (19)
------ ------ ------- ------- ------- ------- -------
Loss before provision for income taxes.... (756) (970) (1,649) (1,594) (1,467) (1,817) (4,391)
Provision for income taxes................ -- -- -- 2 -- -- 2
------ ------ ------- ------- ------- ------- -------
Net loss.................................. $ (765) $ (970) $(1,649) $(1,596) $(1,467) $(1,817) $(4,393)
====== ====== ======= ======= ======= ======= =======
STATEMENT OF OPERATIONS DATA:
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- --------
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenues...................... 53.5 51.3 53.6 54.8 61.6 65.4 78.0
------ ------ ------- ------- ------- ------- -------
Gross profit............................ 46.5 48.7 46.4 45.2 38.4 34.6 22.0
------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and development................ 31.5 38.4 54.5 44.9 34.8 33.8 51.1
Sales and marketing..................... 17.4 17.2 16.0 18.4 20.2 13.9 16.4
General and administrative.............. 14.5 14.2 12.6 13.4 13.2 14.1 16.9
Deferred compensation................... -- -- -- -- 0.2 0.4 1.4
------ ------ ------- ------- ------- ------- -------
Total operating expenses.............. 63.4 69.8 83.1 76.7 68.4 62.2 85.8
------ ------ ------- ------- ------- ------- -------
Operating income (loss)................... (16.9) (21.1) (36.7) (31.5) (30.0) (27.6) (63.8)
Interest expense and other income, net.... (2.2) (1.7) (1.0) (2.1) (2.0) 0.4 (0.3)
------ ------ ------- ------- ------- ------- -------
Loss before provision for income taxes.... (19.3) (22.8) (37.7) (33.6) (32.2) (27.2) (64.1)
Provision for income taxes................ -- -- -- (0.1) -- -- (0.1)
------ ------ ------- ------- ------- ------- -------
Net loss.................................. (19.3)% (22.8)% (37.7)% (33.7)% (32.0)% (27.2)% (64.2)%
====== ====== ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 31
We believe that quarter-to-quarter comparisons of our operating results
will not be meaningful. You should not rely on our results for any quarter as an
indication of our future performance. Our operating results in future quarters
may be below public market analysts' or investors' expectations, which would
likely cause the price of our common stock to fall. The following discussion
highlights significant events that have impacted our net revenues and financial
results for the seven quarters ended December 31, 1999.
Net revenues increased in each of the previous seven quarters, with the
exception of a decrease in the quarter ended June 30, 1999. In that quarter, we
experienced component supply and integration issues related to new versions of
some of our commercial photonics products, which affected our ability to meet
demand for these products. These issues were addressed in the following quarter
as we refined and improved our manufacturing processes.
Increased demand for our telecom products resulted in significant revenue
increases from these products in our two most recent quarters. Net revenues from
our telecom products were $449,500, or 9.8% of net revenues, for the quarter
ended June 30, 1999, $2.0 million, or 30.3% of net revenues, for the quarter
ended September 30, 1999, and $2.5 million, or 36.9% of net revenues, for the
quarter ended December 31, 1999. We expect quarterly revenues from our telecom
products to continue to increase. Sales of our commercial photonics products
have fluctuated between $3.9 million and $4.7 million over the last seven
quarters.
Gross margins as a percentage of net revenues decreased in each of the
previous seven quarters, with the exception of an increase in the quarter ended
September 30, 1998. There has been a significant decrease in gross margins
during the most recent three quarters, which is due principally to the expansion
of our manufacturing facilities and operations for our telecom products.
Manufacturing overhead spending for telecom products increased during each of
the three quarters from the quarter ended March 31, 1999, to the quarter ended
December 31, 1999, as we added manufacturing employees, expanded production
facilities and invested in additional manufacturing equipment. We expect the
gross margin percentage to continue to decrease in the near term as we continue
to transfer new products from development to manufacturing and expand our
manufacturing capacity.
Research and development expenses increased in each of the previous seven
quarters, with the exception of a decrease in the quarter ended March 31, 1999,
and the quarter ended June 30, 1999. These increases were primarily due to the
addition of personnel, development prototyping costs, depreciation expense
related to increased investment in development equipment, consulting charges and
other costs incurred for the development of our telecom products. We have also
incurred significant expenses related to the expansion of our patent portfolio
for our telecom products. We expect research and development costs to continue
to increase for our telecom products.
Sales and marketing expenses increased in each of the previous seven
quarters, with the exception of a small decrease in the quarter ended December
31, 1998. The increased sales and marketing expenses were primarily due to an
increase in the number of sales and marketing personnel, sales commissions,
marketing expenses and other customer-related costs. We expect sales and
marketing costs to continue to increase in absolute dollars as we build our
sales and marketing organization.
General and administrative expenses increased in each of the previous seven
quarters, with the exception of the quarters ended December 31, 1998, and June
30, 1999. During the quarters ended September 30, 1999, and December 31, 1999,
we experienced a substantial increase in general and administrative costs due to
an increase in the number of personnel and additional costs related to building
an infrastructure for a public company, which includes increased legal,
accounting, recruiting and information systems costs. We expect general and
administrative expenses to continue to increase in absolute dollars.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of convertible preferred stock, bank debt and loans from a shareholder.
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<PAGE> 32
Our cash and cash equivalents increased from $51,000 as of March 31, 1999,
to $28.1 million as of December 31, 1999. The increase was primarily due to cash
generated by financing activities, including the receipt of an aggregate of
$43.7 million from the sales of convertible preferred stock during the nine-
month period ended December 31, 1999, partially offset by cash used in
operations and the purchase of equipment. Net working capital increased by $1.6
million for fiscal 1999 and increased by $28.5 million in the nine-month period
ended December 31, 1999.
Cash used in operating activities was $583,000 in fiscal 1998, $3.9 million
in fiscal 1999 and $5.7 million in the nine-month period ended December 31,
1999. Cash used in operating activities in fiscal 1998 was primarily due to our
net loss of $286,000, increases in inventory balances of $1.5 million, increases
in accounts receivable balances of $1.2 million, partially offset by non-cash
charges of $700,000 and increases in accounts payable of $1.1 million. Cash used
in operating activities in fiscal 1999 was primarily due to our net loss of $5.0
million, decreases in accounts payable of $884,000, partially offset by non-cash
charges of $598,000 and increases in accrued expenses of $697,000. Cash used in
operating activities in the nine-month period ended December 31, 1999, was
primarily due to our net loss of $7.7 million, increases in inventory balances
of $2.6 million and the accounts receivable balance of $1.0 million, partially
offset by non-cash charges of $872,000 and increases in accounts payable of $3.9
million.
Cash used in investing activities was $379,000 in fiscal 1998, $1.4 million
in fiscal 1999 and $5.7 million in the nine-month period ended December 31,
1999. In all three periods cash was used to acquire property and equipment.
Cash generated by financing activities was $908,000 in fiscal 1998, $5.1
million in fiscal 1999 and $39.5 million in the nine-month period ended December
31, 1999. Cash generated by financing activities in fiscal 1998 was primarily
due to net borrowings of $567,000 under our bank lending facilities and proceeds
of $400,000 from promissory notes issued. Cash generated by financing activities
in fiscal 1999 was primarily due to proceeds of $4.2 million from the sale of
convertible preferred stock and net borrowings of $750,000 under an equipment
loan. Cash generated by financing activities in the nine-month period ended
December 31, 1999, was primarily due to proceeds of $43.7 million from the sales
of convertible preferred stock and $1.2 million under our bank lending
facilities, partially offset by $5.3 million of repayments of our bank lending
facilities and promissory notes.
We believe that the net proceeds from this offering, together with our
current cash, cash equivalents and borrowings under our current credit facility,
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for the next twelve months. If cash generated from
operations is insufficient to satisfy our long-term liquidity requirements, we
may seek to sell additional equity or debt securities or to obtain additional
credit facilities. If additional funds are raised through the issuance of debt
securities, these securities could have rights, preferences and privileges
senior to holders of common stock, and the terms of any debt facility could
impose restrictions on our operations. The sale of additional equity or debt
securities could result in additional dilution to our stockholders, and
additional financing may not be available in amounts or on terms acceptable to
us, if at all. If we are unable to obtain this additional financing, we may be
required to reduce the scope of our planned product development and marketing
efforts, which could harm our business, financial condition and operating
results.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
We maintain our cash and cash equivalents primarily in money market funds.
We do not have any derivative financial instruments. As of December 31, 1999,
all of our investments mature in less than three months. Accordingly, we do not
believe that our investments have significant exposure to interest rate risk.
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<PAGE> 33
Exchange Rate Sensitivity
We operate primarily in the United States, and all sales to date have been
made in U.S. dollars. Accordingly, we currently have no material exposure to
foreign currency rate fluctuations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (FAS 133). SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. In June 1999, the Board issued SFAS 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133, which deferred the effective date of SFAS 133 until
fiscal years beginning after June 15, 2000. We will become subject to SFAS No.
133 on January 1, 2001. Because we do not currently hold any derivative
instruments and do not engage in hedging activities, we do not believe that the
adoption of SFAS No. 133 will have a material impact on our financial position
or results of operations.
YEAR 2000 ISSUES
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished leading up to 2000 was
effective to prevent any problems. Computer experts have warned that there may
still be residual consequences of the change in centuries. For example, programs
may fail to recognize February 29, 2000, as a leap year date as a result of an
exception to the calculation of leap years that will occur in the year 2000 and
otherwise occurs only once every 400 years. This problem could result in
miscalculations, data corruption, system failures or disruptions of operations.
Any such difficulties could result in a decrease in sales of our products, an
increase in allocation of resources to address Year 2000 problems of our
customers without additional revenue commensurate with such dedication of
resources, or an increase in litigation costs relating to losses suffered by our
customers due to such Year 2000 problems.
Because our internal systems utilize third party hardware and software,
residual Year 2000 problems affecting third parties' hardware and software could
cause our internal systems to fail. If residual Year 2000 problems cause the
failure of any of the technology, software or systems necessary to use our
products or operate our business, we could lose customers, suffer significant
disruptions in our business, lose revenues and incur substantial liabilities and
expenses. We could also become involved in costly litigation resulting from Year
2000 problems. This could harm our business, financial condition and results of
operations.
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<PAGE> 34
BUSINESS
OVERVIEW
We design, manufacture and market innovative fiber optic products for
next-generation optical networks under the Smart Optics for Networks brand. We
leverage our ten years of experience in developing advanced photonics tools and
opto-electronic products, to enable networking solutions with increased channel
counts, higher data rates, longer reach lengths and new services, and which
reduce overall network cost of ownership. Our high-performance products are
compact, consume less power and are designed to be manufacturable in high
volumes. Our products include fiber amplifier products, wavelength management
products, high-speed opto-electronics, tunable laser modules and advanced
photonics tools.
INDUSTRY BACKGROUND
Dramatic Increases in the Volume of Data Traffic
The Internet has become an essential communications and transaction medium.
The volume of high-speed data traffic over communications networks continues to
grow dramatically, outpacing that of traditional voice traffic. According to
International Data Corporation, a leading market research company, the number of
Internet users worldwide reached approximately 142 million in 1998 and is
forecasted to grow to approximately 502 million users by the end of 2003.
According to Ryan, Hankin & Kent, or RHK, a leading market research and
consulting firm, Internet and other data traffic is expected to increase 8,100%
between 1999 and 2003. This growth is primarily attributable to the increasing
use of the Internet among consumer and business users, easier and cheaper access
to the Internet and the large and growing number of personal computers in the
home and the workplace. E-commerce in particular is generating enormous data
traffic over communications networks as it becomes a critical strategic element
of many businesses.
Evolution of the Optical Network
The increase in data traffic, coupled with demand for enhanced services and
improved connection times, has increased demand for high capacity, or high
bandwidth, communications networks. Network service providers have had
difficulty in meeting this increased demand due to significant constraints of
the existing communications infrastructure, which was originally designed to
carry only voice traffic. Such constraints have caused network congestion,
decreased reliability and made it difficult for network service providers to
upgrade networks effectively. To alleviate this bottleneck, network service
providers are increasingly deploying next-generation optical networks that
address the demand for high-speed communications.
Optical networks transmit data by pulses of light through an optical fiber.
Light in a glass medium can carry more information over longer distances than
electrical signals over a copper medium. Optical signals are generated through
the use of lasers that produce light at specific colors, or wavelengths. In
addition to lasers, a variety of other fiber optic components are used to
create, combine, isolate, amplify, split, channel and perform various other
functions on these optical signals. Fiber optic components are split into two
broad categories: actives, or opto-electronics, which process both optical and
electrical signals and passives, which process only optical signals. Innovations
at the fiber optic component level have historically enabled a number of major
advances in optical networking systems.
Traditionally, optical signals at only a single wavelength, or channel,
were used to carry information in optical networks. With the invention of
innovative components capable of separating light into different specified
wavelengths for transmission in an optical fiber, network systems vendors began
developing enhanced equipment, including wavelength division multiplexing, or
WDM, systems, which greatly increased network capacity based on these new
components. WDM solutions increase network capacity by transmitting data
simultaneously on a number of different wavelengths along the same optical
fiber. At the destination, these wavelengths are separated and the data
extracted. Therefore, WDM technology increases
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<PAGE> 35
the bandwidth of an optical network proportional to the number of different
wavelengths that are transmitted.
In addition to increasing the number of channels, component innovation has
also resulted in an increase in the amount of data which can be transmitted per
channel, or data rate. Network service providers have been continually upgrading
the data rates of their optical networks, for example, from OC-3, or 155.5
megabits per second, to OC-48, or 2.5 gigabits per second. Service providers
today are beginning to deploy OC-192, or 10 gigabits per second, equipment
throughout their networks and are in the early stages of developing and testing
equipment with OC-768, or 40 gigabits per second, capability, creating a need
for innovative components in optical testing equipment capable of operating at
these high speeds. With increased data rates and number of channels, the amount
of data processed by network equipment has increased dramatically. As the data
rate and bandwidth between network equipment sites has expanded, the data rate
between the equipment within these sites has not kept pace. As a result, there
is increasingly a need for high data rate, or high-speed, connections to link
the equipment within a network service provider's site.
Component innovations have also led to the development of the fiber
amplifier, which resulted in a dramatic increase in the distance over which
optical signals can be transmitted without regeneration, which is the process of
converting the signals from optical to electrical and back to optical to restore
signal quality and strength. Regeneration requires large, expensive equipment,
often in remote locations, which can be costly to deploy, operate and maintain.
Fiber amplifiers restore the signal strength without regeneration and result in
significantly lower equipment, operations and maintenance costs. Prior to the
development of fiber amplifiers, signal attenuation, or loss, limited the
distance over which an optical signal could be transmitted without regeneration,
or reach, to approximately 70 kilometers. With fiber amplifiers, the reach of
optical networks has increased to thousands of kilometers. With improvements in
fiber amplifiers, network equipment manufacturers are continuing to develop
longer reach capability that has led to, among other things, all-optical
networks that operate without any regeneration. These all-optical networks
depend on advanced fiber optic components that enable extremely long reach.
Requirements of Optical Communications Systems
The increasing need for bandwidth has resulted in strong demand for optical
networking systems and a proliferation of new development efforts by traditional
and emerging network equipment providers. These providers are seeking to develop
next-generation optical networking systems, which require:
Increased channel counts. Service providers are demanding optical networks
with higher channel counts to increase bandwidth. However, with current WDM
technology, the number of wavelengths that can be transmitted, or channel count,
is limited. Current WDM technology requires that data be transmitted within a
defined range of wavelengths and with a large space between each channel. These
limitations constrain the channel count and the overall bandwidth. Network
equipment providers can increase the channel count by extending the range of
wavelengths over which data can be transmitted. At the same time, the channel
count can also be increased by reducing the spacing between channels with dense
wavelength division multiplexing, or DWDM. According to RHK, the market for DWDM
optical components is expected to grow at a compound annual growth rate of 51%
from 1999 to 2003. As wavelength range and channel counts increase, service and
network equipment providers will also need to effectively manage the
increasingly complex flow of high speed optical signals in a vast number of
wavelengths.
Higher data rates. Future systems will continue to require higher data
rates to handle the rapid growth in data traffic. Next-generation optical
networks are being developed with data rates of OC-192. As higher speed optical
networking systems are being developed, service and equipment providers will
need test and measurement equipment that is faster than the products being
measured in order to ensure accurate testing of the equipment. In addition to
increasing data rates between network equipment sites, network service providers
are demanding an increase in data rates between network equipment, such as
between routers, switches and DWDM terminals and other equipment, within a site.
As a result, service
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<PAGE> 36
and network equipment providers are demanding a large number of short-reach,
high data rate interconnections.
Longer reach. The varied and unpredictable geographical pattern of Internet
data traffic requires longer reach networks. Regeneration stations are expensive
and are costly to deploy, operate and maintain. As a result, service providers
are demanding optical networks with longer reach between regeneration stations.
Very long reach is ultimately needed for all-optical networks that do not
require regeneration.
Enabling new services. Competition among service providers is driving the
need to provide differentiated services. Similar to the introduction of systems
that increased the bandwidth and reach of current networks, there is a need for
network equipment capable of managing and flexibly delivering this bandwidth at
the fiber optic component level. Traditional methods of managing bandwidth by
converting optical signals to electrical signals for processing are limited to a
specific protocol and data rate. When processing is performed entirely in optics
without the conversion to electronics, the processing is independent of the
protocol and data rate.
Cost-effectiveness. Growth in data traffic and price competition in the
telecommunications market increasingly requires service providers to seek
solutions that reduce their overall network cost of ownership. In addition to
the basic cost of equipment, service providers incur substantial costs in terms
of space required to deploy the equipment, power consumption and on-going
operations and maintenance. In order to continue to grow and upgrade their
networks to meet higher traffic demands in a cost-effective manner, service
providers need compact, low-power consuming equipment.
THE NEW FOCUS OPPORTUNITY
In order to address the growing requirements of communications networks,
there is a demand for the introduction of increasingly sophisticated systems at
a rapid rate. To meet this performance and functionality requirement, equipment
providers must utilize increasingly sophisticated components. The fiber optic
components market, including actives and passives, is one of the fastest growing
portions of the telecommunications market. RHK estimates that the market for
fiber optic components was approximately $6.6 billion in 1999 and is expected to
grow to over $22.5 billion by 2003. As a result of the rapid pace of new product
introductions and the difficulty of designing and producing the requisite
components, equipment providers are increasingly turning to suppliers of fiber
optic products. These suppliers must offer high performance products that are
compact, consume less power and are designed to be manufacturable in high
volumes. These new innovative fiber optic products enable systems companies to
offer solutions with increased channel counts, higher data rates, longer reach
lengths and new services, and which reduce overall network cost of ownership.
THE NEW FOCUS SOLUTION
We design, manufacture and market innovative fiber optic products for
next-generation optical networks under the Smart Optics for Networks brand. We
enable networking solutions with increased channel counts, higher data rates,
longer reach lengths and new services, and which reduce overall network cost of
ownership. Our high-performance products are compact, consume less power and are
designed to be manufacturable in high volumes. We believe our Smart Optics for
Networks products provide our customers the following key benefits:
Increased channel counts. Our wavelength management products and fiber
amplifier products enable systems with extended fiber bandwidth, thereby
increasing the efficiency of optical networks by transmitting a greater number
of wavelengths in a single optical fiber. Our wavelength management products
also enable network DWDM systems to accurately, efficiently and reliably manage
the vast number of optical signals by separating these signals into different
paths that can be processed individually. Our interleavers are designed to
effectively double the capacity of DWDM systems by doubling the number of
channels operating on a single fiber. Our WDM couplers are used to split optical
signals on a single fiber into two different wavelengths on two fibers, enabling
them to be processed on an individual basis. Our optical circulators are used
for directing optical signals into the appropriate sections of a fiber
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<PAGE> 37
amplifier and offer wide wavelength operation to accommodate many optical
channels. These circulators enable advanced next-generation fiber amplifiers
that amplify signals at multiple wavelength bands and signals travelling in both
directions along a fiber.
Higher data rates. Our high-speed opto-electronics enable our customers to
solve the bandwidth bottleneck between equipment within a network service
provider's site. To address this problem we offer our 10 gigabits per second, or
Gbps, transceivers which are designed to be low cost, small sized and low-power
consuming solutions. Our advanced photonics tools enable network service and
equipment providers to develop and test their next-generation offerings,
including OC-768 products.
Longer reach. Our fiber amplifier products enable the transmission of
information at very high speeds over extended distances. We reduce the expense
associated with amplification and regeneration equipment by extending the
distances over which an optical signal can be transmitted. We offer products
with wide wavelength range and low loss that enable the high power amplification
needed to drive optical signals for very long distances often associated with
next-generation all-optical networks.
Enabling new services. Our products enable network equipment manufacturers
and service providers to offer products capable of managing and flexibly
delivering bandwidth at the fiber optic component level. Our optical circulators
enable equipment capable of delivering or dynamically adding and dropping a
single wavelength at any point in the network. Our tunable lasers are being
developed to enable flexible networks that can be reconfigured to address
changing data traffic patterns.
Cost-effectiveness. Our products enable network solutions with reduced
overall network cost of ownership. Our products are designed with compact form
factor and low power consumption to reduce system space and power requirements.
We design our products for high volume manufacturing and offer several different
products utilizing the same or similar fiber optic packaging, thereby decreasing
cost. Our fiber amplifier products increase the reach and number of channels
within a DWDM network, reducing the expense of signal amplification and
regeneration.
THE NEW FOCUS STRATEGY
Our objective is to be the leading provider of innovative, fiber optic
products that enable our customers to deploy and optimize next-generation
optical networks. Key elements of our strategy include:
Leverage our position as a leading market innovator. We believe that we
have a unique combination of component design and systems architecture
knowledge, an extensive intellectual property portfolio, as well as strong
management experience in the optical networking industry. Since our founding in
1990, we have focused exclusively on developing optical products and have formed
close relationships with leading research and development organizations in
addition to optical networking companies. We intend to leverage our reputation
in the industry to obtain new customers, partners and employees.
Focus our research and development efforts on continuing to broaden our
product offerings. We believe that the breadth and depth of our product line,
including both actives and passives, differentiates us from many of our
competitors. We will continue to expand the breadth of our product line by
developing and offering best-in-class Smart Optics for Networks products. We
believe we can accomplish this goal by continuing to aggressively invest in
product development and leverage our existing technological capabilities,
including the intellectual property and optical expertise gained through the
development of our position as a leading innovator of advanced photonics tools.
For example, we are presently leveraging our expertise in tunable lasers for
test and measurement to develop advanced tunable transmitters as solutions to
replace existing fixed wavelength lasers.
Collaborate with leading innovative systems companies. We believe that we
are integral to the development efforts of our customers, which provides us with
unique insight into the requirements of next-generation optical networks.
Regular contact with key decision-makers in both service and equipment
providers' organizations provides us with great opportunities to collaborate
with these companies to provide the required products, solve implementation
problems and aid in the design of future systems architecture. In addition, our
ability to design and offer our customers innovative fiber optic products for
their system
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<PAGE> 38
solutions gives us a strategic advantage over our competitors with respect to
system design wins. We intend to continue to target our development efforts to
both the current systems manufacturers as well as emerging optical systems
companies, whose innovative designs we believe, will drive the next-generation
optical network.
Continue to expand manufacturing capacity and improve process
efficiency. We intend to continue to expand our manufacturing capacity and
improve process efficiency. We expect to commence operations in our Shenzhen,
China facility in 2000 and will continue to expand our capacity within our
current facilities. We will also look for additional sites for future expansion.
We will continue to invest in improving our processing efficiencies through the
use of automation, proprietary tools and processes.
Pursue strategic acquisitions. We believe that we have a strong reputation
for technical innovation combined with a willingness to collaborate with the
leading technologists in the optical, or photonics, industry. We are regularly
approached by photonic technologists looking to commercialize their intellectual
property. We have integrated the intellectual property from several of these
technologists into our existing business, resulting in several new product
introductions. We intend to continue to leverage our reputation to aggressively
pursue strategic acquisitions that can provide us with key intellectual
property, strategic products and highly-qualified engineering personnel to
rapidly increase our technological expertise and expand the breadth of our
product portfolio.
PRODUCTS
Our Smart Optics for Networks products enable systems providers to meet the
dynamic demands of next-generation optical networks. Our product offerings
include fiber amplifier products, wavelength management products, high-speed
opto-electronics, tunable laser modules and advanced photonics tools. We
categorize our products by stage of development, such as shipping to customers,
beta testing, which refers to products in advanced customer testing, and alpha
testing, which refers to products in the early stages of customer and industry
testing.
FIBER AMPLIFIER PRODUCTS
Fiber amplifiers are widely deployed in DWDM and other networks to amplify
optical signals at periodic intervals along a fiber optic link. Our fiber
amplifier products enable systems with increased channel counts and longer reach
lengths at a lower overall network cost of ownership.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PRODUCTS COMPETITIVE FEATURES BENEFITS STAGE
- ----------------------------------------------------------------------------------------------
Optical Circulators - Wide wavelength range - Increased channel Shipping
(C-Band) - Low loss counts
- Longer reach
- ----------------------------------------------------------------------------------------------
Optical Circulators - Wide wavelength range - Increased channel Beta testing
(L-Band) - Low loss counts
- Longer reach
- ----------------------------------------------------------------------------------------------
Polarization Beam - Low loss - Longer reach Shipping
Combiners - Efficient polarization - Cost-effectiveness
control
- Compact
- ----------------------------------------------------------------------------------------------
Isolator Arrays - Low loss - Longer reach Beta testing
- Reduced part count, - Cost-effectiveness
lower cost per port
- ----------------------------------------------------------------------------------------------
</TABLE>
- Optical circulators. Optical circulators are used for directing optical
signals into the appropriate sections of a fiber amplifier. Current
optical circulators are inadequate for the next generation of fiber
amplifiers because of their limited wavelength range and relatively high
losses. Our optical circulators have fewer parts than available
alternatives, resulting in wide wavelength operation and very low losses
to accommodate many optical channels. The wide wavelength range enables
next-
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generation fiber amplifiers to amplify signals at multiple wavelength
bands and signals travelling in both directions along a fiber. Our
optical circulators operate in the two standard wavelength bands, the
C-Band and the L-Band.
- Polarization beam combiners. Polarization beam combiners are used to
combine the optical power from two pump lasers operating at the same
wavelength into a single fiber, thereby effectively doubling the amount
of power in the fiber amplifier. Additional pump power is essential to
support the increased number of channels in the next-generation DWDM
systems. However, current solutions are bulky and do not efficiently
combine optical power of the same wavelength in order to increase pump
power. Our polarization beam combiners are compact components which
efficiently combine the optical power of the same wavelength with minimal
loss, thereby enabling efficient pumping of these high power amplifiers.
- Isolator arrays. As the functionality and performance of fiber amplifiers
increase, the number of components within each amplifier increases
greatly and the size of each component becomes a significant factor. Our
two-in-one isolator arrays offer very low loss and the same functionality
as traditional isolators in half of the space, thus providing significant
cost and space savings.
WAVELENGTH MANAGEMENT PRODUCTS
As the number of channels in DWDM systems increases, advances in products
to manage optical signals on different wavelengths are increasingly critical.
Our wavelength management products enable DWDM systems to accurately,
efficiently and reliably manage the vast number of optical signals.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PRODUCTS COMPETITIVE FEATURES BENEFITS STAGE
- ----------------------------------------------------------------------------------------------
DWDM Interleavers - Dense channel spacing - Increased channel Alpha testing
- Compact counts
- Requires no active - Cost-effectiveness
cooling
- ----------------------------------------------------------------------------------------------
WDM Couplers - Low loss - Longer reach Beta testing
- Cost-effective - Cost-effectiveness
all-fiber product - Enables new services
- ----------------------------------------------------------------------------------------------
Optical Circulators - Wide wavelength range - Increased channel Shipping and
- Low loss counts Beta testing
- Enables new services
- ----------------------------------------------------------------------------------------------
</TABLE>
- DWDM interleavers. DWDM interleavers effectively double the capacity of
DWDM systems by doubling the number of channels transmitted on a single
fiber. DWDM interleavers accomplish this by combining signals from two
fibers onto a single fiber in the same wavelength range, thus,
effectively doubling the capacity of that fiber. Current interleavers are
bulky, expensive and require active cooling, or separately powered
temperature control, which significantly increases system complexity. Our
DWDM interleaver design does not require active cooling and is
considerably smaller and less expensive than current solutions.
- WDM couplers. WDM couplers are used to split optical signals on a single
fiber into two different wavelength ranges on two fibers so that they can
be processed separately. Our WDM couplers have low loss and are designed
for robust operation under difficult environmental conditions, such as
vibration, mechanical shock or humidity, over a long period of time.
- Optical circulators. Our optical circulators, as described above, are
also used in wavelength management applications to direct optical signals
to the appropriate sections of the system. These circulators enable new
services such as adding or dropping individual channels at defined points
in the network.
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HIGH-SPEED OPTO-ELECTRONICS
Our high-speed, high data rate opto-electronic products are focused on
compact, low power consuming, low cost solutions for short-range
interconnections at 10 Gbps and above.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRODUCTS COMPETITIVE FEATURES BENEFITS STAGE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
10 Gbps VCSEL-based - Compact - Cost-effectiveness Alpha
transceivers - Low power consumption - Higher data rates testing
- Requires no active
cooling
- ----------------------------------------------------------------------------------------------
</TABLE>
- 10 Gbps Vertical Cavity Surface Emitting Lasers, or VCSEL-based
transceivers. Transceivers convert optical signals to electronic signals
and vice versa and are an essential component of optical networks.
Current solutions for service providers are expensive, large and power
consuming transmitters and receivers. In contrast, our 10 Gbps
transceivers are designed around VCSEL technology, which does not require
external modulation or active cooling and is low cost to manufacture. In
addition, our transceivers are designed to consume little power and to be
compact, making them an attractive solution for short-range, high data
rate interconnections.
TUNABLE LASER MODULES
Our high performance tunable laser modules are used for testing and
measuring fiber optic components and systems in manufacturing, development and
research environments. We are also developing a tunable laser module for
replacement of conventional fixed wavelength lasers in telecommunications
networks.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRODUCTS COMPETITIVE FEATURES BENEFITS STAGE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Swept-wavelength lasers - Rapid, precise - Reduced development Shipping
wavelength scanning and manufacturing time
- ----------------------------------------------------------------------------------------------
Test and measurement - Wide wavelength range - Enables development of Shipping
lasers systems with increased
channel counts systems
- ----------------------------------------------------------------------------------------------
Tunable transmitters - High output power - Cost-effectiveness Alpha testing
- Wide wavelength range - Enables new services
- ----------------------------------------------------------------------------------------------
</TABLE>
- Swept-wavelength lasers. Our swept-wavelength lasers provide rapid
wavelength scanning for precise measurement of network components and
systems, reducing development time for new products and reducing
manufacturing bottlenecks.
- Test and measurement tunable lasers. Our high precision tunable lasers
are used for test and measurement in the manufacturing and development of
optical network products. Our test and measurement tunable laser modules
operate across a wide tuning range for thorough testing and provide high
output power for improved accuracy. These laser modules are designed and
tested to withstand harsh environmental conditions without degradation of
performance.
- Tunable transmitters. As DWDM systems rapidly grow in channel count, the
number of wavelength-specific parts has grown proportionally. Current
fixed wavelength laser solutions result in deployment, inventory and
maintenance problems for network service and equipment providers. We are
presently developing advanced tunable transmitters as solutions to
replace existing fixed wavelength lasers. Our tunable transmitters are
designed for high output power over a very wide wavelength range to meet
the requirements of existing transmitters while providing a high degree
of flexibility. These tunable transmitters are designed to enable
reconfigurable, flexible networks.
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<PAGE> 41
ADVANCED PHOTONICS TOOLS
We offer a wide range of photonics tools for advanced research, development
and manufacturing. These products leverage our core competencies in optics for a
number of applications including telecommunications research and product
development. For example, our precision opto-mechanics and picomotor products
are used for advanced manufacturing of fiber optic components and for research
and development of high-speed network products. As another example,
photodetectors that are faster than the products being measured are needed to
accurately characterize the optical performance of the tested device, and our
high-speed photodetectors are being used to develop OC-768 products.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRODUCTS COMPETITIVE FEATURES BENEFITS STAGE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Precision - Precise positioning - Enables automated Shipping
opto-mechanics fiber optic
manufacturing
- ----------------------------------------------------------------------------------------------
Picomotors - Precise positioning - Enables development of Shipping
next-generation
products
- ----------------------------------------------------------------------------------------------
Photodetectors - High speeds - Enables development of Shipping
high data rate
products
- ----------------------------------------------------------------------------------------------
</TABLE>
TECHNOLOGY
Our technical capabilities span several key areas that we believe will
result in rapid development and deployment of our Smart Optics for Networks
products.
Wideband passives technology. As more channels are needed in DWDM networks
to handle more data traffic, the fiber optic elements within the network need to
accommodate more wavelengths and hence more channels. Our wideband passives
technology enables us to develop advanced fiber amplifier and WDM products that
have a wide wavelength operating range with low cost by design. Our wideband
passives technology is based on a patent pending design that eliminates
unnecessary parts that are wavelength sensitive, thereby resulting in wide
wavelength operation for high channel count. Our wideband passives technology is
used in our rapidly growing optical circulator products.
Wavelength management technology. The growing number of wavelengths or
channels in DWDM systems has caused these systems to become increasingly complex
and difficult to handle. Our wavelength management technology enables efficient
management of numerous signals by separating them into different paths that can
be treated individually. This technology includes capabilities in advanced
micro-optic design for products with novel crystals, geometries and
functionality, and in fused-fiber design, development and manufacturing for
all-fiber based products. Our wavelength management technology is used in our
wavelength management products.
