UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED JULY 2, 2011
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
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Commission file number: 000-30684
OCLARO, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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20-1303994
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2560 Junction Avenue, San Jose, California, 95134
(Address of principal executive offices, zip code)
(408) 383-1400
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, Par Value $0.01 Per Share
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NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
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No
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Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
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No
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act
Rule 12b-2). Yes
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No
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The aggregate market value of the common stock held by non-affiliates of the registrant was
$652,256,000 based on the last reported sale price of the registrants common stock on December 31,
2010 as reported by the NASDAQ Global Market ($13.15 per share). As of September 6, 2011, there
were 50,373,660 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrants Proxy Statement
for its 2011 Annual Meeting of Stockholders, which will be filed on or before October 31, 2011.
With the exception of the sections of the registrants Proxy Statement for its 2011 Annual Meeting
of Stockholders specifically incorporated herein by reference, the registrants Proxy Statement for
its 2011 Annual Meeting of Stockholders is not deemed to be filed as part of this Form 10-K.
OCLARO, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JULY 2, 2011
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and the documents incorporated herein by reference contain
forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended, about our future
expectations, plans or prospects and our business. You can identify these statements by the fact
that they do not relate strictly to historical or current events, and contain words such as
anticipate, estimate, expect, project, intend, will, plan, believe, should,
outlook, could, target and other words of similar meaning in connection with discussion of
future operating or financial performance. These forward-looking statements include statements
concerning (i) potential future financial results, (ii) the impact of acquisitions on our financial
performance, including without limitation, accretion or dilution, gross margin, operating income
and cash usage, (iii) future expense levels and sources for improvement of gross margin and
operating expenses, including supply chain synergies, optimizing mix of product offerings,
transition to higher margin product offerings and benefits of combined research and development and
sales organizations, (iv) the expected financial opportunities after mergers or acquisitions and
the expected synergies related thereto, (v) opportunities to grow in adjacent markets, (vi) our
organizational restructuring with the formation of two new business units focused on photonic
components and optical networks solutions and (vii) the assumptions underlying such statements. We
have based our forward looking statements on our managements beliefs and assumptions based on
information available to our management at the time the statements are made. There are a number of
important factors that could cause our actual results or events to differ materially from those
indicated by such forward-looking statements, including the impact of continued uncertainty in
world financial markets and any resulting or other reduction in demand for our products, our
ability to maintain our gross margin, our ability to respond to evolving technologies and customer
requirements, our ability to develop and commercialize new products in a timely manner, our ability
to protect our intellectual property rights and the resolution of allegations that we infringe the
intellectual property rights of others, our dependence on a limited number of customers for a
significant percentage of our revenues, our ability to effectively compete with companies that have
greater name recognition, broader customer relationships and substantially greater financial,
technical and marketing resources than we do, the effect of fluctuating product mix, currency
prices and consumer demand on our financial results, our performance following the closing of
acquisitions, our potential inability to realize the expected benefits and synergies from our
acquisitions, increased costs related to downsizing and compliance with regulatory requirements in
connection with such downsizing, the impact of events beyond our control such as natural disasters
and political unrest, the outcome of our currently pending litigation and future litigation that
may be brought by or against us, the potential lack of availability of credit or opportunity for
equity-based financing and the risks associated with our international operations. You should not
place undue reliance on forward-looking statements. We cannot guarantee any future results, levels
of activity, performance or achievements. Moreover, we assume no obligation to update
forward-looking statements or update the reasons actual results could differ materially from those
anticipated in forward-looking statements. Several of the important factors that may cause our
actual results to differ materially from the expectations we describe in forward-looking statements
are identified in the sections captioned Business, Risk Factors, and Managements Discussion
and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K
and the documents incorporated herein by reference.
As used herein, Oclaro, we, our, and similar terms include Oclaro, Inc. and its subsidiaries,
unless the context indicates otherwise.
PART I
Overview of Oclaro
We are a leading provider of high-performance core optical network components, modules and
subsystems to global telecommunications (telecom) equipment manufacturers. We leverage our
proprietary core technologies and vertically integrated product development to provide our
customers with cost-effective and innovative optical solutions in metro and long-haul network
applications. Increasingly, we have new opportunities with customers who are managing and building
out wide area networks with certain characteristics common to telecom networks. In addition, we
utilize our optical expertise to address new and emerging optical product opportunities in
selective non-telecom markets, such as materials processing, consumer, medical, industrial,
printing and biotechnology. In all markets, our approach is to offer a differentiated solution
that is designed to make it easier for our customers to do business by combining optical technology
innovation, photonic integration, and a vertical integrated approach to manufacturing and product
development.
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Our customers include Huawei Technologies Co. Ltd (Huawei); Alcatel-Lucent; Ciena Corporation
(Ciena); Fujitsu Limited; Tellabs, Inc.; Infinera Corporation; Cisco Systems, Inc.; ADVA Optical
Networking; NEC Corporation; Nokia-Siemens Networks and Ericsson.
Corporate Information
We were incorporated in Delaware in June 2004. On September 10, 2004, pursuant to a scheme of
arrangement under the laws of the United Kingdom (U.K.), we became the publicly traded parent
company of the Oclaro Technology Ltd (formerly Bookham Technology plc) group of companies,
including Oclaro Technology Ltd, a limited company incorporated under the laws of England and Wales
whose stock was previously traded on the London Stock Exchange and the NASDAQ National Market under
the Bookham name. We are the result of the April 27, 2009 merger of Bookham, Inc. (Bookham) and
Avanex Corporation (Avanex), with Bookham becoming the parent company and changing its name to
Oclaro, Inc. upon the close of the merger. Subsequent to the merger, Avanex changed its name to
Oclaro (North America), Inc. and Oclaro changed its NASDAQ Global Market symbol to OCLR.
Effective January 3, 2011, our common stock is now traded on the NASDAQ Global Select Market under
the symbol OCLR.
Our principal executive offices are located at 2560 Junction Avenue, San Jose, California 95134,
and our telephone number at that location is (408) 383-1400. We maintain a web site with the
address
www.oclaro.com
. Our web site includes links to our Code of Business Conduct and
Ethics and our Audit Committee, Compensation Committee, and Nominating and Corporate Governance
Committee charters. We did not waive any provisions of our Code of Business Conduct and Ethics
during the year ended July 2, 2011. We are not including the information contained in our web site
or any information that may be accessed through our web site as part of, or incorporating it by
reference into, this Annual Report on Form 10-K. We make available free of charge, through our web
site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form
8-K, and amendments to these reports, as soon as reasonably practical after such material is
electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). Any
document we file with the SEC, may be inspected, without charge, at the SECs public reference room
at 100 F Street NE, Washington, D.C. 20549 or at the SECs internet address at http://www.sec.gov
(this website address is not intended to function as a hyperlink, and the information contained in
the SECs website is not intended to be a part of this filing). Information related to the
operation of the SECs public reference room may be obtained by calling the SEC at 1-800-SEC-0330.
Our Business
We are a leading supplier of core optical network technology to leading telecom equipment companies
worldwide. We target telecom equipment manufacturers that integrate our optical technology into
the systems they offer to the telecommunications carriers that are building, upgrading and
operating high-performance optical networks. Telecom carriers are increasingly demanding greater
levels of network capacity from their telecom equipment suppliers, our customers, in order to meet
their rapidly growing network bandwidth requirements. We believe that the trend toward an increase
in demand for optical solutions, which increase network capacity, is in response to growing
bandwidth demand driven by increased transmission of video, voice and data over optical
communication networks. Network carriers also seek to decrease the total cost of ownership of their
networks and many of our advanced optical solutions, both now and potentially in terms of future
optical technologies to enable new network architectures, can provide a level of flexibility and
responsiveness consistent with supporting these goals. The rapid development of network
infrastructure underway in developing countries is also driving growth in demand for optical
solutions. Increasingly, internet service providers with their own wide area networks have similar
requirements and are also becoming customers for our optical network products.
We design, manufacture and market optical components, modules and subsystems that generate, detect,
amplify, combine and separate light signals in telecommunications networks. We are a leading
supplier of optical products at the component level, including tunable lasers, pump lasers,
external modulators, integrated lasers and modulators, receivers, and we are also a leading
supplier of products at the module and subsystem levels, including transceivers, transponders,
tunable dispersion compensation, amplifiers, wavelength selective switch (WSS) and controlled
subsystems, including integrated reconfigurable optical add-drop multiplexer (ROADM) line cards.
Many of our products enable increased flexibility in optical telecom networks, making the networks
more dynamic in nature.
Within our overall business, we also have specific product lines focused on the design,
manufacture, marketing and sale of optics and photonics solutions for selected non-telecom markets.
These products include high-power lasers targeted at material processing, consumer, medical,
industrial and printing markets, vertical cavity surface emitting lasers (VCSELs) targeted at
consumer markets and thin film filter products targeted at biotechnology and other markets.
Increasingly, customers outside of the telecom market are recognizing the value of optical
technology to their products and end markets.
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We believe that there is a long-term transition under way across many markets from use of
electronics to use of light waves. We also believe that the proliferation of optical technology
into new and emerging markets and our ability to be a viable supplier of differentiated
technologies to larger laser system companies serving these markets helps drive our growth in
related product lines. One such example is our recent introduction of fiber lasers which we believe
may contribute to our customers ability to compete effectively in related markets with existing
vertically integrated competitors.
Competitive Differentiation
We believe that the following competitive strengths have enabled us to establish our position as a
leading provider of core optical network components, modules and subsystems:
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Customer Ease of Use.
We believe that providing innovative solutions to enhance our
customers ease of doing business is critical to success, and this is at the core of our
strategy. This includes exhibiting high standards of flexibility and quality and the
ability to provide products ranging from standard components to advanced subsystems
designed in partnership with our customers. We are a leading supplier of optical products
at the component level, including tunable lasers, pump lasers, external modulators,
integrated lasers and modulators and receivers. We are also a leading supplier of products
at the module and subsystem levels, including transceivers, transponders, tunable
dispersion compensation, amplifiers, wavelength selective switch and controlled subsystems,
including integrated ROADM line cards. Our intellectual property (IP) leadership and
vertically integrated manufacturing strategy enable us to deliver high performance,
competitive solutions.
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Optical Technology Leadership
. We have extensive expertise in optical technologies
including optoelectronic semiconductors, electronics design, firmware and software
capabilities. Our expertise includes III-V optoelectronic semiconductors utilizing indium
phosphide (InP), gallium arsenide and lithium niobate substrates. We have over 1,000
patents issued and our IP portfolio represents significant investment in the optical
industry over the past 20 years. We believe our commitment to the optical industry and our
IP and know-how represents a differentiated value proposition for our customers. We believe
that we are positioned as the number one or number two supplier in many of our metro and
long-haul telecom product areas, and that we have differentiated technology in the
wavelength selective switching and ROADM markets where we are more recent market entrants.
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Leading Photonic Integration Capabilities
. Photonic integration, which is the
combination of multiple functions or devices in one package or on one chip, is an important
source of differentiation. Photonic integration can reduce the number of component
elements, and thus the cost, of a solution, reduce the landscape of the required
functionality, reduce the complexity of the corresponding integration of component elements
and reduce overall power consumption of the related functionality. Our wafer fabrication
facilities and process technologies position us to be a leader in delivering photonic
integration. We believe that photonic integration will enable us to capture additional
value in the optical network supply chain as customers demand increasing product
integration and complexity to build the next generation network.
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Vertically Integrated Manufacturing Approach
. We operate three optical wafer
fabrication facilities as well as a low-cost back-end assembly and test facility in China.
Our vertical integration enables us to support and control all phases of the development
and manufacturing process from chip creation, to component design, to module and subsystem
production. We believe that our wafer fabrication facilities position us to introduce
product innovations delivering optical network cost and performance advantages to our
customers. We believe that our in-house control of this complete product lifecycle process
enables us to respond more quickly to changing customer requirements, allowing our
customers to reduce the time it takes them to deliver products to market. Furthermore, our
ability to deliver innovative technologies in a variety of form factors, ranging from chip
level to module level to subsystem level, allows us to address the needs of a broad base of
potential customers regardless of their desired level of product integration or complexity.
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Proven Ability to Expand into Other Optical Markets
. We leverage our core optical
expertise to enter attractive optical markets outside of telecom. We have become a leading
merchant supplier of laser diodes, serving markets such as manufacturing, printing, medical
and consumer and we have become a viable supplier of differentiated technologies to larger
vertically integrated laser systems companies serving these markets. The corresponding
product lines operate within our overall business, leveraging our telecom optical
expertise, allowing us to increase fab utilization and providing revenue diversification.
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Business Strategy
In order to maintain our position as a leading provider of core optical network components, modules
and subsystems, we are continuing to pursue the following business strategies:
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Maintain Focus on Core Optical Network
. We are positioned as a key strategic supplier
to the major telecommunications equipment companies and intend to continue to focus on
enabling our customers to build equipment for the implementation of next generation core
optical networks. Our optical IP and development expertise provides us with optical network
insights that enable us to partner with our customers to continue to develop and deliver
innovative optical solutions. We plan to continue to work with our customers to develop key
technologies and expand our product offerings across the optical network.
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Expand Position with Tier One Customers Through Technology Innovation and Manufacturing
Flexibility
. We believe we are a market leader in many of the market segments we address.
Our combination of technology innovation and manufacturing flexibility enable us to deliver
low-latency, high-performance products to our customers. We believe our customer-centric
strategy will enable us to continue to gain share in our markets by innovating in
partnership with our customers and delivering cost-effective solutions to them.
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Extend Core Optical Product Differentiation
. We plan to continue to invest in optical
innovation in order to power the infrastructure required to serve the rapidly growing
demand for bandwidth. Our photonic integration capability enables additional functionality
of our products and we plan to continue to leverage this advantage to advance optical
technology in the network. We also plan to evaluate acquisitions of and investments in
complementary businesses, products or technologies in order to continuously improve our
solutions for customers.
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Match Global Engineering and Manufacturing Resources with Customer Demands
. We believe
our global engineering and manufacturing infrastructure enables us to deliver
cost-effective solutions for our customers. We plan to continue to manage our manufacturing
infrastructure in order to effectively meet customer demand for high-performance products
and rapid time to market. We believe the scale of our manufacturing infrastructure can
enable our margins to increase as our revenue grows due to limited incremental cost
required to meet increasing demand. We also supplement our facilities with the use of
contract manufacturers on a selective basis, enabling us to dynamically manage our
production in the face of varying customer demand. We are currently evaluating the
capabilities of additional potential contract manufacturing partners to ensure we have a
scalable and cost effective manufacturing strategy appropriate for executing to our
business objectives over a long-term horizon.
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Leverage Optical Expertise to Address Other Optical Market Opportunities
. We plan to
continue to selectively enter and/or expand into non-telecom markets for optical products
where we can leverage our optical expertise and our manufacturing infrastructure in order
to provide differentiated products for our customers.
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Consider the Use of Strategic Investment and Acquisitions to Maintain Optical
Leadership Position
. Our industry has historically been fragmented and characterized by
large numbers of competitors. In addition to our internal development capabilities, we
intend to continue to consider the use of acquisitions as a means to enhance our scale,
obtain critical technologies and enter new markets. We have historically expanded our
business through acquisitions where we have seen an opportunity to enhance scale, broaden
our product offerings or integrate new technology. For instance, in addition to Oclaros
formation from the April 27, 2009 merger of Bookham and Avanex, both of these predecessors
have also participated in significant past merger and acquisition activities. Bookhams
acquisitions included, in particular, the Nortel Networks Optical Components business in
2002, the Marconi Optical Components business in 2002, and seven other acquisitions between
2003 and 2009. Our most recent acquisitions were the purchase of Xtellus, Inc. (Xtellus)
in December 2009, which complemented and expanded our WSS product portfolio, and the
purchase of Mintera Corporation (Mintera) in July 2010, which we believe will broaden our
product portfolio for high-speed transmission solutions and will reinforce our position as
one of the leading optical communications providers. In June 2010, we also made a minority
investment in, and entered into a strategic marketing arrangement with, ClariPhy
Communications, Inc. (ClariPhy), a designer of high-speed digital signal processors
complementary to our optical components in 40 gigabits per second (Gb/s) and, in the
future, 100 Gb/s applications.
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Our Product Offerings
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Tunable laser transmitters.
Our tunable laser products include discrete lasers and
co-packaged laser modulators to optimize performance and reduce the size of the product.
Our tunable products at the component level include an InP tunable laser chip, a 10 Gb/s
integrated tunable laser assembly (iTLA) and a 10 Gb/s co-packaged laser
modulator tunable compact mach-zender. We also supply our tunable components into our
customers 40 Gb/s products, and believe we are a primary supplier of these and related
components into the 40 Gb/s solutions commercially available today.
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Fixed wavelength laser transmitters.
Our fixed laser products include discrete lasers
and co-packaged laser modulators to optimize performance and reduce the size of the
product. Our fixed wavelength products at the component level are designed for both
long-haul and metro applications at 2.5 Gb/s and 10 Gb/s and include InP laser chips, a 10
Gb/s laser and a 10 Gb/s co-packaged laser and compact mach-zender modulator.
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We believe that our ability to produce co-packaged, integrated transmitters, both tunable
and fixed wavelength, many of which are sole-sourced to customers, demonstrates the
advantages of InP photonic integration provided by our wafer fabrication facility in
Caswell, U.K.
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Lithium niobate modulators.
Our lithium niobate external modulators are optical
devices that manipulate the phase or the amplitude of an optical signal. Their primary
function is to transfer information on an optical carrier by modulating the light. These
devices externally modulate the lasers of discrete transmitter products including, but not
limited to, our own standalone laser products. We are leaders in the market for 10 Gb/s
modulators, and have recently introduced 40 Gb/s and 100 Gb/s modulators.