Advanced fiber optic packaging. Our advanced fiber optic packaging
technology enables us to develop components with compact size, high reliability
and improved temperature sensitivity. This technology also enables a common
platform across many products, resulting in economies of scale and significantly
reducing design, development and test time. Our packaging meets Telcordia, or
Bellcore, industry standards for reliability and is qualified by many key
network equipment providers. This technology is based on our design capabilities
in micro-optic and fused-fiber packaging and our advanced testing facilities and
expertise. Our advanced fiber optic packaging technology is used in our fiber
amplifier and wavelength management products.
Tunable laser technology. Traditional laser transmitters operate at only a
single wavelength, corresponding to a single channel. Our tunable laser
technology allows us to create transmitters that have a tunable, or adjustable,
wavelength so that each laser can operate on any number of the required
channels. Our capabilities and intellectual property in this area include
advanced laser design, development and manufacturing, advanced laser packaging
for high robustness and reliability, dynamic filter technology to adjust the
laser wavelength to any desired channel, and integrated wavelength locking
technology that
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<PAGE> 42
results in minimal error in the laser wavelength from the desired channel. These
capabilities have resulted in tunable laser products with high output power and
wide wavelength coverage.
High-speed opto-electronics technology. Our high-speed opto-electronics
capabilities include analog chip design, photo detector design and advanced
manufacturing, packaging and assembly. This capability has resulted in our 60
gigahertz photodetector product and electronic amplifier products at speeds
greater than 15 gigahertz, while allowing us to develop transmitters, modulators
and receivers that operate at data rates of OC-192 or OC-768.
Advanced thin films. Specialized precision thin film coatings result in
extremely low optical reflections and are a critical part of many optical
devices. When applied to our tunable lasers, the low reflections result in high
optical power output and wide wavelength tunability, or range, of over 50
nanometers. Our advanced thin film capability includes advanced thin film
design, ion assisted deposition processes, equipment and facilities for
depositing the specialized coatings and thin film monitoring capability for
precision control of the thin film properties. This capability has resulted in
high performance active devices such as our tunable lasers modules.
CUSTOMERS
We sell our fiber optic products to network equipment providers and our
advanced photonics tools to suppliers of components, systems and
services-related products in the optical networking industry. We have sold our
products to over 50 customers, and no single customer accounted for more than
10% of our revenues for the nine-month period ended December 31, 1999.
The following is a list of our top customers based on our net revenues in
each of our two product groups during the nine-month period ended December 31,
1999:
TELECOM PRODUCTS:
Agilent Technologies
Alcatel USA
Avanex Corporation
Corning Incorporated
Corvis Corporation
JDS Uniphase Corporation
Lucent Technologies
Nortel Networks Corporation
Optical Products
Pirelli (recently acquired by Cisco Systems)
Qtera Corporation (a wholly owned subsidiary of Nortel Networks)
3M Company
COMMERCIAL PHOTONICS PRODUCTS:
BFI Optilas
Corning Incorporated
ERIM International
GSI Lumonics
INDECO
Jet Propulsion Laboratory
KLA-Tencor Corporation
Molecular Dynamics
Optima Research
Positive Light
Sandia National Laboratories
Schlumberger Technology Corporation
AGILENT TECHNOLOGIES
Agilent Technologies is a global, diversified technology company focusing
on high-growth markets in the communications, electronics, life sciences and
healthcare industries. In 1996, Agilent found that they required a low-cost
tunable laser for testing long-range optical equipment. In that year, we began
collaborating with Agilent for the development of a low-cost tunable laser
product. From 1996 to 1999, we developed a low-cost tunable laser according to
Agilent's needs. In addition to funding a portion of this project, Agilent
agreed to begin commercial purchase of our low-cost tunable laser product. We
delivered the first product, a tunable laser module along with the associated
control electronics, in the second half of 1999. To date, we have experienced a
great deal of success with our tunable laser modules as well as with the
development of advanced tunable laser products. By incorporating our products,
Agilent has been able
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<PAGE> 43
to offer a broader line of tunable lasers for their customers at more
competitive prices than previous solutions.
ALCATEL
Alcatel is a premier provider of optical networking equipment for the
telecommunications industry. In order to meet the need for next-generation
systems, Alcatel's systems require a number of optical circulators. In 1998, we
first developed the intellectual property for design and production of a
circulator that allows wider wavelength range, lower loss, and more compact size
than previously available products. In early 1999, Alcatel took delivery of a
beta test version of this product, concluding a number of very successful tests.
Alcatel presently deploys our circulator products to enhance the performance of
their systems.
AVANEX
Avanex is a provider of photonics processors for optical networks. Avanex
requires highly reliable tunable lasers to use as an integral part of their
manufacturing process. Our products address these needs in two areas. First, we
supply the tunable test lasers that are incorporated into Avanex's standard
production line. Our tunable test lasers have allowed Avanex to decrease the
calibration time required at each station. Second, our swept wavelength lasers
are being incorporated into production lines for Avanex's next-generation high
performance devices. Our technology allows faster optimization for the device in
production.
CORNING
Corning is a premier provider of optical fiber, cable and photonic products
for the telecommunications industry. In order to meet the need for higher power
amplifiers driven by increasing channel counts in WDM networks, Corning
developed a complex, high-end fiber amplifier product that required a number of
circulators. In 1998, we first developed the intellectual property for design
and production of a circulator that allows higher channel counts than previously
available products. In early 1999, Corning took delivery of a beta test version
of this product concluding a number of successful tests. Corning presently
deploys our circulator products to enhance the performance of their fiber
amplifier products and to allow for more complex fiber amplifier architectures
demanded by Corning's customers.
QTERA
Qtera Corporation (a wholly owned subsidiary of Nortel Networks) is a
provider of extremely long reach, high power network solutions. In developing
these solutions, Qtera had a need for a packaging solution for one of the key
components used in their system. This package was required to pass rigid
Telcordia testing. We used our existing intellectual property and developed new
intellectual property that solves the packaging problem and addresses Qtera's
needs. We consider this technology to be a core competency. In addition to
enhancing Qtera's product offerings, we have leveraged this technology to supply
solutions to other systems vendors. Qtera's deployment of this technology will
provide carriers with increased power and signal transmission distance, reducing
the number of regeneration points in a network.
SALES, MARKETING AND CUSTOMER SUPPORT
We sell and market our fiber optic products primarily through direct sales.
We sell and market our photonics tools primarily through a combination of direct
sales, catalog sales and distributors. We focus our direct sales efforts on
service providers and optical network equipment manufacturers. Our direct sales
account managers cover the market on an assigned account basis. We believe that
support services are essential to the successful installation and ongoing
support of our products. We also have application engineers that provide our
customers with assistance on the evolution of their networks as it relates to
the deployment of our products. These engineers help in defining the features
that are required for our products to be successful in specific applications.
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<PAGE> 44
MANUFACTURING
We manufacture the majority of our products internally. We do, however,
outsource, on a limited basis, manufacturing of selected subcomponents,
primarily for our commercial photonics products. Our manufacturing operations
are presently centered at our facility in Santa Clara, California. We are
currently establishing a facility in Shenzhen, China. In Middleton, Wisconsin,
we intend to install a pilot production facility, which we anticipate occupying
in the near term. We are also expanding our operations in California to a second
facility in San Jose.
We are committed to designing and manufacturing high quality products that
have been thoroughly tested for reliability and performance. Our manufacturing
processes utilize stringent quality controls, including incoming material
inspection, in-process testing and final test. We perform extensive in-house
thermal, shock and environmental testing, including testing to industry accepted
Telcordia standards. Our commitment to manufacturing high quality products is
evidenced by our being recommended for ISO-9001 quality certification.
We will also continue to leverage our competencies in rapid prototyping,
automation and proprietary tools and processes to improve our manufacturing
abilities.
Rapid prototyping. As advances in optical network technologies accelerate,
the time required to introduce new products into the market needs to be
minimized. Our capabilities include precision machining and advanced tooling
design for quick turn implementation of new designs into product prototypes.
These capabilities result in reduced development times for new products and
support yields and capacity improvement efforts within manufacturing.
Automation and proprietary tools and processes. Traditional manufacturing
processes for fiber optic components and modules are highly manual, yet require
high precision and high yields. Our proprietary tools and processes include
automated precision processes, technology and equipment that result in increased
capacity and yields. For example, our robotics technology has pick-and-place
capability at the one micro-meter level, the precision required in the assembly
of our products. We have developed intellectual property in this area and have
applied it to products that are presently in production as well as those that
are in development.
RESEARCH AND DEVELOPMENT
We have assembled a team of engineers, technicians and operators with
significant experience in the optical networking industry, highly specialized
manufacturing industries such as semiconductor capital equipment and optical
storage, and the communications industry. Our team has expertise in optics,
fiber optic package design, opto-electronics and systems architecture. Our
product development efforts focus on high-speed opto-electronics, innovative
fiber optic products and advanced automation techniques, which will enable us to
offer next-generation products in volume.
We have made, and will continue to make, a substantial investment in
research and development. Our research and development expenses totaled $6.2
million for our fiscal year ended March 31, 1998, $9.1 million for our fiscal
year ended March 31, 1999, and $8.4 million for the nine-month period ended
December 31, 1999.
COMPETITION
Competition in the optical networking market in which we provide products
is intense. We face competition from companies, such as E-Tek Dynamics, JDS
Uniphase Corporation, Lucent Technologies and Nortel Networks Corporation.
Many of 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 than we can to the development, promotion, sale and support of
their products. In addition, our competitors have large market capitalizations
or cash reserves and are much better positioned
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<PAGE> 45
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, more extensive customer bases, better developed distribution
channels, broader product offerings and greater manufacturing capacity than we
have. These companies can leverage their customer bases and broader product
offerings and adopt aggressive pricing policies to gain market share. Additional
competitors may enter the market and we are likely to compete with new companies
in the future. We expect to encounter potential customers that, due to existing
relationships with our competitors, are committed to the products offered by
these competitors.
The principal factors upon which we compete are:
- the innovative nature and features of fiber optic component products;
- ability to rapidly develop and introduce new products;
- responsive customer service and support; and
- price.
We believe we compete favorably on each of these factors.
INTELLECTUAL PROPERTY
Our success and ability to compete depend substantially upon our
technology. We pursue patent protection in the United States and abroad, and we
have been granted 25 U.S. patents and one European patent. We currently have 30
U.S. utility filings, of which four have been allowed by the U.S. Patent and
Trademark Office, 10 U.S. provisional filings and nine overseas filings in
various stages of prosecution, and we continue to file new patent applications
in the United States and overseas.
While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as our existing
contracts with equipment manufacturers, our licensing agreements with companies
and universities, 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 technologies.
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
each of the market segments in which we participate. We expect that the optical
networking industry may be increasingly subject to third-party infringement
claims as the number of competitors grows and the functionality of products in
different industry segments overlaps. In addition, we believe that many of our
competitors have filed or intend to file patent applications covering aspects of
their technology on which they may claim our technology infringes. We are
currently defending a claim brought against us by Kaifa Technology, Inc., which
was recently acquired by E-Tek Dynamics, Inc., alleging, among other things,
that we have infringed some of their intellectual property rights. We cannot
make any assurances that additional third parties in the future will not claim
infringement by us with respect to our products and our associated technology.
The Kaifa claim and other such claims in the future, 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
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against us and failure or inability by us to license the infringed or similar
technology could 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
At January 31, 2000, we had a total of 390 employees located in both the
United States and the People's Republic of China. Of the total, 71 were in
research and development, 27 were engaged in sales and marketing, 292 were in
administration, finance and operations. None of our employees are subject to a
collective bargaining agreement and we believe that our relations with our
employees are good.
FACILITIES
Our corporate headquarters facility, of approximately 55,000 square feet,
is located in Santa Clara, California. We lease our corporate headquarters
facility pursuant to a lease agreement that expires in April 2005.
We also have facilities in Wisconsin. We lease approximately 2,000 square
feet of space in Madison, Wisconsin under a lease agreement that expires
December 2000. We are also leasing approximately 2,500 square feet in Middleton,
Wisconsin, pursuant to a lease agreement that expires November 2000 or, upon our
occupation of a 14,000 square foot facility, pursuant to a new lease agreement
that expires in 2007.
Our manufacturing facility in Shenzhen, China is located in a premise on
land leased from China's government by a third party under land use certificates
and agreements with terms of 50 years. We lease our manufacturing facility from
this third party under a lease agreement that will expire in November 2002,
subject to our option to renew for an additional three-year period. The size of
our facility in Shenzhen, China is approximately 20,000 square feet.
Effective trademark, tradename or servicemark protection may not be
available in every country in which our products and services are distributed or
made available.
LEGAL PROCEEDINGS
On December 8, 1999, Kaifa Technology, Inc., or Kaifa, recently acquired by
E-Tek Dynamics, Inc., filed a complaint against us for patent infringement in
the United States District Court, Northern District of California. In addition
to maintaining its original claim of patent infringement against us, Kaifa has
asserted claims against us of intentional and negligent interference with
contract, trade secret misappropriation, unfair competition and breach of
contract. Kaifa is seeking a declaratory judgment, damages, injunctive relief
and attorneys' fees. Discovery has not begun and we intend to defend the action
vigorously. On February 23, 2000, we filed a motion to dismiss Kaifa's complaint
and joined one of our employees named in the complaint in filing another motion
to dismiss Kaifa's complaint. On the same date, certain of our employees named
in the complaint also filed a motion to dismiss Kaifa's complaint. These motions
are scheduled to be heard on March 31, 2000. If we are unsuccessful in defending
this action, any remedies awarded to Kaifa may harm our business. Furthermore,
defending this action will be costly and divert management's attention
regardless of whether we successfully defend the action.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of March 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth E. Westrick.................. 42 President and Chief Executive Officer, Director
William L. Potts, Jr................. 53 Chief Financial Officer
Dr. Timothy Day...................... 36 Chief Technical Officer and Vice President, Engineering,
Telecom
Paul G. Smith........................ 41 Vice President, General Manager, Telecom
Dr. Bao-Tong Ma...................... 50 Vice President, General Manager, New Focus Pacific Co.
Dr. Robert A. Marsland............... 36 Vice President, Focused Research, Inc.
George Yule.......................... 61 Vice President, Operations
Dr. Milton Chang(2).................. 57 Chairman of the Board of Directors
Charles Boppell...................... 57 Director
John Dexheimer....................... 45 Director
Dr. Winston S. Fu(1)................. 34 Director
R. Clark Harris(1)................... 62 Director
Robert D. Pavey(2)................... 57 Director
</TABLE>
- -------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Kenneth E. Westrick has served as our President, Chief Executive Officer
and director since November 1997. Prior to joining us, Mr. Westrick spent nine
years at Cornerstone Imaging, Inc. where he held positions such as Senior Vice
President, General Manager Display Division and Managing Director Europe. Mr.
Westrick has nearly 20 years experience managing different aspects of technology
start-up companies, generally in the computer industry. Mr. Westrick holds a
B.S. in economics from Northwestern University and an M.B.A. from Stanford
University.
William L. Potts, Jr. has served as our Chief Financial Officer since
February 2000. Prior to joining us, Mr. Potts worked at Komag, Incorporated from
July 1987 to February 2000. For ten years he served as Komag's chief financial
officer and most recently held the position of Executive Vice President, Chief
Financial Officer and Secretary. Prior to joining Komag in 1987, Mr. Potts held
financial management positions in the computer, medical and entertainment
industries. Early in his career he served on the consulting staff of Arthur
Andersen & Co. Mr. Potts holds a B.S. in industrial engineering from Lehigh
University and an M.B.A. from Stanford University.
Dr. Timothy Day is one of our co-founders and has served as our Chief
Technical Officer since July 1990 and as our acting Vice President of
Engineering, Telecom since November 1998. Since our founding, Dr. Day has served
us in various other positions, including acting General Manager, acting Vice
President, Operations and as the former Vice President, Focused Research. Dr.
Day received both a B.S. and an M.S. in physics from San Diego State University
and a Ph.D. in electrical engineering from Stanford University. Dr. Day is a
member of IEEE Lasers and Electro-Optics Society, Optical Society of America and
the Society of Photo-Instrumentation Engineers.
Paul G. Smith joined us in May 1998 as Vice President, General Manager,
Telecom. From April 1997 to May 1998, Mr. Smith was Senior Vice President of
Marketing and Sales and from May 1995 to April 1997 he was Vice President of
Marketing at Asante Technologies, Inc. From May 1994 to May 1995, Mr. Smith was
CEO of Holosoft, Inc. Mr. Smith received a B.S. in engineering from the
University of Alabama and a M.S.E.E. from Purdue University.
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Dr. Bao-Tong Ma joined us in November 1999 as Vice President, General
Manager, New Focus Pacific Co. From November 1990 to November 1999, Dr. Ma was
employed by IBM's Microelectronics Division. From 1993 to 1999, Dr. Ma was
involved in setting up and running an IBM subsidiary in China, holding various
positions, including Vice General Manager and Deputy General Manager. Dr. Ma
holds a B.S. in metallurgy from Shanghai Metallurgy Institute and a Ph.D. in
materials science from University of Pennsylvania.
Dr. Robert A. Marsland is one of our co-founders and has served as our Vice
President, Focused Research, since July 1997. From July 1994 to July 1997, Dr.
Marsland was employed as a Senior Scientist at Focused Research, Inc. Dr.
Marsland received his B.S. in electrical engineering from Arizona State
University and studied at Stanford University on an Office of Naval Research
fellowship. Dr. Marsland received a Ph.D. in engineering from Stanford. Dr.
Marsland is a member of IEEE Microwave Theory and Techniques Society, the Lasers
and Electro-optics Society and the Optical Society of America.
George Yule joined us in January 1998 as our Vice President, Operations.
From October 1997 to January 1998, he served as Vice President and General
Manager of the Display Division of Cornerstone Imaging, Inc. and from February
1993 to October 1997 as its Vice President, Operations. Mr. Yule received a B.S.
in electronic engineering from Worcester Polytechnic Institute and an M.B.A.
from Stanford University.
Dr. Milton Chang is one of our co-founders and has served as one of our
directors since our inception in April 1990. Dr. Chang has also served as the
chairman of our board of directors since May 1996. From 1990 to 1997, Dr. Chang
served as our President and Chief Executive Officer and continues to perform
research and marketing activities for us. From 1996 to 1998, Dr. Chang served on
the Visiting Committee for Advanced Technology of the National Institute of
Standards and Technology. He has also served in various positions at Newport
Corporation, including as its President and Chief Executive Officer. Currently,
Mr. Chang is a member of the board of directors for Euphonix, Inc., IRIDEX
Corporation and Gadzoox Networks, Inc., as well as on the board of several
private companies. Dr. Chang holds a B.S. in electrical engineering from the
University of Illinois and a M.S. and Ph.D. both in electrical engineering from
the California Institute of Technology.
Charles Boppell has served as one of our directors since April 1990. Since
March 1999, Mr. Boppell has served as the President, Chief Executive Officer and
Director of Sizzler International, Inc., a restaurant operator and franchiser
corporation. From November 1993 to March 1999, Mr. Boppell served as the
President and Chief Executive Officer of La Salsa Holding Co., an operator of
restaurants throughout the United States. He serves on the boards of directors
of Sizzler International, Inc. and Fresh Choice Restaurants, Inc., as well as
chairman of the board of his alma mater, Whitworth College. Mr. Boppell holds a
B.A. in business and economics from Whitworth College.
John Dexheimer has served as one of our directors since July 1998. Since
January 1999, he has served as President of LightWave Advisors, Inc., a venture
capital and business development advisor to firms in optical communications,
software and Internet companies. From March 1990 through December 1998, Mr.
Dexheimer was a managing director and partner at C.E. Unterberg Towbin, an
investment banking and venture capital firm, and its predecessor, Unterberg
Harris. Mr. Dexheimer holds a B.S. from the University of Minnesota Institute of
Technology and an M.B.A. from Harvard University.
Dr. Winston S. Fu has served as one of our directors since June 1999. Dr.
Fu is an associate at U.S. Venture Partners, a venture capital firm. Prior to
joining U.S. Venture Partners in August 1997, Dr. Fu was enrolled in the MBA
program at Northwestern University. Dr. Fu holds a B.S. in physics from
Massachusetts Institute of Technology, an M.B.A. from Northwestern University
and a Ph.D. in applied physics from Stanford University.
R. Clark Harris has served as one of our directors since December 1998. Mr.
Harris is a partner in NorthEast Ventures, a venture capital firm. Prior to
joining NorthEast Ventures in June 1998, Mr. Harris served as the president of a
major division of Uniphase, now JDS Uniphase, from May 1995 to May 1998. Before
joining JDS Uniphase in 1995, Mr. Harris spent 19 years at United Technologies
Corporation in
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various operating positions, including Senior Vice President of Sikorsky
Aircraft Division. Mr. Harris received a B.A. in engineering from Georgia Tech
and holds an M.B.A. from Massachusetts Institute of Technology.
Robert D. Pavey has served as one of our directors since June 1999. Mr.
Pavey is a partner at Morgenthaler Venture Partners, a venture capital firm,
which he joined in 1969. Mr. Pavey also sits on the board of directors of
BlueGill Technologies, Inc., Endgate Corporation, LightChip, Inc., Lightwave
Microsystems Corporation, and Think & Do Software, Inc. Mr. Pavey is also a
Trustee of the Commonfund, a leading educational firm for non-profit endowments.
Mr. Pavey holds a B.S. in physics from The College of William & Mary, an M.S. in
metallurgy from Columbia University, and an M.B.A. from Harvard University.
BOARD OF DIRECTORS
Our board of directors currently consists of seven authorized 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. 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.
COMMITTEES
Our board of directors has an audit committee and a compensation committee.
The audit committee consists of Messrs. Fu and Harris. The audit committee
reviews our internal accounting procedures, consults with and reviews the
services provided by our independent accountants and makes recommendations to
the board of directors regarding the selection of independent accountants. The
compensation committee consists of Messrs. Chang and Pavey. The compensation
committee reviews and recommends to the board of directors the salaries,
incentive compensation and benefits of our officers and employees other than our
chief executive officer, and administers our stock plans and employee benefit
plans.
Compensation Committee Interlocks and Insider Participation
With the exception of Milton Chang, who served as our President and Chief
Executive Officer from 1990 to 1997, and continues to perform research and
marketing activities for us, none of the members of the compensation committee
is currently, or has ever been at any time since our formation, one of our
officers or employees. No member of the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more officers serving as a member of our board of directors or
compensation committee.
Compensation
Our non-employee directors are reimbursed for expenses incurred in
connection with attending board and committee meetings but are not compensated
for their services as board or committee members. We have in the past granted
non-employee directors options to purchase our common stock pursuant to the
terms of our 1990 Incentive Stock Option Plan and 1998 Stock Plan. We may also
grant non-employee directors options to purchase our common stock pursuant to
the terms of our 2000 Director Option Plan. See "-- Stock Plans."
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<PAGE> 50
EXECUTIVE OFFICERS
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed.
Compensation
The following table sets forth all compensation paid or accrued during our
nine-month period ended December 31, 1999, to our President and Chief Executive
Officer and each of our four next most highly compensated officers whose
compensation exceeded $100,000 for the same period. In accordance with the rules
of the Securities and Exchange Commission, the compensation described in this
table does not include perquisites and other personal benefits received by the
executive officers named in the table below which do not exceed the lesser of
$50,000 or 10% of the total salary and bonus reported for these officers.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION FOR NINE-MONTH ---------------------------------------
PERIOD ENDED DECEMBER 31, 1999 SECURITIES
------------------------------------ RESTRICTED UNDER-
ALL OTHER STOCK LYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
---------------------------- -------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. Westrick.............. $144,127(1) $15,600 -- -- -- --
President and Chief Executive
Officer
George Yule...................... $135,852(2) $18,307 -- -- -- --
Vice President, Operations
Paul Smith....................... $133,693(3) $22,917 -- -- -- --
Vice President, General
Manager, Telecom
Laurie Conner(4)................. $119,231(5) $ -- -- -- -- --
Dr. Timothy Day.................. $111,623(6) $18,499 -- -- -- --
Chief Technical Officer, Vice
President, Engineering, Telecom
</TABLE>
- -------------------------
(1) Kenneth Westrick's annual compensation for the twelve months ended December
31, 1999, was $227,093.69.
(2) George Yule's annual compensation for the twelve months ended December 31,
1999, was $182,055.53.
(3) Paul Smith's annual compensation for the twelve months ended December 31,
1999, was $192,758.16.
(4) Laurie Conner's employment relationship with us terminated on February 15,
2000. Under the severance package accepted by Laurie Conner, Ms. Conner
continued to receive salary until February 15, 2000.
(5) Laurie Conner's annual compensation for the twelve months ended December
31, 1999, was $144,224.72.
(6) Dr. Day's annual compensation for the twelve months ended December 31,
1999, was $163,173.71.
Option grants in the nine-month period ended December 31, 1999
There were no grants of stock options to any of the executive officers
named in the table above during the nine-month period ended December 31, 1999.
Aggregate option exercises in the nine-month period ended December 31, 1999, and
values at December 31, 1999
The following table sets forth information concerning exercisable and
unexercisable stock options held by the executive officers named in the summary
compensation table at December 31, 1999. The value of
48
<PAGE> 51
unexercised in-the-money options is based on an assumed initial offering price
of $ per share minus the actual exercise prices. All options were granted
under our 1990 Incentive Stock Option Plan, as amended, or our 1999 Stock Plan.
These options vest over five years and otherwise generally conform to the terms
of our 1990 Incentive Stock Option Plan and our 1999 Stock Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
----------------------------------- ----------------------------
EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth E. Westrick.................... 833,334 1,166,666
George Yule............................ 103,334 196,666
Paul G. Smith.......................... 133,334 266,666
Laurie Conner.......................... 85,000 215,000
Dr. Timothy Day........................ 527,334 162,666
</TABLE>
- -------------------------
(1) The options vest according to the following vesting schedule: one-fifth of
the shares subject to the option vest twelve months after the vesting
commencement date and one-sixtieth of the shares subject to the option vest
each month thereafter. Pursuant to an amendment to the 1990 Incentive Stock
Option Plan and the 1999 Stock Plan, our executives may, at any time,
exercise options which are unvested, subject to our right of repurchase
which lapses on the same vesting schedule.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation to be filed upon
completion of this offering limits the liability of our 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 associated with any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemption; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of our directors' 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 amended and restated certificate of incorporation and bylaws also
provide that we shall indemnify our directors and executive officers and may
indemnify our other officers and employees and other agents to the fullest
extent permitted by law. We believe that indemnification under our bylaws covers
at least negligence and gross 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
such capacity, regardless of whether our bylaws would permit indemnification.
We are entering into indemnification agreements with each of our officers
and directors containing provisions that require us to, among other things,
indemnify such officers and directors against liabilities that may arise by
reason of their status or service as directors or 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 cover our directors and officers under any of
our liability insurance policies applicable to our directors and officers. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
49
<PAGE> 52
STOCK PLANS
1990 Incentive Stock Option Plan
Our 1990 Incentive Stock Option Plan was adopted by our board of directors
in July 1990 and our stockholders initially approved the plan in July 1990. Our
1990 Incentive Stock Option Plan provides for the grant of incentive stock
options, which may provide for preferential tax treatment, to our employees, and
for the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants. All of the grants under the Plan have been
for the grant of nonstatutory stock options.
We have reserved an aggregate of 9,900,000 shares of our common stock for
issuance under this plan. As of January 31, 2000, 6,151,312 shares had been
issued pursuant to the exercise of options, options to purchase 3,703,504 shares
of common stock were outstanding and 45,184 shares were available for future
grant. The 1990 Incentive Stock Option Plan expires in July 2000. We will not
grant any additional stock options under our 1990 Incentive Stock Option Plan
following the completion of this offering. Any shares reserved for issuance
under the 1990 Incentive Stock Option Plan and any shares returned to the plan
shall be reserved for issuance under the 2000 Stock Plan following the
completion of this offering.
The 1990 Incentive Stock Option Plan provides that in the event of a change
of control, each outstanding option will be assumed or an equivalent option will
be granted in its place by the successor corporation. If the successor
corporation refuses to assume or substitute for the options, the options will
terminate as of the closing of the merger or sale of assets.
1998 Stock Plan
Our 1998 Stock Plan was adopted by our board of directors in December 1998,
and our stockholders initially approved the plan in June 1999. Our 1998 Stock
Plan provides for the grant of incentive stock options, which may provide for
preferential tax treatment, to our employees, and for the grant of nonstatutory
stock options and stock purchase rights to our employees, directors and
consultants.
We have reserved an aggregate of 800,000 shares of our common stock for
issuance under this plan. As of January 31, 2000, 4,000 shares had been issued
pursuant to the exercise of options, options to purchase 359,600 shares of
common stock were outstanding and 436,400 shares were available for future
grant. We will not grant any additional stock options under our 1998 Stock Plan
following the completion of this offering. Any shares reserved for issuance
under the 1998 Stock Plan and any shares returned to the plan shall be reserved
for issuance under the 2000 Stock Plan following the completion of this
offering.
The 1998 Stock Plan provides that in the event of a change in control, each
outstanding option will be assumed or an equivalent option will be granted in
its place by the successor corporation. If the successor corporation refuses to
assume or substitute for the options, the options will terminate as of the
closing of the merger or sale of assets.
1999 Stock Plan
Our 1999 Stock Plan was adopted by our board of directors in December 1999,
and our stockholders initially approved the plan in February 2000. Our 1999
Stock Plan provides for the grant of incentive stock options, which may provide
for preferential tax treatment, to our employees, and for the grant of
nonstatutory stock options and stock purchase rights to our employees, directors
and consultants.
We have reserved an aggregate of 5,400,000 shares of our common stock for
issuance under this plan. As of January 31, 2000, 1,200,000 shares had been
issued pursuant to the exercise of options and stock purchase rights, options to
purchase 829,200 shares of common stock were outstanding and 3,370,800 shares
were available for future grant. We will not grant any additional stock options
under our 1999 Stock Plan following the completion of this offering. Any shares
reserved for issuance under the 1999 Stock Plan and any shares returned to the
1999 Stock Plan shall be reserved for issuance under the 2000 Stock Plan
following the completion of this offering.
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<PAGE> 53
The 1999 Stock Plan provides that in the event of a change in control, each
outstanding option will be assumed or an equivalent option will be granted in
its place by the successor corporation. If the successor corporation refuses to
assume or substitute for the options, the options become fully vested and
exercisable.
2000 Stock Plan
Our 2000 Stock Plan was adopted by our board of directors in January 2000,
and our stockholders are expected to approve the plan in March 2000. This plan
provides for the grant of incentive stock options to our employees and
nonstatutory stock options and stock purchase rights to our employees, directors
and consultants. As of February 25, 2000, a total of 1,000,000 shares of our
common stock were reserved for issuance pursuant to our 2000 Stock Plan, plus
any shares reserved for issuance under the 1998 and 1999 Stock Plans and any
shares returned to the 1998 and 1999 Stock Plans.
No options have yet been issued pursuant to the 2000 Stock Plan. The number
of shares reserved for issuance under our 2000 Stock Plan will increase annually
on the first day of our fiscal year beginning in 2001 by an amount equal to the
lesser of six percent of the outstanding shares of our common stock on the first
day of the year, 9,000,000 shares or such lesser amount as our board of
directors may determine.
Our board of directors or a committee of our board administers the 2000
Stock Plan. The committee may consist of two or more outside directors to
satisfy certain tax and securities requirements. The administrator has the power
to determine the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the exercisability of the options and the form of
consideration payable upon exercise. The administrator determines the exercise
price of options granted under our stock option plan, but with respect to
incentive stock options, the exercise price must at least be equal to the fair
market value of our common stock on the date of grant. Additionally, the term of
an incentive stock option may not exceed ten years. The administrator determines
the term of all other options. No optionee may be granted an option to purchase
more than 1,000,000 shares in any fiscal year. In connection with his or her
initial service, an optionee may be granted an additional option to purchase up
to 1,000,000 shares of our common stock. After termination of one of our
employees, directors or consultants, he or she may exercise his or her option
for the period of time stated in the option agreement. If termination is due to
death or disability, the option will generally remain exercisable for 12 months
following such termination. In all other cases, the option will generally remain
exercisable for three months. However, an option may never be exercised later
than the expiration of its term.
The administrator determines the exercise price of stock purchase rights
granted under our 2000 Stock Plan. Unless the administrator determines
otherwise, the restricted stock purchase agreement will grant us a repurchase
option that we may exercise upon the voluntary or involuntary termination of the
purchaser's service with us for any reason (including death or disability). The
purchase price for shares we repurchase will generally be the original price
paid by the purchaser. The administrator determines the rate at which our
repurchase option will lapse. Our stock option plan generally does not allow for
the transfer of options or stock purchase rights and only the optionee may
exercise an option and stock purchase right during his or her lifetime.
Our 2000 Stock 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 will assume each option or stock purchase right or substitute
equivalent securities. If the outstanding options or stock purchase rights are
not assumed or substituted for, all outstanding options and stock purchase
rights become fully vested and exercisable. The plan will automatically
terminate in 2010, unless we terminate it sooner. In addition, our board of
directors has the authority to amend, suspend or terminate the plan provided
that any option previously granted under the plan is not adversely affected.
2000 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish an employee stock
purchase plan. A total of 1,000,000 shares of our common stock will be reserved
for issuance. In addition, our plan provides for
51
<PAGE> 54
annual increases in the number of shares reserved for issuance under the 2000
Employee Stock Purchase Plan on the first day of our fiscal year beginning in
2001 in an amount equal to the lesser of 1.25% of the outstanding shares of our
common stock on the first day of the calendar year, 1,000,000 shares, or such
other lesser amount as may be determined by our board of directors. Our board of
directors or a committee of our board administers the plan. Our board of
directors or its committee has full and exclusive authority to interpret the
terms of the plan and determine eligibility. All of our employees except those
employed by New Focus Pacific Co. are eligible to participate if they are
customarily employed by us or any participating subsidiary for at least 20 hours
per week and more than five months in any calendar year. However, no employee
shall be granted an option to purchase stock under the plan if such employee:
- immediately after the grant of the option owns stock possessing five
percent or more of the total combined voting power or value of all
classes of our capital stock, or
- whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
Our plan is intended to qualify for preferential tax treatment and contains
consecutive, overlapping 24-month offering periods. Each offering period
includes four 6-month purchase periods. The offering periods generally start on
the first trading day on or after January 31 and July 31 of each year, except
for the first such offering period which will commence on the first trading day
on or after the effective date of this offering and will end on the last trading
day on or before July 30, 2002.
The plan permits participants to purchase common stock through payroll
deductions of up to 15% of their eligible compensation, which includes all cash
compensation, except signing bonus, if any, a participant's base straight time
gross earnings and commissions, but excludes all other compensation paid to our
employees. A participant may purchase no more than 5,000 shares during any
six-month purchase period.
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each 6-month purchase period. The price
is 85% of the lower of the fair market value of our common stock at the
beginning of an offering period or at the end of a purchase period. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will be withdrawn from the
current offering period following their purchase of shares on the purchase date
and will be automatically re-enrolled in a new offering period. Participants may
end their participation at any time during an offering period, and will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
A participant may not transfer rights granted under our 2000 Employee Stock
Purchase Plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.
In the event of our merger with or into another corporation or a sale of
all or substantially all of our assets, a successor corporation may assume or
substitute each outstanding option. 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.
Our plan will terminate in 2010. However, our board of directors has the
authority to amend or terminate our plan, except that, subject to certain
exceptions described in the plan, no such action may adversely affect any
outstanding rights to purchase stock under our plan.
2000 Director Option Plan
Our board of directors adopted the 2000 Director Option Plan in February
2000 and our stockholders are expected to initially approved the plan in March
2000. The 2000 Director Option Plan provides for the periodic grant of
nonstatutory stock options to our non-employee directors. As of February 25,
2000, a total of 200,000 shares were reserved for issuance under the plan, of
which no options were issued and outstanding as of this date.
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<PAGE> 55
All grants of options to our non-employee directors under the 2000 Director
Option Plan are automatic. We will grant to each individual who first become a
non-employee director on or after the completion of this offering, an option to
purchase 25,000 shares when such person first becomes a non-employee director
(except for those directors who become non-employee directors by ceasing to be
employee directors). Twenty percent (20%) of the shares subject to the option
become exercisable on each anniversary of the date of grant provided the
individual remains an outside director on such dates.
Each outside director shall automatically be granted an option to purchase
5,000 shares on each annual meeting of our stockholders occurring after the end
of our fiscal year 2000, if immediately after such meeting, he or she shall
continue to serve on the board and has been a director for at least 6 months
prior to the annual shareholders meeting. 100% of the shares subject to the
annual options vest on the one year anniversary from the date of grant, provided
the individual remains our outside director on such dates.
All options granted under our 2000 Director Option Plan have a term of ten
years and an exercise price equal to fair market value on the date of grant.
After termination as a non-employee director with us, an optionee must exercise
an option at the time set forth in his or her option agreement. If termination
is due to death or disability, the option will remain exercisable for 12 months.
In all other cases, the option will remain exercisable for a period of three
months. However, an option may never be exercised later than the expiration of
its term. A non-employee director may not transfer options granted under our
2000 Director Option Plan other than by will or the laws of descent and
distribution. Only the non-employee director may exercise the option during his
or her lifetime.
In the event of a change of control, all of the outstanding options become
fully vested and exercisable.
Unless terminated sooner, our 2000 Director Option Plan will automatically
terminate in 2010. Our board of directors has the authority to amend, alter,
suspend, or discontinue the plan, but no such action may adversely affect any
grant made under the plan.
401(K) PLAN
In April, 1993, we adopted a 401(k) Profit Sharing Plan and Trust covering
our employees who (a) are age 21 as of the 401(k) Profit Sharing Plan and Trust
effective date, and/or (b) have at 1,000 hours of service credited as of their
anniversary hire date with us and for every plan year thereafter. The 401(k)
Profit Sharing Plan and Trust excludes nonresident alien employees. Our 401(k)
Profit Sharing Plan and Trust is intended to qualify under Section 401(k) of the
United States tax code, so that contributions to the 401(k) Profit Sharing Plan
and Trust by employees or by us and the investment earnings thereon are not
taxable to the employees until withdrawn. If our 401(k) Profit Sharing Plan and
Trust qualifies under Section 401(k) of the United States tax code, our
contributions will be deductible by us when made. Our employees may elect to
reduce their current compensation by up to the statutorily prescribed annual
limit of $10,500 in 2000 and to have those funds contributed to the 401(k)
Profit Sharing Plan and Trust. The 401(k) Profit Sharing Plan and Trust permits
us, but does not require us, to make additional matching contributions on behalf
of all participants. To date, we have not made any contributions to the 401(k)
Profit Sharing Plan and Trust.
EMPLOYMENT AND CHANGE-OF-CONTROL AGREEMENTS
From time to time, we have entered into employment agreements with our
executive officers, including the executive officers listed in the "Summary
Compensation Table."
Laurie Conner. In June 1998, Laurie Conner accepted our offer of
employment. The terms of Ms. Conner's employment with us provided that if her
employment with us were to be terminated as a result of a change of control, Ms.
Conner would continue to receive her salary for the earlier of three months or
attaining subsequent employment. On December 16, 1999, we entered into a
separation and general release agreement with Laurie Conner under which Laurie
Conner's employment relationship with us terminated as of February 15, 2000, at
which time Ms. Conner's salary and benefits terminated and her unvested options
ceased to vest.
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<PAGE> 56
Bao-Tong Ma. In October 1999, Bao-Tong Ma accepted our offer of employment.
The terms of Mr. Ma's employment provide that if we terminate his employment
without cause prior to the first anniversary of employment, Mr. Ma would receive
his salary until the earlier of 24 months or new employment. Mr. Ma's stock
options would cease to vest upon termination. If Mr. Ma's employment is
terminated after the first anniversary of employment, but prior to the second
anniversary, Mr. Ma would continue to receive his salary for 12 months. If Mr.
Ma's employment is terminated after the second anniversary, but prior to the
third anniversary, Mr. Ma would receive his salary six months. If Mr. Ma's
employment is terminated following the third anniversary of employment, he will
not receive any severance.
Charles Boppell. In January 1998, we entered into a change of control
agreement with Charles Boppell under which any unvested non-statutory stock
options granted to Mr. Boppell on July 29, 1990, March 1, 1992 and January 17,
1996, each vesting over five years at the rate of one-fifth after the first year
and one-sixtieth per month thereafter, will vest immediately upon a change of
control.
In January 2000, we amended our stock option agreements with Kenneth E.
Westrick, George Yule, Paul Smith and Dr. Timothy Day to give these officers the
right to purchase both vested and unvested shares and to pay for the shares with
a promissory note. In addition, we amended the stock option agreements to
provide that if the employment or consulting relationship of these officers is
terminated involuntarily within 18 months of a change in control then 50% of
their unvested options shall vest.
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<PAGE> 57
CERTAIN TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described as required in "Management," and the transactions described below, for
the last three years, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
- in which the amount involved exceeded or will exceed $60,000, and
- in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
We believe that each of the transactions described below were on terms no
less favorable than could have been obtained from unaffiliated third parties.
All future transactions between us and any director or executive officer will be
subject to approval by a majority of the disinterested members of our board of
directors.
SERIES D PREFERRED STOCK.
On July 31, 1998, and August 6, 1998, we sold 3,977,000 shares of our
Series D preferred stock at a price of $1.00 per share. The purchasers of the
Series D preferred stock included, among others:
<TABLE>
<CAPTION>
AS CONVERTED
SHARES OF SHARES OF
PURCHASER SERIES D STOCK COMMON STOCK
--------- -------------- ------------
<S> <C> <C>
George Yule.............................................. 44,000 44,000
John Dexheimer........................................... 125,000 125,000
</TABLE>
SERIES E PREFERRED STOCK.
On June 14, 1999, we sold 10,857,616 shares of our Series E preferred stock
at a price of $1.20 per share. The purchasers of the Series E preferred stock
included, among others:
<TABLE>
<CAPTION>
AS CONVERTED
SHARES OF SHARES OF
PURCHASER SERIES E STOCK COMMON STOCK
--------- -------------- ------------
<S> <C> <C>
Kenneth E. Westrick...................................... 416,668 416,668
Morgenthaler Venture Partners V, L.P. ................... 5,000,000 5,000,000
U.S. Venture Partners VI, L.P. .......................... 5,000,000 5,000,000
</TABLE>
SERIES G PREFERRED STOCK.
On November 23, 1999, December 7, 1999 and December 28, 1999 we sold
9,230,728 shares of our Series G preferred stock at a price of $3.25 per share.
The purchasers of the Series G preferred stock included, among others:
<TABLE>
<CAPTION>
AS CONVERTED
SHARES OF SHARES OF
PURCHASER SERIES G STOCK COMMON STOCK
--------- -------------- ------------
<S> <C> <C>
Clark Harris............................................. 40,000 40,000
Morgenthaler Venture Partners, V, L.P. .................. 1,384,614 1,384,614
Entities Affiliated with U.S. Venture Partners........... 1,384,614 1,384,614
</TABLE>
LOANS FROM SHAREHOLDER
From April 1991 to September 1997, Dr. Milton Chang loaned us a total of
$1,600,000. On July 7, 1999, we repaid all of the outstanding principal and
interest owing under the promissory note, which totaled approximately
$2,400,000, however, Dr. Chang agreed to loan us up to $2,424,000 upon thirty
(30) days written request. This agreement was terminated in December 1999.
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<PAGE> 58
LOANS TO OFFICERS
The following is a list of loans made by us to certain of our officers, in
connection with the purchase of shares of our stock. Each of these loans were
made pursuant to a full recourse promissory note secured by a stock pledge. The
notes bear no interest but interest will be imputed and reported annually as
compensation on the officer's W-2. All unvested shares purchased by the officers
are subject to repurchase by us at the original exercise price if the officer's
employment is terminated.
On January 12, 2000, we loaned $1,044,208 to Kenneth Westrick, our
President and Chief Executive Officer, secured by a stock pledge, in connection
with the purchase of 2,000,000 shares of our common stock at $.462 per share and
associated costs. The note is interest-free and is due and payable on January
11, 2005. The entire principal amount on this note remains outstanding.
On January 12, 2000, we loaned $375,000 to Paul Smith, our Vice President,
General Manager, Telecom, secured by a stock pledge, in connection with the
purchase of 600,000 shares of our common stock at $.625 per share. The note is
interest-free and is due and payable on January 11, 2005. The entire principal
amount on this note remains outstanding.
On January 12, 2000, we loaned $312,500 to Bao-Tong Ma, our Vice President,
General Manager, New Focus Pacific Co., secured by a stock pledge, in connection
with the purchase of 500,000 shares of our common stock at $.625 per share. The
note is interest-free and is due and payable on January 11, 2005. The entire
principal amount on this note remains outstanding.
On January 12, 2000, we loaned $173,134 to George Yule, our Vice President,
Vice President, Operations, secured by a stock pledge, in connection with the
purchase of 100,000 shares of our common stock at $.625 and 200,000 shares of
our common stock at $.512 per share and associated costs. The note is
interest-free and is due and payable on January 11, 2005. The entire principal
amount on this note remains outstanding.
On January 12, 2000, we loaned $137,232 to Rob Marsland, our Vice
President, Focused Research secured by a stock pledge, in connection with the
purchase of 70,000 shares of our common stock at $.625 per share and 400,000
shares of our common stock at $.0025 per share and associated costs. The note is
interest-free and is due and payable on January 11, 2005. The entire principal
amount on this note remains outstanding.
On January 12, 2000, we loaned $255,483 to Timothy Day, our Chief
Technology Officer and Vice President, Operations, Telecom, secured by a stock
pledge, in connection with the purchase of 400,000 shares of our common stock at
$.0025 per share, 100,000 shares of our common stock at $.462 per share, 120,000
shares of our common stock at $.512 per share and 70,000 shares of our common
stock at $.625 per share and associated costs. The note is interest-free and is
due and payable on January 11, 2005. The entire principal amount on this note
remains outstanding.
On February 9, 2000 we loaned $375,000 to Kenneth E. Westrick, our
President and Chief Executive Officer, secured by a stock pledge, in connection
with the sale of 300,000 shares of our common stock at $1.25 per share. The note
is interest-free and is due and payable on February 9, 2005. The entire
principal amount on this note remains outstanding.
On February 9, 2000 we loaned $125,000 to Paul G. Smith, our Vice
President, General Manager, Telecom, secured by a stock pledge, in connection
with the sale of 100,000 shares of our common stock at $1.25 per share. The note
is interest-free and is due and payable on February 9, 2005. The entire
principal amount on this note remains outstanding.
On February 9, 2000 we loaned $125,000 to Dr. Robert A. Marsland, our Vice
President, secured by a stock pledge, in connection with the sale of 100,000
shares of our common stock at $1.25 per share. The note is interest-free and is
due and payable on February 9, 2005. The entire principal amount on this note
remains outstanding.
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<PAGE> 59
On February 9, 2000 we loaned $375,000 to Dr. Timothy Day, our Chief
Technical Officer and Vice President Engineering, Telecom, secured by a stock
pledge, in connection with the sale of 300,000 shares of our common stock at
$1.25 per share. The note is interest-free and is due and payable on February 9,
2005. The entire principal amount on this note remains outstanding.
OTHER MATTERS
From 1990 to 1997, Dr. Chang served as our President and Chief Executive
Officer. Since 1997, we have employed Dr. Chang in a research and marketing
capacity. Dr. Chang received compensation of $80,539, $110,000 and $110,000 for
the nine-month period ended December 31, 1999, fiscal year ended March 31, 1999
and fiscal year ended March 31, 1998, respectively.
On March 3, 1999 and November 1, 1999, we entered into consulting
agreements with John Dexheimer, one of our directors, for services to be
rendered in connection with our Series E, Series F and Series G Preferred Stock
financings. Pursuant to these agreements, Mr. Dexheimer received warrants to
purchase 111,972 shares of Series E Preferred Stock at an exercise price of
$1.20 per share and a cash payment of $618,731.
INDEMNIFICATION
We will enter into indemnification agreements with each of our directors
and officers. Such indemnification agreements will require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law. For a
description of the limitation of our directors' liability and our
indemnification of officers, see "Limitation on Directors' and Officers'
Liability and Indemnification."
EMPLOYMENT AGREEMENTS
We have entered into employment arrangements, compensation arrangements and
severance arrangements with certain of our executive officers, see
"Management -- Employment and Change-of-Control Agreements" and "-- Executive
Officers -- Compensation." For information regarding stock options, see
"Management -- Stock Plans."
FUTURE TRANSACTIONS
All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the board of directors, including a majority of the independent and
disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of January 31, 2000, and as adjusted
to reflect the sale of common stock offered hereby by the following:
- each stockholder known by us to own beneficially more than 5% of our
common stock;
- each of our executive officers named in the compensation table above;
- each of our directors; and
- all directors and executive officers as a group.
As of January 31, 2000, there were 51,015,596 shares of our common stock
outstanding, assuming that all outstanding preferred stock has been converted
into common stock and the exercise of warrants to purchase 121,140 shares of
common stock. Except as otherwise indicated, we believe that the beneficial
owners of the common stock listed below, based on the information furnished by
such owners, have sole voting power and investment power with respect to such
shares. Beneficial ownership is determined in accordance with the rules of the
Securities Exchange Commission. In computing the number of shares beneficially
owned by a person and the percent ownership of that person, shares of common
stock subject to options or warrants held by that person that are currently
exercisable or will become exercisable within 60 days after January 31, 2000 are
deemed outstanding, while such shares are not deemed outstanding for purposes of
computing percent ownership of any other person. Unless otherwise indicated in
the footnotes below, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
SHARES --------------------------
BENEFICIALLY PRIOR TO
NAME OR GROUP OF BENEFICIAL OWNERS OWNED OFFERING AFTER OFFERING
---------------------------------- ------------ -------- --------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Kenneth E. Westrick(1)................................... 2,297,334 4.5%
Timothy Day(2)........................................... 810,000 1.6
Robert A. Marsland(3).................................... 670,000 1.3
Paul Smith(4)............................................ 600,000 1.2
George Yule(5)........................................... 344,000 *
Charles Boppell(6)....................................... 170,800 *
Dr. Milton Chang(7)...................................... 13,101,456 25.7
John Dexheimer(8)........................................ 147,666 *
Dr. Winston S. Fu(9)..................................... 6,384,614 12.5
R. Clark Harris(10)...................................... 57,334 *
Robert Pavey(11)......................................... 6,384,614 12.5
All directors and officers as a group (12 persons)(12)... 31,564,742 60.4
5% STOCKHOLDERS
Chang Partners, A California Limited Partnership......... 8,000,000 15.7
Morgenthaler Venture Partners V, L.P..................... 6,384,614 12.5
U.S. Venture Partners.................................... 6,287,690 12.5
</TABLE>
- ------------------------
* Denotes less than one percent of the outstanding stock.
(1) Includes 1,133,332 subject to our right of repurchase which lapses over
time. Also includes 21,080 shares held by Mr. Westrick's minor daughter and
22,600 shares held by Mr. Westrick's minor son.
(2) Includes 157,834 shares subject to our right of repurchase, which lapses
over time.
(3) Includes 52,500 shares subject to our right of repurchase, which lapses
over time.
(4) Includes 460,000 shares subject to our right of repurchase, which lapses
over time.
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<PAGE> 61
(5) Includes 95,834 shares subject to our right of repurchase, which lapses
over time.
(6) Includes 142,000 shares subject to options, which are exercisable within 60
days of January 31, 2000.
(7) Includes 8,000,000 shares held by Chang Partners, a California limited
partnership, of which Mr. Chang is a general partner.
(8) Includes 22,666 shares subject to an option, which is exercisable within 60
days of January 31, 2000.
(9) Includes 6,287,690 shares held by U.S. Venture Partners VI, L.P., 40,154
shares held by USVP VI Entrepreneurs Partners, L.P., 36,000 shares held by
USVP VI Affiliates Fund, L.P. and 20,770 shares held by 2180 Associates
Fund VI, L.P. Mr. Fu is an associate of U.S. Venture Partners. Mr. Fu
disclaims beneficial ownership of shares held by this entity, except to the
extent of his pecuniary interest in these entities.
(10) Includes 17,334 shares subject to an option exercisable within 60 days of
January 31, 2000.
(11) Includes 6,384,614 shares held by Morgenthaler Ventures Partners V, L.P.
Mr. Pavey is a partner at Morgenthaler Ventures. Mr. Pavey disclaims
beneficial ownership of shares held by this entity, except to the extent of
his pecuniary interest in these entities.
(12) Includes an aggregate of 182,000 shares subject to options exercisable
within 60 days of January 31, 2000 and 1,899,500 shares subject to our
right of repurchase, which lapses over time.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
260,000,000 shares, $0.001 par value per share, to be divided into two classes
to be designated common stock and preferred stock. Of the shares authorized,
250,000,000 shares shall be designated as common stock and 10,000,000 shares
shall be designated as preferred stock. The following description of our capital
stock is only a summary. You should refer to our certificate of incorporation
and bylaws as in effect upon the closing of this offering, 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 January 31, 2000, and assuming the conversion of all outstanding
shares of preferred stock into common stock, there were 50,894,456 shares of
common stock outstanding which were held of record by approximately 183
stockholders. There will be shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after January 31, 1999) after giving effect to the sale
of our common stock in this offering. In addition to 4,900,304 shares issuable
upon exercise of outstanding options under our 1990 Incentive Stock Option Plan,
1998 Stock Plan and 1999 Stock Plan, as of January 31, 2000, there are an
aggregate of 2,200,000 shares reserved for issuance under our 2000 Stock Plan,
2000 Employee Stock Purchase Plan and 2000 Director Option Plan. See
"Management -- Stock Plans" for a description of our stock plans.
The holders of our common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the stockholders. Our amended and
restated certificate of incorporation to be filed concurrently with completion
of this offering does not provide for cumulative voting in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of our common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by our board of
directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, holders of our 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.
Holders of our common stock have no preemptive or other subscription or
conversion rights. There are no redemption or sinking fund provisions applicable
to our common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued upon the completion
of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Our certificate of incorporation filed in connection with this offering
provides that our board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series. The rights,
preferences and privileges of each series of preferred stock may be greater than
the rights of our common stock. It is not possible to state the actual effect of
the issuance of any shares of preferred stock upon the rights of holders of our
common stock until the board of directors determines the specific rights of the
holders of any preferred stock that may be issued. However, the effects might
include, among other things: (1) restricting dividends on the common stock, (2)
diluting the voting power of the common stock, (3) impairing the liquidation
rights of the common stock and (4) delaying or preventing a change in our
control without further action by the stockholders. Upon the closing of this
offering, no shares of preferred stock will be outstanding, and we have no
present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement we entered into with holders of
shares of our preferred stock (36,681,038 shares assuming conversion of all
outstanding shares of preferred stock), the holders of these shares are entitled
to certain registration rights regarding these shares. The registration rights
provide that if we propose to register any securities under the Securities Act,
either for our own account or for the
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<PAGE> 63
account of other security holders exercising registration rights, they are
entitled to notice of the registration and are entitled to include shares of
their common stock in the registration. This right is subject to conditions and
limitations, including the right of the underwriters in an offering to limit the
number of shares included in the registration. The holders of these shares may
also require us to file up to two registration statements under the Securities
Act at our expense with respect to their shares of common stock. We are required
to us our best efforts to effect this registration, subject to conditions and
limitations. Furthermore, the holders of these shares may require us to file
additional registration statements on Form S-3, subject to conditions and
limitations. These rights terminate on the earlier of five years after the
effective date of this offering, or when a holder is able to sell all its shares
pursuant to Rule 144 under the Securities Action in any 90-day period.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make more difficult the acquisition of our company by means of a
tender offer, a proxy contest or otherwise and the removal of incumbent officers
and directors. These provisions, summarized below, may discourage certain types
of coercive takeover practices and inadequate takeover bids and encourage
persons seeking to acquire control of our company to first negotiate with our
company. We believe that the benefits of increased protection of our company's
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure our company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such 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 certain 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 bylaws eliminate the right of stockholders to act by written consent
without a meeting and require a majority of stockholders to call a special
meeting. Our certificate of incorporation and bylaws do not provide for
cumulative voting in the election of directors. The authorization of
undesignated preferred stock makes it possible for the board of directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of our company. These and
other provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of our company. The amendment of any of these
provisions would require approval by holders of at least 66 2/3% of our
outstanding common stock.
Section 203
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
NASDAQ STOCK MARKET NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "NUFO."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our stock.
Future sales of substantial amounts of our common stock in the public market
following this offering or the possibility of such sales occurring could
adversely affect market prices for our common stock or could impair our ability
to raise capital through an offering of equity securities. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public after these restrictions
lapse could adversely affect the prevailing market price and our ability to
raise equity capital in the future.
Upon completion of this offering, we will have shares of common
stock outstanding (assuming conversion of all of the currently outstanding
shares of preferred stock) based on shares outstanding as of January 31, 2000,
and assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options. All of the shares sold in this
offering will be freely transferable without restriction under the Securities
Act. However, the sale of any of these shares if purchased by "affiliates" as
that term is defined in Rule 144 are subject to certain limitations and
restrictions that are described below.
The remaining 51,015,596 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. These shares are "restricted
shares" as that term is defined in Rule 144 and therefore may not be sold
publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. In addition, our
directors and officers as well as other stockholders and optionholders have
entered into "lock-up agreements" with the underwriters. These lock-up
agreements provide that, except under limited exceptions, the stockholder or
optionholder may not offer, sell, contract to sell or otherwise dispose of any
of our common stock or securities that are convertible into or exchangeable for,
or that represent the right to receive, our common stock for a period of 180
days after the date of this prospectus. The underwriters , however, may in their
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements. Accordingly, of the remaining 51,015,596
shares, 41,663,728 shares will become eligible for sale 180 days after the
effective date subject to Rules 144 and 701.
As of January 31, 2000, there were a total of 4,900,304 shares of common
stock subject to outstanding options under our 1990 Incentive Stock Option Plan,
1998 Stock Plan and our 1999 Stock Plan, 1,461,836 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, our 2000 Employee Stock Purchase
Plan and our 2000 Director Option Plan. On the date 180 days after the effective
date of the offering, the date that the lock-up agreements expire, a total of
2,277,812 shares of our common stock subject to outstanding options will be
vested. After the effective dates of the registration statements on Form S-8,
shares purchased upon exercise of options granted pursuant to our 1998 Stock
Plan, our 1990 Incentive Stock Option Plan, our 2000 Employee Stock Purchase
Plan and our 2000 Director Option Plan generally would be available for resale
in the public market.
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 shares. An
affiliate who has owned shares of our common stock for at least one year would
be entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
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- the average weekly trading volume of the common stock on the Nasdaq Stock
Market's 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 certain 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 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally 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.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase 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 certain restrictions, including the holding period, contained in
Rule 144.
The SEC 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 of 1934, 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.
Securities issued in reliance on Rule 701 may be sold by "affiliates" under Rule
144 without compliance with its one year minimum holding period requirement.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Chase Securities
Inc., Dain Rauscher Incorporated and U.S. Bancorp Piper Jaffray Inc. are acting
as representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Chase Securities Inc........................................
Dain Rauscher Incorporated..................................
U.S. Bancorp Piper Jaffray Inc..............................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults,
the purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
---------------------- ----------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us........................ $ $ $ $
Expenses payable by us.......................... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof or pursuant to our dividend reinvestment plan.
Our officers and directors and stockholders have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
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transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any such aforementioned
transaction is to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the intention to make any
such offer, sale, pledge or disposition, or to enter into any such transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "NUFO".
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
66
<PAGE> 69
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Legal matters will be passed upon for the underwriters by Brobeck,
Phleger & Harrison LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors have audited our consolidated
financial statements and schedule at March 31, 1999 and December 31, 1999 and
for each of the two years in the period ended March 31, 1999, and for the nine
months ended December 31, 1999 as described in their report. We have included
our financial statements and schedule in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon
their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form S-1 under the Securities Act with respect
to the shares of common stock offered hereby. This prospectus does not contain
all the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, reference is made to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of the contract or
other document filed as an exhibit to the registration statement, each statement
being qualified in all respects by this reference. A copy of the registration
statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of all or any portion of the registration
statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees.
The Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
67
<PAGE> 70
NEW FOCUS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency)............................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
New Focus, Inc.
We have audited the accompanying consolidated balance sheets of New Focus,
Inc. as of March 31, 1999 and December 31, 1999, and the related consolidated
statements of operations, shareholders' equity (net capital deficiency), and
cash flows for each of the two years in the period ended March 31, 1999, and for
the nine-month period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of New Focus, Inc.
at March 31, 1999 and December 31, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
March 31, 1999, and for the nine-month period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Jose, California
February 25, 2000, except as to Note 12,
as to which the date is March , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
the Company's reincorporation in the state of Delaware.
/s/ ERNST & YOUNG LLP
San Jose, California
February 29, 2000
F-2
<PAGE> 72
NEW FOCUS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999
--------- ------------ --------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 51 $ 28,067
Accounts receivable, less allowance for doubtful accounts
of $135 at March 31, 1999 and $160 at December 31,
1999................................................... 2,064 3,102
Unbilled receivables...................................... 192 121
Inventories............................................... 3,654 6,217
Prepaid expenses and other current assets................. 141 243
------- --------
Total current assets................................. 6,102 37,750
Fixed assets, net........................................... 1,880 6,895
Other assets, net of accumulated amortization of $29 at
March 31, 1999 and $56 at December 31, 1999............... 258 207
------- --------
Total assets......................................... $ 8,240 $ 44,852
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Loans payable to bank..................................... $ 1,755 $ --
Accounts payable.......................................... 1,788 5,658
Accrued expenses.......................................... 1,567 2,540
Deferred research and development funding................. 250 250
Current portion of long-term debt......................... 263 276
------- --------
Total current liabilities............................ 5,623 8,724
Notes payable to stockholder/director....................... 2,305 --
Accrued interest to stockholder/director.................... 117 --
Long-term debt, less current portion........................ 588 368
Deferred rent............................................... 790 747
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Series A through G convertible preferred stock, $0.001 par
value:
Authorized shares -- 44,083,326
Issued and outstanding shares -- 20,737,000 at March
31, 1999 and 41,939,144 at December 31, 1999
(liquidation preference of $99,340 at December 31,
1999)................................................ 21 42 $ --
Common stock, $0.001 par value:
Authorized shares -- 80,000,000
Issued and outstanding shares -- 2,410,380 at March 31,
1999 and 2,578,824 at December 31, 1999, and
44,517,968 pro forma................................. 2 2 44
Additional paid-in capital................................ 6,627 51,168 51,168
Deferred compensation..................................... -- (689) (689)
Accumulated deficit....................................... (7,833) (15,510) (15,510)
------- -------- --------
Total stockholders' equity (net capital
deficiency)....................................... (1,183) 35,013 $ 35,013
------- -------- ========
Total liabilities and stockholders' equity (net
capital deficiency)............................... $ 8,240 $ 44,852
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
NEW FOCUS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
---------------------- ------------
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
Net revenues............................................... $15,482 $17,285 $18,101
Cost of net revenues(1).................................... 8,186 9,225 12,525
------- ------- -------
Gross profit............................................... 7,296 8,060 5,576
Operating expenses:
Research and development(2).............................. 6,188 9,115 8,386
Less funding received from research and development
contracts............................................. (2,467) (1,736) (1,034)
------- ------- -------
Net research and development............................. 3,721 7,379 7,352
Sales and marketing(3)................................... 2,193 2,987 2,982
General and administrative(4)............................ 1,355 2,360 2,704
Deferred compensation.................................... -- -- 132
------- ------- -------
Total operating expenses.............................. 7,269 12,726 13,170
------- ------- -------
Operating income (loss).................................... 27 (4,666) (7,594)
Interest expense........................................... (328) (327) (176)
Other income, net.......................................... 25 24 95
------- ------- -------
Loss before provision for income taxes..................... (276) (4,969) (7,675)
Provision for income taxes................................. 10 2 2
------- ------- -------
Net loss.............................................. $ (286) $(4,971) $(7,677)
======= ======= =======
Historical basic and diluted net loss per share............ $ (0.25) $ (2.18) $ (3.11)
======= ======= =======
Shares used to compute historical basic and diluted net
loss per share........................................... 1,148 2,284 2,468
======= ======= =======
Pro forma basic and diluted net loss per share............. $ (0.24)
=======
Shares used to compute pro forma basic and diluted net loss
per share................................................ 32,223
=======
</TABLE>
- -------------------------
(1) Excluding $62 in amortization of deferred stock based compensation
(2) Excluding $54 in amortization of deferred stock based compensation
(3) Excluding $10 in amortization of deferred stock based compensation
(4) Excluding $6 in amortization of deferred stock based compensation
See accompanying notes.