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Receivers.
Our portfolio of discrete receivers for metro and long-haul applications at
2.5 Gb/s and 10 Gb/s includes avalanche photodiode (APD) preamp receivers, as well as PIN
photodiode preamp receivers, and PIN and APD modules and products that feature integrated
attenuators.
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Transceivers.
Our small form factor pluggable transceiver portfolio includes
small-form factor pluggable (SFP) products operating at 2.5 Gb/s and XFP products
operating at 10 Gb/s, including a tunable X2 extended product operating at 10 Gb/s. We
have also introduced 10 Gb/s tunable XFP products, the volume production of which we expect
to increase significantly during fiscal year 2012, and which we believe will be cost
effective solutions and industry leading in terms of performance. We believe the photonic
integration of our internal componentry represents a differentiator and a competitive
advantage in our tunable XFP products.
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Transponder modules.
Our transponder modules provide both transmitter and receiver
functions. A transponder includes electrical circuitry to control the laser diode and
modulation function of the transmitter as well as the receiver electronics. We supply a
small form factor tunable transponder at 10 Gb/s. We supply large form factor and small
form factor 40 Gb/s transponders based on a differential phase shift keying (DPSK)
modulation scheme and a 40 Gb/s polarization multiplexing quadrature phase-shift keying
(PM-QPSK) transponder, also known as a coherent-based transponder. We believe the
photonic integration of our internal componentry represents a differentiator and a
competitive advantage in certain of these products.
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Amplifiers.
Erbium doped fiber amplifiers (EDFAs) are used to boost the brightness
of optical signals and offer compact amplification for ultra long-haul, long-haul and metro
networks. We offer a semi-custom product portfolio of multi-wavelength amplifiers from gain
blocks to full card level or subsystem solutions designed for use in wide bandwidth wave
division multiplexing (WDM) optical transmission systems. We also offer lower cost narrow
band mini-amplifiers. 980 nanometer (nm) pump laser diodes are a key component of these
products and they are mostly sourced internally from our own wafer fabrication facilities.
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Pump laser chips.
Our 980 nm pump laser diodes are designed for use as high-power,
reliable pump sources for EDFAs in terrestrial and undersea, or submarine, applications.
Uncooled modules are designed for low-cost, reliable amplification for metro, cross-connect
or other single/multi-channel amplification applications and submarine applications.
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Wavelength Management.
Our wavelength management products include switching and
routing solutions, multiplexing and signal processing solutions and micro-optics and
integrated modules. These include products that optically add and drop transmission
signals in both fixed and reconfigurable versions, including WSS products, which can be
vertically integrated into ROADM line cards, products that optically multiplex or
demultiplex signals based on thin film filters, planar and interleaver technologies, and
products that optically attenuate signal power across a single or multiple wavelength
bands.
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Dispersion Compensation Management.
Our dispersion compensation product family
consists of products that optically compensate for chromatic dispersion and dispersion
degradation of transmission signals, including fixed and tunable products based on
dispersion compensating fiber and cascaded etalons. We believe our tunable dispersion
compensation products are deployed in the substantial portion of the non-coherent 40 Gb/s
networks built today.
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Thin Film Filters
. Our thin film filter (TFF) products are used for multiplexing and
demultiplexing optical signals within dense WDM transmission systems. In addition to this,
TFF products are used to attenuate and control light within our amplifier product range. We
also deploy our optical TFF technology to markets outside of telecommunications, with
applications available in the life sciences, biotechnology and consumer display industries.
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High Powered Laser Diode Products.
We market advanced pump laser technology diodes for
material processing, medical, cosmetic, 3-D imaging and printing applications. We are
introducing fiber lasers which are being marketed to our laser systems customers. We are
also exploring other new market opportunities for our high power lasers.
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VCSEL Products.
We sell low-power polarized products for optical mouse and finger
navigation applications. Our market opportunities for VCSEL products are expanding to
include optical data interconnectivity applications.
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Customers, Sales and Marketing
We believe it is essential to maintain a comprehensive and capable sales and marketing
organization. As of July 2, 2011, our sales and marketing organization, which included direct sales
force, customer service, marketing communications and product line specific marketing employees,
totaled 117 people for all of our products sold in Canada, China, France, Germany, Italy,
Switzerland, the U.K., Japan and the United States. In addition to our direct sales and marketing
organization, we also sell and market our products through international sales representatives and
resellers that extend our commercial reach to smaller geographic locations and customers that are
not currently covered by our direct sales and marketing efforts.
Many of our products typically have a long sales cycle. The period of time from our initial contact
with a customer to the receipt of an actual purchase order is frequently a year or more. In
addition, many customers perform, and require us to perform, extensive process and product
evaluation and testing of components before entering into purchase arrangements.
We offer support services in connection with the sale and purchase of certain products, primarily
consisting of customer service and technical support. Customer service representatives assist
customers with orders, warranty returns and other administrative functions. Technical support
engineers provide customers with answers to technical and product-related questions. Technical
support engineers also provide application support to customers who have incorporated our products
into custom applications.
For the fiscal year ended July 2, 2011, Huawei accounted for 15 percent and Alcatel-Lucent
accounted for 11 percent of our revenues. For the fiscal year ended July 3, 2010, Huawei accounted
for 13 percent and Alcatel-Lucent accounted for 10 percent of our revenues. For the fiscal year
ended June 27, 2009, Huawei accounted for 17 percent and Nortel Networks Corporation (Nortel)
accounted for 14 percent of our revenues.
Our customers are primarily telecommunications systems and components vendors, and also include
customers in data communications, laser systems, life-sciences, industrial printing and consumer
electronics components.
The following table sets forth our revenues by geographic region for the periods indicated,
determined based on the country to which the products were shipped:
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Year Ended
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July 2, 2011
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July 3, 2010
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June 27, 2009
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(Thousands)
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United States
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$
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80,350
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$
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75,907
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$
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42,776
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Canada
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13,090
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14,845
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14,596
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|
Europe
|
|
|
126,310
|
|
|
|
96,387
|
|
|
|
53,236
|
|
Asia
|
|
|
219,777
|
|
|
|
176,534
|
|
|
|
86,951
|
|
Rest of world
|
|
|
26,978
|
|
|
|
28,872
|
|
|
|
13,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
466,505
|
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
|
|
|
|
|
|
|
|
|
8
Manufacturing
We leverage our own in-house manufacturing capabilities, which include our own wafer fabrication
facilities in Europe and our facility in Shenzhen, China where we perform assembly and test
operations. We are able to support and control all phases of the development and manufacturing
process from chip creation to component design and all the way through module and subsystem
production. We also utilize contract manufacturers on a selective basis to provide further
flexibility and to complement our internal capabilities. Our wafer fabrication facilities in
particular, we believe, position us to introduce product innovations delivering optical network
cost and performance advantages to our customers. We also believe that our ability to deliver
innovative technologies in a variety of form factors, ranging from chip level to module level to
subsystem level, allows us to address the needs of a broad base of potential customers regardless
of their desired level of product integration or complexity.
We believe our advanced chip and component design and manufacturing facilities would be very
expensive to replicate. On-chip, or monolithic, integration of functionality is more difficult to
achieve without control over the production process, and requires advanced process know-how and
equipment. Although the market for optical integrated circuits is still in its early stages, it
shares many characteristics with the semiconductor market, including the positive relationship
between the number of features integrated on a chip, the wafer size and the cost and sophistication
of the fabrication equipment. For example, we believe our 3-inch wafer InP semiconductor
fabrication facility in Caswell, U.K. provides us a competitive advantage by allowing us to
increase the complexity of the optical circuits that we design and manufacture, and the integration
of photonics components within smaller packages, without the relatively high cost, power and size
issues associated with less integrated solutions. We also believe that our pump laser gallium
arsenide semiconductor fabrication facility in Zurich, Switzerland is one of the few facilities in
the world offering the 980 nm pump laser diode capability required for most metro and long-haul
optical amplification solutions.
Our manufacturing capabilities include fabrication processing operations for InP substrates,
gallium arsenide substrates, lithium niobate substrates and thin film filters, including clean room
facilities for each of these fabrication processes, along with assembly and test capability and
reliability/quality testing. We utilize sophisticated semiconductor processing equipment in these
operations, such as epitaxy reactors, metal deposition systems, photolithography, etching,
analytical measurement and control equipment. Our assembly and test facilities include specialized
automated assembly equipment, temperature and humidity control and reliability and testing
facilities.
We have wafer fabrication facilities in Caswell, U.K.; Zurich, Switzerland and San Donato, Italy.
We also have facilities in Shenzhen, China where we perform assembly and test operations, a thin
film filter manufacturing facility in Santa Rosa, California and a liquid crystal optical processor
fabrication facility with associated assembly and test activities in Daejeon, South Korea. We also
use third-party contract manufacturers in Thailand and China, principally Fabrinet in Thailand, and
these activities are coordinated by our operations support team in Shenzhen, China. We also use a
U.S.-based contract manufacturer to a lesser degree, on a specific product basis. For assembly and
test, we believe that maintaining a strategy of utilizing both internal manufacturing and third
party subcontractors maximizes the flexibility and leverage of our back-end processes. We are
currently evaluating the capabilities of additional potential contract manufacturing partners to
ensure we have a scalable and cost effective manufacturing strategy appropriate for executing our
business objectives over a long-term horizon. As of July 2, 2011, our manufacturing organization
was comprised of 2,346 people.
Research and Development
We draw upon our internal development and manufacturing capability to continue to create innovative
solutions for our customers. We believe that continued focus on the development of our technology,
and cost reduction of existing products through design enhancements, are critical to our future
competitive success. We seek to expand and develop our products to reduce cost, improve performance
and address new market opportunities, and to enhance our manufacturing processes to reduce
production costs, provide increased device performance and reduce product time to market.
We have significant expertise in optical technologies such as optoelectronic semiconductors
utilizing InP, gallium arsenide and lithium niobate substrates, thin film filters and micro-optic
assembly and packaging technology. In addition to these technologies, we also have electronics
design, firmware and software capabilities to produce transceivers, transponders, optical
amplifiers, WSS, ROADMs and other value-added subsystems. We will also consider supplementing our
in-house technical capabilities with strategic alliances or technology development arrangements
with third parties when we deem appropriate. An example of this is our minority investment in, and
strategic marketing arrangement with, ClariPhy, a developer of high-speed digital signal processors
complementary to our optical components in 40 Gb/s and, in the future, 100 Gb/s applications. We
spent $65.5 million, $41.5 million and $26.1 million on research and development during the years
ended July 2, 2011, July 3, 2010 and June 27, 2009, respectively. As of July 2, 2011, our research
and development organization was comprised of 464 people.
9
Our research and development facilities are in Paignton and Caswell, U.K.; San Jose and Santa Rosa,
California; San Donato, Italy; Zurich, Switzerland; Shenzhen and Shanghai, China; Horseheads, New
York; Acton, Massachusetts; Tucson, Arizona; Denville, New Jersey and Jerusalem, Israel. These
facilities include computer-aided design stations, modern laboratories and automated test
equipment. Our research and development organization has optical and electronic integration
expertise that facilitates meeting customer-specific requirements as they arise.
Intellectual Property
Our competitive position significantly depends upon our research, development, engineering,
manufacturing and marketing capabilities, and not just on our patent position. However, obtaining
and enforcing intellectual property rights, including patents, provides us with a further
competitive advantage. In the appropriate circumstances, these rights can help us to obtain entry
into new markets by providing consideration for cross-licenses. In other circumstances they can be
used to prevent competitors from copying our products or from using our inventions. Accordingly,
our practice is to file patent applications in the United States and other countries for inventions
that we consider significant. In addition to patents, we also possess other intellectual property,
including trademarks, know-how, trade secrets, design rights and copyrights.
We have a substantial number of patents in the United States and other countries, and additional
applications are pending. These relate to technology that we have obtained from our acquisitions of
businesses and companies in addition to our own internally developed technology. As of July 2,
2011, we held 749 U.S. patents and 312 non-U.S. patents, and we had approximately 228 patent
applications pending in various jurisdictions. Although our business is not materially dependent
upon any one patent, our rights and the products made and sold under our patents, taken as a whole,
are a significant element of our business. We maintain an active program designed to identify
technology appropriate for patent protection.
We require employees and consultants to execute the appropriate non-disclosure and proprietary
rights agreements. These agreements acknowledge our exclusive ownership of intellectual property
developed for us and require that all proprietary information disclosed remain confidential. While
such agreements are intended to be binding, we may not be able to enforce these agreements in all
jurisdictions.
Although we continue to take steps to identify and protect our patentable technology and to obtain
and protect proprietary rights to our technology, we cannot be certain the steps we have taken will
prevent misappropriation of our technology, especially in certain countries where the legal
protections of intellectual property are still developing. We may take legal action to enforce our
patents and trademarks and other intellectual property rights. However, legal action may not always
be successful or appropriate. Further, situations may arise in which we may decide to grant
intellectual property licenses to third parties in which case other parties will be able to exploit
our technology in the marketplace.
We enter into patent and technology licensing agreements with other companies when management
determines that it is in our best interest to do so, for example, see our risk factor
Our products
may infringe the intellectual property rights of others, which could result in expensive litigation
or require us to obtain a license to use the technology from third parties, or we may be prohibited
from selling certain products in the future
appearing in Item 1A of this Annual Report on Form
10-K. These may result in net royalties payable to us by third parties or by us to third parties.
However, royalties received from or paid to third parties to date have not been material to our
consolidated results of operations.
In the normal course of business, we periodically receive and make inquiries regarding possible
patent infringement. In dealing with such inquiries, it may become necessary or useful for us to
obtain or grant licenses or other rights. However, there can be no assurance that such licenses or
rights will be available to us on commercially reasonable terms, or at all. If we are not able to
resolve or settle claims, obtain necessary licenses on commercially reasonable terms, and/or
successfully prosecute or defend our position, our business, financial condition and results of
operations could be materially and adversely affected.
10
Competition
The optical communications markets are rapidly evolving. We expect these markets to continue to be
highly competitive because of the available capacity and number of competitors. We compete with
domestic and international companies, many of which have substantially greater financial and other
resources than we do. We believe that our principal competitors in the
optical subsystems, modules and components industry include Finisar Corporation (Finisar), JDS
Uniphase Corporation (JDSU), Oplink Communications, Inc. (Oplink) and Opnext, Inc. (Opnext),
and vertically-integrated equipment manufacturers such as Fujitsu Limited and Sumitomo Electric
Industries, Ltd. The principal competitive factors upon which we compete include breadth of product
line, availability, performance, product reliability, innovation and selling price. We seek to
differentiate ourselves from our competitors by offering high levels of customer value through
collaborative product design, technology innovation, manufacturing capabilities, optical/mechanical
performance, intelligent features for configuration, control and monitoring, multi-function
integration and overall customization. There can be no assurance that we will continue to compete
favorably with respect to these factors. We encounter substantial competition in most of our
markets, although no one competitor competes with us across all product lines or markets.
Our competitors also include laser diode suppliers such as DILAS Diode Lasers, Inc., Jenoptik AG,
Coherent, Inc. and JDSU, some of which are captive suppliers to their own vertically integrated
laser systems operations as well as suppliers to external customers, and some of which, like us,
are merchant suppliers of laser diodes. Our competitors in VCSEL products include Avago
Technologies.
Consolidation in the optical systems and components industry in the past has intensified, and
future consolidation could further intensify, the competitive pressures that we face. For example,
in addition to our merger with Avanex, our fiscal year 2010 acquisition of Xtellus and our fiscal
year 2011 acquisition of Mintera, Finisar and Optium Corporation merged in 2008, Finisar acquired
Ignis Optics in 2011 and Opnext acquired StrataLight Communications, Inc. in 2009. In the past,
JDSU and Oplink have also expanded their businesses through acquisitions.
We also face competition from companies that may expand into our industry and introduce additional
competitive products. Existing and potential customers are also our potential competitors. These
customers may internally develop or acquire additional competitive products or technologies, which
may cause them to reduce or cease their purchases from us.
Amendment and Restatement of Credit Facility
On July 26, 2011, we entered into an amendment and restatement of our senior secured revolving
credit facility with Wells Fargo Capital Finance, Inc. and the other lenders party thereto, which,
among other things, increased the facility size from $25 million to $45 million and extended the
term thereof to August 1, 2014. This amendment and restatement is more fully discussed in Note 16,
Subsequent Event
, to our consolidated financial statements included elsewhere in this Annual Report
on Form 10-K.
Long-Lived Tangible Assets and Total Assets
The following table sets forth our long-lived tangible assets and total assets by geographic region
as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived Tangible Assets
|
|
|
Total Assets
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
United States
|
|
$
|
8,048
|
|
|
$
|
8,213
|
|
|
$
|
98,248
|
|
|
$
|
151,821
|
|
Canada
|
|
|
232
|
|
|
|
275
|
|
|
|
799
|
|
|
|
886
|
|
Europe
|
|
|
16,096
|
|
|
|
8,824
|
|
|
|
167,350
|
|
|
|
139,383
|
|
Asia
|
|
|
44,998
|
|
|
|
20,204
|
|
|
|
108,777
|
|
|
|
68,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,374
|
|
|
$
|
37,516
|
|
|
$
|
375,174
|
|
|
$
|
360,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
As of July 2, 2011, we employed 3,085 persons, including 464 in research and development, 2,346 in
manufacturing, 117 in sales and marketing, and 158 in finance and administration. In Italy, 119
employees belong to local collective bargaining/professional guilds. None of our other employees
are subject to collective bargaining agreements. We believe that our relations with our employees
are good.