F-4
<PAGE> 74
NEW FOCUS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------ PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
---------- ------ --------- ------ ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997.......... 16,160,000 $16 1,127,180 $1 $ 2,128 $ -- $ (2,576) $ (431)
Issuance of common stock from
exercise of options............ -- -- 157,716 -- 16 -- -- 16
Repurchase of common stock....... -- -- (8,996) -- (1) -- -- (1)
Net loss......................... -- -- -- -- -- -- (286) (286)
---------- --- --------- -- ------- ----- -------- -------
Balance at March 31, 1998.......... 16,160,000 16 1,275,900 1 2,143 -- (2,862) (702)
Issuance of Series C preferred
stock, net of issuance cost of
$16............................ 600,000 1 -- -- 493 -- -- 494
Issuance of Series D preferred
stock, net of issuance cost of
$54............................ 3,977,000 4 -- -- 3,919 -- -- 3,923
Issuance of common stock from
exercise of options............ -- -- 1,443,444 1 187 -- -- 188
Repurchase of common stock....... -- -- (308,964) -- (193) -- -- (193)
Warrant issued to long-term
creditor....................... -- -- -- -- 78 -- -- 78
Net loss......................... -- -- -- -- -- -- (4,971) (4,971)
---------- --- --------- -- ------- ----- -------- -------
Balance at March 31, 1999.......... 20,737,000 21 2,410,380 2 6,627 -- (7,833) (1,183)
Issuance of Series E preferred
stock, net of issuance cost of
$489........................... 10,857,616 11 -- -- 12,526 -- -- 12,537
Issuance of Series F preferred
stock, net of issuance cost of
$28............................ 1,113,800 1 -- -- 1,307 -- -- 1,308
Issuance of Series G preferred
stock, net of issuance cost of
$160........................... 9,230,728 9 -- -- 29,832 -- -- 29,841
Issuance of common stock from
exercise of options............ -- -- 168,444 -- 55 -- -- 55
Deferred compensation............ -- -- -- -- 821 (821) -- --
Amortization of deferred
compensation................... -- -- -- -- -- 132 -- 132
Net loss......................... -- -- -- -- -- -- (7,677) (7,677)
---------- --- --------- -- ------- ----- -------- -------
Balance at December 31, 1999....... 41,939,144 $42 2,578,824 $2 $51,168 $(689) $(15,510) $35,013
========== === ========= == ======= ===== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
NEW FOCUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED
---------------------- DECEMBER 31,
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... $ (286) $(4,971) $(7,677)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation of fixed assets............................. 475 588 756
Amortization of intangibles.............................. 41 10 27
Amortization of deferred compensation.................... -- -- 132
Deferred rent............................................ 184 -- (43)
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables.......... (1,231) 372 (967)
Inventories........................................... (1,515) 184 (2,563)
Prepaid expenses and other current assets............. (78) 93 (102)
Accounts payable...................................... 1,137 (884) 3,870
Accrued expenses and accrued interest to
stockholder......................................... 440 697 856
Deferred research and development funding............. 250 -- --
------- ------- -------
Net cash used in operating activities...................... (583) (3,911) (5,711)
INVESTING ACTIVITIES
Acquisition of property and equipment...................... (396) (1,359) (5,771)
Decrease in other assets................................... 17 2 24
------- ------- -------
Net cash used in investing activities...................... (379) (1,357) (5,747)
FINANCING ACTIVITIES
Proceeds from notes payable to stockholders................ 400 200 --
Proceeds from bank loans................................... 1,395 1,755 1,245
Proceeds from issuance of preferred stock.................. -- 4,217 43,686
Proceeds from equipment loan............................... -- 800 --
Proceeds from capital lease obligations.................... -- 35 --
Payments on notes payable.................................. (19) (21) (2,305)
Payments on bank loan...................................... (828) (1,772) (3,000)
Payments on equipment loan................................. -- (50) (195)
Payments under capital lease obligations................... (55) (36) (12)
Proceeds from exercise of stock options.................... 16 188 55
Repurchase of common stock................................. (1) (193) --
------- ------- -------
Net cash provided by financing activities.................. 908 5,123 39,474
------- ------- -------
Increase (decrease) in cash................................ (54) (145) 28,016
Cash at beginning of period................................ 250 196 51
------- ------- -------
Cash at end of period...................................... $ 196 $ 51 $28,067
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest..................................... $ 174 $ 155 $ 188
Promissory note payable converted to equity................ $ -- $ 200 $ --
Interest on note converted to principal.................... $ -- $ 680 $ --
Warrant issued to long-term creditor....................... $ -- $ 78 $ --
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
New Focus, Inc. (the Company) was incorporated in California on April 17,
1990. The Company is engaged in developing, manufacturing, and marketing
telecommunications equipment and photonics products primarily for use in the
telecommunications and research markets.
Basis of Presentation
The consolidated financial statements include the Company and its wholly
owned subsidiary, Focused Research, Inc. All intercompany transactions and
balances have been eliminated.
During 1999, the Company changed its year end to December 31, 1999 from
March 31, 2000.
Cash Equivalents
Cash equivalents consist of a money market fund. For purposes of the
accompanying statements of cash flows, the Company considers all such liquid
instruments with an original maturity date of three months or less to be cash
equivalents. The fair value, based on quoted market prices of the cash
equivalents, is substantially equal to their carrying value at March 31, 1999
and December 31, 1999.
Inventories
Inventories are stated at the lower of cost or market on a first-in,
first-out basis. Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials........................................ $1,994 $3,247
Work in Progress..................................... 372 1,283
Finished Goods....................................... 1,288 1,687
------ ------
Total................................................ $3,654 $6,217
====== ======
</TABLE>
Fixed Assets
The Company records its property and equipment at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, generally three to five years. Amortization is computed on leasehold
improvements using the straight-line method over the shorter of the estimated
useful lives of the assets or the term of the lease.
Other Assets
Other assets consist primarily of deposits as well as intangible assets.
Intangible assets, consisting of goodwill and debt issuance costs from warrants
relating to the Company's equipment line are amortized over their estimated
useful lives of approximately three years.
In connection with the Company's acquisition in July 1996 of Palo Alto
Research Corporation, the Company issued a $110,000 note payable, bearing
interest at 6.74%, to the former owner of the business in exchange for $48,000
in fixed assets and $9,000 in inventory. The remaining $53,000 in the purchase
price was classified as goodwill and is being amortized over four years. The
terms of the note require the Company to repay this debt over four years with
annual installments of $25,000 including interest. At December 31, 1999, the
Company owed $23,400 in principal on this note.
F-7
<PAGE> 77
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising Expenses
The cost of advertising is expensed as incurred. The Company's advertising
costs for the fiscal years ended March 31, 1998 and 1999 and for the nine-month
period ended December 31, 1999 were approximately $316,000, $342,000, and
$256,967, respectively.
Revenue Recognition
Product revenue is recorded upon shipment provided there are no significant
remaining obligations and collectibility is probable. The Company provides an
allowance for estimated returns of defective products.
Research and Development
Company-sponsored research and development costs as well as costs related
to research and development contracts are currently expensed. Total expenditures
for research and development in fiscal 1998 and 1999, and the nine-month period
ended December 31, 1999 were $6,188,000, $9,115,000, and $8,386,000,
respectively. Funding received from research and development contracts is netted
against research and development costs, which were $2,467,000, $1,736,000, and
$1,034,000 for the fiscal years ended March 31, 1998 and 1999, and for the
nine-month period ended December 31, 1999, respectively. The funding relates to
various arrangements, primarily with government agencies, whereby the Company is
reimbursed for substantially all of its costs incurred under the related
project. Unbilled receivables reflect the costs incurred under these contracts
that have yet to be billed at the balance sheet date.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by the Company is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into 41,939,144 shares of common stock based on the
shares of convertible preferred stock outstanding at December 31, 1999. The
unaudited pro forma stockholders' equity reflects this conversion.
Stock-Based Compensation
The Company accounts for stock-based awards to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Comprehensive Income
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 established rules for reporting and displaying comprehensive income. The
Company's comprehensive net loss was the same as its net loss for the years
ended March 31, 1998 and 1999 and the nine months ended December 31, 1999.
F-8
<PAGE> 78
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. In June 1999, the Board issued FAS 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133", which deferred the effective date of FAS 133 until
fiscal years beginning after June 15, 2000. The Company believes that the
adoption of FAS 133 will not have a significant impact on the Company's
operating results or cash flows.
2. CONCENTRATION OF CREDIT RISK
The Company sells to a large number of companies and research laboratories
involved in the application of laser technology. The Company performs ongoing
credit evaluations of its customers and does not require collateral. The Company
provides reserves for potential credit losses, and such losses have been within
management's expectations.
Financial instruments that potentially subject the Company to significant
concentrations of credit risks consist principally of cash, cash equivalents and
accounts receivable. The Company places its cash equivalents in high-credit
quality financial institutions. The Company is exposed to credit risk in the
event of default by these institutions to the extent of the amount recorded on
the balance sheet. As of December 31, 1999 all money market funds are invested
in a single fund.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Manufacturing and development equipment..................... $ 2,250 $ 6,404
Computer software and equipment............................. 1,282 1,787
Office equipment............................................ 166 259
Leasehold improvements...................................... 213 1,120
Construction in Progress.................................... -- 91
------- -------
3,911 9,661
Less accumulated depreciation and amortization.............. (2,031) (2,766)
------- -------
$ 1,880 $ 6,895
======= =======
</TABLE>
4. DEBT
Note payable to stockholder/director
The Company had unsecured promissory notes payable to a
stockholder/director. On July 21, 1998, the principal and interest outstanding
was rolled over in a new promissory note issued with interest at 7.35% per
annum. At March 31, 1999, the Company had borrowings outstanding under this
arrangement of $2,305,000 and owed interest of $117,000. The promissory note and
its related interest were repaid outstanding during the nine-month period ended
December 31, 1999.
Loan Payable to Bank
On October 19, 1998, the Company entered into a revolving line of credit
agreement with a bank. At March 31, 1999, the Company had borrowings under this
arrangement amounting to $1,755,000 at an
F-9
<PAGE> 79
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest rate of 8.625%. The line was repaid during the nine-month period ended
December 31, 1999. At December 31, 1999, the line of credit agreement had
expired.
Equipment Loan Payable
On February 9, 1999, the Company entered into an agreement for an equipment
loan facility for a maximum of $2,000,000, which expired on December 31, 1999.
The loan facility charges interest at 8.4% per annum and has a termination
payment for 10% of the original principal amount. Certain equipment of the
Company secures the loan facility. Under the terms of this agreement the Company
is restricted from paying cash dividends, until the time it has completed a
qualified initial public offering of not less than $20,000,000. At March 31,
1999, the Company had borrowed $800,000 under this loan facility of which
$750,000 and $598,000 was outstanding at March 31, 1999 and December 31, 1999,
respectively.
Future minimum payments on this facility at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000........................................... $231
2001........................................... 265
2002........................................... 102
----
Total.......................................... $598
====
</TABLE>
The Company will pay $45,000 in 2000 and $1,000 in 2001 in relation to
other long-term debt facilities outstanding at December 31, 1999.
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities and certain equipment under noncancelable
operating lease agreements that expire at various dates throughout fiscal 2007.
Net rental expense for these leases aggregated $444,000, $440,000, and $383,000
for the fiscal years ended March 31, 1998 and 1999, and the nine-month period
ended December 31, 1999, respectively. These amounts are net of $230,000,
$255,000, and $91,000 of sublease income for the fiscal years ended March 31,
1998 and 1999, and the nine-month period ended December 31, 1999.
Future minimum lease payments under noncancelable operating leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
(IN THOUSANDS)
<S> <C>
2000.......................................... $ 1,405
2001.......................................... 1,964
2002.......................................... 2,016
2003.......................................... 2,061
2004.......................................... 2,132
Thereafter.................................... 3,340
-------
Total minimum payments........................ $12,918
=======
</TABLE>
Litigation
On December 8, 1999, Kaifa Technology, Inc., recently acquired by E-Tek
Dynamics, Inc., filed a complaint against the Company for patent infringement in
the United States District Court, Northern District of California. In addition
to maintaining its original claim of patent infringement against the
F-10
<PAGE> 80
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company, Kaifa has asserted claims against the Company of intentional and
negligent interference with contract, trade secret misappropriation, unfair
competition and breach of contract. Kaifa is seeking a declaratory judgment,
damages, injunctive relief and attorney's fees. On February 23, 2000, the
Company filed a motion to dismiss Kaifa's complaint and joined one of their
employees named in the complaint in filing another motion to dismiss Kaifa's
complaint. On the same date, certain of the employees named in the complaint
also filed a motion to dismiss Kaifa's complaint. These motions are scheduled to
be heard on March 31, 2000. The Company intends to defend the action vigorously.
If the Company is unsuccessful in defending this action, any remedies awarded to
Kaifa may have a material adverse effect on the Company. Furthermore, defending
this action will be costly and divert management's attention regardless of
whether the action is successfully defended.
In addition, the Company is subject to various claims which arise in the
normal course of business. In the opinion of management, the ultimate
disposition of these claims will not have a material adverse effect on the
position of the Company.
6. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) Profit Sharing Plan that allows voluntary
contributions by employees who have six months or more of service. Eligible
employees may elect to contribute up to the maximum allowed under the Internal
Revenue Service regulations.
The Company made matching contributions of a participant's salary deferral
of 10%, 25%, and 25% and recognized costs of $26,000, $131,000 and $125,000
related to this plan in the fiscal years ended March 31, 1998 and 1999 and the
nine month fiscal year ended December 31, 1999, respectively.
7. INCOME TAXES
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate (34%) to loss before
provision for income taxes is explained below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
MARCH 31, ENDED
--------------- DECEMBER 31,
1998 1999 1999
---- ------- ------------
<S> <C> <C> <C>
Tax (benefit) at federal statutory rate..................... $(94) $(1,689) $(2,609)
Loss for which no tax benefit is currently recognizable..... 94 1,689 2,609
State taxes................................................. 2 2 2
Alternate minimum taxes..................................... 8 -- --
---- ------- -------
Total provision............................................. $ 10 $ 2 $ 2
==== ======= =======
</TABLE>
F-11
<PAGE> 81
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31,
1998 1999 1999
------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 121 $ 1,469 $ 4,363
Tax credit carryforwards................................. 788 1,044 1,428
Capitalized research and development..................... 340 390 786
Other individually immaterial items...................... 735 1,097 501
------- ------- -------
Total deferred tax assets.................................. 1,984 4,000 7,078
Valuation allowance........................................ (1,984) (4,000) (7,078)
------- ------- -------
Net deferred tax assets.................................... $ -- $ -- $ --
======= ======= =======
</TABLE>
The valuation allowance increased by $3,078,000 during the nine-month
period ended December 31, 1999, and $2,016,000 for the period ended March 31,
1999. Approximately $260,000 of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions which, when recognized, will be
allocated directly to additional paid in capital.
Financial Accounting Standards Board Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based upon the weight of available evidence, which included the
Company's historical operating performance and the reported cumulative net
losses in all prior years, the Company has provided a full valuation allowance
against its net deferred tax assets.
As of December 31, 1999 the Company had federal and state net operating
loss carryforwards of approximately $12,000,000 and $400,000, respectively. As
of December 31, 1999, the Company also had federal and state research and
development tax credit carryforwards of approximately $900,000 and $700,000,
respectively. The net operating loss and tax credit carryforwards will expire at
various dates beginning in 2004 through 2019, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to substantial annual limitations due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
tax credit carryforwards before utilization.
8. STOCKHOLDERS' EQUITY
Stock Split
On August 20, 1999 the Company's Board of Directors and stockholders
approved a two-for-one stock split of the Company's common and preferred stock.
On February 9, 2000 the Company's Board of Directors and stockholders approved
another two-for-one stock split of the Company's common and preferred stock. All
preferred stock, common stock, common equivalent shares, and per share amounts
have been adjusted retroactively to give effect to the stock splits.
F-12
<PAGE> 82
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Preferred Stock
Preferred stock consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
Series A:
Authorized, issued and outstanding shares................. 15,160,000 15,160,000
========== ============
Series B:
Authorized, issued, and outstanding shares................ 1,000,000 1,000,000
========== ============
Series C:
Authorized, issued, and outstanding shares................ 600,000 600,000
========== ============
Series D:
Authorized shares......................................... 6,000,000 6,000,000
========== ============
Issued and outstanding shares............................. 3,977,000 3,977,000
========== ============
Series E:
Authorized shares......................................... 10,978,756
============
Issued and outstanding shares............................. 10,857,616
============
Series F:
Authorized shares......................................... 1,113,800
============
Issued and outstanding shares............................. 1,113,800
============
Series G:
Authorized shares......................................... 9,230,770
============
Issued and outstanding shares............................. 9,230,728
============
</TABLE>
All preferred stock series are convertible into common stock at the option
of the stockholder on a one-for-one basis subject to antidilution adjustments.
Conversion is mandatory concurrent with a qualified initial public offering of
not less than $15,000,000 and a per share price of not less than $3.75. Such
conversion can occur for Series A, B and C convertible preferred stock upon the
consent of the holders of a majority of the then outstanding shares of
convertible preferred stock voting as a single class. Such conversion can occur
for Series D, E, F and G convertible preferred stock upon the consent of the
holders of a majority of the then outstanding shares of Series D, E, F and G
convertible preferred stock voting as a single class. The preferred stockholders
have voting rights equal to the voting rights of the common stockholders on an
as-if-converted basis.
The Series D, E, F, and G preferred stockholders are entitled to dividends,
prior and in preference to any other dividends payable, at the rate of $0.08,
$0.095, $0.095, and $0.26 per share, respectively. The dividends are
noncumulative until and unless the Company has not closed a qualified initial
public offering or the Series D, E, F, and G preferred stock has not been
converted into common stock by December 31, 2000. In this respect, the dividends
will begin to accumulate beginning January 1, 2002 at the same dividend rate and
will be due and payable quarterly in arrears. After payment of dividends to
Series D, E, F, and G preferred stockholders, Series A, B, and C preferred
stockholders are entitled to noncumulative dividends, when and if declared by
the Board of Directors, at an annual amount of $0.01, $0.02, and $0.0275 per
share, respectively. Such dividends have a preference over the payment of
dividends on common stock.
F-13
<PAGE> 83
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the event of liquidation, payment will be made to Series D, E, F, and G
preferred stockholders, prior and in preference to any other stockholders, for
the purchase price of $1.00, $1.20, $1.20, and $3.25 per share, respectively,
plus all declared and unpaid dividends. Subsequent to this payment, the Series
A, B, C, D, E, F, and G preferred stockholders are entitled to a liquidation
preference distribution of $0.125, $0.25, $0.85, $1.00, $1.20, $1.20, and $3.25
per share, respectively, plus all declared and unpaid dividends. Any amounts in
excess of this amount will be distributed to common stockholders.
Stock Option Plans
Under its 1990 Incentive Stock Option Plan, the Company may grant incentive
stock options and nonstatutory stock options to employees, directors, and
consultants. Under its 1998 Stock Plan, the Company may grant options and stock
purchase rights to employees and consultants provided that incentive stock
options may only be granted to employees. During the year ended December 31,
1999, the Company established the 1999 Stock Option Plan. Under its 1999 Stock
Plan, the Company may grant options and stock purchase rights to employees and
consultants provided that incentive stock options may only be granted to
employees. Options may be granted to purchase common stock at an exercise price
of not less than 100% of the fair value of the stock at the date of grant as
determined by the Board of Directors. Generally, options vest ratably over five
years and expire after ten years.
The following table summarizes activity under the 1990, 1998 and 1999 Stock
Plans:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
---------- ----------- --------
<S> <C> <C> <C>
Balance at March 31, 1997................................ 1,944,000 5,230,000 $0.21
Granted................................................ (2,948,000) 2,948,000 $0.48
Exercised.............................................. -- (158,000) $0.10
Canceled............................................... 1,220,000 (1,220,000) $0.37
Repurchased............................................ 8,000 -- $0.15
---------- ----------
Balance at March 31, 1998................................ 224,000 6,800,000 $0.30
Authorized............................................. 3,200,000 -- $ --
Granted................................................ (2,984,000) 2,984,000 $0.62
Exercised.............................................. -- (1,443,000) $0.13
Canceled............................................... 208,000 (208,000) $0.41
Repurchased............................................ 308,000 -- $0.63
---------- ----------
Balance at March 31, 1999................................ 956,000 8,133,000 $0.44
Authorized............................................. 5,400,000 -- --
Granted................................................ (692,000) 692,000 $0.63
Exercised.............................................. (168,000) $0.33
Canceled............................................... 218,000 (218,000) $0.55
Repurchased............................................ -- --
---------- ----------
Balance at December 31, 1999............................. 5,882,000 8,439,000 $0.45
========== ==========
Options exercisable at March 31, 1998.................... 3,076,000 $0.10
==========
Options exercisable at March 31, 1999.................... 2,660,000 $0.22
==========
Options exercisable at December 31, 1999................. 3,881,000 $0.33
==========
</TABLE>
The weighted average fair value of options granted in the fiscal years
ended March 31, 1998 and 1999 and for the nine-month period ended December 31,
1999 was $0.48, $0.55, and $0.56, respectively.
F-14
<PAGE> 84
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes option information relating to outstanding options
under the plans as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.0025 - $0.0125 1,236,000 .88 years $0.01 1,236,000 $0.01
$0.025 - $0.0625 165,000 4.93 years $0.04 156,000 $0.04
$.375 - $.4625 2,927,000 7.48 years $0.45 1,445,000 $0.45
$.5125 715,000 8.09 years $0.51 269,000 $0.51
$.625 3,396,000 8.79 years $0.63 775,000 $0.63
--------- ---------
$0.0025 - $.625 8,439,000 7.04 years $0.45 3,881,000 $0.33
========= =========
</TABLE>
In addition, nonplan options to purchase 800,000 shares of common stock at
an exercise price of $0.0025 per share were granted to the Company's founder and
Chairman of the Board in fiscal 1991 and are fully exercisable. These options
expire in April 2000 if not exercised.
Deferred Compensation
During the nine months ended December 31, 1999, the Company recorded
aggregate deferred compensation of $821,000 representing the difference between
the exercise price of stock options granted and the then deemed fair value of
the Company's common stock. These amounts are being amortized as charges to
operations, using the graded method, over the vesting periods of the individual
stock options, generally five years. Under the graded method, approximately
51.53%, 24.62%, 14.16%, 7.37% and 2.32%, respectively, of each options
compensation expense is recognized in each of the five years following the date
of grant. For the nine-month period ended December 31, 1999, the Company
amortized $132,000 of deferred compensation.
Pro Forma Disclosure of the Effect of Stock-Based Compensation
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB Opinion No. 25, when the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, there is no compensation expense
recognized.
Pro forma information regarding net loss is required by FAS 123 which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted during the fiscal periods ended March 31,
1998 and 1999 and the nine-month periods ended December 31, 1999 under the fair
value method of FAS 123. The fair value for these options was estimated at the
date of grant using the minimum value method with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, NINE MONTHS ENDED
---------------------- DECEMBER 31,
1998 1999 1999
--------- --------- -----------------
<S> <C> <C> <C>
Risk-free interest rate...................... 5.9% 5.14% 6.0%
Dividend yield............................... 0% 0% 0%
Expected option life......................... 5.0 years 5.0 years 5.0 years
</TABLE>
F-15
<PAGE> 85
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period, under the
graded method. Because FAS 123 is applicable only to options granted subsequent
to March 31, 1995, its pro forma effect will not be fully reflected until
calendar year 2000 and thereafter.
If compensation cost for the Company's stock-based compensation plan had
been determined based on the fair value at the grant dates for awards under this
plan consistent with the method provided for under FAS 123, then the Company's
net loss would have been as indicated in the pro forma amount below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, NINE MONTHS ENDED
------------------------ DECEMBER 31,
1998 1999 1999
--------- ----------- -----------------
<S> <C> <C> <C>
Net loss as reported............................. $(286,000) $(4,971,000) $(7,677,000)
Pro forma net loss............................... $(349,000) $(5,116,000) $(7,845,000)
Net loss per share as reported, basic and
diluted........................................ $ (0.25) $ (2.18) $ (3.11)
Pro forma net loss per share, basic and
diluted........................................ $ (0.30) $ (2.24) $ (3.18)
</TABLE>
Warrants
During the year ended March 31, 1999 the Company issued a warrant for the
purchase of 140,000 shares of the Company's Series D preferred stock at $1.00
per share in connection with entering into an equipment loan agreement. The fair
value of the warrant was determined using the Black-Scholes method and the
following assumptions: expected life 5 years, exercise price $1.00, stock price
on date of grant $1.00, expected dividend yield of 0%, risk free rate of 5%, and
expected volatility of 0.30 to be $78,000. This amount was capitalized as debt
issuance costs and is being amortized over the life of the loan. The warrant
expires not earlier than December 31, 2004. The warrant incorporates
antidilution protection.
During the nine-month period ended December 31, 1999 the Company committed
to issue a warrant for the purchase of 112,000 shares of the Company's Series E
preferred stock at a price of $1.20 per share in return for fees associated with
issuance of Series E preferred stock. The fair value of the warrant was
determined using the Black-Scholes method and the following assumptions:
expected life 5 years, exercise price $1.20, stock price on date of grant $1.20,
expected dividend yield of 0%, risk free rate of 6%, and expected volatility of
0.27 to be $48,000. This amount was offset against the proceeds of the Series E
preferred stock. The warrant expires not earlier than February 9, 2005. The
warrant incorporates antidilution protection.
During the nine-month period ended December 31, 1999 the Company committed
to issue a warrant to purchase 9,000 shares of the Company's Series E preferred
shares at a price of $1.20 per share. The fair value of the warrant was
determined using the Black-Scholes method and the following assumptions:
expected life 5 years, exercise price $1.20, stock price on date of grant $1.20,
expected dividend yield of 0%, risk free rate of 6%, and expected volatility of
0.27 to be $4,000. This amount was expensed in the current period. The warrant
expires not earlier than February 9, 2005. The warrant incorporates antidilution
protection.
F-16
<PAGE> 86
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock
At December 31, 1999, common stock reserved for future issuance is as
follows:
<TABLE>
<S> <C>
Stock option plan:
Outstanding options....................................... 8,439,000
Reserved for future grants................................ 5,882,000
----------
14,321,000
Warrants for Series D preferred stock....................... 140,000
Warrants for Series E preferred stock....................... 121,000
Nonplan stock options granted............................... 800,000
Convertible preferred stock................................. 41,939,000
----------
57,321,000
==========
</TABLE>
9. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Through March 31, 1998, the Company operated as one segment. For the fiscal
period ended March 31, 1999, the Company had two reportable segments: Telecom
and Commercial Photonics Group (CPG). The telecom segment performs research and
development, manufacturing, marketing and sales of fiber amplified products,
wavelength management products, high-speed opto-electronics and tunable laser
modules, which are primarily sold to manufacturers of networking and test
equipment in the optical telecommunications markets. The CPG segment performs
research and development, manufacturing, marketing and sales of photonic tools,
which are primarily used for commercial and research applications.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes, excluding gains and losses on the
Company's investment portfolio. The accounting policies for the reportable
segments are consistent with those described in the summary of significant
accounting policies. There were no intercompany sales or transfers.
The Company does not segregate assets by segment.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
-----------------------------
TELECOM CPG TOTAL
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Revenues from external customers............................ $ 45 $17,240 $17,285
Depreciation expense........................................ $ 102 $ 486 $ 588
Operating segment profit (loss)............................. $(6,658) $ 1,992 $(4,666)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, 1999
-----------------------------
TELECOM CPG TOTAL
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from external customers............................ $ 5,002 $13,099 $18,101
Depreciation expense........................................ $ 289 $ 467 $ 756
Operating segment profit (loss)............................. $(9,087) $ 1,625 $(7,462)
</TABLE>
F-17
<PAGE> 87
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1999
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
PROFIT OR LOSS
Total profit or loss for reportable segments................ $(4,666) $(7,462)
Other income (expense), net................................. (303) (81)
Amortization of deferred compensation....................... -- (132)
------- -------
Income before income taxes.................................. $(4,969) $(7,675)
======= =======
</TABLE>
<TABLE>
<CAPTION>
REVENUES REVENUES
GEOGRAPHIC INFORMATION ----------- ------------
<S> <C> <C>
United States............................................... $12,445 $13,214
Asia........................................................ 2,247 1,629
Europe...................................................... 2,593 3,258
------- -------
Consolidated total........................................ $17,285 $18,101
======= =======
</TABLE>
Revenues are attributed to countries based on the location of customers.
10. NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic and diluted net loss per share is
computed by dividing net loss by the weighted average number of common shares
outstanding during the period less outstanding nonvested shares. Outstanding
nonvested shares are not included in the computations of basic and diluted net
loss per share until the time-based vesting restrictions have lapsed.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
MARCH 31, DECEMBER 31,
---------------- ------------
1998 1999 1999
------ ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net loss (numerator)........................................ $ (286) $(4,971) $(7,677)
====== ======= =======
Shares used in computing historical basic and diluted net
loss per share (denominator):
Denominator for historical basic and diluted net loss per
share -- weighted average common shares outstanding....... 1,148 2,284 2,468
====== =======
Conversion of preferred stock (pro forma)................... 29,755
-------
Denominator for pro forma basic and diluted net loss per
share..................................................... 32,223
=======
Historical basic and diluted net loss per share............. $(0.25) $ (2.18) $ (3.11)
====== ======= =======
Pro forma basic and diluted net loss per share.............. $ (0.24)
=======
</TABLE>
The Company has excluded the impact of all convertible preferred stock,
warrants for convertible preferred stock and common stock and outstanding stock
options from the calculation of historical diluted loss per common share because
all such securities are antidilutive for all periods presented. The total number
of shares excluded from the calculations of historical diluted net loss per
share was 22,960,000 and 27,351,000 for the years ended March 31, 1998 and 1999
and 38,193,000 for the nine months ended December 31, 1999.
F-18
<PAGE> 88
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INTERIM FINANCIAL RESULTS (UNAUDITED)
The following table provides financial information for the nine months
ended December 31, 1998, (in thousands, except per share amount) and presents
comparable information to the Company's nine-month period ended December 31,
1999.
<TABLE>
<S> <C>
Net revenues................................................ $12,544
Gross profit................................................ $ 5,919
Net loss.................................................... $(3,375)
Historical basic and diluted net loss per share............. $ (1.50)
Shares used to compute historical basic and diluted net loss
per share................................................. 2,245
</TABLE>
12. SUBSEQUENT EVENTS
On January 12, 2000 the Company made full recourse loans aggregating
approximately $2.7 million to certain executive officers in connection with
their purchase of shares of common stock. Each of these loans were made pursuant
to a full recourse promissory note secured by a stock pledge. The notes bear no
interest but interest will be imputed and reported annually as compensation on
the officer's W-2. All unvested shares purchased by officers are subject to
repurchase by us at the original exercise price if the officer's employment is
terminated.
On February 9, 2000, the Board of Directors adopted the 2000 Stock Plan
(2000 Plan), subject to stockholder approval, to provide for the grant of
incentive stock options to purchases shares of common stock to employees,
directors and consultants. The 2000 Plan is administered by the Board of
Directors, and may be delegated to a committee.
A total of 1,000,000 shares of common stock has been reserved for issuance.
The number of shares of common stock reserved for issuance will increase
annually beginning in fiscal 2001 subject to the Board of Directors to a maximum
of 6% of the outstanding share of common stock.
The exercise price is to be determined by the Board of Directors or the
committee. The Board of Directors or the committee reserve the right, under the
Restricted Stock Repurchase Agreement to repurchase options, at a price
determined by the same, upon the termination of an optionee,
On February 9, 2000, the Board of Directors adopted the 2000 Director
Option Plan (Directors' Plan), subject to stockholder approval, to provide for
the automatic grant of options to purchase shares of common stock to our
non-employee directors who are not any of the Company's affiliates' employees or
consultants. The Directors' Plan is administered by the Board of Directors, and
may be delegated to a committee.
A total of 200,000 shares of common stock have been reserved for issuance.
Under the terms of the Directors' Plan, as of the initial public offering, each
non-employee Director, and each person who is thereafter elected or appointed
for the first time to be a non-employee, or Director by the Board stockholder,
be granted an option to purchase 25,000 shares of common stock. In addition,
upon the date of each annual stockholders' meeting subsequent to the date of
each non-employee directors' initial grant under the directors' plan, each
person who is then serving as a non-employee director automatically shall be
granted an option to purchase 5,000 shares of common stock.
On February 9, 2000, the Company's Board of Directors, subject to
stockholder approval, approved the 2000 Employee Stock Purchase Plan (Purchase
Plan). A total of 1,000,000 shares of common stock have been reserved for
issuance, plus annual increases equal to the lesser of (i) 1,000,000 shares of
common stock, (ii) 1.25% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board of Directors. Under the Purchase Plan, the
Board of Directors may authorize participation by eligible employees, in
periodic offerings following the adoption of the Purchase Plan. The offering
period
F-19
<PAGE> 89
NEW FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for any offering will be no more than 27 months. The price of common stock
purchased under the Purchase Plan will be equal to 85% of the lower of the fair
market value of the common stock on the commencement date of each offering
period or the relevant purchase date.
In the event of certain changes in control, the Board of Directors has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right will be substituted by the successor corporation. In the
event that the successor corporation does not assume or substitute each right to
purchase common stock, the Board of Directors may shorten the vesting period.
The Purchase Plan will terminate at the Board's discretion or when all of the
shares reserved for issuance under the Purchase Plan have been issued.
On February 9, 2000, the Company's board of directors, subject to approval
of the Amended and Restated Certificate of Incorporation by the state of
Delaware, authorized the reincorporation of the Company in Delaware. The par
value of the preferred and common stock is $0.001 per share. The Company's
Certificate of Incorporation will be amended to authorize 10,000,000 shares of
preferred stock and 250,000,000 shares of common stock. The board of directors
has the authority to fix or alter the designations, powers, preferences, and
rights of the shares of each such series. The Company's reincorporation has been
reflected in the consolidated financial statements for all periods presented.
On February 28, 2000, the Company issued rights to 116,000 shares of the
Company's stock in connection with a business acquisition.
F-20
<PAGE> 90
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 New Focus, Inc. 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........................................ $22,770
NASD filing fee Nasdaq National Market listing fee.......... 9,125
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. 3,000
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
-------
Total....................................................... $ *
=======
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article of the Registrant's Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article of the Registrant's Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of the
Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
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 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) On April 18, 1990, we sold 400,000 shares of common stock to Milton Chang
at a purchase price of $.005 per share. On April 18, 1990, the Board of
Directors granted Milton Chang an option outside
II-1
<PAGE> 91
of our Stock Option Plan for 800,000 shares of our Common Stock at an
exercise price of $.0025. Mr. Chang exercised this option on January 19,
2000.
(2) From February 28, 1997 through January 31, 2000, (the most recent
practicable date) we granted stock options to acquire an aggregate of
5,826,000, 422,000 and 1,989,200 shares of our common stock at prices
ranging from $.46 to $1.25, $.62 to $.62 and from $.62 to $1.25 to
employees, consultants and directors pursuant to our 1990 Incentive Stock
Option Plan, 1998 Stock Plan and 1999 Stock Plan, respectively.
(3) From April, 1991 through February, 1992, we issued 8,640,000 shares of
Series A preferred stock to Milton Chang pursuant to a series of put-option
agreements at a price of $.1250.
(4) From May, 1990 through January 1991 we sold 15,160,000 shares of Series A
Preferred Stock for $.125 per share to a group of private investors for an
aggregate purchase price of $1,895,000.
(5) On December 10, 1993, we sold 1,000,000 shares of Series B Preferred Stock
for $0.25 per share to a group of private investors for an aggregate
purchase price of $250,000.
(6) On July 24, 1998, we sold 600,000 shares of Series C Preferred Stock for
$.85 per share to a group of private investors for an aggregate purchase
price of $510,000.
(7) On July 31, 1998, and August 6, 1998, we sold 3,977,000 shares of Series D
Preferred Stock for $1.00 per share to a group of private investors for an
aggregate purchase price of $3,977,000.
(8) On February 9, 1999, in connection with a Loan and Security Agreement, we
issued a warrant to purchase 140,000 shares of Series D Preferred Stock at
an exercise price of $1.00 to Venture Lending and Leasing II, Inc.
(9) On June 14, 1999, we sold 10,857,616 shares of Series E Preferred Stock for
$1.20 per share to a group of private investors for an aggregate purchase
price of $13,029,139.20.
(10) We entered into a Technology Transfer Agreement dated June 24, 1999, with
Peter Chen pursuant to which we purchased certain technology from Mr. Chen
in consideration for options to purchase 230,000 shares of our common stock
at the fair market value and the sum of $220,000. Additional terms and
conditions are set forth in such Technology Transfer Agreement.
(11) On October 15, 1999, we sold 1,113,800 shares of Series F Preferred for
$1.20 per share to a group of private investors for an aggregate purchase
price of $1,336,560.
(12) On November 23, 1999, we sold 9,350,728 shares of Series G Preferred for
$3.25 per share to a group of private investors for an aggregate purchase
price of $30,389,866.
(13) On March 3, 1999 and November 1, 1999, we entered into consulting
agreements with John Dexheimer, one of our directors, for services rendered
in connection with the Series E, Series F and Series G Preferred Stock
financings. Pursuant to these agreements, Mr. Dexheimer received warrants
to purchase 111,792 shares of Series E Preferred Stock at a price per share
of $1.20.
(14) On February 28, 2000, we issued rights to 116,000 shares of our stock in
connection with a business acquisition.
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.
The sales of the above securities were deemed to be exempt from
registration in reliance on Rule 701 promulgated under Section 3(b) under the
Securities Act as transactions pursuant to a compensatory benefit plan or a
written contract relating to compensation, or in reliance on Section 4(2) of the
Securities Act or Regulation D promulgated thereunder as transactions by an
issuer not involving any public offering. 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 legends were affixed to the share
certificates and other instruments issued in such transactions.
II-2
<PAGE> 92
All recipients either received adequate information about New Focus, Inc. or had
access, through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
4.1* Form of stock certificates
4.2* Warrant to Purchase Series D Preferred Stock dated February
19, 1999 between Registrant and Venture Lending and Leasing
4.3 Warrant to Purchase Series E Preferred Stock dated February
9, 2000 between Registrant and John Dexheimer.
4.4 Warrant to Purchase Series E Preferred stock dated February
9, 2000, between Registrant and Pamela York.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2* 2000 Stock Plan
10.3* 2000 Employee Stock Purchase Plan
10.4* 2000 Director Option Plan and form of agreement thereunder
10.5 Form of Amendment to New Focus, Inc. Non-Statutory Stock
Option Agreement, Restated Stock Purchase Agreement,
including Security Agreement and Promissory Note between
Registrant and Kenneth E. Westrick, Paul Smith, Bao-Tong Ma,
George Yule, Robert Marsland, Timothy Day, dated January 12,
2000.
10.6 Premises Lease Contract between Registrant and Shenzhen New
and High-tech Village Development Company dated September
23, 1999.
10.7* Lease Agreement between Registrant and Silicon Valley
Properties dated December 23, 1999.
10.8* Agreement on Terms and Conditions of Purchase and Sale of
Optical Components dated January 1, 2000.
10.9* Lease Agreement between Focused Research Inc. and University
Science Center Partnership, dated May 22, 1996, as amended,
June 19, 1997.
10.10 Fifth Amended and Restated Registration Rights Agreement
10.11* Development Agreement between Registrant and Hewlett-Packard
GmbH dated December 23, 1996.
10.12* Addendum to the Development Agreement between Registrant and
Hewlett-Packard GmbH dated November 6, 1997.
10.13* Addendum No. 2 to the Development Agreement of December 23,
1996 between Registrant and Agilent Technologies Deutschland
GmbH dated December 10, 1999.
10.14* Memorandum of Agreement between Registrant and Alcatel USA
Sourcing, L.P. dated January 27, 2000.
21.1 List of Subsidiaries
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-5)
27.1* Financial Data Schedules
</TABLE>
- -------------------------
* To be filed by amendment
II-3
<PAGE> 93
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<TABLE>
<CAPTION>
ADDITIONS-
BALANCES AT CHARGED TO BALANCES
BEGINNING COSTS AND DEDUCTIONS- AT END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended March 31, 1998...................... $ 70 $ 63 -- $$133
Year ended March 31, 1999...................... $133 $ 40 $(38) $135
Nine months ended December 31, 1999............ $135 $ 39 $(14) $160
</TABLE>
Schedules other than that listed above have been omitted since they are not
required or are not applicable or the required information is shown in the
financial statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes 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 a 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on the 1st day of March, 2000.
NEW FOCUS, INC.
By: /s/ KENNETH E. WESTRICK
------------------------------------
Kenneth E. Westrick
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kenneth E. Westrick and William L. Potts,
Jr. 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/ KENNETH E. WESTRICK President, Chief Executive March 1, 2000
- -------------------------------------------------------- Officer and Director
Kenneth E. Westrick (Principal Executive
Officer)
/s/ WILLIAM L. POTTS, JR. Chief Financial Officer March 1, 2000
- -------------------------------------------------------- (Principal Financial and
William L. Potts, Jr. Accounting Officer)
/s/ CHARLES BOPPELL Director March 1, 2000
- --------------------------------------------------------
Charles Boppell
/s/ DR. MILTON CHANG Director March 1, 2000
- --------------------------------------------------------
Dr. Milton Chang
/s/ JOHN DEXHEIMER Director March 1, 2000
- --------------------------------------------------------
John Dexheimer
/s/ DR. WINSTON FU Director March 1, 2000
- --------------------------------------------------------
Dr. Winston Fu
</TABLE>
II-5
<PAGE> 95
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ R. CLARK HARRIS Director March 1, 2000
- --------------------------------------------------------
R. Clark Harris
/s/ ROBERT D. PAVEY Director March 1, 2000
- --------------------------------------------------------
Robert D. Pavey
</TABLE>
II-6
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
4.1* Form of stock certificates
4.2* Warrant to Purchase Series D Preferred Stock dated February
19, 1999 between Registrant and Venture Lending and Leasing
4.3 Warrant to Purchase Series E Preferred Stock dated February
9, 2000 between Registrant and John Dexheimer.
4.4 Warrant to Purchase Series E Preferred stock dated February
9, 2000, between Registrant and Pamela York.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2* 2000 Stock Plan
10.3* 2000 Employee Stock Purchase Plan
10.4* 2000 Director Option Plan and form of agreement thereunder
10.5 Form of Amendment to New Focus, Inc. Non Statutory Stock
Option Agreement, Restated Stock Purchase Agreement,
including Security Agreement and Promissory Note between
Registrant and Kenneth E. Westrick, Paul Smith, Bao-Tong Ma,
George Yule, Robert Marsland, Timothy Day, dated January 12,
2000.
10.6 Premises Lease Contract between Registrant and Shenzhen New
and High-tech Village Development Company dated September
23, 1999.
10.7* Lease Agreement between Registrant and Silicon Valley
Properties dated December 23, 1999.
10.8* Agreement on Terms and Conditions of Purchase and Sale of
Optical Components dated January 1, 2000.
10.9* Lease Agreement between Focused Research Inc. and University
Science Center Partnership, dated May 22, 1996, as amended,
June 19, 1997.
10.10 Fifth Amended and Restated Registration Rights Agreement
10.11* Development Agreement between Registrant and Hewlett-Packard
GmbH dated December 23, 1996.
10.12* Addendum to the Development Agreement between Registrant and
Hewlett-Packard GmbH dated November 6, 1997.
10.13* Addendum No. 2 to the Development Agreement of December 23,
1996 between Registrant and Agilent Technologies Deutschland
GmbH dated December 10, 1999.
10.14* Memorandum of Agreement between Registrant and Alcatel USA
Sourcing, L.P. dated January 27, 2000.
21.1 List of Subsidiaries
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-5)
27.1* Financial Data Schedules
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEW FOCUS, INC.
New Focus, Inc., 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 New Focus, Inc.
B. The date of filing of this Corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was February __, 2000.
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 New Focus, Inc.
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 which this corporation is authorized to issue
is ___________, with a par value of $0.001, and the total number of shares of
Preferred Stock which this corporation is authorized to issue is 10,000,000,
with a par value of $0.001.
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.
FIFTH: The Corporation is to have perpetual existence.
<PAGE> 2
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: 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 shall constitute the whole Board of Directors shall be
designated in the Bylaws of the Corporation.
B. Except with respect to directors who may be elected by the
holders of any class or series of stock having preferences over the Common Stock
as to dividends or upon liquidation, the directors shall be classified as set
forth herein. The Board of Directors shall be divided, as nearly equal in number
as reasonably 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.
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 (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.
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 the 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-
- 2 -
<PAGE> 3
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, 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 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 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 rights of designation of Preferred Stock conferred on
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.
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.
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.
- 3 -
<PAGE> 4
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.
IN WITNESS WHEREOF, New Focus, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by Kenneth E. Westrick, its
President, and Chief Executive Officer on this ____ day of ________, 2000
NEW FOCUS, INC.
______________________________
Kenneth E. Westrick, President
- 4 -
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
NEW FOCUS, INC.
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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............................................................................................. 4
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............................................ 5
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS........................................ 5
2.13 PROXIES............................................................................................ 6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................................. 6
2.15 CONDUCT OF BUSINESS................................................................................ 6
ARTICLE III DIRECTORS................................................................................................ 7
3.1 POWERS............................................................................................. 7
3.2 NUMBER............................................................................................. 7
3.3 CLASSES OF DIRECTORS............................................................................... 7
3.4 RESIGNATION AND VACANCIES.......................................................................... 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................................................... 9
3.6 REGULAR MEETINGS................................................................................... 9
3.7 SPECIAL MEETINGS; NOTICE........................................................................... 9
3.8 QUORUM............................................................................................. 9
3.9 WAIVER OF NOTICE................................................................................... 10
3.10 ADJOURNED MEETING; NOTICE.......................................................................... 10
3.11 CONDUCT OF BUSINESS................................................................................ 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................................................. 10
3.13 FEES AND COMPENSATION OF DIRECTORS................................................................. 10
3.14 REMOVAL OF DIRECTORS............................................................................... 11
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IV COMMITTEES................................................................................................ 11
4.1 COMMITTEES OF DIRECTORS............................................................................ 11
4.2 COMMITTEE MINUTES.................................................................................. 12
4.3 MEETINGS AND ACTION OF COMMITTEES.................................................................. 12
ARTICLE V OFFICERS................................................................................................... 12
5.1 OFFICERS........................................................................................... 12
5.2 APPOINTMENT OF OFFICERS............................................................................ 12
5.3 REMOVAL AND RESIGNATION OF OFFICERS................................................................ 13
5.4 CHAIRMAN OF THE BOARD.............................................................................. 13
5.5 CHIEF EXECUTIVE OFFICER............................................................................ 13
5.6 PRESIDENT.......................................................................................... 13
5.7 VICE PRESIDENT..................................................................................... 14
5.8 SECRETARY.......................................................................................... 14
5.9 CHIEF FINANCIAL OFFICER............................................................................ 14
5.10 ASSISTANT SECRETARY................................................................................ 15
5.11 AUTHORITY AND DUTIES OF OFFICERS................................................................... 15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS........................................ 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................................................... 15
6.2 INDEMNIFICATION OF OTHERS.......................................................................... 16
6.3 INSURANCE.......................................................................................... 16
6.4 EXPENSES........................................................................................... 16
6.5 NON-EXCLUSIVITY OF RIGHTS.......................................................................... 17
6.6 SURVIVAL OF RIGHTS................................................................................. 17
6.7 AMENDMENTS......................................................................................... 17
6.8 THE CORPORATION.................................................................................... 17
6.9 EMPLOYEE BENEFIT PLANS............................................................................. 18
ARTICLE VII RECORDS AND REPORTS...................................................................................... 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS.............................................................. 18
7.2 INSPECTION BY DIRECTORS............................................................................ 18
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS..................................................... 19
ARTICLE VIII GENERAL MATTERS......................................................................................... 19
8.1 CHECKS............................................................................................. 19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS................................................... 19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES............................................................. 19
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................................................ 20
8.5 LOST CERTIFICATES.................................................................................. 20
8.6 CONSTRUCTION; DEFINITIONS.......................................................................... 21
8.7 DIVIDENDS.......................................................................................... 21
8.8 FISCAL YEAR........................................................................................ 21
8.9 SEAL............................................................................................... 21
8.10 TRANSFER OF STOCK.................................................................................. 21
8.11 STOCK TRANSFER AGREEMENTS.......................................................................... 21
8.12 REGISTERED STOCKHOLDERS............................................................................ 22
ARTICLE IX AMENDMENTS................................................................................................ 22
ARTICLE X DISSOLUTION................................................................................................ 22
ARTICLE XI CUSTODIAN................................................................................................. 23
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................................................ 23
11.2 DUTIES OF CUSTODIAN................................................................................ 23
ARTICLE XII LOANS TO OFFICERS........................................................................................ 23
</TABLE>
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<PAGE> 5
BYLAWS
OF
NEW FOCUS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be 1209 Orange Street,
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 or (iii) the chief
executive officer. In addition, prior to the Effective Date (as defined in
Section 2.11 hereof), stockholders owning 10% or more of the outstanding shares
<PAGE> 6
entitled to vote in elections for the board of directors may call a special
meeting of the stockholders. Only such business shall be considered at a special
meeting as shall have been stated in the notice for such meeting.
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 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 chief executive
officer, 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 2.3 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 (i) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (ii) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (iii) 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 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 at the Corporation's principal executive offices on
the date one year later which is not less than 120 calendar days nor more than
150 calendar days before the date of the Corporation's proxy statement released
to stockholders in connection with the prior year's annual meeting. However, if
no annual meeting was held in the previous year, or if the date of the
applicable annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, a stockholder's
notice must be received by the secretary of the
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<PAGE> 7
Corporation at the Corporation's principal executive offices not later than 60
days before the date the Corporation commences mailing of its proxy materials in
connection with the applicable annual meeting. Notwithstanding the foregoing
provisions of this Section 2.5, a stockholder who seeks to have any proposal
included in the Corporation's proxy materials shall comply with the requirements
of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934, as
amended. 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, 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 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 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.
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<PAGE> 8
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 General
Corporation Law of Delaware 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
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<PAGE> 9
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
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.
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 which 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 on the New York Stock
Exchange 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 "Effective Date"), 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, 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.
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<PAGE> 10
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 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
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.
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 absence by the chief executive officer, or in his
absence by the president, or in his 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 absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
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<PAGE> 11
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.
3.2 NUMBER
The authorized number of directors of the Corporation shall be seven
(7) and, thereafter, shall be fixed from time to time exclusively by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized directorships at the time any such resolution is presented to the
Board for adoption. 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
Upon the Effective Date (as defined in Section 2.11 hereof), the
Directors shall be divided as nearly equal in number as reasonably possible,
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 and may be reassigned among such
classes as determined by the Board of Directors. At the first annual meeting of
stockholders following the Effective Time, 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
Effective Time, 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 Effective Time, 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.
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<PAGE> 12
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.
(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.
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<PAGE> 13
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.
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 or by
telephone 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.
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<PAGE> 14
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 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 absence the chairman 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.
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<PAGE> 15
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 Section 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 he or
they constitute 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 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 provides, 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.
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<PAGE> 16
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.
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.
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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 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 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
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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 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 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.
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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 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 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.
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
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation; provided, however, that the Corporation
may modify the extent of such indemnification by individual contracts with its
directors and executive officers and, provided, further, that the corporation
shall not be required to indemnify any director or officer in connection with
any proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized in advance by the Board of Directors of the Corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the General Corporation Law of
Delaware or (iv) such indemnification is required to be made pursuant to an
individual contract. For purposes of this Section 6.1, a "director" or "officer"
of the corporation includes any person (i) who
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is or was a director or officer of the Corporation, (ii) who is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was a director or officer of a corporation which was a predecessor corporation
of the Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The Corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the Corporation, (ii) who is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The Corporation may 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 the General Corporation Law of
Delaware.
6.4 EXPENSES
The Corporation shall advance to 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, by
reason of the fact that he or she is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding, upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise;
provided, however, that the Corporation shall not be required to advance
expenses to any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless the proceeding was authorized in
advance by the Board of Directors of the Corporation.
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Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the Corporation to an officer of the
Corporation (except by reason of the fact that such officer is or was a director
of the Corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) 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, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Corporation.
6.5 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Bylaw shall not be exclusive
of any other right which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding office.
The Corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
General Corporation law of Delaware.
6.6 SURVIVAL OF RIGHTS
The rights conferred on any person by this Bylaw shall continue as to a
person who has ceased to be a director, officer, employee or other agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
6.7 AMENDMENTS
Any repeal or modification of this Bylaw shall only be prospective and
shall not affect the rights under this bylaw in effect at the time of the
alleged occurrence of any action or omission to act that is the cause of any
proceeding against any agent of the corporation.
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 which, 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
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under and subject to the provisions of this Article VI 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 which
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
reasonably deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
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.
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 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
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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.
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
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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 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 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.
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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.
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.
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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.
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.
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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.
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.
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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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Exhibit 4.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.
NEW FOCUS, INC.
WARRANT TO PURCHASE SERIES E PREFERRED STOCK
<TABLE>
<S> <C>
Warrant Holder: John Dexheimer
Class of Stock: New Focus, Inc. Series E Preferred Stock (the
"Series E Preferred")
Number of Shares: 55,986 shares of Series E Preferred
Warrant Exercise Price: $2.40 per share of Series E Preferred, subject to
adjustments from time to time as specified in
Section 6, below
Issue Date: February 9, 2000
</TABLE>
THIS WARRANT CERTIFIES THAT, for value received, John Dexheimer, (the
"Holder") is entitled to subscribe for and purchase, subject to the provisions
and upon the terms and conditions hereinafter set forth, the number of fully
paid and nonassessable shares of Series E Preferred of New Focus, Inc., a
California corporation (the "Company") at the initial exercise price per share
(subject to adjustments from time to time, as specified in Section 6 hereof)
(the "Warrant Exercise Price") all as set forth above.
1. Term and Expiration. The purchase right represented by this Warrant
is exercisable, in whole or in part, at any time and from time to time from the
Issue Date through the earlier of:
(a) February 9, 2005;
(b) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering the offer and sale of
Common Stock for the account of the Company; or
(c) immediately prior to the closing of a merger or consolidation
of the Company with or into any other corporation or business
entity or sale or disposition of all or substantially all of
the Company's assets other than, in the case of a merger or
consolidation, where the holders of the Company's voting
securities as constituted immediately prior thereto continue
to hold after such merger or consolidation at least
<PAGE> 2
fifty percent (50%) of the voting securities of the Company or
surviving entity immediately after such merger or
consolidation.
2. Notice of Certain Events. In the event of a proposed transaction of
the kind described in Sections 1(b) or 1(c), above, the Company shall notify the
holder of this Warrant at least five (5) days prior to the consummation of such
event or transaction.
3. Method of Exercise; Cash Payment; Issuance of New Warrant. Subject
to Section 1, the purchase right represented by this Warrant may be exercised by
the Holder hereof, in whole or in part and from time to time, at the election of
the Holder hereof, by the surrender of this Warrant (with the notice of exercise
substantially in the form attached hereto as Exhibit A duly completed and
executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check, or by wire transfer to an account
designated by the Company of an amount equal to the then applicable Warrant
Exercise Price multiplied by the number of shares then being purchased.
The person or persons in whose name(s) any certificate(s) representing
the shares of Series E Preferred Stock shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of Series E Preferred so purchased shall be
delivered to the Holder hereof as soon as reasonably practicable and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of such shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the Holder hereof as soon as
reasonably practicable.
4. Right to Convert Warrant.
(a) Conversion Right. In lieu of the payment set forth in
Section 3 above, the Holder shall have the right to convert this Warrant ( the
"Conversion Right"), in its entirety, at any time prior to its expiration, into
shares of Common as provided for in this Section 4. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment by
the Holder of any Exercise Price) that number of shares of Common Stock equal to
the quotient obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Exercise
Price for the Warrant Shares in effect immediately prior to the exercise of the
Conversion Right from the aggregate Fair Market Value, as defined below, for the
Warrant Shares immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of the Warrant Shares immediately prior to
the exercise of the Conversion Right.
(b) Exercise of the Conversion Right. The Conversion Right may
be exercised by the Holder, at any time prior to its expiration, on any business
day. Such exercise shall be effected by (a) the surrender of this Warrant and
(b) delivery of the Notice of Conversion attached hereto as Exhibit B at the
office of the Company.
(c) Effect of Conversion. This Warrant shall be deemed to have
been converted immediately prior to the close of business on the date of its
surrender for conversion as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the holder of record of such shares as of the close of business
on such date. As promptly as
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<PAGE> 3
practicable on or after such date, the Company, at its expense, shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such conversion.
(d) Fair Market Value. Fair Market Value of a Warrant Share as
of a particular date (the "Determination Date") shall mean the Fair Market Value
of a share of the Company's Common Stock as of such Determination Date
multiplied by the number of shares of Common Stock into which a Warrant Share is
then convertible. Fair Market Value of a share of Common Stock as of a
Determination Date shall mean:
(i) If the Company's Common Stock is traded on an
exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System, then the closing or last
sale price, respectively, reported for the business day immediately preceding
the Determination Date.
(ii) If the Company's Common Stock is not traded on
an exchange or on the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the closing bid and asked prices
reported for the business day immediately preceding the Determination Date.
(iii) If the Determination Date is the date on which
the Company's Common Stock is first sold to the public by the Company in a firm
commitment public offering under the Securities Act of 1933, as amended, then
the initial public offering price (before deducting commissions, discounts or
expenses) at which the Common Stock is sold in such offering.
(iv) Otherwise, as determined in good faith by the
Company's Board of Directors upon a review of relevant factors
5. Stock Fully Paid; Reservation of Shares. All shares of Series E
Preferred that may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance pursuant to the terms and conditions herein, be
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
capital stock to provide for the exercise of the rights represented by this
Warrant.
6. Adjustment of Warrant Exercise Price and Number of Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Exercise Price shall be subject to adjustment from time to time upon
the occurrence of certain events, as follows:
(a) Reclassification. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), the Company
shall duly execute and deliver to the holder of this Warrant a new Warrant (in
form and substance satisfactory to the Holder of this Warrant), so that the
Holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Series E Preferred theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification or
change by a holder of the number of shares then purchasable under this Warrant.
Such new Warrant shall provide for
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<PAGE> 4
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6. The provisions of this subparagraph
(a) shall similarly apply to successive reclassifications or changes.
(b) Stock Splits or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of capital stock into which this Warrant is
exercisable, the Warrant Exercise Price shall be proportionately decreased in
the case of a subdivision or increased in the case of a combination, effective
at the close of business on the date the subdivision or combination becomes
effective. The provisions of this subparagraph (b) shall similarly apply to
successive stock splits or combinations of outstanding shares.
(c) Stock Dividends and Other Distributions. If the Company at
any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Series E Preferred payable in Series E Preferred, then
the Warrant Exercise Price shall be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Exercise Price in effect
immediately prior to such date of determination by a fraction (A) the numerator
of which shall be the total number of shares of Series E Preferred outstanding
immediately prior to such dividend or distribution, and (B) the denominator of
which shall be the total number of shares of Series E Preferred outstanding
immediately after such dividend or distribution; or (ii) make any other
distribution with respect to Series E Preferred (except any distribution
specifically provided for in Sections 6(a) and 6(b) above), then, in each such
case, provision shall be made by the Company such that the holder of this
Warrant shall receive upon exercise of this Warrant a proportionate share of any
such dividend or distribution as though it were the holder of Series E Preferred
as of the record date fixed for the determination of the stockholders of the
Company entitled to receive such dividend or distribution. The provisions of
this subparagraph (c) shall similarly apply to successive stock dividends and
other distributions by the Company.
Upon each adjustment in the Warrant Exercise Price specified in
Sections 6(a), (b) or (c) above, the number of shares of Series E Preferred
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of shares of Series E Preferred
purchasable immediately prior to such adjustment in the Warrant Exercise Price
by a fraction, the numerator of which shall be the Warrant Exercise Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Exercise Price immediately thereafter.
7. Notice of Adjustments. Whenever the Warrant Exercise Price or the
number of shares of Series E Preferred purchasable hereunder shall be adjusted
pursuant to Section 6 hereof, the Company shall notify the Holder of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Exercise Price and the number of shares of Series E Preferred purchasable
hereunder after giving effect to such adjustment.
8. Fractional Shares. No fractional shares will be issued in connection
with any exercise hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefor based on the fair value of such shares on the
date of exercise as reasonably determined at the sole discretion of and in good
faith by the Company's Board of Directors.
9. Compliance with Securities Act of 1933; Disposition of Warrant or
Shares.
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<PAGE> 5
(a) Compliance with Securities Act of 1933. The Holder of this
Warrant, by acceptance hereof, agrees that this Warrant, and the shares of
Series E Preferred to be issued upon exercise hereof (and the securities
issuable, directly or indirectly, upon conversion of the Series E Preferred),
are being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant, or any such shares except under circumstances
which will not result in a violation of the Securities Act or any applicable
state securities laws. Upon exercise of this Warrant, unless the shares being
acquired are registered under the Securities Act and any applicable state
securities laws or an exemption from such registration is available, the holder
hereof shall confirm in writing that the shares so purchased are being acquired
for investment and not with a view toward distribution or resale in violation of
the Securities Act and shall confirm such other matters related thereto as may
be reasonably requested by the Company. The shares of Series E Preferred issued
upon exercise of this Warrant (and the securities issuable, directly or
indirectly, upon conversion of the Series E Preferred) shall be stamped or
imprinted with a legend in substantially the following form (unless registered
under the Securities Act and any applicable state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SHARES
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT. COPIES OF
THE AGREEMENTS 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 NEW FOCUS
SOLUTIONS, INC. AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY."
(b) Disposition of Warrant or Shares. With respect to any
offer, sale or other disposition of this Warrant or any shares of Series E
Preferred acquired pursuant to the exercise of this Warrant (and of the
securities issuable, directly or indirectly, upon conversion of the Series E
Preferred) prior to registration of such Warrant or shares, the Holder hereof
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such Holder's counsel, or
other evidence, if reasonably requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Securities Act as then in effect or any federal or
state securities law then in effect) of this Warrant or the shares of Series E
Preferred (or the securities issuable, directly or indirectly, upon conversion
of the Series E Preferred) and indicating whether or not under the Securities
Act certificates for this Warrant or such shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with such law. Promptly upon
receiving such written notice and reasonably satisfactory opinion or other
evidence, if so requested, the Company, as promptly as practicable after receipt
of the written notice, shall notify the Holder that such holder may sell or
otherwise dispose of this Warrant or such shares, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this Section 9(b) that the opinion of counsel for the Holder or
other evidence is not reasonably satisfactory to the Company, the Company shall
so notify the Holder promptly with details thereof after such determination has
been made. Notwithstanding the foregoing, this Warrant or such shares may, as to
such federal laws, be offered, sold or otherwise disposed of in accordance with
Rule 144 under the Securities Act,
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<PAGE> 6
provided that the Company shall have been furnished with such information as the
Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing this
Warrant or such shares thus transferred (except a transfer pursuant to Rule 144
or an effective registration statement) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the Holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent in connection with such
restrictions.
10. "Market Stand-Off" Agreement. The Holder, and its assignees, agrees
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise transfer or dispose of any shares of Series E Preferred or the
Company's Common Stock or any other securities of the Company held by such
Holder during a period of time determined by the Company and its underwriters
(not to exceed 180 days in the event of the Company's initial public offering
("IPO") and 90 days in the event of any other subsequent public offering. Each
Holder, and its assignees, if any, further agrees to execute any agreement
reflecting the foregoing as may be requested by the underwriters at the time of
the public offering. Notwithstanding the foregoing, this "market standoff"
provision shall not apply to any shares of Common Stock purchased in a public
market transaction at any time in or after the Company's IPO. The Company may
impose stop-transfer instructions with respect to the Series E Preferred (or any
other securities) subject to the foregoing restriction until the end of said
period. The Company shall use best efforts in its negotiations with the
underwriters to limit the market standoff period to not more than 120 days in
the event of the Company's initial public offering.
Any discretionary waiver or early termination of these "market
stand-off" provisions by the Company or its underwriters with respect to any
individual or entity shall similarly apply to release all Holders from this
"market stand-off" provision on a pro-rata basis where the number of shares
released from such lockup is multiplied by a fraction with the numerator being
the number of such Holder's shares subject to any lockup provision and the
denominator being the total number of all shares subject to lockup in the public
offering; provided, however, that the Company or the underwriters may in their
sole discretion waive or terminate early the "market stand-off" provision with
respect to any individual or entity or various individuals or entities without
releasing all other Holders, so long as the number of shares released thereby
does not exceed a then-fair market value of $50,000 in the aggregate for each
such individual or entity.
11. Limited Rights as Stockholders; Information. No holder of this
Warrant, as such, prior to exercise thereof shall be entitled to vote or receive
dividends or be deemed the holder of shares, nor shall anything contained herein
be construed to confer upon the Holder of this Warrant, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to receive notice of meetings, or to receive dividends or subscription rights
or otherwise until this Warrant shall have been exercised and the shares of
Series E Preferred purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
12. Modification and Waiver; Effect of Amendment or Waiver. This
Warrant and any provision hereof may be changed, waived, discharged or
terminated with the written consent of the Company and the holders of a majority
of shares of the Series E Preferred issued or issuable upon exercise of the
Warrants issued pursuant to the Purchase Agreement. Any waiver or amendment
effected in accordance with this Section 12 shall be binding upon each holder of
any Shares purchased under this Warrant at the time outstanding (including
securities into which such Shares have been converted), each future holder of
all such
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<PAGE> 7
Shares, and the Company. The holder of this Warrant hereby acknowledges that by
operation of this Section 12, the holders of a majority of the Shares purchased
under this Warrant will have the right and power to diminish or eliminate the
rights of such holder under this Warrant or under the Purchase Agreement.
13. Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to the Holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor on the signature
page of this Warrant.
14. Binding Effect on Successors. The obligations of the Company
relating to the shares of Series E Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company pursuant to this Warrant shall inure to the benefit of the successors
and assigns of the Holder hereof.
15. Lost Warrants or Stock Certificates. The Company covenants to the
Holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
18. Severability. The invalidity or unenforceability of any provision
of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.
19. Assignment. This Warrant may be assigned by the Company, but may
only be transferred or assigned by the Holder to (i) any person, any other
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by, or is under the common control with such person or (ii) to
a subsidiary, partner, member of a Holder; provided, however, that the Company
is given written notice by the Holder within five (5) business days of said
transfer or assignment of this Warrant, stating the name, address and
relationship of said transferee or assignee; provided, further, however, that
the transferee or assignee of such Warrant agrees in writing for the benefit of
the Company to comply with all terms and obligations of this Warrant.
20. Counterparts. This Warrant may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
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<PAGE> 8
21. Entire Agreement. This Warrant constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
NEW FOCUS, INC.,
a California corporation
By: _____________________________________
Kenneth E. Westrick, President
Address: 2630 Walsh Avenue
Santa Clara, California 95051
Accepted and Agreed:
JOHN A. DEXHEIMER
___________________________________
Address: 61 Morningside Drive South
Westport, CT 06880
Phone:
Fax:
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<PAGE> 9
EXHIBIT A
NOTICE OF EXERCISE
To: New Focus, Inc. (the "Company")
1. The undersigned hereby elects to purchase __________ shares of
Series E Preferred Stock of the Company pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
(City, State)
3. The undersigned represents that the aforesaid shares being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, all except as in
compliance with applicable securities laws.
____________________________
(Date)
____________________________________
(Signature)
<PAGE> 10
EXHIBIT B
NOTICE OF CONVERSION
TO: NEW FOCUS, INC.
(1) The undersigned hereby elects to convert the attached Warrant to
the extent of __________ shares of Common Stock of New Focus, Inc. pursuant to
the terms of the attached Warrant.
(2) In connection with the purchase of the Common Stock (the
"Securities"), I, the Purchaser, represent to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933 ("Securities Act").
(b) I understand that the Securities 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 my
investment intent as expressed herein. In this connection, I understand that, in
the view of the Securities and Exchange Commission ("SEC"), the statutory basis
for such exemption may be unavailable if my 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.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, I understand
that the Company is under no obligation to register the Securities. In addition,
I understand 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 for
the Company.
(d) I am aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions.
(e) I further understand that at the time I wish to sell the
Securities there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion
<PAGE> 11
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
Print Name: ______________________
Sign Name: _______________________
Date: ____________________________
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<PAGE> 1
Exhibit 4.4
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.
NEW FOCUS, INC.