11
Investing in our securities involves a high degree of risk. The risks described below are not the
only ones facing us. Additional risks not currently known to us or that we currently believe are
immaterial also may impair our business, operations, liquidity and stock price materially and
adversely. You should carefully consider the risks and uncertainties described below in addition to
the other information included or incorporated by reference in this Annual Report on Form 10-K. If
any of the following risks actually occur, our business, financial condition or results of
operations would likely suffer. In that case, the trading price of our common stock could fall and
you could lose all or part of your investment.
Risks Related to Our Business
We have a history of large operating losses and we may not be able to achieve profitability in the
future.
We have historically incurred losses and negative cash flows from operations since our inception.
As of July 2, 2011, we had an accumulated deficit of $1,126.1 million. We incurred losses from
continuing operations for the years ended July 2, 2011 and June 27, 2009, of $46.4 million and
$25.8 million, respectively. Even though we generated income of $11.0 million from continuing
operations for the year ended July 3, 2010, we may not be able to achieve profitability in any
future periods. If we are unable to do so, we may need additional financing, which may not be
available to us on commercially acceptable terms or at all, to execute on our current or future
business strategies.
We may not be able to maintain gross margin levels.
We may not be able to maintain or improve our gross margins, due to the current economic
uncertainty, changes in customer demand (including a change in product mix between different areas
of our business) and pricing pressure from increased competition or other factors. During fiscal
year 2011, our gross margin decreased as compared to fiscal year 2010. We attempt to reduce our
product costs and improve our product mix to offset price competition and erosion expected in most
product categories, but there is no assurance that we will be successful. Our gross margins can
also be adversely impacted for reasons including, but not limited to, unfavorable production yields
or variances, increases in costs of input parts and materials, the timing of movements in our
inventory balances, warranty costs and related returns, changes in foreign currency exchange rates,
and possible exposure to inventory valuation reserves. Any failure to maintain, or improve, our
gross margins will adversely affect our financial results, including our goal to achieve
sustainable cash flow positive operations.
Our business and results of operations may be negatively impacted by general economic and
financial market conditions and such conditions may increase the other risks that affect our
business.
Over the past few years, the worlds financial markets have experienced significant turmoil,
resulting in reductions in available credit, increased costs of credit, extreme volatility in
security prices, potential changes to existing credit terms, rating downgrades of investments and
reduced valuations of securities generally. In light of these economic conditions, many of our
customers reduced their spending plans, leading them to draw down their existing inventory and
reduce orders for our products. It is possible that economic conditions could result in further
setbacks, and that these customers, or others, could as a result significantly reduce their capital
expenditures, draw down their inventories, reduce production levels of existing products, defer
introduction of new products or place orders and accept delivery for products for which they do not
pay us due to their economic difficulties or other reasons. These actions could have an adverse
impact on our own revenues. In addition, the financial downturn affected the financial strength of
certain of our customers, including their ability to obtain credit to finance purchases of our
products, and could adversely affect additional customers in the future. Our suppliers may also be
adversely affected by economic conditions that may impact their ability to provide important
components used in our manufacturing processes on a timely basis, or at all.
These conditions could also result in reduced capital resources because of the potential lack of
credit availability, higher costs of credit and the stretching of payables by creditors seeking to
preserve their own cash resources. We are unable to predict the likely duration, severity and
potential continuation of any disruption in financial markets and adverse economic conditions in
the U.S. and other countries, but the longer the duration the greater the risks we face in
operating our business.
12
Our success will depend on our ability to anticipate and respond to evolving technologies and
customer requirements.
The market for telecommunications equipment is characterized by substantial capital investment,
rapid and unpredictable changes in customer demand and diverse and evolving technologies. For
example, the market for optical components is currently characterized by a trend toward the
adoption of pluggable components and tunable transmitters that do not require the customized
interconnections of traditional fixed wavelength gold box devices and the increased integration
of components on subsystems. Our ability to anticipate and respond to these and other changes in
technology, industry standards, customer requirements and product offerings and to develop and
introduce new and enhanced products will be significant factors in our ability to succeed. We
expect that new technologies will continue to emerge as competition in the telecommunications
industry increases and the need for higher and more cost efficient bandwidth expands. The
introduction of new products embodying new technologies or the emergence of new industry standards
could render our existing products or products in development uncompetitive from a pricing
standpoint, obsolete or unmarketable, which would negatively affect our financial condition and
results of operations.
We depend on a limited number of customers for a significant percentage of our revenues.
Historically, we have generated most of our revenues from a limited number of customers. Our
dependence on a limited number of customers is due to the fact that the optical telecommunications
systems industry is dominated by a small number of large companies. These companies in turn depend
primarily on a limited number of major telecommunications carrier customers to purchase their
products that incorporate our optical components. For example, in the years ended July 2, 2011,
July 3, 2010 and June 27, 2009, our three largest customers accounted for 36 percent, 29 percent
and 38 percent of our revenues, respectively. Because we rely on a limited number of customers for
significant percentages of our revenues, a decrease in demand for our products from any of our
major customers for any reason (including due to market conditions, catastrophic events or
otherwise) could have a materially adverse impact on our financial conditions and results of
operations. For example, our revenues for the fiscal quarter ended July 2, 2011 were adversely
impacted by a change in customer demand expectations, including a significant change in demand
expectations from a particular major customer. Further, the industry in which our customers
operate is subject to a trend of consolidation. To the extent this trend continues, we may become
dependent on even fewer customers to maintain and grow our revenues.
The majority of our long-term customer contracts do not commit customers to specified buying
levels, and our customers may decrease, cancel or delay their buying levels at any time with
little or no advance notice to us.
The majority of our customers typically purchase our products pursuant to individual purchase
orders or contracts that do not contain purchase commitments. Some customers provide us with their
expected forecasts for our products several months in advance, but many of these customers may
decrease, cancel or delay purchase orders already in place, and the impact of any such actions may
be intensified given our dependence on a small number of large customers. If any of our major
customers decrease, stop or delay purchasing our products for any reason, our business and results
of operations would be harmed. Cancellation or delays of such orders may cause us to fail to
achieve our short-term and long-term financial and operating goals and result in excess and
obsolete inventory. For example, in mid-September 2010, we did experience certain deferrals and
cancellation of orders which adversely impacted our financial results. In addition, our revenues
for the fiscal quarter ended July 2, 2011 were adversely impacted by a change in customer demand
expectations, including a significant change in demand expectations from a particular major
customer.
We have significant manufacturing and research and development operations in China, which exposes
us to risks inherent in doing business in China.
The majority of our assembly and test operations, chip-on-carrier operations and manufacturing and
supply chain management operations are concentrated in our facility in Shenzhen, China. In
addition, we have substantial research and development related activities in Shenzhen and Shanghai,
China. To be successful in China we will need to:
|
|
|
qualify our manufacturing lines and the products we produce in Shenzhen, as required by
our customers;
|
|
|
|
attract and retain qualified personnel to operate our Shenzhen facility; and
|
|
|
|
attract and retain research and development employees at our Shenzhen and Shanghai
facilities.
|
13
We cannot assure you that we will be able to do any of these.
Employee turnover in China is high due to the intensely competitive and fluid market for skilled
labor. To operate our Shenzhen facility under these conditions, we will need to continue to hire
direct manufacturing personnel, administrative personnel and technical personnel; obtain and retain
required legal authorization to hire such personnel; and incur the time and expense to hire and
train such personnel.
Inflation rates in China are higher than in most jurisdictions in which we operate. We believe
that salary inflation rates for the skilled personnel we hire and seek to retain in Shenzhen and
Shanghai are likely to be higher than overall inflation rates.
Operations in China are subject to greater political, legal and economic risks than our operations
in other countries. In particular, the political, legal and economic climate in China, both
nationally and regionally, is fluid and unpredictable. Our ability to operate in China may be
adversely affected by changes in Chinese laws and regulations such as those related to, among other
things, taxation, import and export tariffs, environmental regulations, land use rights,
intellectual property, currency controls, employee benefits and other matters. In addition, we may
not obtain or retain the requisite legal permits to continue to operate in China, and costs or
operational limitations may be imposed in connection with obtaining and complying with such
permits.
We intend to continue to export the products manufactured at our Shenzhen facility. Under current
regulations, upon application and approval by the relevant governmental authorities, we will not be
subject to certain Chinese taxes and will be exempt from certain duties on imported materials that
are used in the manufacturing process and subsequently exported from China as finished products.
However, Chinese trade regulations are in a state of flux, and we may become subject to other forms
of taxation and duties in China or may be required to pay export fees in the future. In the event
that we become subject to new forms of taxation or export fees in China, our business and results
of operations could be materially adversely affected. We may also be required to expend greater
amounts than we currently anticipate in connection with increasing production at our Shenzhen
facility. Any one of the factors cited above, or a combination of them, could result in
unanticipated costs or interruptions in production, which could materially and adversely affect our
business.
Our results of operations may suffer if we do not effectively manage our inventory, and we may
incur inventory-related charges.
We need to manage our inventory of component parts and finished goods effectively to meet changing
customer requirements. Accurately forecasting customers product needs is difficult. Our inventory
balances increased to $102.2 million as of July 2, 2011 from $82.8 million as of January 1, 2011,
even though quarterly revenues decreased to $109.2 million for the fiscal quarter ended July 2,
2011 from $120.3 million for the fiscal quarter ended January 1, 2011. The increase was partly as
a result of actual customer demand decreasing from earlier forecast expectations. Some of our
products and supplies have in the past, and may in the future, become obsolete while in inventory
due to rapidly changing customer specifications or a decrease in customer demand. We also have
exposure to contractual liabilities to our contract manufacturers for inventories purchased by them
on our behalf, based on our forecasted requirements, which may become excess or obsolete. Our
inventory balances also represent an investment of cash. To the extent our inventory turns are
slower than we anticipate based on historical practice, our cash conversion cycle extends and more
of our cash remains invested in working capital. If we are not able to manage our inventory
effectively, we may need to write down the value of some of our existing inventory or write off
non-saleable or obsolete inventory. We have from time to time incurred significant
inventory-related charges. Any such charges we incur in future periods could materially and
adversely affect our results of operations.
We may undertake mergers or acquisitions that do not prove successful.
From time to time we consider mergers or acquisitions, collectively referred to as acquisitions,
of other businesses, assets or companies that would complement our current product offerings,
enhance our intellectual property rights or offer other competitive opportunities. However, we may
not be able to identify suitable acquisition candidates at prices we consider appropriate. In
addition, we are in an industry that is actively consolidating and, as a result, there is no
guarantee that we will successfully and satisfactorily bid against third parties, including
competitors, when we identify a critical target we want to acquire. Our management may not be able
to effectively implement our acquisition plans and internal growth strategy simultaneously.
14
We cannot readily predict the timing, size or success of our future acquisitions. Failure to
successfully implement our acquisition plans could have a material adverse effect on our business,
prospects, financial condition and results of operations. Even successful acquisitions could have
the effect of reducing our cash balances, diluting the ownership interests of existing stockholders
or increasing our indebtedness. For example, our acquisition of Xtellus required an immediate
issuance of a significant number of newly issued shares of our common stock. In addition, during
the first quarter of fiscal year 2012, we intend to issue approximately 0.9 million shares of our
common stock related to the settlement of our Xtellus escrow liability. We could also choose to
use shares of our common stock to pay certain earnouts associated with our acquisition of Mintera,
should all, or portions, of these earnouts be achieved in the twelve and/or eighteen month periods
subsequent to the acquisition date. We cannot predict with certainty which strategic, financial or
operating synergies or other benefits, if any, will actually be achieved from any transaction we
undertake, the timing of any such benefits, or whether those benefits which have been achieved will
be sustainable on a long-term basis. Our failure to identify, consummate or integrate suitable
acquisitions could adversely affect our business and results of operations.
Acquisitions could involve a number of other potential risks to our business, including the
following, any of which could harm our business:
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|
failure to realize the potential financial or strategic benefits of the acquisition;
|
|
|
|
increased costs associated with acquired operations;
|
|
|
|
economic dilution to gross and operating profit and earnings (loss) per share;
|
|
|
|
failure to successfully further develop the combined, acquired or remaining technology,
which could, among other things, result in the impairment of amounts recorded as goodwill
or other intangible assets;
|
|
|
|
unanticipated costs and liabilities and unforeseen accounting charges;
|
|
|
|
difficulty in integrating product offerings;
|
|
|
|
difficulty in coordinating and rationalizing research and development activities to
enhance introduction of new products and technologies with reduced cost;
|
|
|
|
difficulty in coordinating and integrating the manufacturing activities of our acquired
businesses, including with respect to third-party manufacturers, including executing a
production capacity ramp up of our South Korea facility and our contract manufacturers to
support the potential revenue demand for the WSS-related products of Xtellus, managing the
manufacturing activities of the laser diode business acquired from Newport while these
activities are being transferred from Tucson, Arizona to Europe and Asia, and transferring
certain production of Mintera products to our internal facilities;
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|
delays and difficulties in delivery of products and services;
|
|
|
|
failure to effectively integrate or separate management information systems, personnel,
research and development, marketing, sales and support operations;
|
|
|
|
difficulty in maintaining internal control procedures and disclosure controls that
comply with the requirements of the Sarbanes-Oxley Act of 2002, or poor integration of a
targets procedures and controls;
|
|
|
|
difficulty in preserving important relationships of our acquired businesses and
resolving potential conflicts between business cultures;
|
|
|
|
uncertainty on the part of our existing customers, or the customers of an acquired
company, about our ability to operate effectively after a transaction, and the potential
loss of such customers;
|
|
|
|
difficulty in coordinating the international activities of our acquired businesses;
|
|
|
|
the effect of tax laws due to increasing complexities of our global operating
structure;
|
15
|
|
|
the effect of employment law or regulations or other limitations in foreign
jurisdictions that could have an impact on timing, amounts or costs of achieving expected
synergies; and
|
|
|
|
substantial demands on our management as a result of these transactions that may limit
their time to attend to other operational, financial, business and strategic issues.
|
Our integration with acquired businesses has been and will continue to be a complex, time-consuming
and expensive process. We cannot assure you that we will be able to successfully integrate these
businesses in a timely manner, or at all, or that any of the anticipated benefits from our
acquisition of these businesses will be realized. We may have difficulty, and may incur
unanticipated expenses related to, integrating management and personnel from these acquired
entities with our management and personnel. Our failure to achieve the strategic objectives of our
acquisitions could have a material adverse effect on our revenues, expenses and our other operating
results and cash resources and could result in us not achieving the anticipated potential benefits
of these transactions. In addition, we cannot assure you that the growth rate of the combined
company will equal the historical growth rate experienced by any of the companies that we have
acquired. Comparable risks would accompany any divestiture of business or assets we might
undertake.
Sales of our products could decline if customer and/or supplier relationships are disrupted by our
recent acquisition activities.
The customers of acquired businesses, and/or of predecessor companies, may not continue their
historical buying patterns. Customers may defer purchasing decisions as they evaluate the
likelihood of successful integration of our products and our future product strategy, or consider
purchasing products of our competitors.
Customers may also seek to modify or terminate existing agreements, or prospective customers may
delay entering into new agreements or purchasing our products or may decide not to purchase any
products from us. In addition, by increasing the breadth of our business, the transactions may make
it more difficult for us to enter into relationships, including customer relationships, with
strategic partners, some of whom may view us as a more direct competitor than any of the
predecessor and/or acquired businesses as independent companies.
Competitive positions in the market, including relative to suppliers who are also competitors,
could change as a result of an acquisition, and this could impact supplier relationships, including
the terms under which we do business with such suppliers.
As a result of our recent business combinations, we have become a larger and more geographically
diverse organization, with greater available market opportunities. If our management is unable to
manage the combined organization efficiently, including the challenges of managing the growth
potentially available from expanded market opportunities, our operating results will suffer.
As of July 2, 2011, we had approximately 3,085 employees in a total of 15 facilities around the
world. As a result, we face challenges inherent in efficiently managing an increased number of
employees over large geographic distances, including the need to implement appropriate systems,
policies, benefits and compliance programs. Our inability to manage successfully the geographically
more diverse (including from a cultural perspective) and substantially larger combined organization
could have a material adverse effect on our operating results and, as a result, on the market price
of our common stock. Certain of these acquisitions have increased our serviceable available markets
and scaling the company to address the growth potentially available from addressing these markets,
and potentially available within our previously existing markets, creates additional challenges of
a similar nature.
We may not realize the anticipated benefits from the transfer of wafer production from our Tucson,
Arizona manufacturing operations we acquired from Newport to our European fabrication facilities.
Achieving the potential benefits of our July 4, 2009 acquisition from Newport of the laser diodes
manufacturing operations in Tucson, Arizona depended in substantial part on the successful transfer
of those manufacturing operations to our European fabrication facilities. We have faced significant
challenges in transferring these operations in a timely and efficient manner. As a result of
certain of these challenges, our opportunities to increase revenues in the corresponding business
were limited in fiscal year 2011.
16
While we have now successfully transferred those manufacturing facilities to our European
fabrication facilities, we may continue to see limitations on the extent to which we can increase
revenues in fiscal year 2012, and we have not yet achieved the desired yields and related cost
savings. To the extent we were to conduct similar movements of product or production between
manufacturing facilities in the future, we could see similar challenges and results.
Our products are complex and may take longer to develop than anticipated and we may not recognize
revenues from new products until after long field testing and customer acceptance periods.
Many of our new products must be tailored to customer specifications. As a result, we are
developing new products and using new technologies in those products. For example, while we
currently manufacture and sell discrete gold box technology, we expect that many of our sales of
gold box technology will soon be replaced by pluggable modules. New products or modifications to
existing products often take many quarters or even years to develop because of their complexity and
because customer specifications sometimes change during the development cycle. We often incur
substantial costs associated with the research and development, design, sales and marketing
activities in connection with products that may be purchased long after we have incurred such
costs. In addition, due to the rapid technological changes in our market, a customer may cancel or
modify a design project before we begin large-scale manufacture of the product and receive revenues
from the customer. It is unlikely that we would be able to recover the expenses for cancelled or
unutilized design projects. It is difficult to predict with any certainty, particularly in the
present economic climate, the frequency with which customers will cancel or modify their projects,
or the effect that any cancellation or modification would have on our results of operations.
As a result of our global operations, our business is subject to currency fluctuations that have
adversely affected our results of operations in recent quarters and may continue to do so in the
future.
Our financial results have been and will continue to be materially impacted by foreign currency
fluctuations. At certain times in our history, declines in the value of the U.S. dollar versus the
U.K. pound sterling have had a major negative effect on our margins and our cash flow. A
significant portion of our expenses are denominated in U.K. pounds sterling and substantially all
of our revenues are denominated in U.S. dollars.
Fluctuations in the exchange rate between these two currencies and, to a lesser extent, other
currencies in which we collect revenues and/or pay expenses could have a material effect on our
future operating results. For example during fiscal year 2011, the Swiss franc appreciated
approximately 28 percent relative to the U.S. dollar, and the U.K. pound sterling appreciated 7
percent relative to the U.S. dollar, causing increases of approximately $3.1 million related to the
Swiss franc and $4.4 million related to the U.K. pound sterling, respectively, in our annual
manufacturing overhead and operating expenses. If the U.S. dollar stays the same or depreciates
relative to the Swiss franc and/or U.K. pound sterling in the future, our future operating results
may be materially impacted. Additional exposure could also result should the exchange rate between
the U.S. dollar and the Chinese yuan, the South Korean won, the Israeli shekel, or the Euro vary
more significantly than they have to date.
We engage in currency hedging transactions in an effort to cover some of our exposure to U.S.
dollar to U.K. pound sterling currency fluctuations, and we may be required to convert currencies
to meet our obligations. These transactions may not operate to fully hedge our exposure to currency
fluctuations, and under certain circumstances, these transactions could have an adverse effect on
our financial condition.
We depend on a limited number of suppliers who could disrupt our business if they stopped,
decreased, delayed or were unable to meet our demand for shipments of their products.
We depend on a limited number of suppliers of raw materials and equipment used to manufacture our
products. We also depend on a limited number of contract manufacturers, principally Fabrinet in
Thailand, to manufacture certain of our products. Some of these suppliers are sole sources. We
typically have not entered into long-term agreements with our suppliers other than Fabrinet and,
therefore, these suppliers generally may stop supplying us materials and equipment at any time. Our
reliance on a sole supplier or limited number of suppliers could result in delivery problems,
reduced control over product pricing and quality, and an inability to identify and qualify another
supplier in a timely manner. Given the recent macroeconomic downturn, some of our suppliers that
may be small or undercapitalized may experience financial difficulties that could prevent them from
supplying us materials and equipment. In addition, our suppliers, including our sole source
suppliers, may experience manufacturing delays or shut downs due to circumstances beyond their
control such as earthquakes, floods, fires or other natural disasters.
17
Any supply deficiencies relating to the quality or quantities of materials or equipment we use to
manufacture our products could materially adversely affect our ability to fulfill customer orders
and our results of operations. Lead times for the purchase of certain materials and equipment from
suppliers have increased and in some cases have limited our ability to rapidly respond to increased
demand, and may continue to do so in the future. These conditions have been exacerbated by
suppliers, customers and companies reducing their inventory levels in response to the recent
macroeconomic downturn. We are currently evaluating the capabilities of additional potential
contract manufacturing partners to ensure we have a scalable and cost effective manufacturing
strategy appropriate for executing our business objectives over a long-term horizon. To the extent
we introduce additional contract manufacturing partners, introduce new products with new partners
and/or move existing internal or external production lines to new partners, we could experience
supply disruptions during the transition process.
In addition, Fabrinets manufacturing operations are located in Thailand. Thailand has been subject
to political unrest in the recent past, including the temporary interruption of service at one of
its international airports, and may again experience such political unrest in the future. If
Fabrinet is unable to supply us with materials or equipment, or if they are unable to ship our
materials or equipment out of Thailand due to political unrest, this could materially adversely
affect our ability to fulfill customer orders and our results of operations.
We may record additional impairment charges that will adversely impact our results of operations.
We review our goodwill, intangible assets and long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amounts of these assets may not be recoverable,
and also review goodwill annually.
During the fourth quarter of fiscal year 2011 we completed our annual first step analysis for
potential impairment of our goodwill, which included examining the impact of current general
economic conditions on our future prospects and the current level of our market capitalization.
Based on this analysis, we concluded that goodwill related to our WSS reporting unit was impaired.
Our WSS reporting units goodwill was originally recorded in connection with our acquisition of
Xtellus. During the fourth quarter of fiscal year 2011 we also completed our second step analysis
of goodwill impairment, determining that the $20.0 million of goodwill related to our WSS reporting
unit was fully impaired. Based upon this evaluation, we recorded $20.0 million for the goodwill
impairment loss in our consolidated statement of operations for the fiscal year ended July 2, 2011.
During the fiscal year ended June 27, 2009, we determined that the goodwill related to our previous
New Focus and Avalon reporting units was fully impaired. Impairment of goodwill and other
intangible assets for fiscal year 2009, net of $2.8 million associated with the discontinued
operations of the New Focus business, amounted to $9.1 million.
As of July 2, 2011, we had $10.9 million in goodwill and $19.7 million in other intangible assets
on our consolidated balance sheet. In the event that we determine in a future period that
impairment of our goodwill, other intangible assets or long-lived assets exists for any reason, we
would record additional impairment charges in the period such determination is made, which would
adversely impact our financial position and results of operations.
We may incur additional significant restructuring charges that will adversely affect our results
of operations.
We have previously enacted a series of restructuring plans and cost reduction plans designed to
reduce our manufacturing overhead and our operating expenses that have resulted in significant
restructuring charges. Such charges have adversely affected, and will continue to adversely affect,
our results of operations for the periods in which such charges have been, or will be, incurred.
Additionally, actual costs have in the past, and may in the future, exceed the amounts estimated
and provided for in our financial statements. Significant additional charges could materially and
adversely affect our results of operations in the periods that they are incurred and recognized.
For instance, we accrued $5.4 million and $2.2 million in restructuring charges during fiscal years
2009 and 2010, respectively, in connection with our merger with Avanex. On July 4, 2009, we
completed the exchange of our New Focus business to Newport in exchange for Newports high powered
laser diode business, which resulted in us incurring $0.5 million in restructuring charges in
fiscal year 2010 in connection with the transfer of the Tucson manufacturing operations to our
European facilities. During fiscal year 2011, we incurred $0.6 million in restructuring charges
related to a restructuring plan specific to our acquisition of Mintera.
18
If our customers do not qualify our manufacturing lines or the manufacturing lines of our
subcontractors for volume shipments, our operating results could suffer.
Most of our customers do not purchase 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. Our manufacturing lines have passed our qualification standards, as well as our
technical standards. However, our customers also require that our manufacturing lines pass their
specific qualification standards and that we, and any subcontractors that we may use, be registered
under international quality standards. In addition, we have in the past, and may in the future,
encounter quality control issues as a result of relocating our manufacturing lines or introducing
new products to fill production. We may be unable to obtain customer qualification of our
manufacturing lines or we may experience delays in obtaining customer qualification of our
manufacturing lines. Such delays or failure to obtain qualifications would harm our operating
results and customer relationships. We are currently evaluating the capabilities of additional
potential contract manufacturing partners to ensure we have a scalable and cost effective
manufacturing strategy appropriate for executing to our business objectives over a long-term
horizon. To the extent we introduce new contract manufacturing partners and move any production
lines from existing internal or external facilities the new production lines will likely need to be
requalified with customers.
Delays, disruptions or quality control problems in manufacturing could result in delays in product
shipments to customers and could adversely affect our business.
We may experience delays, disruptions or quality control problems in our manufacturing operations
or the manufacturing operations of our subcontractors. As a result, we could incur additional costs
that would adversely affect our gross margins, and our product shipments to our customers could be
delayed beyond the shipment schedules requested by our customers, which would negatively affect our
revenues, competitive position and reputation. Furthermore, even if we are able to deliver products
to our customers on a timely basis, we may be unable to recognize revenues at the time of delivery
based on our revenue recognition policies.
We may experience low manufacturing yields.
Manufacturing yields depend on a number of factors, including the volume of production due to
customer demand and the nature and extent of changes in specifications required by customers for
which we perform design-in work. Higher volumes due to demand for a fixed, rather than continually
changing, design generally results in higher manufacturing yields, whereas lower volume production
generally results in lower yields. In addition, lower yields may result, and have in the past
resulted, from commercial shipments of products prior to full manufacturing qualification to the
applicable specifications. Changes in manufacturing processes required as a result of changes in
product specifications, changing customer needs and the introduction of new product lines have
historically caused, and may in the future cause, significantly reduced manufacturing yields,
resulting in low or negative margins on those products. Moreover, an increase in the rejection rate
of products during the quality control process, before, during or after manufacture, results in
lower yields and margins. For example, see the Risk Factor entitled
We may not realize the
anticipated benefits from the transfer of wafer production from our Tucson, Arizona manufacturing
operations to our European fabrication facilities
above
.
Finally, manufacturing yields and margins
can also be lower if we receive or inadvertently use defective or contaminated materials from our
suppliers. Any reduction in our manufacturing yields will adversely affect our gross margins and
could have a material impact on our operating results.
Our intellectual property rights may not be adequately protected.
Our future success will depend, in large part, upon our intellectual property rights, including
patents, copyrights, design rights, trade secrets, trademarks and know-how. We maintain an active
program of identifying technology appropriate for patent protection. Our practice is to require
employees and consultants to execute non-disclosure and proprietary rights agreements upon
commencement of employment or consulting arrangements. These agreements acknowledge our exclusive
ownership of all intellectual property developed by the individuals during their work for us and
require that all proprietary information disclosed will remain confidential. Although such
agreements may be binding, they may not be enforceable in full or in part in all jurisdictions and
any breach of a confidentiality obligation could have a negative effect on our business and our
remedy for such breach may be limited.
19
Our intellectual property portfolio is an important corporate asset. The steps we have taken and
may take in the future to protect our intellectual property may not adequately prevent
misappropriation or ensure that others will not develop competitive technologies or products. We
cannot assure you that our competitors will not successfully challenge the validity of our patents
or design products that avoid infringement of our proprietary rights with respect to our
technology. There can be no assurance that other companies are not investigating or developing
other similar technologies, that any patents will be issued from any application pending or filed
by us or that, if patents are issued, that the claims allowed will be sufficiently broad to deter
or prohibit others from marketing similar products. In addition, we cannot assure you that any
patents issued to us will not be challenged, invalidated or circumvented, or that the rights under
those patents will provide a competitive advantage to us or that our products and technology will
be adequately covered by our patents and other intellectual property. Further, the laws of certain
regions in which our products are or may be developed, manufactured or sold, including
Asia-Pacific, Southeast Asia and Latin America, may not be enforceable to protect our products and
intellectual property rights to the same extent as the laws of the United States, the U.K. and
continental European countries. This is especially relevant now that we have transferred all of our
assembly and test operations and chip-on-carrier operations, including certain engineering-related
functions, from our facilities in the U.K. to Shenzhen, China.
Our products may infringe the intellectual property rights of others, which could result in
expensive litigation or require us to obtain a license to use the technology from third parties,
or we may be prohibited from selling certain products in the future.
Companies in the industry in which we operate frequently are sued or receive informal claims of
patent infringement or infringement of other intellectual property rights. We have, from time to
time, received such claims, including from competitors and from companies that have substantially
more resources than us.
Third parties may in the future assert claims against us concerning our existing products or with
respect to future products under development, or with respect to products that we may acquire
through acquisitions. We have entered into and may in the future enter into indemnification
obligations in favor of some customers that could be triggered upon an allegation or finding that
we are infringing other parties proprietary rights. If we do infringe a third partys rights, we
may need to negotiate with holders of those rights in order to obtain a license to those rights or
otherwise settle any infringement claim. We have from time to time received notices from third
parties alleging infringement of their intellectual property and where appropriate have entered
into license agreements with those third parties with respect to that intellectual property. Any
license agreements that we wish to enter into the future with respect to intellectual property
rights may not be available to us on commercially reasonable terms, or at all. We may not in all
cases be able to resolve allegations of infringement through licensing arrangements, settlement,
alternative designs or otherwise. We may take legal action to determine the validity and scope of
the third-party rights or to defend against any allegations of infringement. The recent economic
downturn could result in holders of intellectual property rights becoming more aggressive in
alleging infringement of their intellectual property rights and we may be the subject of such
claims asserted by a third party. In the course of pursuing any of these means or defending against
any lawsuits filed against us, we could incur significant costs and diversion of our resources and
our managements attention. Due to the competitive nature of our industry, it is unlikely that we
could increase our prices to cover such costs. In addition, such claims could result in significant
penalties or injunctions that could prevent us from selling some of our products in certain markets
or result in settlements or judgments that require payment of significant royalties or damages.
If we fail to obtain the right to use the intellectual property rights of others necessary to
operate our business, our business and results of operations will be materially and adversely
affected.
Certain companies in the telecommunications and optical components markets in which we sell our
products have experienced frequent litigation regarding patent and other intellectual property
rights. Numerous patents in these industries are held by others, including academic institutions
and our competitors. Optical component suppliers may seek to gain a competitive advantage or other
third parties, inside or outside our market, may seek an economic return on their intellectual
property portfolios by making infringement claims against us. We currently in-license certain
intellectual property of third parties, and in the future, we may need to obtain license rights to
patents or other intellectual property held by others to the extent necessary for our business.
Unless we are able to obtain such licenses on commercially reasonable terms, patents or other
intellectual property held by others could be used to inhibit or prohibit our production and sale
of existing products and our development of new products for our markets. Licenses granting us the
right to use third-party technology may not be available on commercially reasonable terms, or at
all. Generally, a license, if granted, would include payments of up-front fees, ongoing royalties
or both. These payments or other terms could have a significant adverse impact on our operating
results. In addition, in the event we are granted such a license, it is likely such license would
be non-exclusive and other parties, including competitors, may be able to utilize such technology.
Our larger competitors may be able to obtain licenses or cross-license their technology on better
terms than we can, which could put us at a competitive disadvantage. In addition, our larger
competitors may be able to buy such technology and preclude us from licensing or using such
technology.
20
The inability to obtain government licenses and approvals for desired international trading
activities or technology transfers may prevent the profitable operation of our business.
Many of our present and future business activities are subject to licensing by the United States
government under the Export Administration Act, the Export Administration Regulations and other
laws, regulations and requirements governing international trade and technology transfer. We
presently manufacture products in China and Thailand that require such licenses. The profitable
operations of our business may require the continuity of these licenses and may require further
licenses and approvals for future products in these and other countries. However, there is no
certainty to the continuity of these licenses, nor that further desired licenses and approvals may
be obtained.
The markets in which we operate are highly competitive, which could result in lost sales and lower
revenues.
The market for optical components and modules is highly competitive and this competition could
result in our existing customers moving their orders to our competitors. We are aware of a number
of companies that have developed or are developing optical component products, including tunable
lasers, pluggables, wavelength selective switches and thin film filter products, among others, that
compete directly with our current and proposed product offerings.
Certain of our competitors may be able to more quickly and effectively:
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develop or respond to new technologies or technical standards;
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react to changing customer requirements and expectations;
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devote needed resources to the development, production, promotion and sale of products;
and
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deliver competitive products at lower prices.
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Some of our current competitors, as well as some of our potential competitors, have longer
operating histories, greater name recognition, broader customer relationships and industry
alliances and substantially greater financial, technical and marketing resources than we do. In
addition, market leaders in industries such as semiconductor and data communications, who may also
have significantly more resources than we do, may in the future enter our market with competing
products. Our competitors and new Chinese companies are establishing manufacturing operations in
China to take advantage of comparatively low manufacturing costs. All of these risks may be
increased if the market were to further consolidate through mergers or other business combinations
between competitors.
We may not be able to compete successfully with our competitors and aggressive competition in the
market may result in lower prices for our products and/or decreased gross margins. Any such
development could have a material adverse effect on our business, financial condition and results
of operations.
We generate a significant portion of our revenues internationally and therefore are subject to
additional risks associated with the extent of our international operations.
For fiscal years ended July 2, 2011, July 3, 2010 and June 27, 2009, 17 percent, 19 percent and 20
percent of our revenues, respectively, were derived from sales to customers located in the United
States and 83 percent, 81 percent and 80 percent of our revenues, respectively, were derived from
sales to customers located outside the United States. We are subject to additional risks related to
operating in foreign countries, including:
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currency fluctuations, which could result in increased operating expenses and reduced
revenues;
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greater difficulty in accounts receivable collection and longer collection periods;
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21
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difficulty in enforcing or adequately protecting our intellectual property;
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ability to hire qualified candidates;
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political, legal and economic instability in foreign markets;
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changes in, or impositions of, legislative or regulatory requirements;
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trade restrictions, including restrictions imposed by the United States government on
trading with parties in foreign countries;
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epidemics and illnesses;
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terrorism and threats of terrorism;
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work stoppages and infrastructure problems due to adverse weather conditions or natural
disasters;
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work stoppages related to employee dissatisfaction;
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changes in import/export regulations, tariffs, and freight rates; and
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the effective protections of, and the ability to enforce, contractual arrangements.