WARRANT TO PURCHASE SERIES E PREFERRED STOCK
Warrant Holder: Pamela York
Class of Stock: New Focus, Inc. Series E Preferred Stock (the
"Series E Preferred")
Number of Shares: 4,584 shares of Series E Preferred
Warrant Exercise Price: $2.40 per share of Series E Preferred, subject to
adjustments from time to time as
specified in Section 6, below
Issue Date: February 9, 2000
THIS WARRANT CERTIFIES THAT, for value received, John Dexheimer, (the
"Holder") is entitled to subscribe for and purchase, subject to the provisions
and upon the terms and conditions hereinafter set forth, the number of fully
paid and nonassessable shares of Series E Preferred of New Focus, Inc., a
California corporation (the "Company") at the initial exercise price per share
(subject to adjustments from time to time, as specified in Section 6 hereof)
(the "Warrant Exercise Price") all as set forth above.
1. Term and Expiration. The purchase right represented by this Warrant
is exercisable, in whole or in part, at any time and from time to time from the
Issue Date through the earlier of:
(a) February 9, 2005;
(b) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective
registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering the
offer and sale of Common Stock for the account of the
Company; or
(c) immediately prior to the closing of a merger or
consolidation of the Company with or into any other
corporation or business entity or sale or disposition
of all or substantially all of the Company's assets
other than, in the case of a merger or consolidation,
where the holders of the Company's voting securities
as constituted immediately prior thereto continue to
hold after such merger or consolidation at least
<PAGE> 2
fifty percent (50%) of the voting securities of the
Company or surviving entity immediately after such
merger or consolidation.
2. Notice of Certain Events. In the event of a proposed transaction of
the kind described in Sections 1(b) or 1(c), above, the Company shall notify the
holder of this Warrant at least five (5) days prior to the consummation of such
event or transaction.
3. Method of Exercise; Cash Payment; Issuance of New Warrant. Subject
to Section 1, the purchase right represented by this Warrant may be exercised by
the Holder hereof, in whole or in part and from time to time, at the election of
the Holder hereof, by the surrender of this Warrant (with the notice of exercise
substantially in the form attached hereto as Exhibit A duly completed and
executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check, or by wire transfer to an account
designated by the Company of an amount equal to the then applicable Warrant
Exercise Price multiplied by the number of shares then being purchased.
The person or persons in whose name(s) any certificate(s) representing
the shares of Series E Preferred Stock shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of Series E Preferred so purchased shall be
delivered to the Holder hereof as soon as reasonably practicable and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of such shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the Holder hereof as soon as
reasonably practicable.
4. Right to Convert Warrant.
(a) Conversion Right. In lieu of the payment set forth in
Section 3 above, the Holder shall have the right to convert this Warrant ( the
"Conversion Right"), in its entirety, at any time prior to its expiration, into
shares of Common as provided for in this Section 4. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment by
the Holder of any Exercise Price) that number of shares of Common Stock equal to
the quotient obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Exercise
Price for the Warrant Shares in effect immediately prior to the exercise of the
Conversion Right from the aggregate Fair Market Value, as defined below, for the
Warrant Shares immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of the Warrant Shares immediately prior to
the exercise of the Conversion Right.
(b) Exercise of the Conversion Right. The Conversion Right may
be exercised by the Holder, at any time prior to its expiration, on any business
day. Such exercise shall be effected by (a) the surrender of this Warrant and
(b) delivery of the Notice of Conversion attached hereto as Exhibit B at the
office of the Company.
(c) Effect of Conversion. This Warrant shall be deemed to have
been converted immediately prior to the close of business on the date of its
surrender for conversion as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the holder of record of such shares as of the close of business
on such date. As promptly as
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<PAGE> 3
practicable on or after such date, the Company, at its expense, shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such conversion.
(d) Fair Market Value. Fair Market Value of a Warrant Share as
of a particular date (the "Determination Date") shall mean the Fair Market Value
of a share of the Company's Common Stock as of such Determination Date
multiplied by the number of shares of Common Stock into which a Warrant Share is
then convertible. Fair Market Value of a share of Common Stock as of a
Determination Date shall mean:
(i) If the Company's Common Stock is traded on an
exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System, then the closing or last
sale price, respectively, reported for the business day immediately preceding
the Determination Date.
(ii) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the closing bid and asked prices
reported for the business day immediately preceding the Determination Date.
(iii) If the Determination Date is the date on which the
Company's Common Stock is first sold to the public by the Company in a firm
commitment public offering under the Securities Act of 1933, as amended, then
the initial public offering price (before deducting commissions, discounts or
expenses) at which the Common Stock is sold in such offering.
(iv) Otherwise, as determined in good faith by the
Company's Board of Directors upon a review of relevant factors
5. Stock Fully Paid; Reservation of Shares. All shares of Series E
Preferred that may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance pursuant to the terms and conditions herein, be
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
capital stock to provide for the exercise of the rights represented by this
Warrant.
6. Adjustment of Warrant Exercise Price and Number of Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Exercise Price shall be subject to adjustment from time to time upon
the occurrence of certain events, as follows:
(a) Reclassification. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), the Company
shall duly execute and deliver to the holder of this Warrant a new Warrant (in
form and substance satisfactory to the Holder of this Warrant), so that the
Holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Series E Preferred theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification or
change by a holder of the number of shares then purchasable under this Warrant.
Such new Warrant shall provide for
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<PAGE> 4
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6. The provisions of this subparagraph
(a) shall similarly apply to successive reclassifications or changes.
(b) Stock Splits or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of capital stock into which this Warrant is
exercisable, the Warrant Exercise Price shall be proportionately decreased in
the case of a subdivision or increased in the case of a combination, effective
at the close of business on the date the subdivision or combination becomes
effective. The provisions of this subparagraph (b) shall similarly apply to
successive stock splits or combinations of outstanding shares.
(c) Stock Dividends and Other Distributions. If the Company at
any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Series E Preferred payable in Series E Preferred, then
the Warrant Exercise Price shall be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Exercise Price in effect
immediately prior to such date of determination by a fraction (A) the numerator
of which shall be the total number of shares of Series E Preferred outstanding
immediately prior to such dividend or distribution, and (B) the denominator of
which shall be the total number of shares of Series E Preferred outstanding
immediately after such dividend or distribution; or (ii) make any other
distribution with respect to Series E Preferred (except any distribution
specifically provided for in Sections 6(a) and 6(b) above), then, in each such
case, provision shall be made by the Company such that the holder of this
Warrant shall receive upon exercise of this Warrant a proportionate share of any
such dividend or distribution as though it were the holder of Series E Preferred
as of the record date fixed for the determination of the stockholders of the
Company entitled to receive such dividend or distribution. The provisions of
this subparagraph (c) shall similarly apply to successive stock dividends and
other distributions by the Company.
Upon each adjustment in the Warrant Exercise Price specified in
Sections 6(a), (b) or (c) above, the number of shares of Series E Preferred
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of shares of Series E Preferred
purchasable immediately prior to such adjustment in the Warrant Exercise Price
by a fraction, the numerator of which shall be the Warrant Exercise Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Exercise Price immediately thereafter.
7. Notice of Adjustments. Whenever the Warrant Exercise Price or the
number of shares of Series E Preferred purchasable hereunder shall be adjusted
pursuant to Section 6 hereof, the Company shall notify the Holder of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Exercise Price and the number of shares of Series E Preferred purchasable
hereunder after giving effect to such adjustment.
8. Fractional Shares. No fractional shares will be issued in connection
with any exercise hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefor based on the fair value of such shares on the
date of exercise as reasonably determined at the sole discretion of and in good
faith by the Company's Board of Directors.
9. Compliance with Securities Act of 1933; Disposition of Warrant or
Shares.
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<PAGE> 5
(a) Compliance with Securities Act of 1933. The Holder of this
Warrant, by acceptance hereof, agrees that this Warrant, and the shares of
Series E Preferred to be issued upon exercise hereof (and the securities
issuable, directly or indirectly, upon conversion of the Series E Preferred),
are being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant, or any such shares except under circumstances
which will not result in a violation of the Securities Act or any applicable
state securities laws. Upon exercise of this Warrant, unless the shares being
acquired are registered under the Securities Act and any applicable state
securities laws or an exemption from such registration is available, the holder
hereof shall confirm in writing that the shares so purchased are being acquired
for investment and not with a view toward distribution or resale in violation of
the Securities Act and shall confirm such other matters related thereto as may
be reasonably requested by the Company. The shares of Series E Preferred issued
upon exercise of this Warrant (and the securities issuable, directly or
indirectly, upon conversion of the Series E Preferred) shall be stamped or
imprinted with a legend in substantially the following form (unless registered
under the Securities Act and any applicable state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SHARES
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT. COPIES OF
THE AGREEMENTS 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 NEW FOCUS
SOLUTIONS, INC. AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY."
(b) Disposition of Warrant or Shares. With respect to any
offer, sale or other disposition of this Warrant or any shares of Series E
Preferred acquired pursuant to the exercise of this Warrant (and of the
securities issuable, directly or indirectly, upon conversion of the Series E
Preferred) prior to registration of such Warrant or shares, the Holder hereof
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such Holder's counsel, or
other evidence, if reasonably requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Securities Act as then in effect or any federal or
state securities law then in effect) of this Warrant or the shares of Series E
Preferred (or the securities issuable, directly or indirectly, upon conversion
of the Series E Preferred) and indicating whether or not under the Securities
Act certificates for this Warrant or such shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with such law. Promptly upon
receiving such written notice and reasonably satisfactory opinion or other
evidence, if so requested, the Company, as promptly as practicable after receipt
of the written notice, shall notify the Holder that such holder may sell or
otherwise dispose of this Warrant or such shares, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this Section 9(b) that the opinion of counsel for the Holder or
other evidence is not reasonably satisfactory to the Company, the Company shall
so notify the Holder promptly with details thereof after such determination has
been made. Notwithstanding the foregoing, this Warrant or such shares may, as to
such federal laws, be offered, sold or otherwise disposed of in accordance with
Rule 144 under the Securities Act,
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<PAGE> 6
provided that the Company shall have been furnished with such information as the
Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing this
Warrant or such shares thus transferred (except a transfer pursuant to Rule 144
or an effective registration statement) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the Holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent in connection with such
restrictions.
10. "Market Stand-Off" Agreement. The Holder, and its assignees, agrees
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise transfer or dispose of any shares of Series E Preferred or the
Company's Common Stock or any other securities of the Company held by such
Holder during a period of time determined by the Company and its underwriters
(not to exceed 180 days in the event of the Company's initial public offering
("IPO") and 90 days in the event of any other subsequent public offering. Each
Holder, and its assignees, if any, further agrees to execute any agreement
reflecting the foregoing as may be requested by the underwriters at the time of
the public offering. Notwithstanding the foregoing, this "market standoff"
provision shall not apply to any shares of Common Stock purchased in a public
market transaction at any time in or after the Company's IPO. The Company may
impose stop-transfer instructions with respect to the Series E Preferred (or any
other securities) subject to the foregoing restriction until the end of said
period. The Company shall use best efforts in its negotiations with the
underwriters to limit the market standoff period to not more than 120 days in
the event of the Company's initial public offering.
Any discretionary waiver or early termination of these "market
stand-off" provisions by the Company or its underwriters with respect to any
individual or entity shall similarly apply to release all Holders from this
"market stand-off" provision on a pro-rata basis where the number of shares
released from such lockup is multiplied by a fraction with the numerator being
the number of such Holder's shares subject to any lockup provision and the
denominator being the total number of all shares subject to lockup in the public
offering; provided, however, that the Company or the underwriters may in their
sole discretion waive or terminate early the "market stand-off" provision with
respect to any individual or entity or various individuals or entities without
releasing all other Holders, so long as the number of shares released thereby
does not exceed a then-fair market value of $50,000 in the aggregate for each
such individual or entity.
11. Limited Rights as Stockholders; Information. No holder of this
Warrant, as such, prior to exercise thereof shall be entitled to vote or receive
dividends or be deemed the holder of shares, nor shall anything contained herein
be construed to confer upon the Holder of this Warrant, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to receive notice of meetings, or to receive dividends or subscription rights
or otherwise until this Warrant shall have been exercised and the shares of
Series E Preferred purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
12. Modification and Waiver; Effect of Amendment or Waiver. This
Warrant and any provision hereof may be changed, waived, discharged or
terminated with the written consent of the Company and the holders of a majority
of shares of the Series E Preferred issued or issuable upon exercise of the
Warrants issued pursuant to the Purchase Agreement. Any waiver or amendment
effected in accordance with this Section 12 shall be binding upon each holder of
any Shares purchased under this Warrant at the time outstanding (including
securities into which such Shares have been converted), each future holder of
all such
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<PAGE> 7
Shares, and the Company. The holder of this Warrant hereby acknowledges that by
operation of this Section 12, the holders of a majority of the Shares purchased
under this Warrant will have the right and power to diminish or eliminate the
rights of such holder under this Warrant or under the Purchase Agreement.
13. Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to the Holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor on the signature
page of this Warrant.
14. Binding Effect on Successors. The obligations of the Company
relating to the shares of Series E Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company pursuant to this Warrant shall inure to the benefit of the successors
and assigns of the Holder hereof.
15. Lost Warrants or Stock Certificates. The Company covenants to the
Holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
18. Severability. The invalidity or unenforceability of any provision
of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.
19. Assignment. This Warrant may be assigned by the Company, but may
only be transferred or assigned by the Holder to (i) any person, any other
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by, or is under the common control with such person or (ii) to
a subsidiary, partner, member of a Holder; provided, however, that the Company
is given written notice by the Holder within five (5) business days of said
transfer or assignment of this Warrant, stating the name, address and
relationship of said transferee or assignee; provided, further, however, that
the transferee or assignee of such Warrant agrees in writing for the benefit of
the Company to comply with all terms and obligations of this Warrant.
20. Counterparts. This Warrant may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
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<PAGE> 8
21. Entire Agreement. This Warrant constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
NEW FOCUS, INC.,
a California corporation
By: ____________________________________
Kenneth E. Westrick, President
Address: 2630 Walsh Avenue
Santa Clara, California 95051
Accepted and Agreed:
PAMELA YORK
______________________________________
Address: 1612 Yardley Commons
Yardley, PA 19067
Phone:
Fax:
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<PAGE> 9
EXHIBIT A
NOTICE OF EXERCISE
To: New Focus, Inc. (the "Company")
1. The undersigned hereby elects to purchase __________ shares of
Series E Preferred Stock of the Company pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
________________________________________
(Name)
________________________________________
(Address)
________________________________________
(City, State)
3. The undersigned represents that the aforesaid shares being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, all except as in
compliance with applicable securities laws.
_______________________________
(Date)
_______________________________________
(Signature)
<PAGE> 10
EXHIBIT B
NOTICE OF CONVERSION
TO: NEW FOCUS, INC.
(1) The undersigned hereby elects to convert the attached Warrant to
the extent of __________ shares of Common Stock of New Focus, Inc. pursuant to
the terms of the attached Warrant.
(2) In connection with the purchase of the Common Stock (the
"Securities"), I, the Purchaser, represent to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933 ("Securities Act").
(b) I understand that the Securities 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 my
investment intent as expressed herein. In this connection, I understand that, in
the view of the Securities and Exchange Commission ("SEC"), the statutory basis
for such exemption may be unavailable if my 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.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, I understand
that the Company is under no obligation to register the Securities. In addition,
I understand 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 for
the Company.
(d) I am aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions.
(e) I further understand that at the time I wish to sell the
Securities there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion
<PAGE> 11
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
Print Name: _________________________________________
Sign Name: __________________________________________
Date: _______________________________________________
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<PAGE> 1
Exhibit 10.1
NEW FOCUS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the
___ day of _________, 2000 by and between New Focus, Inc., a Delaware
corporation (the "COMPANY") and ______________ ("INDEMNITEE"), and shall become
effective as of the time the Securities and Exchange Commission declares
effective the Company's Registration Statement on Form S-1 relative to the
Company's initial underwritten public offering of Common Stock.
RECITALS
A. WHEREAS, the Company and Indemnitee recognize the significant
increases in the cost of liability insurance for its directors, officers,
employees, agents and fiduciaries.
B. WHEREAS, the Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers, employees, agents and fiduciaries to expensive litigation risks at the
same time as the availability and coverage of liability insurance has been
severely limited.
B. WHEREAS, Indemnitee does not regard the current protection available
as adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
C. WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and advancing of expenses to
the Indemnitee to the maximum extent permitted by law.
D. WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee be indemnified by the Company as set forth herein.
RECITALS
NOW, THEREFORE, in consideration of the mutual convenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Company and Indemnitee
hereby agree as follows:
1. Certain Definitions.
(a) For purposes of this Agreement, references to the "COMPANY"
shall include, in addition to NEW FOCUS, INC., any constituent corporation
(including any constituent of a
<PAGE> 2
constituent) absorbed in a consolidation or merger to which NEW FOCUS, INC. (or
any of its wholly owned subsidiaries) is a party, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that if Indemnitee is or 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, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as such
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(b) For purposes of this Agreement, (i) references to "OTHER
ENTERPRISES" shall include employee benefit plans; (ii) references to "FINES"
shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; (iii) references to "SERVING AT THE REQUEST OF THE
COMPANY" shall include any service as a director, officer, employee or agent of
the Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or its beneficiaries; and (iv) if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "NOT OPPOSED TO THE BEST INTERESTS OF THE
COMPANY" as referred to in this Agreement.
(c) For purposes of this Agreement a "CHANGE IN CONTROL" shall be
deemed to have occurred if, on or after the date of this Agreement, (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing more than 50%
of the total voting power represented by the Company's then outstanding Voting
Securities, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company
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<PAGE> 3
of (in one transaction or a series of related transactions) all or substantially
all of the Company's assets.
(d) For purposes of this Agreement, "INDEPENDENT LEGAL COUNSEL"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 2(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitees within the last three years (other than
with respect to matters concerning the rights of Indemnitees under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "REVIEWING PARTY" shall mean
the member or members of the Company's Board of Directors or any other body,
including a committee of the Board of Directors, appointed by the Board of
Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "VOTING SECURITIES" shall mean
any securities of the Company that vote generally in the election of directors.
2. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify the
Indemnitee to the fullest extent permitted by applicable law, including, but not
limited to Section 145 of the General Corporation Law of the State of Delaware:
(i) if Indemnitee was or is or becomes a defendant, party to
or witness or other participant in, or is threatened to be made a defendant,
party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "CLAIM");
(ii) by reason of (or arising in part out of) any event or
occurrence related to the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or any subsidiary of the Company,
or is or was serving at the request of the Company as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity (hereinafter an "INDEMNIFIABLE
EVENT");
(iii) against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such
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<PAGE> 4
Claim and any federal, state, local or foreign taxes imposed on Indemnitees as a
result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "EXPENSES"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as
practicable but in any event no later than twenty (20) days after written demand
by the Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing,
(i) the obligations of the Company under Section 2(a) shall be
subject to the condition that the Reviewing Party (as described in Section 1(e)
hereof) shall not have determined (in a written opinion, in any case in which
the Independent Legal Counsel referred to in Section 2(c) hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable law
including, but not limited to Section 145 of the General Corporation Law of the
State of Delaware, because the Indemnitee has not met the applicable standard of
conduct as set forth in such applicable laws and
(ii) the obligation of the Company to make an advance payment
of Expenses to Indemnitee pursuant to Section 3(a) (an "EXPENSE ADVANCE") shall
be subject to the condition that, if, when and to the extent that the Reviewing
Party determines that Indemnitee would not be permitted to be so indemnified
under applicable law, including but not limited to Section 145 of the General
Corporation Law of the State of Delaware, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agree to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commence legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed).
The Indemnitee's obligation to reimburse the Company for any Expense
Advance shall be unsecured and no interest shall be charged thereon. If there
has not been a Change in Control (as defined in Section 1(c) hereof), the
Reviewing Party shall be selected by the Board of Directors. If there has been
such a Change in Control (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referred to in Section 2(c) hereof. If there has been no
determination by the
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<PAGE> 5
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Absent such litigation, any determinations made by the
Reviewing Party shall be conclusive and binding on the Company and Indemnitee.
(c) Selection of Independent Legal Counsel Upon a Change in
Control. The Company agrees that if there is a Change in Control of the Company
(other than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such Change
in Control) then, with respect to all matters thereafter arising concerning the
rights of Indemnitees to payments of Expenses and Expense Advances under this
Agreement or any other agreement or under the Company's Certificate of
Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel
(as defined in Section 1(d) hereof) shall be selected by Indemnitees and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law and the Company agrees to abide
by such opinion. The Company agrees to pay the reasonable fees and out-of-pocket
expenses of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees
and out-of-pocket expenses), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
(d) Mandatory Indemnification. Notwithstanding any other provision
of this Agreement other than Section 10 hereof, to the extent that Indemnitee
has been successful on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, in defense of any Claim referred
to in Section (2)(a) hereof, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by such Indemnitee in connection
therewith.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than twenty (20) days after written demand by Indemnitee therefor to the
Company; provided, however, subject to such other limitations contained in
Section 2(b), above, that Indemnitee shall reimburse and repay all Expenses
advanced to Indemnitee pursuant to this Section 3(a) if it is ultimately
determined by the Reviewing Party (as described in Section 1(e) hereof) (or by
Independent Legal Counsel, as applicable) that the Indemnitee is not entitled to
be indemnified under the terms of this Agreement or under applicable law.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable but in no
event later than five (5) business days after Indemnitee's receipt of written
notice or complaint of any Claim made against Indemnitee for which
indemnification will or
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<PAGE> 6
could be sought under this Agreement. Notice to the Company shall be directed to
the Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided, however, that, (i) Indemnitee shall have
the right to employ Indemnitee's counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there is a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's counsel shall be at the expense of the Company. The Company
shall have the right to conduct such
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<PAGE> 7
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify Indemnitee to
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 9(a) hereof.
(b) Nonexclusivity; Continuation of Rights After Ceasing Service
to the Company. The indemnification and advancement of Expenses provided by this
Agreement shall be in addition to any other rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification and
advancement of Expenses provided under this Agreement shall continue as to
Indemnitee for any action Indemnitee took or did not take while serving in an
indemnified capacity even though Indemnitee may have ceased to serve in such
capacity and shall issue to the benefit of the heirs, executors and
administrators of such Indemnitee.
5. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
6. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
7. Mutual Acknowledgement of Limitations or Indemnification. Both the
Company and Indemnitee acknowledge that in certain instances, Federal law or
applicable public policy may prohibit the Company from indemnifying its
directors, officers, employees, agents or fiduciaries under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange
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<PAGE> 8
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee.
8. Liability Insurance. The Company shall, from time to time, make the
good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or policies of insurance with reputable insurance
companies providing the officers and directors of the Company with coverage for
losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. To the extent the Company maintains
liability insurance applicable to directors, officers or key employees,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
9. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts or Omissions. (i) To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from being indemnified under this Agreement or under applicable law
including, but not limited to, Sections 102(b)(7) and 145 of the General
Corporation Law of the State of Delaware or (ii) to indemnify the Indemnitee for
Indemnitee's intentional acts or transactions in violation of the Company's
policies;
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this
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<PAGE> 9
Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such proceeding was not made in good
faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), and shall be entitled to the advancement of expenses with respect
to such action, unless, as a part of
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<PAGE> 10
such action, a court having jurisdiction over such action determines that each
of Indemnitee's material defenses to such action was made in bad faith or was
frivolous.
14. Notice. All notices and other communications required or permitted
under this Agreement shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier with delivery charges prepaid, or (d) on the same day
as delivered by facsimile transmission if delivered during business hours or
shall be deemed to have been delivered on the next successive business day if
delivered via facsimile transmission after business hours. All notices delivered
by the U.S. Postal Service, or by courier service shall be addressed if to
Indemnitee, at the Indemnitee's address as set forth beneath Indemnitee's
signature to this Agreement and if to the Company at the address of its
principal corporate offices (attention: Chief Executive Officer) or at such
other address as such party may designate by ten days' advance written notice to
the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
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<PAGE> 11
19. Amendment and Termination. No amendment, modification, termination,
waiver, or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
[Remainder of this Page Intentionally Left Blank]
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
NEW FOCUS, INC.
a Delaware corporation
By: __________________________________
Name: _________________________________
Address: NEW FOCUS, INC.
2630 Walsh Avenue
Santa Clara, CA 95051
AGREED TO AND ACCEPTED BY:
___________________________
Address:
___________________________
___________________________
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<PAGE> 1
Exhibit 10.5
AMENDMENT TO
NEW FOCUS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
This Amendment is made this ____ day of ______, 1999, by and between
New Focus, Inc. (the "Company") and _____________________ (the "Optionee"), and
is cumulative with respect to any prior amendments.
WHEREAS, the Optionee was granted a stock option by the Company under
the 1990 Incentive Stock Plan (as amended May 4, 1998) and / or the 1999 Stock
Option Plan (collectively referred to as the "Plan") on __________________,
pursuant to the Plan and the Stock Option Agreement by and between the Company
and Optionee;
WHEREAS, the Company and the Optionee desire to amend the Nonstatutory
Stock Option Agreement to provide for the early exercise of options, the ability
of Optionee to pay by promissory note, and to provide for the acceleration of
option vesting in certain circumstances within eighteen months following a
Change of Control.
NOW, THEREFORE, the parties agree as follows:
A. Section 3 of the Stock Option Agreement shall be amended in its
entirety to read as follows:
" 3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(a) Right to Exercise
(i) Subject to Subsections 3(a)(iii) and
3(a)(iv) below, this Option shall be
exercisable cumulatively according to the
following vesting schedule: 12/60ths of the
total number of Shares subject to this
Option shall vest twelve months following
the Vesting Commencement Date, and 1/60th of
the total number of Shares subject to this
Option shall vest thereafter on the monthly
anniversary date of the Vesting Commencement
Date. Alternatively, at the election of the
Optionee, this Option may be exercised in
whole or in part at any time as to any
Shares (vested or unvested). Vested Shares
shall not be subject to the Company's
Repurchase Option as set forth in the
Restricted Stock Purchase Agreement,
attached hereto as Exhibit C- 1 (the
"Repurchase Option").
(ii) As a condition to exercising this Option for
unvested Shares, the Optionee shall execute
the Restricted Stock Purchase Agreement.
<PAGE> 2
Unvested Shares shall be subject to the
Company's Repurchase Option, which shall
lapse at the same rate as the vesting
schedule set forth in the first sentence of
Section 3(a)(i), subject to accelerated
vesting in certain circumstances within
eighteen months following a Change of
Control (as defined in Section 15 hereof).
(iii) This Option may not be exercised for a
fraction of a Share. (iv) In the event of
Optionee's death, disability or other
termination of employment, the
exercisability of the Option is governed by
Sections 8, 9, and 10 below."
B. Section 5 of the Stock Option Agreement shall be amended in its
entirety to read as follows:
"5. Method of Payment. Payment of the purchase price shall be
made by any of the following, at the election of the Optionee:
(a) cash;
(b) check;
(c) delivery of Optionee's promissory note (the
"Note") in the form attached hereto as
Exhibit B-1, in the amount of the purchase
price plus any applicable federal, state, or
local income taxes payable on account of the
exercise of the Option, together with the
execution and delivery by the Optionee of
the Security Agreement attached hereto as
Exhibit B-2. The note shall be secured by a
pledge of the Shares purchased by the Note
pursuant to the Security Agreement."
C. Sections 13 and 14 shall be combined into a new Section 13 which
shall read in its entirety as follows:
"13. 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 Option. Upon the exercise of an NSO, Optionee
will recognize 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 the purchase 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
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<PAGE> 3
honor the exercise and refuse to deliver Shares if such withholding amounts are
not delivered at the time of exercise.
(b) Disposition of Shares. 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. Different rules may
apply if the Shares are subject to a substantial risk of forfeiture (within the
meaning of Section 83 of the Code) at the time of purchase.
(c) Section 83(b) Election for Unvested Shares Purchased
Pursuant to Options. With respect to the exercise of an Option for unvested
Shares, an election (the "Election") may be filed by the Optionee 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. This will result in a recognition of taxable income to the Optionee
on the date of exercise, measured by the excess, if any, of the Fair Market
Value of the exercised Shares, at the time the Option is exercised over the
purchase price for the exercised Shares. Absent such an election, taxable income
will be measured and recognized by Optionee at the time or times on which the
Company's Repurchase Option lapses. Optionee is strongly encouraged to seek the
advice of his or her own tax consultants in connection with the purchase of the
Shares and the advisability of filing of the Election under Section 83(b) of the
Code. A form of Election under Section 83(b) is attached hereto as Exhibit C-5
for reference.
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF."
D. A new Section 15 entitled "Acceleration of Vesting Following a
Change of Control" shall be added to read as follows:
"15. Acceleration of Vesting Following a Change of Control. If, within
eighteen (18) months following a Change of Control, Optionee's employment or
consulting relationship is terminated involuntarily by the Company other than
for Cause, death or disability or by the Optionee by a voluntary termination for
Good Reason, then 50% of the Optionee's unvested options shall vest. For
Purposes of the preceding sentence, the following definitions apply:
(a) "Cause" shall mean an Optionee's (i) willful act of
personal dishonesty, fraud or misrepresentation taken by the Optionee in
connection with his or her responsibilities as an employee which was intended to
result in gain or personal enrichment of the Optionee at the expense of the
Company; (ii) the Optionee's conviction of a felony; or (iii) the Optionee's
willful and continued failure to substantially perform his or her principal
duties and obligations of employment (other than any such failure resulting from
incapacity due to physical or mental illness), which failure is not remedied in
a reasonable period of time after receipt of written notice from the Company.
For the purposes of this Section, no act or failure to act shall be considered
"willful"
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<PAGE> 4
unless done or omitted to be done in bad faith and without reasonable belief
that the act or omission was in or not opposed to the best interests of the
Company.
(b) "Change of Control" means the occurrence of any of the
following events:
(i) The shareholders of the Company approve one of the
following:
(A) Any consolidation, merger or plan of
exchange involving the Company pursuant to which all of the Company's common
stock would be converted into cash; or
(B) Any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company or the adoption of any plan or
proposal for the liquidation or dissolution of the Company; or
(ii) Any "person" (as such term is defined in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as that term is defined in Rule 13d-3 under said Act)
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; or
(iii) During any period of 12 months or less,
individuals who at the beginning of such period constituted a majority of the
Board of Directors cease for any reason to constitute a majority thereof unless
the nomination or election of such new directors was approved by a majority of
the directors then still in office who were directors at the beginning of such
period.
(c) "Good Reason" means
(i) A reduction of Optionee's title, duties, position,
responsibilities, or the removal of Optionee from such title, duties, position
or responsibilities other than a reduction directly attributable to a Change of
Control (as for example, when the Chief Executive Officer of the Company remains
as such following a Change of Control and is not made the Chief Executive
Officer of the acquiring corporation);
(ii) A reduction by the Company in the base salary of
the Executive other than a reduction directly attributable to a Change of
Control;
(iii) Without the Executive's express written consent,
the relocation of the Executive to a facility or a location more than fifty (50)
miles from the Executive's then present location other than a relocation
directly attributable to a Change of Control; or
(iv) Any purported termination of the Executive by the
Company which is not effected for Cause, or any purported termination for which
the grounds relied upon are not valid."
E. The Exercise Notice, Investment Representation Statement, Note,
Security Agreement, Restricted Stock Purchase Agreement and related documents
attached to this
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<PAGE> 5
Amendment as Exhibits A through C-5 shall be incorporated as exhibits to the
Stock Option Agreement, hereby replacing any prior exhibits.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Amendment has been entered into as of the date
first set forth above.
OPTIONEE NEW FOCUS, INC.
------------------------------------
Signature By
------------------------------------
Print Name Title
Residence Address:
- ---------------------------
- ---------------------------
-6-
<PAGE> 7
EXHIBIT A
EXERCISE NOTICE
New Focus, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051-0905
Ladies and Gentlemen:
The undersigned hereby elects to exercise the option indicated below
with respect to the number of shares of Common Stock of New Focus, Inc. (the
"Company") set forth:
Option Grant Date: ______________________
Number of Shares Being Exercised: __________ shares
Exercise Price Per Shares: $__________
Total Exercise Price: $__________
Method of Payment: / / Cash
/ / Check
/ / Promissory Note
Enclosed herewith is payment in full of the total exercise price or a
Promissory Note (if applicable), a copy of the Option Agreement, an executed
copy of an Investment Representation Statement (Exhibit B to the Option
Agreement), a Security Agreement (if applicable), and a Restricted Stock
Purchase Agreement.
I understand and agree 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 SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN
THE OPINION OF
<PAGE> 8
COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL
OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN
THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER
OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND
RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES.
I also agree 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. 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 Exercise Notice 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.
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<PAGE> 9
My exact name, address and social security number for purposes of the
stock certificates to be issued and the shareholder list of the Company are:
Name:
---------------------------------------
Address:
--------------------------------------
--------------------------------------
Social Security Number:
---------------------
Sincerely,
- --------------------- --------------------------------
Dated:
-3-
<PAGE> 10
EXHIBIT B-1
NOTE
$_________________________ Santa Clara, California
__________________, _____
FOR VALUE RECEIVED, _____________________ ("Optionee") promises to pay to New
Focus, Inc., a California corporation (the "Company"), or order, the principal
sum of _______________________ ($_____________), without interest.
Principal shall be due and payable on _______________, _____ (the "Due Date").
Payment of principal shall be made in lawful money of the United States of
America.
The Optionee may at any time prepay all or any portion of the principal owing
hereunder.
This Note is subject to the terms of the Option, dated as of ________________.
This Note is secured 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 Optionee ceases to be an employee or consultant of the Company,
this Note shall become due and fully payable within 60 days of such termination.
In the event the Optionee sells, exchanges, transfers, or otherwise disposes of
any Shares prior to the Due Date, the pro-rata portion of the total principal
payable under this Note which is attributable to such Shares shall become due
and fully payable within sixty (60) days of such sale, exchange, transfer or
disposition.
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 Optionee.
______________________________
______________________________
<PAGE> 11
EXHIBIT B-2
SECURITY AGREEMENT
This Security Agreement is made as of __________, _____ between New Focus, Inc.,
a California 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 1990
Incentive Stock Plan, and / or the 1999 Stock Option 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 B-1 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, 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.
-2-
<PAGE> 12
(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 U"), 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 is 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 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
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<PAGE> 13
number of Shares pledged hereunder as the payment of principal bears to the
initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "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.
-4-
<PAGE> 14
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"
NEW FOCUS, INC.
a California corporation
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Title
"PLEDGEHOLDER"
-------------------------------------
Secretary of New Focus, Inc.
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<PAGE> 15
EXHIBIT C-1
NEW FOCUS, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between _____________________________ (the
"Purchaser") and New Focus, Inc. (the "Company") as of __________________, ____.
Unless otherwise defined herein, the terms defined in the 1990
Incentive Stock Plan (as amended May 4, 1998) and / or the 1999 Stock Option
Plan, shall have the same defined meanings in this Agreement.
RECITALS
A. Pursuant to the exercise of the option (grant number ____) granted
to Purchaser under the Plan and pursuant to the Option Agreement dated
_______________, ____ by and between the Company and Purchaser with respect to
such grant (the "Option"), which Plan and Option Agreement are hereby
incorporated by reference, Purchaser has elected to purchase _________ of those
shares of Common Stock 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."
B. As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this 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 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 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.
<PAGE> 16
(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.
(e) The Repurchase Option shall terminate in accordance with the
vesting schedule contained in Optionee's Option Agreement.
2. 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 insure 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 its 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 Repurchase Option, until such Unvested Shares are vested, or until
such time as this Agreement no longer is in effect. As a further condition to
the Company's obligations under this Agreement, the spouse of the Purchaser, if
any, shall execute and deliver to the Company the Consent of Spouse attached
hereto as Exhibit C-4. 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.
(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
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<PAGE> 17
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. 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.
4. Legends. The share certificate evidencing the Shares issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable federal and 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 STOCKHOLDER, A COPY OF WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY.
5. 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 pursuant to Section 12 of the Plan after
the date of this Agreement.
6. 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.
7. 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.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she
has been informed that, with respect to the exercise of an Option for Unvested
Shares, an election (the "Election") may be filed by the Purchaser with the
Internal Revenue Service, within 30 days of the purchase of the exercised
Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on
any difference between the purchase price of the exercised Shares and their Fair
Market Value on the date of purchase. In the case of a Nonstatutory Stock
Option, this will result in a recognition of taxable income to the Purchaser on
the date of exercise, measured by the excess, if any, of the Fair Market Value
of the exercised Shares, at the time the Option is exercised over the purchase
price for the exercised Shares. Absent such an Election, taxable income will be
measured and recognized by Purchaser at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
Election will result in a recognition of income to the Purchaser for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the Fair Market Value of the exercised Shares, at the time the option is
exercised, over the purchase price for the exercised Shares. Absent such an
Election, alternative minimum taxable income will be measured and recognized by
Purchaser at the time or times on which the Company's Repurchase Option lapses.
Purchaser is strongly encouraged to seek the advice of his or her own tax
consultants
-3-
<PAGE> 18
in connection with the purchase of the Shares and the advisability of filing of
the Election under Section 83(b) of the Code. A form of Election under Section
83(b) 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) OF THE CODE, EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE
TO MAKE THIS FILING ON PURCHASER'S BEHALF.
9. 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.
10. Governing Law. This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
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.
-4-
<PAGE> 19
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first
set forth above.
OPTIONEE NEW FOCUS, INC.
- -------------------------------- -------------------------------
Signature By
- -------------------------------- -------------------------------
Print Name Title
Residence Address:
- --------------------------------
- -------------------------------
Dated:
--------------------------------
-5-
<PAGE> 20
EXHIBIT C-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto New Focus, Inc. ______________________ (__________) shares of
the Common Stock of New Focus, Inc. 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 New Focus, Inc. and the undersigned
dated ______________,
Dated: _______________,____ Signature: ___________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 21
EXHIBIT C-3
JOINT ESCROW INSTRUCTIONS
Corporate Secretary
New Focus, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051-0905
Dear Corporate Secretary:
As Escrow Agent for both New Focus, Inc. (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 (the "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 the stock assignments, together with the
certificate evidencing the shares of stock to be transferred, to the Company or
its assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE> 22
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.
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> 23
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.
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 the internal
substantive laws, but not the choice of law rules, of California.
PURCHASER NEW FOCUS, INC.
- -------------------------------- -------------------------------
Signature By
- -------------------------------- -------------------------------
Print Name Title
Residence Address:
- --------------------------------
- --------------------------------
-3-
<PAGE> 24
ESCROW AGENT
Corporate Secretary
Dated:
---------------------------
-4-
<PAGE> 25
EXHIBIT C-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of granting of the right to my spouse to purchase shares of
____________________________, 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: ______________________________
<PAGE> 26
EXHIBIT C-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 taxpayer's 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 New
Focus, Inc. (the "Company").
3. The date on which the property was transferred is:___________________
,______.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under
the terms of an agreement between the taxpayer and the Company. These
restrictions lapse upon the satisfaction of certain conditions
contained in such agreement.
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 10.6
PREMISES LEASE CONTRACT
Lessor (Party A): Shenzhen New and High-tech Village
Development Company
Address: Shenzhen New and High-tech Village, Shennan
Dadao, Nanshan District, Shenzhen, PRC
"Premise Lease Permit" No: (Shennan) Premises Lease Certificate No.
Authorized Agent: Wu Xianghan (Director Operation Department
Shenzhen New and High-tech Village
Development Company
Address: Shenzhen New and High-tech Village, Nanshan
District, Shenzhen, PRC
Lessee (Party B): New Focus, inc.
2630 Walsh Avenue
Santa Clara, CA 95051
USA
Business License No: Oi Du Yue Shen Zong Fu Zi No. 306193
Pursuant to the provisions of "Regulation of Shenzhen Special Economic Zone on
the Administration of "Premises Lease" and its detailed implementing rules,
Party A and Party B have reached an agreement after consultations and hereby
conclude this Contract.
The content of this Contract is as follows:
Clause 1. Party A shall lease to Party B the leased premises located
in R3B1A, Shenzhen New and High-tech Village, Shenana Dadao,
Nanshan District, Shenzhen Special Economic Zone, with a total
built up area of 1382.31(m2).
Clause 2. Party B shall lease the leased premises for its own use for
a period 6 years, commencing on and from October 1, 1999 to
September 30, 2002.
Clause 3. Party B shall use the leased premises for the purpose of
production and office.
<PAGE> 2
Party A warrant that the leased premises can be used for the
above-mentioned purpose and is in compliance with the
regulations of the State with respect to fire safety.
In the event that Party B needs to use the leased premises for
purposes other than what are specified above, it shall have
the written consent of Party A and shall apply for the
approval of the proposed change of use of the leased premises
in accordance with the relevant laws, regulations.
Clause 4. Party A warrants that the proposed use of the leased premises
set out in Clause 3 are in compliance with the relevant laws,
regulations and rules.
Party B warrants that, in the course of using the leased
premises, its acts and conduct are in compliance with the
relevant laws, regulations and rules.
Clause 5. The unit rent for the leased premises shall be RMB 30.00
per square meter of the built-up area per month, and total
monthly rental payable shall be RMB 41,460.00.
Party A shall deliver the leased premises Party A the rent
before 5th day of each month.
Clause 6. Party A shall deliver the leased premises to Party B on or
before October 1, 1999.
In the event that Party A's delivery of the leased premises
being later than the date set out above. Party B may request
extension of this Contract accordingly, and it shall be
confirmed by both Parties in writing.
Clause 7. During the lease term, Party A shall be responsible for the
payment of Property Tax, Land Use Fee and Lease Administration
Fee. While Party B shall be responsible for the payment of
water and electricity charges, sanitation fee, the property
(building) management fee, and telephone bills.
Clause 8. The various fees payable by Party B shall be paid on its
behalf by Party A for the month of the lease and they shall be
refunded by Party B to Party A with 10 days of Party B having
used the leased premises for a month. Subsequent payments
shall be made in advance at the amounts equivalent to those
paid for the preceding month. Each advance payment made shall
be settled at the next advance payment to be made.
When setting the fees paid by Party B, Party A shall provide
Party B with relevant evidence of payment.
<PAGE> 3
In the event that Party B fails to make any advance payment
for 1 month, Party A shall have the right to demand for such
payment. In the event that an amount payable by Party B
remains owing for 1 month, Party A shall have the right to
suspend Party B's use of the relevant facilities. Where
otherwise agreed by the Parties, such agreements shall be
followed instead.
Clause 9. This Contract is secured by way of deposit. Party A, upon
delivery of the leased premises, may receive from Party B a
rent deposit equivalent to one month's rent, i.e. an amount of
RMB 42,460.00.
Party A shall issue a receipt to Party B for its receipt of
the rent deposit from Party B.
Both parties shall fulfil all the terms and conditions of this
Contract on their own initiative. Either Party shall be liable
for its breach of this Contract in accordance with law.
Clause 10. Party A shall ensure that the safety conditions of the
leased premises and its interior facilities is in compliance
with relevant laws, regulations and rules. Party B shall use
such facilities in the leased premises in a normal manner and
shall take good care of them and prevent them from any damage.
Upon termination of this Contract, Party B shall return the
leased premises as schedule and ensure that the leased
premises and its internal facilities are in good condition
(except for normal wear and tear). And shall settle all fees
payable by Party B.
Clause 11. If, during Party B's normal use of the leased premises,
there is any damage or breakdown in relation to the leased
premises or any of it's internal facilities that effects its
safety and normal use, Party B shall inform Party A in a
timely manner and shall take effective measures. Party A shall
carry out the repair of the same within 7 days of its receipt
of the notice from Party B for this purpose, or that Party A
refuses to carry out the repair works, Party B may carry out
the repair works on the behalf of Party A following a
verification of the same by the government authority with
which this Contract is registered.
The costs of repairing referred to in this clause (including
the repair works to be carried out by Party B on behalf of
Party A) shall be borne by Party A.
Clause 12. Regarding any damage to or breakdown of the leased
premises or any of its internal facilities resulting from
Party B's inappropriate or unreasonable use of the same. Party
B shall be responsible for the repair of the same in a timely
manner. In the event that Party B refuses to carry out the
repair works, Party A may carry out the repair works on behalf
of
<PAGE> 4
Party B following a verification of the same by the government
authority with which this Contract is registered. The cost for
such repair shall be borne by Party B.
Clause 13 During the term of this Contract, if Party A has a genuine
need to rebuild, expand or renovate the leased premises, it
may do so provided that Party B's consent and the relevant
authorities approval for the same have been obtained. Party A
and Party B shall enter into a separate agreement in writing
in relation thereto.
During the term of this contract, Party B may renovate the
leased premises After Party A's consent and the relevant
authorities approval for the same have been obtained. Party A
and Party B shall enter into a separate agreement in writing
in relation thereto.
Clause 14. Party B shall not sub-lease the leased premises to others,
whether in whole or in part, without Party A's written
consent. For sublease consent by Party A, related registration
formalities shall be completed by Party B with the
administrative authority of premise leasing. The expiration
date of such sublease shall in no circumstances be late than
that of Party B's original lease of the leased premises.
Besides, Party B shall ensure that the subleased leased
premises shall not be future subleases by its sub-lessee.
Clause 15. During the term of this Contract, if Party A wants to
transfer all or part of the leased premise, a one month
advance notice shall be served on Party B, Who shall have a
preemptive right where the condition offered for such transfer
are the same.
In the event of the transfer of the leased premises, Party A
shall ensure that the transfer will continue with the
performance of this Contract.
Clause 16. During the term of this Contract, This Contract shall be
terminated automatically in the event of any of the following:
(1) The occurrence of any force majeure or other
contingency which render the performance of this
Contract impossible;
(2) The leased premises is to be removed from the land on
which it stands as a result of the government's
acquisition of the land;
(3) Party A's "Premises Lease Permit" has become invalid.
Clause 17. In the event of any of the following, Party A shall have
the right to terminate this Contract and Party A's losses
sustained as a result of such termination shall be compensated
by Party B:
<PAGE> 5
(1) Party B's failure to pay rental due for over 2 month;
(2) Party B delays to pay various fees over N/A;
---
(3) Party B's change of the use the leased premises
without Party A's consent and the relevant
authorities' approval for the same;
(4) Party B's breach of Clause 12 herein by refusing to
bear the obligation of maintenance or the costs
related thereto which results, in serious damage to
the leased premises and the facilities;
(5) Party B's renovation of leased remises without Party
A's written consent and approval of relevant
authorities for the same;
(6) Party B's sub-lease of the leased premises to other
parties without Party A's written consent.
Clause 18. In the event of any of the following, Party B shall have
the Right to terminate this Contract and its losses, if any,
so sub-stained shall be compensated by Party A:
(1) Party A delays the delivery of the leased premises
for over N/A month;
---
(2) Party A breaches Clause 4 herein which renders Party
B's continued use of the leased premises in
accordance with its planned use impossible;
(3) Party A breaches Clause 11 herein by refusing to
fulfill its obligations of maintenance and repairs
nor to bears the costs for same, as a result of which
Party B can not continue with the lease of the leased
premise;
(4) Party carries out rebuilding, extension or renovation
of the leased premises without Party B's consent or
the approval of the relevant authorities for the
same.
In the event that Party B, relying on any of the above
situation, terminates this Contract unilaterally; it shall
notify Party A in a timely Manner and shall withdraw from the
leased premises. It shall have the right to request a refund
of double deposit it has paid to Party A and payment of
liquidated damages. The balance, if any of the money pre-paid
by Party B shall also be refund to Party B.
<PAGE> 6
Clause 19. In the event that Party B wishes to extend the lease of
the leased premises after the expiration of the lease term, it
shall put forward its request of extension to Party A six
month in advance of the expiration of the lease term. If party
A still wishes to lease out the leased premises after
expiration of the lease term, Party B shall have the
pre-emptive right to lease the leased premises on the same
terms offered by third parties.
If a consensus is established between the two Parties with
regard to the Extension of the lease, the two Parties shall
enter into a separate contract for this purpose and such a
contract shall be registered with the registration authority.
Clause 20. After the termination of this contract, Party B shall
withdraw from the leased premises and return the same to Party
A within 15 days of the termination date. If Party B fails to
withdraw from the leased premises or Return the same to Party
A when due, Party A shall have the right to commence
proceedings at the People's court.
Clause 21. In the event that Party B delays in paying rental to Party
A, Party B shall pay Party A an overdue fine, which calculated
at the number of days overdue multiplied by 5%o of the monthly
rental payable.
Clause 22. Party B shall pay liquidated damage to Party A if it
subleases the leased premises in whole or in part
unilaterally. The amount of the liquidated damages payable
shall bee RMB 50.00 per square meter of the leased premises
subleased each month.
Clause 23. In the event of either Party failing to fulfill its
obligations hereunder, the Party in fault shall compensate the
other Party for any losses actually incurred and any losses of
expected revenue.
Clause 24. Any supplements to, or removals from the existing clauses
of the Contract may be set out by Party A and Party B in
attachment to this Contract. Such attachments, if any, shall
be of equal legal effect as this Contract.
Party A and Party B may enter into a supplementary agreement,
once registered with the registration authority, shall be of
equal legal effect as this Contract.
Clause 25. Any dispute arising out of the performance of this
Contract shall be settled amicably through consultation. If
such dispute cannot be settled amicably, it may be referred to
the registration authority with which this Contract was
originally registered for mediation or, _____ to Shenzhen
Arbitration Committee for arbitration, ________Check
Mark___________ to the People's Court for court judgement (The
two parties shall jointly choose either of the above two
options and put a check mark in the relevant box).
<PAGE> 7
Clause 26. This Contract is written in the Chinese Language with
English Language version being the duplicate copy of this
Contract.
Clause 27. There shall be 3 copies if this Contract, 1 copy for each of
Party and Party B to keep, and 1 copy for the registration
authority.
Clause 28. This contract shall come into force upon execution of the
same.
<PAGE> 8
Party A (Signature and Seal)
Legal Representative: /s/ Signature Illegible
Contact Telephone No:
Bank Account No:
Authorized Representative (Signature and Seal):
Party B (Signature and Seal)
Legal Representative: /s/ Signature Illegible
Contact Telephone No:
Bank Account No:
Authorized Representative (Signature and Seal):
Date:
Witness: (Signature and Seal)
Date:
Registration Authority (Signature and Seal)
Date:
<PAGE> 9
SUPPLEMENTAL PROVISIONS TO PREMISES LEASE CONTRACT
These Supplemental Provisions are attached to and constitute an integral part of
the Premises Lease Contract between Shenzhen New and High-tech Village
Development Company (Party A) and New Focus, Inc., (Party B) 2630 Walsh Ave.,
Santa Clara, CA 95051, U.S.A. As set out in Clause 24 of the Premises Lease
Contract, this attachment shall have equal legal effect as the lease Contract.
The following provisions are agreed to between Party A and Party B concerning
the leased facility at Building Section R3B1a, Shenzhen New and High-Tech
Village, Shennan Dadao, Nanshan District, Shenzhen, PRC, hereinafter referred to
as "Premises". The Premises Lease Contract and these Supplemental Provisions
hereinafter shall be collectively referred to as the "Lease Contract".
1. The lease term shall be for 3 years period starting Oct 1, 1999 and
ending September 30, 2002. The rental shall be 30 RMB/m.2/mo for the
1,382m2 facility or 41,460 RMB/mo.
2. The management fee shall be 2.1 RMB/m.2/mo. The management fee includes
security, janitorial services, standard equipment maintenance provided
with the building and outside ground maintenance. Party B will sign
contract with Property Management Company of Shenzhen New and High-Tech
Property Park District on the premises management and the payment of
management fee, water fee and electricity fee.
Upon expiration of the 3 year lease term, this lease can be renewed for
additional 3 year periods at Party B's option, provided that Party B
provides a notice in writing to Party A in accordance with Clause 19 of
the Premises Lease Contract. When the time comes, both Parties will
sign new contract.
Both Parties agree that the rental in respect of the additional 3 years
lease term may be adjusted upwards. The percentage of the rental
increase will base on the direct rental issued by the Shenzhen City
government on that time.
3. Party B shall have a right of first refusal in leasing the adjacent
546m.2 facility upon availability based on expiration of any existing
lease obligations to another party. The rental rate will be the same as
the rental Party B then pays for the 1,382m.2 facility.
4. Party B shall provide an advance payment of 200,000 yuan as an
improvement fee to the Shenzhen Power Supply Bureau upon [execution of
the Lease Contract] to increase power capacity to meet the attached
specifications proposal 1. Party A will be in charge of the improvement
project of power capacity. If the improvement project cannot be
completed on time, it can be postpone. The delivery day of the Premises
is the complete day of the improvement project of power capacity. The
improvement fee will not be refund by the Lease Contract expiration.
5. When the Lease Contract and Supplemental provision are established,
Party B agrees to pay a rental deposit equivalent to the first month's
rent of 41,460 RMB. When the Lease Contract and Supplemental Provision
are effective, The rental deposit will be as the rental of the first
month.
<PAGE> 10
6. Party A shall be responsible for handling the registration of the Lease
Contract in accordance with the laws and regulations of the PRC and the
payment of any stamp duty, notary fees (if required) and registration
fees.
7. Party A. represents and warrants to Party B that as of the date hereof
and during the lease term:
(a) It is the sole owner of the Premises and has not granted the
right to use the Premises to any other third party;
(b) It is entitled to lease the Premises to Party B in compliance
with the relevant PRC laws and it has obtained all necessary
approvals and registration required under PRC laws to make the
lease legally effective on the date hereof;
(c) The Premises shall be free and clear of mortgages, liens or
other encumbrances or security interests that would affect
Party B's occupancy under the Lease Contract.
(d) Party B shall be able to use the Premises within interruption
by Party A or any one claiming on behalf of, through or
entrust for Party A;
(e) The Premises shall be free of defects that would affect Party
B's occupancy under the Lease Contract; and
(f) Party B is responsible for the payment of water fee,
electricity fee and property management fee of the Lease
Premises. Party A shall be responsible for the payment of all
taxes and fee for which it is liable under applicable PRC laws
in connection with the Lease Contract.
If any of the representations and warranties of Party A made
above is, at any time, found to be untrue, misleading or incorrect;
Party B shall have the right to rescind the Lease Contract by providing
written notice to Party A, without liability on the part of Party B.
Party A shall indemnify actual loss of Party B, if any, those damages
of Party B are raised from such breach.
8. In the event of any discrepancies or inconsistencies between these
Supplemental Provisions and the Premises Lease Contract, the provisions
in the Supplemental Provisions shall prevail.
<PAGE> 11
9. New Focus, Inc. will apply for establishing Wholly Foreign Owned
Enterprise (W.F.O.E.) in Shenzhen PRC, after New Focus, Inc. signs the
Lease Contract and Supplemental Provision. When this enterprise is
established and a Business License issued by the government, the new
titled company will carry out Lease Contract and Supplemental Provision
instead of New Focus, Inc. Party A will conducts the relevant
administrative formalities at the Contract registration authority
within 5 days.
Lessor (Party A): Shenzhen New and High Tech Village Development Company
Shenzhen New and High Tech Village,
Shennan, Dadao
Nanshan District, Shenzhen, PRC
Signature: Linbo
Print Name:
Title:
Date: 9/13/99
Lessee (Party B): New Focus, Inc.
2630 Walsh Ave.
Santa Clara, CA 95051
U.S.A.
Signature: Ken /s/ Signature Illegible
Print Name: Kenneth E. Westrick
Title: President & CEO
Date: 23 Sep. 99
<PAGE> 1
Exhibit 10.10
NEW FOCUS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"RIGHTS AGREEMENT") is entered into as of December 28, 1999, by and among New
Focus, Inc., a California corporation (the "COMPANY"); Milton Chang and Chang
Partners, a California Limited Partnership (together the "SERIES A HOLDERS");
Venture Lending and Leasing II, Inc., a Maryland corporation ("VENTURE LENDING
AND LEASING"), holders of shares of Series D Preferred Stock of the Company (the
"SERIES D PREFERRED"), holders of shares Series E Preferred Stock of the Company
(the "SERIES E PREFERRED"), holders of shares of Series F Preferred Stock of the
Company (the "SERIES F PREFERRED"), holders of Series G Preferred Stock of the
Company and the additional purchasers (the "ADDITIONAL SERIES G PURCHASERS") of
shares of the Series G Preferred pursuant to that certain Series G Stock
Purchase Agreement dated November 23, 1999 and December 7, 1999.
RECITALS:
--------
A. The Company, the Series A Holders, holders of Series D Preferred,
Series E Preferred, Series F Preferred and Series G Preferred entered into that
certain the Fourth Amended Registration Rights Agreement, dated as of November
23, 1999, setting forth their agreement and understandings with respect to
certain rights and privileges accompanying the shares of the Series A Preferred
Stock (the "SERIES A PREFERRED"), the Series D Preferred, the Series E
Preferred, Series F Preferred and Series G Preferred (the "PRIOR REGISTRATION
RIGHTS AGREEMENT").
B. The obligations of each of the Additional Series G Purchasers to
purchase their respective amounts of Series G Preferred shares is conditioned
upon, among other things, the execution and delivery of this Rights Agreement by
each of the Additional Series G Purchasers, the Company and the requisite
signatories to the Prior Registration Rights Agreement.
C. The Company, the Series A holders, the Series D holders, the Series
E holders, the Series F holder and the Series G Holders desire to amend and
restate the Prior Registration Rights Agreement to contain the rights set forth
herein.
-1-
<PAGE> 2
AGREEMENT:
---------
NOW, THEREFORE, in consideration for and of the foregoing and of the
mutual promises, covenants and conditions set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Registration Rights.
1.1 Definitions. As used in this Rights Agreement, the
following terms shall have the following respective meanings:
(a) The terms "REGISTER," "REGISTERED" and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and the declaration or ordering of the effectiveness of
such registration statement.
(b) The term "REGISTRABLE SECURITIES" means (i) any
and all shares of common stock of the Company ("COMMON STOCK") issued or
issuable upon conversion of the Series A Preferred, Series D Preferred, Series E
Preferred, Series F Preferred and Series G Preferred (the "CONVERSION SHARES"),
(ii) any and all shares of Common Stock or other securities issued or issuable
in respect of the Series A Preferred, Series D Preferred, Series E Preferred,
Series F Preferred and Series G Preferred, and (iii) any and all shares of
Common Stock or other securities issued or issuable upon any conversion of the
Series A Preferred, Series D Preferred, Series E Preferred, Series F Preferred
and Series G Preferred upon any stock split, stock dividend, recapitalization or
similar event; provided, however, that any and all shares described in clauses
(i)-(iii) above which have been resold to the public shall cease to be
Registrable Securities upon such resale and any shares as to which registration
rights have terminated pursuant to Section 1.13 below shall cease to be
Registrable Securities upon such termination.
(c) The terms "HOLDER" or "HOLDERS" means any person
or persons to whom Registrable Securities were originally issued, or will be
issued, or qualifying transferees under subsection 1.10 hereof who hold
Registrable Securities.
(d) The term "SERIES A INITIATING HOLDERS" means any
Holder or Holders holding fifty percent (50%) or greater of the aggregate of the
Series A Preferred or Common Stock issued or issuable upon conversion thereof.
(e) The term "SERIES D, E, F, G INITIATING HOLDERS"
means any Holder or Holders holding fifty percent (50%) or greater of the
aggregate of the Series D Preferred, Series E
-2-
<PAGE> 3
Preferred, Series F Preferred and Series G Preferred or Common Stock issued or
issuable upon conversion thereof.
(f) The term "SEC" means the Securities and Exchange
Commission.
(g) The term "REGISTRATION EXPENSES" shall mean all
expenses incurred by the Company in complying with subsections 1.2, 1.3 and 1.4
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, reasonable fees and disbursements of one counsel for all
Holders which are selling Registrable Securities under such registration
statement, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
(h) The term "SERIES A HOLDER AFFILIATES" means any
of the mother, father, descendants, brother(s), sister(s), or spouse of the
Series A Holders or to any trustee or trustees for the benefit of any one or
more of the foregoing (including such mother, father, brother(s), sister(s) or
spouse).
1.2 Demand Registration.
(a) Series A Initiating Holders and Series D,E,F,G
Initiating Holders Request for Registration. In case the Company shall receive
from the Series A Initiating Holders or the Series D, E, F, G Initiating Holders
a written request that the Company effect a registration with respect to
Registrable Securities other than the Common Stock, with respect to the lesser
of (i) 20% of the outstanding Registrable Securities, or (ii) the reasonably
anticipated aggregate price to the public of which (net of underwriting
discounts and commissions) would be equal to at least Ten Million Dollars
($10,000,000), the Company will:
(i) within ten (10) days give written notice
of the proposed registration to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect all such registrations (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualifications under the applicable blue sky or other state securities laws and
appropriate compliance with exemptive regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Series A Initiating Holders' or Series D,E,F,G Initiating
Holders', as the case may be, Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
given within thirty (30) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to take any
action to effect such registration pursuant to this subsection 1.2(a):
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(A) at any time prior to the
earlier to occur of (i) May 31, 2002 or (ii) six (6) months following the
effective date of the registration statement under the Securities Act for the
Company's initial registered underwritten public offering of its securities to
the general public (other than a registration statement relating either to the
sale of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) (the "IPO");
(B) in any particular jurisdiction
in which the Company would be required to execute a general qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as required by the Securities Act; or
(C) after the Company has effected
two (2) such registrations pursuant to this subsection 1.2(a) and such
registration has been declared or ordered effective.
Subject to the foregoing clauses (A) through (C), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practical, but in any event within ninety (90) days,
after receipt of the request or requests of the Series A Initiating Holders or
the Series D,E,F,G Initiating Holders, as the case may be; provided, however,
that if the Company shall furnish to such Initiating Holders, a certificate
signed by the President of the Company stating that in the good faith judgment
of the Company's board of directors (the "BOARD OF DIRECTORS"), it would be
detrimental to the Company and its shareholders for such registration statement
to be filed on or before the date filing would be required, and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than ninety (90)
days after the furnishing of such a certificate of deferral; and provided
further, however, that the Board of Directors shall not exercise such right to
defer a filing more than once in any consecutive twelve (12) month period.
(b) Underwriting. If the Series A Initiating Holders
or the Series D, E, F, G Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as part of their request made pursuant to subsection 1.2(a),
and the Company shall include such information in the written notice referred to
in subsection 1.2(a)(i). In such event, the underwriter shall be selected by the
Company and shall be reasonably acceptable to a majority in interest of the
Series A Initiating Holders or of the Series D, E, F, G Initiating Holders, as
the case may be. The right of any Holder to registration pursuant to subsection
1.2 shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Holder) to the extent provided herein. The Company shall
(together with all Holders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters. Notwithstanding any other provision of this
subsection 1.2, if the underwriter advises the
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Series A Initiating Holders or Series D, E, F, G Initiating Holders, as the case
may be, in writing that marketing factors require a limitation of the number of
shares to be underwritten, such Initiating Holders shall so advise all Holders,
and the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders; provided, however, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the underwriting.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. Any Registrable
Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) Company Shares. If the managing underwriter has
not limited the number of Registrable Securities to be underwritten, the Company
may include securities for its own account or for the account of others in such
registration if the managing underwriter so agrees and if the number of
Registrable Securities which would otherwise have been included in such
registration and underwriting will not thereby be limited, and the price per
share to be received for the Registrable Securities is not otherwise affected.
1.3 Company Registration.
(a) Registration. If at any time or from time to
time, the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a registration on
Form S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) within thirty (30) days give to each
Holder written notice thereof; and
(ii) include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within twenty (20)
days after receipt of such written notice from the Company, by any Holder or
Holders, except as set forth in subsection 1.3(b) below.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.3(a)(i). In such event the right of any
Holder to registration pursuant to subsection 1.3 shall be conditioned upon such
Holder's participation in such
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underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this subsection 1.3, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, and (i) if such registration is the Company's IPO, the underwriter
may limit the number of Registrable Securities to be included in the
registration and underwriting, or may exclude Registrable Securities entirely
from such registration and underwriting, or (ii) if such registration is other
than the Company's IPO, the underwriter may limit the amount of securities to be
included in the registration and underwriting by the Company's shareholders;
provided, however, the number of Registrable Securities to be included in such
registration and underwriting under this subsection 1.3(b)(ii) shall not be
reduced to less than thirty percent (30%) of the aggregate securities included
in such registration without the prior consent of a majority of Series D, E, F,
G Initiating Holders, voting together as one class, and the prior consent of not
less than a majority of the Registrable Securities proposed to be included in
such registration and underwriting held by all of the Holders, voting together
as one class. The Company shall so advise all Holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among Holders requesting
registration in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by each of such Holders as of the date of the
notice pursuant to subsection 1.3(a)(i) above; provided, however, that in no
instance shall shares of any other selling shareholder or Registrable Securities
held by the Series A Holders be included in such registration and underwriting
if such inclusion would reduce the number of shares of Registrable Securities
held by other Holders able to be included in such registration and underwriting.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
1.4 Form S-3.
(a) Series A Preferred. In addition to the rights and
obligations set forth in subsection 1.2(a) above, if Holders of Series A
Preferred holding twenty percent (20%) or more of the Registrable Securities
held by all Series A Holders then outstanding ("SERIES A S-3 HOLDERS") request
that the Company file a registration statement on Form S-3 (or any successor to
Form S-3) for a public offering of shares of Registrable Securities, the
reasonably anticipated aggregate price to the public of which (net of
underwriting discounts and commissions) would exceed One Million Dollars
($1,000,000) and the Company is then a registrant entitled to use Form S-3 to
register the shares for such an offering, the Company shall use its best efforts
to cause such shares to be registered for the offering as soon as practicable on
Form S-3 (or any successor form to Form S-3); provided, however, the Company
shall not be required to effect a registration pursuant to this subsection
1.4(a):
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<PAGE> 7
(i) in any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(ii) if the Company, within ten (10) days of
the receipt of the request of the Series A S-3 Holders, gives notice of its bona
fide intention to effect the filing of a registration statement with the SEC
within forty-five (45) days of receipt of such request (other than with respect
to a registration statement relating to a Rule 145 transaction, an offering
solely to employees or any other registration which is not appropriate for the
registration of Registrable Securities), and does so file within said forty-five
(45) day period and makes reasonable efforts to cause such registration to
become effective;
(iii) during a period of sixty (60) days
following the effective date of a registration statement;
(iv) if the Company has effected one (1)
registration pursuant to this subsection 1.4(a) within a twelve (12) month
period from the date of such request;
(v) if the Company has already effected five
(5) registrations pursuant to this Section 1.4(a); or
(vi) if the Company shall furnish to such
Series A S-3 Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors, it would be
detrimental to the Company and its shareholders for such registration statement
to be filed on or before the date filing would be required and it is therefore
essential to defer the filing of such registration statement, in which case the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after the furnishing of such a certificate of deferral;
provided, however, that the Board of Directors shall not exercise such right to
defer a filing more than once in any consecutive twelve (12) month period.