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Any of these risks, or any other risks related to our foreign operations, could materially
adversely affect our business, financial condition and results of operations.
Changes in effective tax rates or adverse outcomes resulting from examination of our income tax
returns could adversely affect our results.
Our future effective tax rates could be adversely affected by earnings being lower than anticipated
in countries where we have lower statutory rates and higher than anticipated in countries where we
have higher statutory rates, by changes in the valuation of our deferred tax assets and
liabilities, or by changes in tax laws, regulations, accounting principles or interpretations
thereof. In addition, we are subject to the continuous examination of our income tax returns by the
Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse
outcomes resulting from these examinations to determine the adequacy of our provision for income
taxes. There can be no assurance that the outcomes from these continuous examinations will not have
an adverse effect on our operating results and financial condition.
We may face product liability claims.
Despite quality assurance measures, defects may occur in our products. The occurrence of any
defects in our products could give rise to liability for damages caused by such defects, including
consequential damages. Such defects could, moreover, impair market acceptance of our products. Both
could have a material adverse effect on our business and financial condition. In addition, we may
assume product warranty liabilities related to companies we acquire, which could have a material
adverse effect on our business and financial condition. In order to mitigate the risk of liability
for damages, we carry product liability insurance with a $25.0 million aggregate annual limit and
errors and omissions insurance with a $5.0 million annual limit. We cannot assure you that this
insurance would adequately cover our costs arising from any defects in our products or otherwise.
22
If we fail to attract and retain key personnel, our business could suffer.
Our future success depends, in part, on our ability to attract and retain key personnel.
Competition for highly skilled technical personnel is extremely intense and we continue to face
difficulty identifying and hiring qualified engineers in many areas of our business. We may not be
able to hire and retain such personnel at compensation levels consistent with our existing
compensation and salary structure. Our future success also depends on the continued contributions
of our executive management team and other key management and technical personnel, each of whom
would be difficult to replace. The loss of services of these or other executive officers or key
personnel or the inability to continue to attract qualified personnel could have a material adverse
effect on our business.
In addition, certain employees of companies we have acquired that are now employed by us may decide
to no longer work for us with little or no notice for a number of reasons, including
dissatisfaction with our corporate culture, compensation, and new roles or responsibilities, among
others.
Our business and operating results may be adversely affected by natural disasters or other
catastrophic events beyond our control.
Our business and operating results are vulnerable to natural disasters, such as earthquakes, fires
and floods, as well as other events beyond our control such as power loss, telecommunications
failures and uncertainties arising out of terrorist attacks in the United States and armed
conflicts overseas. Our corporate headquarters and a portion of our research and development and
manufacturing operations are located in Silicon Valley, California. This region in particular has
been vulnerable to natural disasters, such as earthquakes. The occurrence of any of these events
could pose physical risks to our property and personnel, which may adversely affect our ability to
produce and deliver products to our customers. Although we presently maintain insurance against
certain of these events, we cannot be certain that our insurance will be adequate to cover any
damage sustained by us or by our customers.
Risks Related to Regulatory Compliance and Litigation
We are subject to anti-corruption laws in the jurisdictions in which we operate, including the
U.S. Foreign Corrupt Practices Act, or the FCPA. Our failure to comply with these laws could
result in penalties which could harm our reputation and have a material adverse effect on our
business, results of operations and financial condition.
We are subject to the FCPA, which generally prohibits companies and their intermediaries from
making improper payments to foreign officials for the purpose of obtaining or keeping business
and/or other benefits, along with various other anticorruption laws. Although we have implemented
policies and procedures designed to ensure that we, our employees and other intermediaries comply
with the FCPA and other anticorruption laws to which we are subject, there is no assurance that
such policies or procedures will work effectively all of the time or protect us against liability
under the FCPA or other laws for actions taken by our employees and other intermediaries with
respect to our business or any businesses that we may acquire. We have manufacturing operations in
China and other jurisdictions, many of which pose elevated risks of anti-corruption violations, and
we export our products for sale internationally. This puts us in frequent contact with persons who
may be considered foreign officials under the FCPA, resulting in an elevated risk of potential
FCPA violations. If we are not in compliance with the FCPA and other laws governing the conduct of
business with government entities (including local laws), we may be subject to criminal and civil
penalties and other remedial measures, which could have an adverse impact on our business,
financial condition, results of operations and liquidity. Any investigation of any potential
violations of the FCPA or other anticorruption laws by U.S. or foreign authorities could harm our
reputation and have an adverse impact on our business, financial condition and results of
operations.
A lack of effective internal control over our financial reporting could result in an inability to
report our financial results accurately, which could lead to a loss of investor confidence in our
financial reports and have an adverse effect on our stock price.
Effective internal controls over financial reporting are necessary for us to provide reliable
financial reports. If we cannot provide reliable financial reports or prevent fraud, our business
and operating results could be harmed. Our failure to implement and maintain effective internal
control over financial reporting could result in a material misstatement of our financial
statements or otherwise cause us to fail to meet our financial reporting obligations. This, in
turn, could result in a loss of investor confidence in the accuracy and completeness of our
financial reports, which could have an adverse effect on
our business, financial condition, operating results and our stock price, and we could be subject
to stockholder litigation as a result. Even if we are able to implement and maintain effective
internal control over financial reporting, the costs of doing business may increase and our
management may be required to dedicate greater time and resources to that effort. In addition, we
have in the past, and may in the future, acquire companies that have either experienced material
weaknesses in their internal controls over financial reporting or have had no previous reporting
obligations under Sarbanes-Oxley. Failure to integrate acquired businesses into our internal
controls over financial reporting could cause those controls to fail.
23
Litigation may substantially increase our costs and harm our business.
We are a party to numerous lawsuits and will continue to incur legal fees and other costs related
thereto, including potentially expenses for the reimbursement of legal fees of officers and
directors under indemnification obligations. The expense of continuing to defend such litigation
may be significant. In addition, there can be no assurance that we will be successful in any
defense. Further, the amount of time that will be required to resolve these lawsuits is
unpredictable and these actions may divert managements attention from the day-to-day operations of
our business, which could adversely affect our business, results of operations and cash flows.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters
that may arise from time to time could have a material adverse effect on our business, results of
operations and financial condition.
For a description of our current material litigation, see Part I, Item 3
Legal Proceedings
of
this Annual Report on Form 10-K.
In addition, from time to time, we have been a party to certain intellectual property infringement
litigation as more fully described above under Risks Related to Our Business
Our products may
infringe the intellectual property rights of others, which could result in expensive litigation or
require us to obtain a license to use the technology from third parties, or we may be prohibited
from selling certain products in the future
.
Our business involves the use of hazardous materials, and we are subject to environmental and
import/export laws and regulations that may expose us to liability and increase our costs.
We historically handled hazardous materials as part of our manufacturing activities. Consequently,
our operations are subject to environmental laws and regulations governing, among other things, the
use and handling of hazardous substances and waste disposal. We may incur costs to comply with
current or future environmental laws. As with other companies engaged in manufacturing activities
that involve hazardous materials, a risk of environmental liability is inherent in our
manufacturing activities, as is the risk that our facilities will be shut down in the event of a
release of hazardous waste, or that we would be subject to extensive monetary liabilities. The
costs associated with environmental compliance or remediation efforts or other environmental
liabilities could adversely affect our business. Under applicable European Union regulations, we,
along with other electronics component manufacturers, are prohibited from using lead and certain
other hazardous materials in our products. We could lose business or face product returns if we
fail to maintain these requirements properly.
In addition, the sale and manufacture of certain of our products require on-going compliance with
governmental security and import/export regulations. We may, in the future, be subject to
investigation which may result in fines for violations of security and import/export regulations.
Furthermore, any disruptions of our product shipments in the future, including disruptions as a
result of efforts to comply with governmental regulations, could adversely affect our revenues,
gross margins and results of operations.
Risks Related to Our Common Stock
A variety of factors could cause the trading price of our common stock to be volatile or to
decline and we may incur significant costs from class action litigation due to our expected stock
volatility.
The trading price of our common stock has been, and is likely to continue to be, highly volatile.
Many factors could cause the market price of our common stock to rise and fall. In addition to the
matters discussed in other risk factors included herein, some of the reasons for the fluctuations
in our stock price are:
|
|
|
fluctuations in our results of operations, including our gross margins;
|
|
|
|
changes in our business, operations or prospects;
|
24
|
|
|
hiring or departure of key personnel;
|
|
|
|
new contractual relationships with key suppliers or customers by us or our competitors;
|
|
|
|
proposed acquisitions by us or our competitors;
|
|
|
|
financial results or projections that fail to meet public market analysts expectations
and changes in stock market analysts recommendations regarding us, other optical technology
companies or the telecommunication industry in general;
|
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|
|
future sales of common stock, or securities convertible into or exercisable for common
stock;
|
|
|
|
adverse judgments or settlements obligating us to pay damages;
|
|
|
|
future issuances of common stock in connection with acquisitions or other transactions;
|
|
|
|
acts of war, terrorism, or natural disasters;
|
|
|
|
industry, domestic and international market and economic conditions, including the global
macroeconomic downturn over the last three years and related sovereign debt issues in
certain parts of the world;
|
|
|
|
low trading volume in our stock;
|
|
|
|
developments relating to patents or property rights; and
|
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|
|
government regulatory changes.
|
In connection with our acquisition of Mintera in July 2010, we may pay up to $20.0 million in
additional revenue-based consideration to former stockholders of Mintera, determined based on a set
of sliding scale formulas, to the extent revenue from Mintera products is more than $29.0 million
in the 12 months following the acquisition and/or more than $40.0 million in the 18 months
following the acquisition. Achieving cumulative revenues of $40.0 million over the 12 months and
$70.0 million over the 18 month period following the acquisition would lead to the maximum $20.0
million in additional consideration. This earnout consideration, if any, will be payable in cash
or, at our option, newly issued shares of our common stock, or a combination of cash and stock.
The issuance, if any, and subsequent sale of these shares, would dilute our existing stockholders
and potentially have a negative impact on our stock price.
In connection with our acquisition of Xtellus in December 2009, we were obligated to pay an
additional $7.0 million in consideration to the former Xtellus stockholders after an 18 month
escrow period established to secure the indemnification obligations of the Xtellus stockholders
under the acquisition agreement. We issued approximately 1.0 million shares of our common stock
into a third-party escrow account to secure our obligation under the escrow agreement. The $7.0
million became payable in June 2011. This obligation remained outstanding as of July 2, 2011.
During the first quarter of fiscal year 2012, we intend to settle this obligation through issuance
of approximately 0.9 million shares of our common stock. This issuance and the subsequent sale of
these shares will dilute our existing stockholders and could potentially have a negative impact on
our stock price.
Our shares of common stock have experienced substantial price and volume fluctuations, in many
cases without any direct relationship to our operating performance. An outgrowth of this market
volatility is the significant vulnerability of our stock price to any actual or perceived
fluctuation in the strength of the markets we serve, regardless of the actual consequence of such
fluctuations. As a result, the market price for our stock is highly volatile. These broad market
and industry factors have caused the market price of our common stock to fluctuate, and may in the
future cause the market price of our common stock to fluctuate, regardless of our actual operating
performance.
25
We are subject to pending securities class action and shareholder derivative legal
proceedings.
When the market price of a stock experiences a sharp decline, as our stock price recently has,
holders of that stock have occasionally brought securities class action litigation against the
company that issued the stock. Several securities class action lawsuits have been filed against us
and certain of our current and former officers and directors. Each purported derivative complaint
alleges, among other things, counts for breaches of fiduciary duty, waste, and unjust enrichment.
For a description of these lawsuits, see Part I, Item 3
Legal Proceedings
of this Annual Report
on Form 10-K. These lawsuits will likely divert the time and attention of our management. In
addition, if these suits are resolved in a manner adverse to us, the damages we could be required
to pay may be substantial and could have an adverse impact on our results of operations and our
ability to operate our business.
Fluctuations in our operating results could adversely affect the market price of our common stock.
Our revenues and other operating results are likely to fluctuate significantly in the future. The
timing of order placement, size of orders and satisfaction of contractual customer acceptance
criteria, changes in the pricing of our products due to competitive pressures as well as order or
shipment delays or deferrals, with respect to our products, may cause material fluctuations in
revenues. Our lengthy sales cycle, which may extend to more than one year, may cause our revenues
and operating results to vary from period to period and it may be difficult to predict the timing
and amount of any variation. Delays or deferrals in purchasing decisions by our customers may
increase as we develop new or enhanced products for new markets, including data communications,
industrial, research, consumer and biotechnology markets. Our current and anticipated future
dependence on a small number of customers increases the revenue impact of each such customers
decision to delay or defer purchases from us, or decision not to purchase products from us. Our
expense levels in the future will be based, in large part, on our expectations regarding future
revenue sources and, as a result, operating results for any quarterly period in which material
orders fail to occur, or are delayed or deferred, could vary significantly.
Because of these and other factors, quarter-to-quarter comparisons of our results of operations may
not be indicative of our future performance. In future periods, our results of operations may
differ, in some cases materially, from the estimates of public market analysts and investors. Such
a discrepancy, or our failure to meet published financial projections, could cause the market price
of our common stock to decline.
We may not be able to raise capital when desired on favorable terms without dilution to our
stockholders, or at all.
The rapidly changing industry in which we operate, the length of time between developing and
introducing a product to market and frequent changing customer specifications for products, among
other things, makes our prospects difficult to evaluate. It is possible that we may not generate
sufficient cash flow from operations, or be able to draw down on our $45.0 million senior secured
revolving credit facility, or otherwise have sufficient capital resources to meet our future
capital needs. If this occurs, we may need additional financing to execute on our current or future
business strategies.
If we raise funds through the issuance of equity, equity-linked or convertible debt securities, our
stockholders may be significantly diluted, and these newly-issued securities may have rights,
preferences or privileges senior to those of securities held by existing stockholders. If we raise
funds through the issuance of debt instruments, the agreements governing such debt instruments may
contain covenant restrictions that limit our ability to, among other things: (i) incur additional
debt, assume obligations in connection with letters of credit, or issue guarantees; (ii) create
liens; (iii) make certain investments or acquisitions; (iv) enter into transactions with our
affiliates; (v) sell certain assets; (vi) redeem capital stock or make other restricted payments;
(vii) declare or pay dividends or make other distributions to stockholders; and (viii) merge or
consolidate with any entity. We cannot assure you that additional financing will be available on
terms favorable to us, or at all. If adequate funds are not available or are not available on
acceptable terms, if and when needed, our ability to fund our operations, develop or enhance our
products, or otherwise respond to competitive pressures and operate effectively could be
significantly limited.
Because we do not intend to pay dividends, stockholders will benefit from an investment in our
common stock only if it appreciates in value.
We have never declared or paid any dividends on our common stock. We anticipate that we will retain
any future earnings to support operations and to finance the development of our business and do not
expect to pay cash dividends in the foreseeable future. As a result, the success of an investment
in our common stock will depend entirely upon any future appreciation in its
value. There is no guarantee that our common stock will appreciate in value or even maintain the
price at which stockholders have purchased their shares.
26
We can issue shares of preferred stock that may adversely affect your rights as a stockholder of
our common stock.
Our certificate of incorporation authorizes us to issue up to 1,000,000 shares of preferred stock
with designations, rights and preferences determined from time-to-time by our board of directors.
Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights superior to those of holders
of our common stock. For example, an issuance of shares of preferred stock could:
|
|
|
adversely affect the voting power of the holders of our common stock;
|
|
|
|
make it more difficult for a third-party to gain control of us;
|
|
|
|
discourage bids for our common stock at a premium;
|
|
|
|
limit or eliminate any payments that the holders of our common stock could expect to
receive upon our liquidation; or
|
|
|
|
otherwise adversely affect the market price of our common stock.
|
We may in the future issue shares of authorized preferred stock at any time.
Delaware law and our charter documents contain provisions that could discourage or prevent a
potential takeover, even if such a transaction would be beneficial to our stockholders.
Some provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware
law, may discourage, delay or prevent a merger or acquisition that a stockholder may consider
favorable. These include provisions:
|
|
|
authorizing the board of directors to issue preferred stock;
|
|
|
|
prohibiting cumulative voting in the election of directors;
|
|
|
|
limiting the persons who may call special meetings of stockholders;
|
|
|
|
prohibiting stockholder actions by written consent;
|
|
|
|
creating a classified board of directors pursuant to which our directors are elected
for staggered three-year terms;
|
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|
permitting the board of directors to increase the size of the board and to fill
vacancies;
|
|
|
|
requiring a super-majority vote of our stockholders to amend our bylaws and certain
provisions of our certificate of incorporation; 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.
|
We are subject to the provisions of Section 203 of the Delaware General Corporation Law which limit
the right of a corporation to engage in a business combination with a holder of 15 percent or more
of the corporations outstanding voting securities, or certain affiliated persons. We do not
currently have a stockholder rights plan in place.
Although we believe that these charter and bylaw provisions, and provisions of Delaware law,
provide an opportunity for the board to assure that our stockholders realize full value for their
investment, they could have the effect of delaying or preventing a change of control, even under
circumstances that some stockholders may consider beneficial.
27
|
|
|
Item 1B.
|
|
Unresolved Staff Comments
|
None.