(vii) In the event such Series A S-3 Holders
propose to offer the shares of Registrable Securities pursuant to this
subsection 1.4(a) by means of an underwriting, the proposed underwriter(s) shall
be selected by the Company and be reasonably acceptable to a majority in
interest of the Series A-3 Holders. The Company shall give written notice to all
Holders of the receipt of a request for registration pursuant to this subsection
1.4(a) and shall provide a reasonable opportunity for other Holders to
participate in the registration, provided that if the registration is for an
underwritten offering, the terms of subsection 1.2(c) shall apply to all
participants in such offering.
(b) Series D Preferred, Series E Preferred, Series F
Preferred and Series G Preferred. In addition to the rights and obligations set
forth in subsection 1.2(a) above, if Series D Holders, the Series E Holders, the
Series F Holders and Series G Holders together holding twenty
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percent (20%) or more of the Registrable Securities held by all Series D
Holders, Series E Holders, Series F Holders and Series G Purchasers then
outstanding ("SERIES D,E,F,G S-3 HOLDERS") request that the Company file a
registration statement on Form S-3 (or any successor to Form S-3) for a public
offering of shares of Registrable Securities, the reasonably anticipated
aggregate price to the public of which (net of underwriting discounts and
commissions) would exceed One Million Dollars ($1,000,000) and the Company is
then a registrant entitled to use Form S-3 to register the shares for such an
offering, the Company shall use its best efforts to cause such shares to be
registered for the offering as soon as practicable on Form S-3 (or any successor
form to Form S-3); provided, however, the Company shall not be required to
effect a registration pursuant to this subsection 1.4(b):
(i) in any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(ii) if the Company, within ten (10) days of
the receipt of the request of the Series D,E,F,G S-3 Holders, gives notice of
its bona fide intention to effect the filing of a registration statement with
the SEC within forty-five (45) days of receipt of such request (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities), and does so file within said
forty-five (45) day period and makes reasonable efforts to cause such
registration to become effective;
(iii) during a period of sixty (60) days
following the effective date of a registration statement;
(iv) if the Company has effected one (1)
registration pursuant to this subsection 1.4(b) within a twelve (12) month
period from the date of such request;
(v) if the Company has already effected five
(5) registrations pursuant to this subsection 1.4(b); or
(vi) if the Company shall furnish to such
Series D,E,F,G S-3 Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors, it would be
detrimental to the Company and its shareholders for such registration statement
to be filed on or before the date filing would be required, and it is therefore
essential to defer the filing of such registration statement, in which case the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after the furnishing of such a certificate of deferral;
provided, however, that the Board of Directors shall not exercise such right to
defer a filing more than once in any consecutive twelve (12) month period.
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(vii) In the event such Series D,E,F,G S-3
Holders propose to offer the shares of Registrable Securities pursuant to this
subsection 1.4(b) by means of an underwriting, the proposed underwriter(s) shall
be chosen by the Company and shall be reasonably acceptable to a majority of the
Series D,E,F,G S-3 Holders, voting together as a single class. The Company shall
give written notice to all Holders of the receipt of a request for registration
pursuant to this subsection 1.4(b) and shall provide a reasonable opportunity
for other Holders to participate in the registration, provided that if the
registration is for an underwritten offering, the terms of subsection 1.2(c)
shall apply to all participants in such offering.
1.5 Expenses of Registration. All Registration Expenses
incurred in connection with any registration pursuant to this Section 1 shall be
borne by the Company except as follows:
(a) The Company shall not be required to pay for
expenses of any registration proceeding begun pursuant to subsection 1.2, the
request for which has been subsequently withdrawn by the Series A Initiating
Holders or the Series D,E,F,G Initiating Holders, as the case may be (in which
case, such expenses shall be borne by the Holders requesting such withdrawal),
unless such Holders agree to forfeit their respective rights to registration
pursuant to Section 1.2; provided, however, that if at the time of such
withdrawal the Initiating Holders have learned of a material adverse change in
the condition or business of the Company from that known to the Initiating
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, the Holders shall not be required to pay and such expenses and
shall retain their rights pursuant to subsection 1.2.
(b) The Company shall not be required to pay fees or
disbursements of legal counsel of a Holder unless all the Holders specify one
special counsel.
(c) The Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities.
1.6 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Rights Agreement, the Company will keep
each Holder participating therein advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. Except as otherwise provided in subsection 1.5, at its expense the
Company will:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days or, if a shorter period, until securities included in the
registration statement are sold, provided, however, that (i) such 120 day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3
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which are intended to be offered on a continuous or delayed basis, such 120 day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that Rule
415, or any successor rule under the Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Act
governing the obligation to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (i) includes any prospectus required by
Section 10(a)(3) of the Act or (ii) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (i) and (ii) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith, or as a condition thereto, to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act or the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange or quotation system
on which similar securities issued by the Company are then listed.
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(h) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
1.7 Indemnification.
(a) The Company will indemnify and defend each Holder
of Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which a registration has
been effected pursuant to this Rights Agreement, and each underwriter, if any,
and each person who controls any underwriter of the Registrable Securities held
by or issuable to such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement or prospectus incident to such registration, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statement therein not misleading,
or any violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("EXCHANGE ACT") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, as incurred for
any reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 1.7(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld);
and provided further, that the Company will not be liable in any such case to
the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein; and provided further, however, that the indemnity
agreement contained in this subsection 1.7(a) shall not apply to a Holder who is
either (i) an officer listed as an executive officer in the registration
statement or prospectus incident to such registration statement or (ii) a
director of the Company at the time of the statement, omission, or violation (a
"MANAGEMENT HOLDER") unless such Management Holder has sold shares included in
the registration statement.
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(b) Each Holder will, if Registrable Securities held
by or issuable to such Holder are included in the securities as to which such
registration is being effected, indemnify and defend the Company, each of its
directors and officers, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
within the meaning of the Securities Act, and each other such Holder, each of
its officers, directors and partners and each person controlling such Holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement or
prospectus incident to such registration, or any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company, such
Holders, such directors, officers, partners, persons or underwriters for any
reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement or prospectus in reliance upon and in
conformity with written information furnished to the Company by the Holder in an
instrument duly executed by such Holder specifically for use therein; provided,
however, that the indemnity agreement contained in this subsection 1.7(b) shall
not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if such settlement is effected without the consent of the
Holder (which consent shall not be unreasonably withheld); and provided further,
that the total amount for which any Holder shall be liable under this subsection
1.7(b) shall not in any event exceed the aggregate proceeds received by such
Holder from the sale of Registrable Securities held by such Holder in such
registration net of underwriter's commissions and discounts.
(c) Each party entitled to indemnification under this
subsection 1.7 (the "INDEMNIFIED PARTY") shall give notice to the party required
to provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, however, that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in such
defense at its own expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, however, that an
Indemnified Party (together with all other Indemnified Parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to a conflict of interests
between such Indemnified Party and any other party represented by such counsel
in such proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
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include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
(d) If the indemnification provided for in this
Section 1.7 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any losses, claims, damages or liabilities
referred to herein, the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall to the extent permitted by applicable law,
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement(s) of a
material fact or the omission(s) to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, that in no event shall any
contribution by a Holder hereunder exceed the net proceeds from the offering
received by such Holder.
(e) The obligations of the Company and Holders under
this Section 1.7 shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of this Rights
Agreement. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(f) The indemnification provided for in this Section
1.7 shall be superseded by indemnification provided for in an underwriting
agreement entered into by the Company and an underwriter of Registrable
Securities with respect to which a registration has been effected pursuant to
this Rights Agreement.
1.8 Information by Holder. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.9 Rule 144 Reporting. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times to:
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(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, after ninety (90) days
after the effective date of the first registration filed by the Company for an
offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its common stock, under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the registration statement filed by the Company
for the offering of its Securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(d) so long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as the Holder may reasonably request in
complying with any rule or regulation of the SEC allowing the Holder to sell any
such securities without registration.
1.10 Transfer of Registration Rights. Holders' rights to cause
the Company to register their securities and keep information available, granted
to them by the Company under subsections 1.2, 1.3, 1.4 and 1.9, may be assigned
to a transferee or assignee of at least one hundred fifty thousand (150,000)
shares (as adjusted for stock splits, stock dividends, recapitalization and like
events) of a Holder's Registrable Securities not sold to the public, provided
that the Company is given written notice by such Holder at the time of, or
within a reasonable time after, said transfer, stating the name and address of
said transferee or assignee and identifying the securities with respect to which
such registration rights are being assigned. The Company may prohibit the
transfer of any Holders' rights under this subsection 1.10 to any proposed
transferee or assignee who the Company reasonably believes is a competitor of
the Company. Notwithstanding anything else in this subsection 1.10, any Holder
may transfer rights to a transferee of fewer than one hundred fifty thousand
(150,000) shares (as adjusted for stock splits, stock dividends,
recapitalizations and like events) of a Holder's Registrable Securities if such
transferee is a subsidiary, parent, shareholder, member, general partner,
limited partner, associated entity or a retired partner of such Holder.
1.11 Limitations on Subsequent Registration Rights. From and
after the date hereof, the Company shall not, without the prior written consent
of a majority of the Registrable Securities held by the Holders of Series A
Preferred or Common Stock issued or issuable upon conversion thereof, and a
majority of the Registrable Securities held by the Holders of Series D, Series E
Preferred, Series F
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<PAGE> 15
Preferred and Series G Preferred, voting together as one class, or Common Stock
issued or issuable upon conversion thereof (which consent will not be
unreasonably withheld) enter into any agreement, with any Holder or prospective
Holder of any securities of the Company which would allow such Holder or
prospective Holder to demand any registration or include such securities in any
registration filed under subsections 1.2, 1.3 or 1.4 hereof if such inclusion
would adversely affect the rights of any Holder (or any qualifying transferee
under subsection 1.10) under such subsections, including reducing the number of
shares of Registrable Securities of a Holder able to be included in any
registration.
1.12 "Market Stand-Off" Agreement.
(a) Each Holder hereby agrees that, in connection
with the IPO, during the period of duration (not to exceed one hundred eighty
(180) days) specified by the Company and an underwriter of common stock or other
securities of the Company following the effective date of a registration
statement of the Company filed under the Securities Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase, pledge or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except common stock included
in such registration; provided, however, that such agreement shall not be
required unless all officers and directors of the Company and all holders of
five percent or more of the Company's outstanding capital stock (on a
common-equivalent basis) enter into similar agreements.
(b) Each holder of 5% or more of the Registrable
Securities at the time of any offering other than the IPO, hereby agrees that,
in connection with such other offering, during the period of duration (not to
exceed 90 days) specified by the Company and an underwriter of common stock or
other securities of the Company following the effective date of a registration
statement of the Company filed under the Securities Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase, pledge or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except common stock included
in such registration.
In order to enforce the foregoing covenants contained in subsections
1.12(a) and 1.12(b), the Company may impose stop-transfer instructions with
respect to the Registrable Securities of each Holder (and the shares of
securities of every other person subject to the foregoing restriction) until the
end of each such period of duration.
(c) Notwithstanding any provision of this Rights
Agreement to the contrary, Holders shall not be prohibited by the Company
(except as prohibited by law) from acquiring or disposing of any shares of the
Company offered or traded in the public market, including those shares offered
in the IPO and traded thereafter or in any market that may develop pursuant to
Rule 144A of the
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<PAGE> 16
Securities Act, but excluding any shares of the Company held by Holders at the
time immediately prior to the IPO, to which this subsection 1.12(c) does not
apply.
1.13 Termination of Registration Rights. The obligations of
the Company pursuant to this Section 1 ("REGISTRATION RIGHTS") shall terminate
with respect to any Holder on the earlier of (i) the date five (5) years after
the closing of the IPO, or (ii) the date on which the Holder can sell all of
his/her remaining Registrable Securities under Rule 144 during any three (3)
month period.
2.0 Holders' Right of First Offer.
2.1 If, at any time prior to the termination of this right of
first offer pursuant to subsection 2.6, the Company should desire to issue in a
transaction not registered under the Securities Act in reliance upon a claimed
exemption thereunder, any Equity Securities (as defined in Section 2.7 below),
it shall give the Series A Holders and each Holder of at least 150,000 shares of
Series D Preferred (or Common Stock issuable upon conversion thereof), each
holder of at least 200,000 shares of Series E Preferred Stock (or Common Stock
issuable upon conversion thereof), each holder of at least 200,000 shares of
Series F Preferred Stock (or Common Stock issuable upon conversion thereof) and
each holder of at least 200,000 shares of Series G Preferred (or Common Stock
issuable on conversion thereof) (each individually referred to herein as a
"RIGHTS HOLDER" and, collectively, as "RIGHTS HOLDERS") the right to purchase
such Rights Holder's pro rata share (or any part thereof) of all of such
privately offered Equity Securities on the same terms as the Company is willing
to sell such Equity Securities to any other person. Each Rights Holder's pro
rata share of the Equity Securities shall be equal to that percentage of the
outstanding Common Stock then held by such Rights Holder. For purposes of this
subsection 2.1, the outstanding Common Stock shall include (a) outstanding
shares of Common Stock, and (b) shares of Common Stock issued or issuable upon
exercise and/or conversion of any then outstanding options, warrants, Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred, Series F Preferred Stock, Series G Preferred Stock or any other
securities convertible into Common Stock.
2.2 Prior to any sale or issuance by the Company of any Equity
Securities, the Company shall notify each Rights Holder in writing of its
intention to sell and issue such securities, setting forth the terms under which
it proposes to make such sale. Within twenty (20) days after receipt of such
notice, each Rights Holder shall notify the Company in writing whether such
Rights Holder desires to exercise the option to purchase such Rights Holder's
pro rata share (or any part thereof) of the Equity Securities so offered. If a
Rights Holder elects to purchase such Rights Holder's pro rata share, then such
Rights Holder shall have a right of over-allotment such that if any other Rights
Holder fails to purchase such Rights Holder's pro rata share of the Equity
Securities, such Rights Holder(s) who have elected to purchase their pro rata
shares may purchase, on a pro rata basis, that portion of the Equity Securities
which such other Rights Holders elected not to purchase.
2.3 After termination of the twenty (20) day period specified
in subsection 2.2 above, the Company may, during a period of sixty (60) days
following the end of such twenty (20) day period,
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<PAGE> 17
sell and issue such Equity Securities as to which (a) the Rights Holders have no
right under this Section 2 to purchase, and (b) the Rights Holders do not
indicate a desire to purchase, to another person upon the same terms and
conditions as those set forth in the notice to the Rights Holders. In the event
the Company has not sold the Equity Securities, or has not entered into an
agreement to sell the Equity Securities, within said eighty (80) day period, the
Company shall not thereafter issue or sell any Equity Securities without first
offering such securities to the Rights Holders in the manner provided above.
2.4 If a Rights Holder gives the Company written notice that
such Rights Holder desires to purchase any of the Equity Securities offered by
the Company, payment for the Equity Securities shall be by check, or wire
transfer, against delivery of the Equity Securities at the executive offices of
the Company within ten (10) days after giving the Company such notice, or, if
later, the closing date for the sale of such Equity Securities. The Company
shall take all such actions as may be required by any regulatory authority in
connection with the exercise by a Rights Holder of the right to purchase Equity
Securities as set forth in this Section 2.
2.5 The right of first offer contained in this Section 2 shall
not apply to the issuance by the Company of the following Equity Securities: (a)
Common Stock reserved for issuance to employees, consultants, directors or
officers of the Company pursuant to stock grant, stock purchase and/or stock
option plans or any other stock incentive program, agreement or arrangement
approved by the Board of Directors, (b) as part of an acquisition by the Company
of all or substantially all of the assets or shares of another company or entity
whether through a merger, exchange, reorganization or the like, (c) pursuant to
equipment financing or leasing arrangements or in connection with strategic
partnering transactions approved by the Board of Directors, (d) issued upon
conversion of the Company's Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred, Series F Preferred or Series
G Preferred, (e) issued in connection with any stock split, stock dividend,
recapitalization or similar event or (f) issued in connection with an
underwritten public offering of shares of the Company's capital stock.
2.6 The right of first offer contained in this Section 2 shall
terminate upon the earlier to occur of (a) the closing of the IPO or (b) the
closing of (i) a merger or consolidation of the Company with or into any other
corporation in which the Company's shareholders shall own less than fifty
percent (50%) of the voting securities of the surviving corporation or (ii) a
sale, transfer, or disposition of all or substantially all of the assets of the
Company, but only if the Company"s shareholders receive cash and/or publicly
traded securities as consideration in such merger, consolidation or sale,
transfer or disposition of assets.
2.7 The term "EQUITY SECURITIES" shall mean (a) Common Stock
or Preferred Stock, rights, options or warrants to purchase Common Stock or
Preferred Stock, (b) any security other than Common Stock or Preferred Stock
having voting rights in the election of the Board of Directors, (c) any security
convertible into or exchangeable for any of the foregoing except that Equity
Securities shall not include the Series A Preferred, the Series B Preferred, the
Series C Preferred, Series D Preferred, Series
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<PAGE> 18
E Preferred, Series F Preferred or Series G Preferred and (d) any agreement or
commitment to issue any of the foregoing.
2.8 A Rights Holder's right to purchase any Equity Securities
pursuant to this Section 2 may be assigned by a Rights Holder to an affiliate of
a Rights Holder. For the purposes of this Section 2, an "AFFILIATE" shall mean
any partner or shareholder of a Rights Holder or any person or entity that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with a Rights Holder.
3.0 Information Rights.
3.1 Annual Financial Information. As soon as practicable after
the end of each fiscal year, and in any event within ninety (90) days
thereafter, the Company will furnish to each Holder, so long as such Holder
still holds shares of Series A Preferred, Series B Preferred, Series D
Preferred, Series E Preferred, Series F Preferred or Series G Preferred, audited
financial statements, including consolidated balance sheets of the Company and
its subsidiaries, if any, as at the end of such fiscal year and consolidated
statements of income and surplus and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year
and setting forth in each case in comparative form the Company's budget for such
period.
3.2 Quarterly Financial Information. As soon as available and
in any event within forty-five (45) days after the first three quarterly
accounting periods, the Company will provide Holders of 150,000 or more shares
of Preferred Stock unaudited quarterly income statement, statement of cash flows
and a balance sheet for and as of such period and setting forth in each case in
comparative form the Company's budget for such period.
3.3 Monthly Financial Information. As soon as available and in
any event within thirty (30) days after the end of each month, the Company will
provide Holders of 150,000 or more shares of Preferred Stock unaudited income
statement, statement of cash flows and a balance sheet for and as of the end of
such month and setting forth in each case in comparative form the Company's
budget for such period.
3.4 Budget and Business Plan. As soon as available and in any
event within thirty (30) days prior to the end of each fiscal year, the Company
will provide Holders of 150,000 or more shares of Preferred Stock a budget and
business plan for the next fiscal year.
3.5 Confidentiality of Information. Each Holder agrees that
all disclosures and exchange of information between the Company and the Holder
(including, without limitation, any exchange of information with any Holder in
connection with rights to observe the Board of Directors) will not be disclosed
to any person or entity without the prior written consent of the
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<PAGE> 19
Company; provided, however, that such consent shall not be unreasonably withheld
and that notwithstanding the foregoing, each Holder may disclose such
information without the prior written consent of the Company to (i) its
partners, shareholders, legal counsel, professional accountants, associates or
employees in order to evaluate this investment and as may be necessary to
continue to evaluate the Company or (ii) pursuant to and only to the extent
required law. Each Holder agrees that any recipient of information obtained by
the Holder shall agree to be bound by the provisions of this subsection 3.5 with
respect to such information; provided, however, that notwithstanding the
foregoing, the Holders may include summary financial information concerning the
Company and general statements concerning the nature and progress of the
Company's business in their reports to their limited partners. Each Holder's
obligations under this subsection 3.5 shall not apply to any information which:
(a) was in the public domain at the time it was
communicated to the Holder by the Company;
(b) entered the public domain subsequent to the time it
was communicated to the Holder through no fault of the Holder; (
c) was in the Holder's possession free of any obligation
of confidence at the time it was communicated to the Holder by the Company,
other than information provided or made available to the Holder in connection
with the Holder's investment in the Series G Preferred Shares pursuant to this
Agreement;
(d) was rightfully communicated to the Holder by a third
party free of any obligation of confidence subsequent to the time it was
communicated to the Holder by the Company;
(e) was disclosed by the Holder in response to a valid
order by a court or other governmental body, was otherwise required by law, or
was necessary to establish the rights of either party under this Agreement; or
was independently developed by the Holder without using
the confidential information of the Company.
3.6 Inspection. The Company shall permit Holders holding
150,000 or more shares of Series D Preferred, 250,000 or more shares of Series E
Preferred, 250,000 or more shares of Series F Preferred, or 250,000 or more
shares of Series G Preferred to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Holder; provided, however, that the Company shall not be
obligated pursuant to this Section 3.6 to provide access to any information
which the Company reasonably considers to be a trade secret or similar
confidential information.
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<PAGE> 20
3.7 Observer Rights. As long as London Pacific Life & Annuity
Company owns not less than one million (1,000,000) shares of Series G Preferred
Stock (or an equivalent amount of Common Stock issued upon conversion thereof),
the Company shall invite a representative of London Pacific Life & Annuity
Company to attend all meetings of its Board of Directors in a nonvoting,
observer capacity and, in this respect, shall give such representative copies of
all notices, minutes, consents and other materials that it provides to its
directors; provided, however, that such representative shall agree to hold in
confidence and trust and to act in a fiduciary manner with respect to all
information so provided; and, provided further, that the Company reserves the
right to withhold any information and to exclude such representative from any
meeting or portion thereof if a majority of the Board reasonably believes that
the representative's attendance at such meeting or access to such information
would: (i) adversely affect attorney-client privilege between the Company and
its counsel or (ii) involve a conflict of interest between the Company and
London Pacific Life & Annuity Company on a material issue for the Company.
3.8 Termination of Covenants. The covenants set forth in
subsections 3.1, 3.2, 3.3, 3.4 and 3.7 shall terminate and be of no further
force and effect upon the earlier to occur of: (i) the IPO; (ii) the closing of
a merger or consolidation of the Company with or into any other corporation in
which the Company's shareholders shall own less than fifty percent (50%) of the
voting securities of the surviving corporation; or (iii) the closing of a sale,
transfer or disposition of all or substantially all of the Company's assets. The
confidentiality provisions of Sections 3.5 and 3.7, however, shall survive any
such termination.
4.0 General.
4.1 Waivers and Amendments. With the written consent of the
record or beneficial holders of at least sixty percent (60%) of the Registrable
Securities held by the Holders of the Series D Preferred, the Series E
Preferred, the Series F Preferred and the Series G Preferred, voting together as
one class, the obligations of the Company and the rights of the Series D
Preferred, the E Preferred, the Series F Preferred and the Series G Preferred
under this Rights Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely). With the written consent of the record or
beneficial holders of a majority of the Registrable Securities held by the
Holders of the Series A Preferred, the obligations of the Company and the rights
of the Series A Preferred under this Rights Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely). With the written
consent of the record or beneficial holders of at least 60% of the Registrable
Securities held by the Holders of the Series D Preferred, the Series E
Preferred, the Series F Preferred and Series G Preferred, voting together as one
class, and a majority of the Registrable Securities Holders held by the Series A
Preferred, the Company, when authorized by resolution of its Board of Directors,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Rights Agreement; provided, however, that no such modification or amendment
shall reduce the aforesaid majority of Registrable Securities consent
requirement without the consent of all of the Holders of the Registrable
Securities;
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<PAGE> 21
provided, further, that Section 3.7 hereof may only be amended or waived upon
the written consent of London Pacific Life & Annuity Company. Upon the
effectuation of each such waiver, consent, agreement of amendment or
modification, the Company shall promptly give written notice thereof to the
record holders of the Registrable Securities who have not previously consented
thereto in writing. This Rights Agreement or any provision hereof may be
changed, waived, discharged or terminated only by a statement in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought, except to the extent provided in this subsection 4.1.
4.2 Additional Shareholders. Subject to the restrictions set
forth in Section 2 hereof, any Holder of Series G Preferred who purchases those
shares from the Company (each, an "ADDITIONAL SHAREHOLDER") may become a party
to this Rights Agreement after the date hereof without the consent of any of the
other parties hereto by executing a counterpart signature page to this Rights
Agreement. As a condition to becoming a party to this Rights Agreement, each
Additional Shareholder hereby agrees (i) that it shall be deemed to be a
"Holder" for all purposes under this Rights Agreement, subject to and bound by
all of the terms and conditions applicable to a "Holder" under this Rights
Agreement, and (ii) to irrevocably terminate and waive all registration or
similar rights applicable to any shares of capital stock in the Company held by
such Additional Shareholder pursuant to any agreement or understanding of any
kind other than those contained in this Rights Agreement, such termination and
waiver to be effective immediately upon such Additional Shareholder's execution
of the counterpart signature page hereto.
4.3 Governing Law. This Rights Agreement shall be governed in
all respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
4.4 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
4.5 Entire Rights Agreement. Except as set forth below, this
Rights Agreement and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and this Rights Agreement shall supersede
and cancel all prior agreements between the parties hereto with regard to the
subject matter hereof.
4.6 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be sent via
facsimile, overnight courier service or mailed by certified mail, postage
prepaid, return receipt requested, addressed or sent (i) if to a Holder, at the
address or facsimile number of the Holder set forth in the Company's records, or
at such other address or number as the Holder shall have furnished to the
Company in writing, or (ii) if to the Company, at 2630 Walsh Avenue, Santa
Clara, California 95051, facsimile: (408) 980-8883, or at such other address or
number as the Company shall have furnished to the Holders in writing, and shall
be effective upon
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<PAGE> 22
(i) delivery if sent by facsimile (with a confirming receipt); (ii) delivery to
an overnight courier service; or (iii) three (3) days after deposit with the
United States Post Office.
4.7 Severability. In case any provision of this Rights
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Rights Agreement or any
provision of the other Agreements shall not in any way be affected or impaired
thereby.
4.8 Titles and Subtitles. The titles of the sections and
subsections of this Rights Agreement are for convenience of reference only and
are not to be considered in construing this Rights Agreement.
4.9 Counterparts. This Rights Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereby have executed this Rights
Agreement on the date first above written.
"COMPANY"
NEW FOCUS, INC., a
California corporation
By: ______________________________________
Kenneth E. Westrick,
President and Chief Executive Officer
"SERIES A HOLDERS"
MILTON CHANG
__________________________________________
(Signature)
CHANG PARTNERS, A CALIFORNIA LIMITED
Partnership
By: ______________________________________
Title: ___________________________________
VENTURE LENDING AND LEASING II, INC.
By: ______________________________________
Title: ___________________________________
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<PAGE> 24
"SERIES D HOLDERS"
UT TECHNOLOGY PARTNERS, LDC
By: ______________________________________
Title: ___________________________________
LIZABETH MOSES
__________________________________________
(Signature)
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 25
ROBERT L. BYER AND EVA M. BYER
TRUSTEES FBO BYER FAMILY TRUST
UTD 9/18/83
__________________________________________
Robert L. Byer, Trustee
DOUGLAS R. BYER TRUST
UTD 12/28/88
__________________________________________
Robert L. Byer, Trustee
C.E. UNTERBERG, TOWBIN
CAPITAL PARTNERS I, L.P.
By: ______________________________________
Title: Robert Matluck, Member of the GP
HAMBRO-SPINNER RENAISSANCE FUND
By: ______________________________________
Title: ___________________________________
JOHN A. DEXHEIMER
__________________________________________
(Signature)
BRETT MAXWELL
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 26
__________________________________________
(Signature)
MICHAEL GORDON
__________________________________________
(Signature)
DAVID KING
__________________________________________
(Signature)
LAMOREAUX PARTNERS
By: ______________________________________
Title: ___________________________________
PHILLIP A. LAMOREAUX
__________________________________________
(Signature)
DAVE OSBORNE
__________________________________________
(Signature)
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 27
ROGER HEWITSON
__________________________________________
(Signature)
KEVIN KALKHOVEN
__________________________________________
(Signature)
TONY S. HSU AND LILY PAO HSU, TRUSTEES OF
THE TONY AND LILY HSU FAMILY TRUST DATED
11/8/89
By: ______________________________________
Title: ___________________________________
ANDREW CHASE AND LAURA CHASE, TRUSTEES OF
THE CHASE 1991 REVOCABLE TRUST DATED
4/2/91
By: ______________________________________
Title: ___________________________________
THOMAS B. DAY
__________________________________________
(Signature)
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 28
JAY BERENTER
__________________________________________
(Signature)
MARK DAY
__________________________________________
(Signature)
PATRICK DAY
__________________________________________
(Signature)
PAMELA YORK
__________________________________________
(Signature)
ANTHONY RICHARD MULLER AND LARY LYNN H.
MULLER, TRUSTEES OF THE ANTHONY RICHARD
MULLER AND LARRY LYNN H. MULLER TRUSTS,
U/D/T JULY 1, 1981
By: ______________________________________
Title: ___________________________________
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 29
C.E. UNTERBERG TOWBIN 401(k) PROFIT
SHARING PLAN DTD 10/26/90 FBO ANDY ARNO
By: ______________________________________
Title: ___________________________________
ANDREW ARNO ACF
JESSE BENJAMIN ARNO U/NY/UGMA
By: ______________________________________
Title: ___________________________________
ANDREW ARNO ACF
MATTHEW ARNO U/NY/UGMA
By: ______________________________________
Title: ___________________________________
GEORGE YULE
__________________________________________
(Signature)
LINDEN PARTNERS LLC
By: ______________________________________
Title: ___________________________________
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 30
JEFFREY MOSKOWITZ
__________________________________________
(Signature)
"SERIES E HOLDERS"
MORGENTHALER VENTURES PARTNERS V, L.P.
BY: MORGENTHALER MANAGEMENT PARTNERS V,
LLP, ITS MANAGING PARTNER
By: ______________________________________
Title: ___________________________________
U.S. VENTURE PARTNERS VI, L.P.
AS NOMINEE FOR
U.S. VENTURE PARTNERS VI, L.P.
USVP VI AFFILIATES FUND, L.P.
USVP VI ENTREPRENEUR PARTNERS, L.P.
BY: PRESIDIO MANAGEMENT GROUP VI, L.L.C.
GENERAL PARTNER
By: ______________________________________
Michael P. Maher, Attorney in Fact
KENNETH WESTRICK
__________________________________________
(Signature)
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 31
SPINNER GLOBAL TECHNOLOGY FUND, LTD.
By: ______________________________________
Title: ___________________________________
UT TECHNOLOGY PARTNERS, LDC
By: ______________________________________
Title: ___________________________________
ROBERT L. BYER AND EVA M. BYER TRUSTEES
FBO BYER FAMILY TRUST UTD 9/18/83
By: ______________________________________
Title: ___________________________________
DOUGLAS R. BYER :TRUST
By: ______________________________________
Title: ___________________________________
"SERIES F HOLDER"
INTEL CORPORATION
By: ______________________________________
Title: ___________________________________
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 32
"SERIES G PURCHASERS"
LONDON PACIFIC LIFE & ANNUITY COMPANY
By: ______________________________________
Title: ___________________________________
MORGENTHALER VENTURES PARTNERS V, L.P.
BY: MORGENTHALER MANAGEMENT PARTNERS V,
LLP, ITS MANAGING PARTNER
By: ______________________________________
Title: ___________________________________
U.S. VENTURE PARTNERS VI, L.P.
USVP VI AFFILIATES FUND, L.P.
USVP VI ENTREPRENEUR PARTNERS, L.P.
2180 ASSOCIATES FUND VI, L.P.
By: Presidio Management Group VI, L.L.C.
Its General Partner
By: ______________________________________
Michael P. Maher/Attorney-in-Fact
INTEL CORPORATION
By: ______________________________________
Title: ___________________________________
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 33
UT TECHNOLOGY PARTNERS, LDC
By: ______________________________________
Title: ___________________________________
LAMOREAUX PARTNERS
By: ______________________________________
Title: ___________________________________
PHIL LAMOREAUX
__________________________________________
(Signature)
CLARK HARRIS
__________________________________________
(Signature)
NANCY CASEY
__________________________________________
(Signature)
SCHEFFEL & ASSOCIATES LLC
By: ______________________________________
Title: ___________________________________
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 34
DAVID SPIEGEL
__________________________________________
(Signature)
WPG RAYTHEON NETWORKING FUND, L.P.
By: ______________________________________
Title: ___________________________________
RAJ MEHRA
__________________________________________
(Signature)
S. ROBERT SMITH AND CAROL J. SMITH FAMILY
TRUST DATED MAY 1, 1998
By: ______________________________________
Title: ___________________________________
SELIGMANN INVESTMENT OPPORTUNITIES (MASTER)
FUND-NTV PORTFOLIO
SELIGMANN NEW TECHNOLOGIES FUND, INC.
By: J. & W. Seligmann & Co. Incorporated,
Its investment advisor
By: ______________________________________
Title: ___________________________________
[Fifth Amended and Restated Registration Rights Agreement]
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
--------------------
Name Under Which Subsidiary Does Business Jurisdiction of Incorporation
- ----------------------------------------- -----------------------------
Focused Research, Inc. California
New Focus Pacific Co. China
<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 February 25, 2000 (except Note 12, as to which the date
is March , 2000) in the Registration Statement (Form S-1) and related
Prospectus of New Focus, Inc. for the registration of shares of its common
stock.
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
San Jose, California
March __, 2000
- --------------------
The foregoing consent is in the form that will be signed upon the completion of
the Company's reincorporation in the state of Delaware.
/s/ Ernst & Young LLP
San Jose, California
February 29, 2000