Our principal properties as of July 2, 2011 are set forth below:
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|
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|
|
|
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|
|
|
|
|
|
Square
|
|
|
|
|
|
|
Lease
|
Location
|
|
Feet
|
|
|
Principal Use
|
|
Ownership
|
|
Expiration
|
San Jose, California
|
|
|
52,000
|
|
|
Corporate headquarters, office space, manufacturing, research and development
|
|
Lease
|
|
January 2016
|
Shenzhen, China
|
|
|
247,000
|
|
|
Office space, manufacturing, research and development
|
|
Own
|
|
Not Applicable
|
Caswell, United Kingdom
|
|
|
183,000
|
|
|
Office space, manufacturing, research and development
|
|
Lease
|
|
March 2026
|
Zurich, Switzerland
|
|
|
124,000
|
|
|
Office space, manufacturing, research and development
|
|
Lease
|
|
June 2012
|
San Donato, Italy
|
|
|
66,000
|
|
|
Office space, manufacturing, research and development
|
|
Lease
|
|
July 2017
|
Santa Rosa, California
|
|
|
33,000
|
|
|
Office space, manufacturing, research and development
|
|
Lease
|
|
December 2011
|
In addition to the above properties, we also own and/or lease administrative, manufacturing
and research and development facilities in Shanghai, China (24,000 square feet); Acton,
Massachusetts (23,000 square feet); Paignton, United Kingdom (18,000 square feet); Tucson, Arizona
(15,000 square feet); Horseheads, New York (15,000 square feet); Daejeon, South Korea (7,000 square
feet); Denville, New Jersey (6,000 square feet); Jerusalem, Israel (5,000 square feet) and Ottawa,
Canada (4,000 square feet), with lease expiration dates ranging from September 2012 to December
2017.
As of July 2, 2011, we owned or leased a total of approximately 0.8 million square feet worldwide,
including the locations listed above. We believe that our properties are adequate to meet our
business needs.
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|
Item 3.
|
|
Legal Proceedings
|
On June 26, 2001, the first of a number of securities class actions was filed in the United States
District Court for the Southern District of New York against New Focus, Inc., now known as Oclaro
Photonics, Inc. (New Focus), certain of our officers and directors, and certain underwriters for
New Focus initial and secondary public offerings. A consolidated amended class action complaint,
captioned
In re New Focus, Inc. Initial Public Offering Securities Litigation
, No. 01 Civ. 5822,
was filed on April 20, 2002. The complaint generally alleges that various underwriters engaged in
improper and undisclosed activities related to the allocation of shares in New Focus initial
public offering and seeks unspecified damages for claims under the Exchange Act on behalf of a
purported class of purchasers of common stock from May 17, 2000 to December 6, 2000.
The lawsuit against New Focus is coordinated for pretrial proceedings with a number of other
pending litigations challenging underwriter practices in over 300 cases, as
In re Initial Public
Offering Securities Litigation
, 21 MC 92 (SAS), including actions against Bookham Technology plc,
now known as Oclaro Technology Ltd (Bookham Technology) and Avanex Corporation, now known as
Oclaro (North America), Inc. (Avanex), and certain of each entitys respective officers and
directors, and certain of the underwriters of their public offerings. In October 2002, the claims
against the directors and officers of New Focus, Bookham Technology and Avanex were dismissed,
without prejudice, subject to the directors and officers execution of tolling agreements.
28
The parties have reached a global settlement of the litigation. On October 5, 2009, the Court
entered an order certifying a settlement class and granting final approval of the settlement. Under
the settlement, the insurers will pay the full amount of the settlement share allocated to New
Focus, Bookham Technology and Avanex, and New Focus, Bookham Technology and Avanex will bear no
financial liability. New Focus, Bookham Technology and Avanex, as well as the officer and director
defendants who were previously dismissed from the action pursuant to tolling agreements, will
receive complete dismissals from the case. Certain objectors have appealed the Courts October 5,
2009 order to the Second Circuit Court of Appeals. If for any reason the settlement does not
become effective, we believe that Bookham Technology, New Focus and Avanex have meritorious
defenses to the claims and therefore believe that such claims will not have a material effect on
our financial position, results of operations or cash flows.
On December 6, 2010, a bankruptcy preferential transfer avoidance action was filed by Nortel
Networks Inc.
et al.
against Oclaro Technology Ltd. (formerly Bookham Technology Plc.) and Oclaro
(North America), Inc. (formerly Avanex Corporation) in the United States Bankruptcy Court for the
District of Delaware, Adversary Proceeding No. 10-55919-KG. The complaint alleges, among other
things, that Nortel Networks Inc., and/or its affiliated debtors in the Chapter 11 bankruptcy cases
also pending before the Delaware Bankruptcy Court (Jointly Administered Case No. 09-10138-KG), made
at least $4,593,152 in preferential transfers to the defendants predecessors, Bookham Technology
Plc. and Avanex Corporation, in the 90 days prior to the commencement of the Nortel Chapter 11
bankruptcy cases on January 14, 2009. We intend to vigorously contest the claims set forth in the
complaint.
On May 19, 2011, Curtis and Charlotte Westley filed a purported class action complaint in the
United States District Court for the Northern District of California, against us and certain of our
officers and directors, allegedly on behalf of persons who purchased or otherwise acquired our
common stock between May 6 and October 27, 2010. The complaint, captioned as Westley v. Oclaro,
Inc., No. 11 Civ. 2448 EMC (N.D. Cal. filed May 19, 2011), alleges generally that defendants issued
materially false and misleading statements during the relevant time period regarding our current
business and financial condition, including projections for our revenues, earnings, and gross
margins, for the first quarter of fiscal year 2011 as well as the full fiscal year. The complaint
alleges violations of section 10(b) of the Securities Exchange Act and Securities and Exchange
Commission Rule 10b-5, as well as section 20(a) of the Securities Exchange Act. The complaint
seeks damages and costs of an unspecified amount. Discovery has not commenced, and no trial has
been scheduled in this action. We intend to defend this litigation vigorously.
On June 10, 2011, a purported shareholder, Stanley Moskal, filed a purported derivative action in
the Superior Court for the State of California, County of Santa Clara, against us, as nominal
defendant, and certain of our current and former officers and directors, as defendants. The case
is styled Moskal v. Couder, No. 1:11 CV 202880 (Santa Clara County Super. Ct. filed June 10, 2011).
Four other purported shareholders, Matteo Guindani, Jermaine Coney, Jefferson Braman and Toby
Aguilar, separately filed substantially similar lawsuits in the United States District Court for
the Northern District of California on June 27, June 28, July 7 and July 26, 2011, respectively.
The cases are styled Guindani v. Couder, No. 11 Civ. 3176 PSG (N.D. Cal. filed June 27, 2011),
Coney v. Couder, No. 11 Civ. 3214 HRL (N.D. Cal. filed June 28, 2011), and Braman v. Couillaud, No.
11 Civ. 3322 RS (N.D. Cal. filed July 7, 2011), and Aguilar v. Couillaud, No. 11 Civ. 3668 EDL
(N.D. Cal. filed July 26, 2011). Each purported derivative complaint alleges that Oclaro has been,
or will be, damaged by the actions alleged in the Westley complaint, and the litigation of the
Westley action, and any damages or settlement paid in the Westley action. Each purported
derivative complaint alleges counts for breaches of fiduciary duty, waste, and unjust enrichment.
Additionally, the complaint in Aguilar alleges claims for contribution pursuant to Sections 10(b)
and 21D of the Securities and Exchange Act, and Securities and Exchange Commission Rule 10b-5, and
Section 20(a) of the Securities Exchange Act. Each purported derivative complaint seeks damages and
costs of an unspecified amount, as well as injunctive relief. Discovery has not commenced, and no
trial has been scheduled in any of these actions. We intend to defend this litigation vigorously.
29
PART II
|
|
|
Item 5.
|
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
|
Market Information and Holders
Our common stock is currently quoted on the NASDAQ Global Select Market under the symbol OCLR.
The following table shows, for the periods indicated, the high and low sale prices of our common
stock as reported on the NASDAQ Global Select Market on and subsequent to January 3, 2011 and the
NASDAQ Global Market prior to January 3, 2011.
|
|
|
|
|
|
|
|
|
|
|
Price Per Share of Common Stock
|
|
|
|
High
|
|
|
Low
|
|
Fiscal 2010 quarter ended:
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
$
|
6.20
|
|
|
$
|
2.70
|
|
January 2, 2010
|
|
|
7.65
|
|
|
|
5.10
|
|
April 3, 2010
|
|
|
14.50
|
|
|
|
7.25
|
|
July 3, 2010
|
|
|
15.99
|
|
|
|
10.15
|
|
Fiscal 2011 quarter ended:
|
|
|
|
|
|
|
|
|
October 2, 2010
|
|
$
|
16.79
|
|
|
$
|
9.62
|
|
January 1, 2011
|
|
|
17.45
|
|
|
|
8.25
|
|
April 2, 2011
|
|
|
18.95
|
|
|
|
10.16
|
|
July 2, 2011
|
|
|
12.02
|
|
|
|
6.00
|
|
On September 6, 2011, the closing sale price of our common stock as reported on the NASDAQ Global
Select Market was $4.30 per share. According to the records of our transfer agent, there were
9,819 stockholders of record of our common stock on September 6, 2011. A substantially greater
number of holders of our common stock are street name or beneficial owners, whose shares of
record are held by banks, brokers and other financial institutions.
Dividends
We have never paid cash dividends on our common stock or ordinary shares. To the extent we generate
earnings, we intend to retain them for use in our business and, therefore, do not anticipate paying
any cash dividends on our common stock in the foreseeable future. In addition, our credit facility
with Wells Fargo Capital Finance, Inc. contains restrictions on our ability to pay cash dividends
on our common stock.
30
Comparison of Stockholder Return
The following graph compares the cumulative five-year total return provided shareholders on Oclaro,
Inc.s common stock relative to the cumulative total returns of the NASDAQ Composite Index and the
NASDAQ Telecommunications Index.
Comparison of Five-Year Cumulative Total Return*
Among Oclaro, Inc., the NASDAQ Composite Index
and the NASDAQ Telecommunications Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
July 2,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
Oclaro, Inc.
|
|
$
|
100.00
|
|
|
$
|
66.96
|
|
|
$
|
51.19
|
|
|
$
|
15.77
|
|
|
$
|
64.29
|
|
|
$
|
40.09
|
|
NASDAQ Composite Index
|
|
$
|
100.00
|
|
|
$
|
122.33
|
|
|
$
|
108.31
|
|
|
$
|
86.75
|
|
|
$
|
100.42
|
|
|
$
|
132.75
|
|
NASDAQ
Telecommunications
Index
|
|
$
|
100.00
|
|
|
$
|
141.44
|
|
|
$
|
122.57
|
|
|
$
|
95.93
|
|
|
$
|
99.80
|
|
|
$
|
120.07
|
|
|
|
|
*
|
|
Assumes that $100.00 was invested in Oclaro common stock and in each
index at market closing prices on July 1, 2006, and that all dividends
were reinvested. No cash dividends have been declared on our common
stock. Stockholder returns over the indicated period should not be
considered indicative of future stockholder returns.
|
31
|
|
|
Item 6.
|
|
Selected Financial Data
|
The selected financial data set forth below should be read in conjunction with our consolidated
financial statements and related notes and Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in this Annual Report on Form 10-K.
The selected financial data set forth below at July 2, 2011 and July 3, 2010, and for the fiscal
years ended July 2, 2011, July 3, 2010 and June 27, 2009, are derived from our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K. The selected financial
data at June 27, 2009, June 28, 2008 and June 30, 2007, and for the fiscal years ended June 28,
2008 and June 30, 2007 are derived from audited financial statements not included in this Annual
Report on Form 10-K, after giving effect to the discontinued operations of our New Focus business.
On April 29, 2010, we effected a 1-for-5 reverse split of our common stock. All share and per
share amounts presented below are reflected on a post-reverse-split basis.
Consolidated Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2,
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands, except per share data)
|
|
Revenues
|
|
$
|
466,505
|
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
$
|
202,663
|
|
|
$
|
171,183
|
|
Operating income (loss)
|
|
|
(33,610
|
)
|
|
|
4,834
|
|
|
|
(34,811
|
)
|
|
|
(29,894
|
)
|
|
|
(79,871
|
)
|
Income (loss) from
continuing operations
|
|
|
(46,425
|
)
|
|
|
10,961
|
|
|
|
(25,769
|
)
|
|
|
(23,261
|
)
|
|
|
(82,450
|
)
|
Income (loss) from
discontinued
operations
|
|
|
|
|
|
|
1,420
|
|
|
|
(6,387
|
)
|
|
|
(179
|
)
|
|
|
275
|
|
Net income (loss)
|
|
|
(46,425
|
)
|
|
|
12,381
|
|
|
|
(32,156
|
)
|
|
|
(23,440
|
)
|
|
|
(82,175
|
)
|
Income (loss) from
continuing operations
per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.96
|
)
|
|
$
|
0.27
|
|
|
$
|
(1.12
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
(5.86
|
)
|
Diluted
|
|
$
|
(0.96
|
)
|
|
$
|
0.26
|
|
|
$
|
(1.12
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
(5.86
|
)
|
Weighted average
shares of common stock
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,444
|
|
|
|
40,322
|
|
|
|
22,969
|
|
|
|
18,620
|
|
|
|
14,067
|
|
Diluted
|
|
|
48,444
|
|
|
|
42,262
|
|
|
|
22,969
|
|
|
|
18,620
|
|
|
|
14,067
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2,
|
|
|
July 3,
|
|
|
June 27,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands)
|
|
Total assets
|
|
$
|
375,174
|
|
|
$
|
360,795
|
|
|
$
|
233,388
|
|
|
$
|
212,090
|
|
|
$
|
204,526
|
|
Total stockholders equity
|
|
|
229,095
|
|
|
|
252,534
|
|
|
|
140,390
|
|
|
|
149,062
|
|
|
|
120,967
|
|
Long-term obligations
|
|
|
6,277
|
|
|
|
9,785
|
|
|
|
4,923
|
|
|
|
1,336
|
|
|
|
1,908
|
|
The following items affect the comparability of our financial data for the periods shown in the
consolidated statements of operations data above:
Revenues, operating income (loss), income (loss) from continuing operations and net income (loss)
in fiscal years 2011, 2010 and 2009 include the revenues, costs of revenues and operating expenses
of Avanex from April 27, 2009, the date of the merger. Operating losses for fiscal years ended
July 2, 2011 and June 27, 2009 include $20.0 million and $9.1 million in recognition of impairment
of goodwill and other intangible assets as more fully discussed in Note 4,
Goodwill and Other
Intangible Assets
, to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
32
Income (loss) from discontinued operations corresponds to the net operating results of our New
Focus business, which was sold to Newport in the exchange of assets that closed in July 2009, as
more fully discussed in Note 3,
Business Combinations
, to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.
|
|
|
Item 7.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with Risk Factors appearing in Item 1A of this Annual Report on Form 10-K,
Selected Financial Data appearing in Item 6 of this Annual Report on Form 10-K and our
consolidated financial statements and related notes appearing elsewhere in this Annual Report on
Form 10-K, including Note 1,
Business and Summary of Significant Accounting Policies
, to such
consolidated financial statements. This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially from those
anticipated by the forward-looking statements due to, among other things, our critical accounting
estimates discussed below and important other factors set forth in this Annual Report on Form 10-K.
Please see Special Note Regarding Forward-Looking Statements appearing elsewhere in this Annual
Report on Form 10-K.
Overview
We are a leading provider of high-performance core optical network components, modules and
subsystems to global telecommunications (telecom) equipment manufacturers. We leverage our
proprietary core technologies and vertically integrated product development to provide our
customers with cost-effective and innovative optical solutions in metro and long-haul network
applications. Increasingly we have new opportunities with other customers managing and building out
their own wide area networks with characteristics of telecom networks. In addition, we utilize our
optical expertise to address new and emerging optical product opportunities in selective
non-telecom markets, such as materials processing, consumer, medical, industrial, printing and
biotechnology. In all markets our approach is to offer a differentiated solution that is designed
to make it easier for our customers to do business by combining optical technology innovation,
photonic integration, and a vertical integrated approach to manufacturing and product development.
Our customers include Huawei; Alcatel-Lucent; Ciena; Fujitsu Limited; Tellabs, Inc.; Infinera
Corporation; Cisco Systems, Inc.; ADVA Optical Networking; NEC Corporation; Nokia-Siemens Networks
and Ericsson.
Results of Operations
On June 3, 2009 we announced the signing of a definitive agreement with Newport, under which
Newport would acquire our New Focus business in exchange for Newports high power laser diodes
business. The transaction closed on July 4, 2009. We have classified the financial results of the
New Focus business as discontinued operations for all periods presented. The following
presentations relate to continuing operations only, unless otherwise indicated.
33
Fiscal Years Ended July 2, 2011 and July 3, 2010
The following table sets forth our consolidated results of operations for the fiscal years ended
July 2, 2011 and July 3, 2010, and the year-over-year increase (decrease) in our results, expressed
both in dollar amounts (thousands) and as a percentage of revenues, except where indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
Increase
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
Revenues
|
|
$
|
466,505
|
|
|
|
100.0
|
|
|
$
|
392,545
|
|
|
|
100.0
|
|
|
$
|
73,960
|
|
|
|
18.8
|
|
Cost of revenues
|
|
|
342,869
|
|
|
|
73.5
|
|
|
|
283,751
|
|
|
|
72.3
|
|
|
|
59,118
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
123,636
|
|
|
|
26.5
|
|
|
|
108,794
|
|
|
|
27.7
|
|
|
|
14,842
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
65,492
|
|
|
|
14.0
|
|
|
|
41,496
|
|
|
|
10.6
|
|
|
|
23,996
|
|
|
|
57.8
|
|
Selling, general and administrative
|
|
|
62,767
|
|
|
|
13.4
|
|
|
|
56,378
|
|
|
|
14.4
|
|
|
|
6,389
|
|
|
|
11.3
|
|
Amortization of intangible assets
|
|
|
2,805
|
|
|
|
0.6
|
|
|
|
951
|
|
|
|
0.2
|
|
|
|
1,854
|
|
|
|
195.0
|
|
Restructuring, acquisition and
related costs
|
|
|
4,469
|
|
|
|
1.0
|
|
|
|
5,468
|
|
|
|
1.4
|
|
|
|
(999
|
)
|
|
|
(18.3
|
)
|
Legal settlements
|
|
|
1,678
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
1,678
|
|
|
|
n/m
|
(1)
|
Impairment of goodwill
|
|
|
20,000
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
n/m
|
(1)
|
Gain (loss) on sale of property and
equipment
|
|
|
35
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
(0.1
|
)
|
|
|
368
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
157,246
|
|
|
|
33.7
|
|
|
|
103,960
|
|
|
|
26.5
|
|
|
|
53,286
|
|
|
|
51.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(33,610
|
)
|
|
|
(7.2
|
)
|
|
|
4,834
|
|
|
|
1.2
|
|
|
|
(38,444
|
)
|
|
|
n/m
|
(1)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
16
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
(55.6
|
)
|
Interest expense
|
|
|
(2,011
|
)
|
|
|
(0.4
|
)
|
|
|
(367
|
)
|
|
|
(0.1
|
)
|
|
|
(1,644
|
)
|
|
|
448.0
|
|
Gain (loss) on foreign currency
translation
|
|
|
(9,174
|
)
|
|
|
(2.0
|
)
|
|
|
2,494
|
|
|
|
0.6
|
|
|
|
(11,668
|
)
|
|
|
n/m
|
(1)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
4,892
|
|
|
|
1.3
|
|
|
|
(4,892
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(11,169
|
)
|
|
|
(2.4
|
)
|
|
|
7,055
|
|
|
|
1.8
|
|
|
|
(18,224
|
)
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
(44,779
|
)
|
|
|
(9.6
|
)
|
|
|
11,889
|
|
|
|
3.0
|
|
|
|
(56,668
|
)
|
|
|
n/m
|
(1)
|
Income tax provision
|
|
|
1,646
|
|
|
|
0.4
|
|
|
|
928
|
|
|
|
0.2
|
|
|
|
718
|
|
|
|
77.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(46,425
|
)
|
|
|
(10.0
|
)
|
|
|
10,961
|
|
|
|
2.8
|
|
|
|
(57,386
|
)
|
|
|
n/m
|
(1)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
1,420
|
|
|
|
0.4
|
|
|
|
(1,420
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(46,425
|
)
|
|
|
(10.0
|
)
|
|
$
|
12,381
|
|
|
|
3.2
|
|
|
$
|
(58,806
|
)
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues for the year ended July 2, 2011 increased by $74.0 million, or 19 percent, compared to the
year ended July 3, 2010. The increase was primarily from increased product sales attributable to
improved market conditions as our sector experienced a rebound from the economic downturn, as
compared to the market conditions of calendar year 2009, and from our acquisitions of Mintera in
July 2010 and Xtellus in December 2009. During the second half of fiscal year 2011, short-term
decreases in demand, including a slowdown of 40 Gb/s deployments in China, and reduced sales as a
result of inventory
adjustments with many of our customers offset the improved market conditions we have otherwise seen
since fiscal year 2010.
34
For the year ended July 2, 2011, Huawei accounted for $71.7 million, or 15 percent, and
Alcatel-Lucent accounted for $50.0 million, or 11 percent, of our revenues. For the year ended July
3, 2010, Huawei accounted for $51.9 million, or 13 percent, of our revenues and Alcatel-Lucent
accounted for $39.5 million, or 10 percent, of our revenues.
Cost of Revenues
Our cost of revenues consists of the costs associated with manufacturing our products, and includes
the purchase of raw materials, labor costs and related overhead, including stock-based compensation
charges and the costs charged by our contract manufacturers for the products they manufacture for
us. Charges for excess and obsolete inventory are also included in cost of revenues. Costs and
expenses related to our manufacturing resources incurred in connection with the development of new
products are included in research and development expense.
Our cost of revenues for the year ended July 2, 2011 increased by $59.1 million, or 21 percent,
compared to the year ended July 3, 2010. The increase was primarily related to costs associated
with our 19 percent increase in revenues during fiscal year 2011 and from increased costs
associated with revenues from our acquisitions of Mintera and Xtellus. We also had a $2.9 million
increase in depreciation expense, offset in part by lower costs from having one less week of
expenses in fiscal year 2011 compared to fiscal year 2010. Our cost of revenues were also
unfavorably impacted by approximately $2.1 million as a result of the Swiss franc strengthening
relative to the U.S. dollar and $1.5 million as a result of the U.K. pound sterling strengthening
relative to the U.S. dollar.
Gross Profit
Gross profit is calculated as revenues less cost of revenues. Gross margin rate is gross profit
reflected as a percentage of revenues.
Our gross margin rate decreased to 27 percent for the year ended July 2, 2011, compared to 28
percent for the year ended July 3, 2010. Our gross profit was unfavorably impacted by approximately
$2.1 million as a result of the Swiss franc strengthening relative to the U.S. dollar and $1.5
million as a result of the U.K. pound sterling strengthening relative to the U.S. dollar. In
addition, we had a $2.9 million increase in depreciation expense, offset in part by lower costs
from having one less week of expenses in fiscal year 2011 compared to fiscal year 2010.
Research and Development Expenses
Research and development expenses consist primarily of salaries and related costs of employees
engaged in research and design activities, including stock-based compensation charges related to
those employees, costs of design tools and computer hardware, costs related to prototyping and
facilities costs for certain research and development focused sites.
Research and development expenses increased by $24.0 million, or 58 percent, for the year ended
July 2, 2011, compared to the year ended July 3, 2010. Our research and development expenses
increased as we invested to match the rate of our anticipated revenue growth for fiscal year 2011.
This includes increased spending on personnel and on materials associated with our product
development efforts. The increase was also attributable to research and development associated
with increased personnel and product development efforts related to our acquisitions of Mintera in
July 2010 and Xtellus in December 2009. These increases were offset in part by having an
additional week of expenses during the year ended July 3, 2010 compared to the year ended July 2,
2011. Beginning in the fourth quarter of fiscal year 2011, we began to decrease the rate of our
investment in research and development in response to changing short-term revenue growth
expectations, and expect this trend to continue in our fiscal quarter ended October 1, 2011. We do
expect research and development expenses to be higher in amount for the full fiscal year 2012, as
compared to the full fiscal year 2011. Personnel-related costs increased to $37.7 million for the
year ended July 2, 2011, compared with $26.9 million for the year ended July 3, 2010. Other costs,
including engineering materials, the costs of design tools and facilities-related costs increased
to $27.8 million for the year ended July 2, 2011, compared with $14.6 million for the year ended
July 3, 2010. Research and development expenses were unfavorably impacted by approximately $1.1
million as a result of the U.K. pound sterling strengthening relative to the U.S. dollar and $0.6
million as a result of the Swiss franc strengthening relative to the U.S. dollar.
35
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel-related expenses,
including stock-based compensation charges related to employees engaged in sales, general and
administrative functions, legal and professional fees, facilities expenses (excluding manufacturing
and research and development focused sites), insurance expenses and certain information technology
costs.
Selling, general and administrative expenses increased by $6.4 million, or 11 percent, for the year
ended July 2, 2011, compared to the year ended July 3, 2010. The increase was primarily due to the
increase in costs incurred in connection with recent acquisitions, offset in part by the additional
week of expenses during the year ended July 3, 2010. Personnel-related costs increased to $34.9
million for the year ended July 2, 2011, compared with $31.4 million for the year ended July 3,
2010. Other costs, including legal and professional fees, facilities expenses and other
miscellaneous expenses, increased to $27.9 million for the year ended July 2, 2011, compared with
$25.0 million for the year ended July 3, 2010. Selling, general and administrative expenses were
unfavorably impacted by approximately $1.8 million as a result of the U.K. pound sterling
strengthening relative to the U.S. dollar and $0.4 million as a result of the Swiss franc
strengthening relative to the U.S. dollar.
Amortization of Intangible Assets
Amortization of intangible assets increased to $2.8 million for the year ended July 2, 2011 from
$1.0 million for the year ended July 3, 2010. This $1.8 million increase was primarily attributable
to our acquisitions of Mintera in July 2010 and Xtellus in December 2009. Specifically, the
amortizable base of our intangible assets increased by $11.7 million from our Mintera acquisition
and by $7.3 million from our Xtellus acquisition. We expect the amortization of intangible assets
to increase from $2.8 million to $2.9 million for fiscal year 2012, $3.2 million for fiscal years
2013 through 2015 and $2.7 million for fiscal year 2016 based on the current level of our
intangible assets.
Restructuring, Acquisition and Related Costs
We incurred $1.5 million in employee separation costs during the year ended July 2, 2011 in
connection with previously announced restructuring plans, offset by reductions to our restructuring
reserve of $0.8 million from revised estimates for employee separation costs, lease cancellation
and commitments and other charges. We do not expect to incur significant additional restructuring
costs in connection with previously announced restructuring plans.
We also incurred $3.6 million during the year ended July 2, 2011 in external consulting charges
associated with our next phase of optimization of past acquisitions as we focus on the associated
infrastructure and processes required to support sustainable growth. In addition, we recorded $0.1
million in acquisition-related professional fees during this same period.
Legal Settlements
Legal settlements expense of $1.7 million during the year ended July 2, 2011 includes amounts
recorded in connection with a confidential settlement agreement with QinetiQ Limited and for other
legal settlements and related legal costs.
Impairment of Goodwill
During the fourth quarter of fiscal year 2011, we completed our annual first step analysis for
potential impairment of our goodwill, which included examining the impact of current general
economic conditions on our future prospects and the current level of our market capitalization.
Based on this analysis, including the effect of recent declines in our stock price and market
capitalization, we concluded that goodwill related to our WSS reporting unit was impaired. Our WSS
reporting units goodwill was originally recorded in connection with our acquisition of Xtellus.
During the fourth quarter of fiscal year 2011, we also completed our second step analysis of
goodwill impairment, determining that the $20.0 million of goodwill related to our WSS reporting
unit was fully impaired. Based upon this evaluation, we recorded $20.0 million for the goodwill
impairment loss in our consolidated statement of operations for fiscal year 2011.
36
Gain on Sale of Property and Equipment
For the year ended July 3, 2010, we recorded a net gain of $0.3 million, primarily related to the
sale of certain fixed assets in Villebon, France in connection with the closing of that facility.
Other Income (Expense)
Other income (expense) for the year ended July 2, 2011 decreased by $18.2 million compared to the
year ended July 3, 2010. This decrease was primarily due to an $11.7 million increase in foreign
exchange loss from the non-cash re-measurement of short-term receivables and payables among certain
of our wholly-owned international subsidiaries for fluctuations in the U.S. dollar relative to our
other local functional currencies during the corresponding periods. This decrease was also due to
a $5.3 million in gain from our purchase of Newports high-power laser diodes business being
recorded during the year ended July 3, 2010 and from a $1.6 million increase in interest expense
during the year ended July 2, 2011 related to liabilities recognized in the acquisitions of Xtellus
and Mintera.
Income Tax Provision
For the fiscal year ended July 2, 2011, our income tax provision of $1.6 million primarily related
to certain of our foreign operations, which operate on a cost-plus basis for services primarily
associated with manufacturing and research and development.
In the fourth quarter of fiscal year 2010, we determined that it is more-likely-than-not that we
will utilize net operating losses in one of our foreign jurisdictions due to current earnings and
projections of future profitability. Accordingly, we released $1.3 million of our valuation
allowance against $1.3 million of previously unrecognized deferred tax assets during the fourth
quarter of fiscal year 2010. This amount represented the entire remaining deferred tax asset
related to the accumulated net operating losses of the foreign jurisdiction. Due to the uncertainty
surrounding the realization of the tax attributes in other jurisdictions, we have recorded a full
valuation allowance against our remaining foreign and domestic deferred tax assets as of July 2,
2011.
Income from Discontinued Operations
No amounts related to revenues, cost of revenues, gross profit or operating expenses were
recognized during fiscal years 2011 and 2010 due to the sale of our New Focus business on July 4,
2009. During fiscal year 2010, we recorded income of $1.4 million from discontinued operations
from the sale of our New Focus business. For further details, refer to Note 3,
Business
Combinations
, to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
37
Fiscal Years Ended July 3, 2010 and June 27, 2009
The following table sets forth our consolidated results of operations for the fiscal years ended
July 3, 2010 and June 27, 2009, and the year-over-year increase (decrease) in our results,
expressed both in dollar amounts (thousands) and as a percentage of revenues, except where
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
Increase
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
Revenues
|
|
$
|
392,545
|
|
|
|
100.0
|
|
|
$
|
210,923
|
|
|
|
100.0
|
|
|
$
|
181,622
|
|
|
|
86.1
|
|
Cost of revenues
|
|
|
283,751
|
|
|
|
72.3
|
|
|
|
164,425
|
|
|
|
78.0
|
|
|
|
119,326
|
|
|
|
72.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
108,794
|
|
|
|
27.7
|
|
|
|
46,498
|
|
|
|
22.0
|
|
|
|
62,296
|
|
|
|
134.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
41,496
|
|
|
|
10.6
|
|
|
|
26,147
|
|
|
|
12.4
|
|
|
|
15,349
|
|
|
|
58.7
|
|
Selling, general and administrative
|
|
|
56,378
|
|
|
|
14.4
|
|
|
|
34,899
|
|
|
|
16.6
|
|
|
|
21,479
|
|
|
|
61.5
|
|
Amortization of intangible assets
|
|
|
951
|
|
|
|
0.2
|
|
|
|
487
|
|
|
|
0.2
|
|
|
|
464
|
|
|
|
95.3
|
|
Restructuring, acquisition and
related costs
|
|
|
5,468
|
|
|
|
1.4
|
|
|
|
6,826
|
|
|
|
3.2
|
|
|
|
(1,358
|
)
|
|
|
(19.9
|
)
|
Legal settlements
|
|
|
|
|
|
|
|
|
|
|
3,829
|
|
|
|
1.8
|
|
|
|
(3,829
|
)
|
|
|
(100.0
|
)
|
Impairment of goodwill and other
intangible assets
|
|
|
|
|
|
|
|
|
|
|
9,133
|
|
|
|
4.3
|
|
|
|
(9,133
|
)
|
|
|
(100.0
|
)
|
Gain on sale of property and equipment
|
|
|
(333
|
)
|
|
|
(0.1
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(321
|
)
|
|
|
2,675.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
103,960
|
|
|
|
26.5
|
|
|
|
81,309
|
|
|
|
38.5
|
|
|
|
22,651
|
|
|
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
4,834
|
|
|
|
1.2
|
|
|
|
(34,811
|
)
|
|
|
(16.5
|
)
|
|
|
39,645
|
|
|
|
n/m
|
(1)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
36
|
|
|
|
|
|
|
|
575
|
|
|
|
0.3
|
|
|
|
(539
|
)
|
|
|
(93.7
|
)
|
Interest expense
|
|
|
(367
|
)
|
|
|
(0.1
|
)
|
|
|
(543
|
)
|
|
|
(0.3
|
)
|
|
|
176
|
|
|
|
(32.4
|
)
|
Gain on foreign currency translation
|
|
|
2,494
|
|
|
|
0.6
|
|
|
|
11,094
|
|
|
|
5.3
|
|
|
|
(8,600
|
)
|
|
|
(77.5
|
)
|
Other income (expense)
|
|
|
4,892
|
|
|
|
1.3
|
|
|
|
(685
|
)
|
|
|
(0.3
|
)
|
|
|
5,577
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
7,055
|
|
|
|
1.8
|
|
|
|
10,441
|
|
|
|
5.0
|
|
|
|
(3,386
|
)
|
|
|
(32.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
11,889
|
|
|
|
3.0
|
|
|
|
(24,370
|
)
|
|
|
(11.5
|
)
|
|
|
36,259
|
|
|
|
n/m
|
(1)
|
Income tax provision
|
|
|
928
|
|
|
|
0.2
|
|
|
|
1,399
|
|
|
|
0.7
|
|
|
|
(471
|
)
|
|
|
(33.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,961
|
|
|
|
2.8
|
|
|
|
(25,769
|
)
|
|
|
(12.2
|
)
|
|
|
36,730
|
|
|
|
n/m
|
(1)
|
Income (loss) from discontinued operations, net of tax
|
|
|
1,420
|
|
|
|
0.4
|
|
|
|
(6,387
|
)
|
|
|
(3.0
|
)
|
|
|
7,807
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,381
|
|
|
|
3.2
|
|
|
$
|
(32,156
|
)
|
|
|
(15.2
|
)
|
|
$
|
44,537
|
|
|
|
n/m
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues for the year ended July 3, 2010 increased by $181.6 million, or 86 percent, compared to
the year ended June 27, 2009. The increase was primarily related to our merger with Avanex in
April 2009, increased product sales attributable to improved market conditions, as compared to the
market conditions of calendar year 2009 as a result of the economic downturn, which resulted in
market share gains across the majority of our product areas. The increase was also due to
including revenues from our July 2009 acquisition of the Newport laser diode business in our
results of operations for the year ended July 3, 2010.
38
For the year ended July 3, 2010, Huawei accounted for $51.9 million, or 13 percent, of our revenues
and Alcatel-Lucent accounted for $39.5 million, or 10 percent, of our revenues. For the year ended
June 27, 2009, Huawei accounted for $35.7 million, or 17 percent, of our revenues and Nortel
accounted for $29.5 million, or 14 percent, of our revenues.
Cost of Revenues
Our cost of revenues for the year ended July 3, 2010 increased $119.3 million, or 73 percent, from
the year ended June 27, 2009. The increase was primarily related to our merger with Avanex in April
2009 and the acquisition of the Newport laser diode business in July 2009, as well as costs
associated with higher volumes of revenue resulting from improved market conditions subsequent to
the economic downturn of calendar year 2009, which were partially offset by the efficiencies from
merger-related synergies and realizing the benefits of previous cost reduction efforts.
Gross Profit
Our gross margin rate increased to 28 percent for the year ended July 3, 2010, compared to 22
percent for the year ended June 27, 2009. The increase in gross margin rate was primarily due to
operating leverage from higher revenue volumes, synergies from the merger with Avanex, including
related cost reductions and the internal sourcing of Oclaro components into Avanex products, as
well as the impact of other cost reduction efforts during fiscal year 2010 and earlier. Gross
margin rate was also favorably impacted during the year ended July 3, 2010 relative to year ended
June 27, 2009 due to recognizing the costs associated with $2.7 million of products shipped to
Nortel in the year ended June 27, 2009, which revenue was deferred in accordance with our revenue
recognition policy.
Research and Development Expenses
Research and development expenses increased to $41.5 million for the year ended July 3, 2010 from
$26.1 million for the year ended June 27, 2009. The increase was primarily due to an increase in
research and development in connection with the merger with Avanex in April 2009, the acquisitions
of the Newport laser diode business in July 2009 and Xtellus in December 2009, and increased
investment in research and development resources, primarily personnel-related, in an effort to
match the rate of our anticipated revenue growth. Research and development expenses in fiscal year
2010 also included one additional week of expenses due to our fiscal calendar. The year ended July
3, 2010 was a 53 week year, while the year ended June 27, 2009 was a 52 week year.
Personnel-related costs increased to $26.9 million for the year ended July 3, 2010, compared with
$15.3 million for the year ended June 27, 2009. Other costs, including the costs of design tools
and facilities-related costs increased to $14.6 million for the year ended July 3, 2010, compared
with $10.8 million for the year ended June 27, 2009.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $56.4 million for the year ended July 3,
2010, from $34.9 million for the year ended June 27, 2009. The increase was primarily due to an
increase in costs incurred in connection with the merger with Avanex in April 2009 and the
acquisitions of the Newport laser diode business in July 2009 and Xtellus in December 2009, offset
in part by synergies related to integrating these operations. Selling, general and administrative
expenses in fiscal year 2010 also included one additional week of expenses due to our fiscal
calendar. Personnel-related costs increased to $31.4 million for the year ended July 3, 2010,
compared with $19.4 million for the year ended June 27, 2009. Other costs, including legal and
professional fees, facilities expenses and other miscellaneous expenses increased to $25.0 million
for the year ended July 3, 2010, compared with $15.5 million for the year ended June 27, 2009.
Amortization of Intangible Assets
Amortization of intangible assets increased to $1.0 million for the year ended July 3, 2010 from
$0.5 million in the year ended June 27, 2009. This $0.5 million increase was driven by acquisitions
during fiscal year 2010. Specifically, the amortizable base of our intangible assets increased in
the year ended July 3, 2010 by $1.8 million from our Newport acquisition, $7.3 million from our
Xtellus acquisition and $0.7 million from an asset purchase.
39
Restructuring, Acquisition and Related Costs
For the year ended July 3, 2010, we accrued $0.4 million in expenses, net of adjustments, for
revised estimates related to lease cancellations and commitments and $2.2 million in employee
separation costs in connection with cost reduction and restructuring plans implemented in prior
years. During the year ended July 3, 2010, we also initiated a new restructuring plan resulting
from our acquisition of the Newport laser diode business. This plan involves the transfer of laser
diode manufacturing operations from Tucson, Arizona to our European manufacturing facilities. We
incurred $0.5 million in restructuring accruals for employee separation charges under the Newport
plan. During the year ended July 3, 2010, we also wrote-down $0.8 million in inventory, net of
adjustments, which became impaired through the integration of our WSS product lines.
During the year ended July 3, 2010, we also recorded $2.5 million for acquisition-related costs,
which include $1.5 million of professional fees and $1.0 million in employee retention payments
payable in connection with the acquisition of Xtellus. During the second half of fiscal year 2010,
we reassessed the fair value of the value protection liability related to our Xtellus acquisition
determining that the fair value of this liability declined from $0.9 million at January 2, 2010 to
nil at July 3, 2010. This $0.9 million change in fair value was recognized as a reduction to
acquisition-related costs during the year ended July 3, 2010.
Legal Settlement
In April 2009, we settled our outstanding litigation with a competitor, which resulted in us
recording $4.0 million in legal settlement expenses during the year ended June 27, 2009. Of this
amount, $3.0 million represents settlement payments paid to the competitor and $1.0 million
represents legal fees incurred in connection with the litigation and settlement. Legal fees during
the year ended June 27, 2009 were partially offset by a $0.2 million benefit from the settlement of
a legal action in connection with our sale of land in Swindon, U.K. to a third-party in 2005.
Impairment of Goodwill and Other Intangible Assets
During the year ended June 27, 2009 we determined that the goodwill related to our New Focus and
Avalon reporting units was fully impaired, and we therefore recorded a $7.9 million goodwill
impairment charge. In conjunction with our review of goodwill, we recorded $1.2 million for the
impairment loss related to certain intangible assets related to our Avalon reporting unit in our
fiscal year 2009 statement of operations. The impairment charges will not result in any current or
future cash expenditures.
Gain on Sale of Property and Equipment
During the year ended July 3, 2010, we recorded a net gain of $0.3 million, primarily related to
the sale of certain fixed assets in Villebon, France made surplus in connection with the closing of
that facility.
Other Income (Expense)
Other income (expense) for the year ended July 3, 2010 decreased by $3.4 million compared to the
year ended June 27, 2009. This decrease primarily resulted from an $8.6 million decrease in gain
from the re-measurement of short-term receivables and payables for fluctuations in the U.S. dollar
relative to our other local functional currencies during the corresponding periods among certain of
our wholly-owned international subsidiaries and a $0.5 million decrease in interest income due to
lower average interest rates, which was partially offset by a $5.3 million gain from the bargain
purchase of the high-power laser diodes business from Newport on July 4, 2009.
Income Tax Provision
For the year ended July 3, 2010, our income tax provision of $0.9 million primarily related to $2.2
million in current income taxes from our operations in Italy, China and the United States,
partially offset by a release of $1.3 million in our valuation allowance.
40
In the fourth quarter of fiscal year 2010, we determined that it is more-likely-than-not that we
will utilize net operating losses in one of our foreign jurisdictions due to current earnings and
projections of future profitability. Accordingly, we released $1.3 million of our valuation
allowance against $1.3 million of previously unrecognized deferred tax assets during the fourth
quarter of fiscal year 2010. This amount represents the entire remaining deferred tax asset related
to the accumulated net operating losses of the foreign jurisdiction. Due to the uncertainty
surrounding the realization of the tax attributes in other jurisdictions, we have recorded a full
valuation allowance against our remaining foreign and domestic deferred tax assets as of July 3,
2010.
Income (Loss) From Discontinued Operations
The following table sets forth the results of the discontinued operations of our New Focus
business, which was sold on July 4, 2009, for the fiscal years ended July 3, 2010 and June 27, 2009
and the year-over-year increase (decrease) in our results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(Thousands, except percentages)
|
|
Revenues
|
|
$
|
|
|
|
$
|
24,829
|
|
|
$
|
(24,829
|
)
|
Cost of revenues
|
|
|
|
|
|
|
17,113
|
|
|
|
(17,113
|
)
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
7,716
|
|
|
|
(7,716
|
)
|
Gross margin rate
|
|
|
|
|
|
|
31.1
|
%
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
14,106
|
|
|
|
(14,106
|
)
|
Other income (expense), net
|
|
|
1,420
|
|
|
|
53
|
|
|
|
1,367
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
before income taxes
|
|
|
1,420
|
|
|
|
(6,337
|
)
|
|
|
7,757
|
|
Income tax provision
|
|
|
|
|
|
|
50
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations
|
|
$
|
1,420
|
|
|
$
|
(6,387
|
)
|
|
$
|
7,807
|
|
|
|
|
|
|
|
|
|
|
|
For further details, refer to Note 3,
Business Combinations
, to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
Liquidity and Capital Resources
Cash flows from Operating Activities
Net cash used by operating activities for the year ended July 2, 2011 was $4.6 million, primarily
resulting from a net loss of $46.4 million and by a $1.7 million decrease in cash due to changes in
operating assets and liabilities, largely offset by $43.5 million in non-cash adjustments to our
net loss. The $1.7 million decrease in cash due to changes in operating assets and liabilities was
comprised of a $30.9 million increase in inventory, a $1.9 million decrease in accrued expenses and
other liabilities, a $0.3 million increase in prepaid expenses and other current assets and a $0.2
million increase in other non-current assets, offset in part by cash generated from a $20.7 million
decrease in accounts receivable and a $10.8 million increase in accounts payable. The $43.5
million in non-cash adjustments consisted of a $20.0 million charge for impairment of goodwill,
$18.1 million of expense related to depreciation and amortization and $6.3 million of expense
related to stock-based compensation, offset in part by $0.9 million from the amortization of
deferred gain from a sales-leaseback transaction.
Net cash used by operating activities for the year ended July 3, 2010 was $5.3 million, primarily
resulting from a $25.1 million decrease in cash due to changes in operating assets and liabilities,
partially offset by net income of $12.4 million and non-cash adjustments to net income of $7.4
million. The $25.1 million decrease in cash due to changes in operating assets and liabilities was
comprised of a $34.9 million increase in accounts receivable, a $7.6 million decrease in accrued
expenses and other liabilities and an increase of $2.4 million in prepaid expenses and other
current assets, offset in part by cash generated from a $15.4 million increase in accounts payable,
a $3.3 million decrease in inventory and a $1.1 million decrease in other non-current assets. The
$7.4 million in non-cash adjustments primarily consisted of $11.8 million of expense related to
depreciation and amortization and $4.4 million of expense related to stock-based compensation,
offset in part by $5.3 million in gain from the bargain purchase of the high-power laser diodes
business from Newport, $1.4 million in gain from
the sale of the New Focus business, $0.9 million from the amortization of deferred gain from a
sales-leaseback transaction, $0.9 million from the change in fair value of the value protection
guarantee related to the Xtellus acquisition and $0.3 million in gain from the sale of property and
equipment.
41
Net cash used in operating activities for the year ended June 27, 2009 was $3.1 million, resulting
from the net loss of $32.2 million offset by non-cash adjustments of $28.5 million, primarily
consisting of an $11.9 million charge for impairment of goodwill and other intangible assets, $12.5
million of expense related to depreciation and amortization of certain assets and $4.4 million of
expense related to stock-based compensation. Cash also increased $0.5 million from a net change in
our operating assets and liabilities, excluding those assets and liabilities assumed in our merger
with Avanex, due to a $6.9 million decrease in inventories and $0.7 million decrease in prepaid
expenses and other current and non-current assets, which were partially offset by a $5.6 million
decrease in accounts payable, a $0.7 million decrease in accrued liabilities and a $0.8 million
increase in accounts receivable.
Cash flows from Investing Activities
Net cash used in investing activities for the year ended July 2, 2011 was $47.9 million, primarily
consisting of $41.6 million used in capital expenditures to support new product introductions and
our anticipated revenue growth and $10.5 million used in the acquisition of Mintera, partially
offset by a reduction of $4.0 million in restricted cash related to facility leases from which we
exited during fiscal year 2011 and $0.2 million in proceeds from the sale of certain fixed assets.
Net cash used in investing activities for the year ended July 3, 2010 was $6.7 million, primarily
consisting of $12.1 million used in capital expenditures, $7.5 million used to acquire an equity
interest in ClariPhy Communications, Inc., a privately-held company, and $0.3 million used to
acquire intangible assets, equipment and inventory through an asset purchase, which were partially
offset by $9.3 million in sales and maturities of available-for-sale investments, $3.3 million in
cash acquired from business combinations and $0.9 million in proceeds from the sale of certain
fixed assets.
Net cash provided by investing activities for the year ended June 27, 2009 was $21.4 million,
primarily consisting of $29.2 million in sales and maturities of available-for-sale investments and
$11.5 million in cash acquired in the merger with Avanex, which were partially offset by $9.2
million used in capital expenditures, $6.9 million used to purchase available-for-sale investments
and $3.1 million in additional required restricted cash related to lease obligations assumed in the
merger with Avanex.
Cash Flows from Financing Activities
Net cash provided by financing activities of $2.7 million for the year ended July 2, 2011 resulted
from $2.4 million received from issuance of common stock, primarily through stock option exercises,
and from $0.3 million in additional proceeds related to our May 2010 follow-on stock offering due
to finalization of our previous estimates of offering-related expenses.
Net cash of $77.3 million provided by financing activities for the year ended July 3, 2010
primarily resulted from $77.1 million in proceeds, net of estimated expenses and commissions, from
an underwritten public offering of 6.9 million shares of our common stock at a price to the public
of $12.00 per share. During fiscal year 2010 we received $2.5 million in net proceeds from
borrowings under our Amended Credit Agreement, which was entirely repaid within the fiscal year,
and also received $0.3 million from issuance of common stock primarily through stock option
exercises.
There were no significant cash flows from financing activities for the year ended June 27, 2009.
Effect of Exchange Rates on Cash and Cash Equivalents for the Years Ended July 2, 2011, July 3,
2010 and June 27, 2009
The effect of exchange rates on cash and cash equivalents for the year ended July 2, 2011 was an
increase of $5.4 million, which included $1.5 million in net gain due to the revaluation of foreign
currency cash balances to the functional currency of the respective subsidiaries and from gains of
approximately $2.2 million related to the revaluation of U.S. dollar denominated operating
intercompany payables of our subsidiaries.
42
The effect of exchange rates on cash and cash equivalents for year ended July 3, 2010 was a
decrease of $2.8 million, primarily consisting of a loss of approximately $1.4 million related to
the revaluation of U.S. dollar denominated operating intercompany payables on the books of our U.K.
subsidiary and from $1.0 million in net loss due to the revaluation of foreign currency cash
balances to the functional currency of the respective subsidiaries.
The effect of exchange rates on cash and cash equivalents for the year ended June 27, 2009 was a
decrease of $6.5 million, primarily consisting of approximately $1.1 million in net gain due to the
revaluation of foreign currency cash balances to the functional currency of the respective
subsidiaries and a gain of approximately $6.6 million related to the revaluation of U.S. dollar
denominated operating intercompany receivables on the books of our U.K. subsidiary, which were
partially offset by $1.2 million of other miscellaneous increases in cash and cash equivalents due
to the effects of exchange rates.
Credit Facility
On August 2, 2006, Oclaro, Inc., along with Oclaro Technology Ltd., Oclaro Photonics, Inc. and
Oclaro Technology, Inc., each a wholly-owned subsidiary of the Company (collectively the Original
Borrowers), entered into a credit agreement, or the Original Credit Agreement, with Wells Fargo
Capital Finance, Inc. and certain other lenders, which Original Credit Agreement has previously
been amended from time to time.
On July 26, 2011, Oclaro Technology Ltd., as Borrower, and Oclaro, Inc., as Parent, entered
into an amendment and restatement to the Original Credit Agreement with Wells Fargo Capital
Finance, Inc. and the other lenders party thereto regarding the senior secured revolving credit
facility, increasing the facility size from $25 million to $45 million and extending the term
thereof to August 1, 2014 (the Credit Agreement). Under the Credit Agreement, advances are
available based on 80 percent of qualified accounts receivable, as defined in the Credit
Agreement.
The obligations of the Borrower under the Credit Agreement are guaranteed by Parent and all
significant subsidiaries of Parent and Borrower (collectively, the Guarantors), and are secured,
pursuant to two security agreements (the Security Agreements), by substantially all of the assets
of Borrower and Guarantors, including a pledge of the capital stock holdings of the Borrower and
certain Guarantors in their direct subsidiaries.
Borrowings made under the Credit Agreement bear interest at a rate based on either the London
Interbank Offered Rate plus 2.50 percentage points or the banks prime rate plus 1.50 percentage
points. In the absence of an event of default, any amounts outstanding under the Credit Agreement
may be repaid and re-borrowed at any time until maturity, which is August 1, 2014.
The Credit Agreement contains negative covenants applicable to Parent, Borrower and their
subsidiaries, including a financial covenant that, on a consolidated basis, requires Parent to
maintain a minimum fixed charge coverage ratio of no less than 1.10 to 1.00, if Parent and its
subsidiaries have not maintained minimum liquidity (defined as $15 million of qualified cash and
excess availability, each as defined in the Credit Agreement). The Credit Agreement also contains
restrictions on liens, certain investments, indebtedness, fundamental changes to the Borrowers
business, certain dispositions of property, making certain restricted payments (including
restrictions on dividends and stock repurchases), entering into new lines of business and
transactions with affiliates.
The obligations of the Borrower under the Credit Agreement may be accelerated upon the occurrence
of an event of default under the Credit Agreement, which includes customary events of default,
including payment defaults, defaults in the performance of affirmative and negative covenants, the
inaccuracy of representations or warranties, a cross-default related to indebtedness in an
aggregate amount of $2.0 million or more, bankruptcy and insolvency related defaults, defaults
relating to such matters as the Employee Retirement Income Security Act, certain judgments in
excess of $2.0 million and a change of control default.
In connection with the Credit Agreement, the Borrower paid a closing fee of $250,000 and agreed to
pay a monthly servicing fee of $3,000 and a variable unused line fee equal to between 0.375 and
0.50 percentage points per annum, payable monthly on the unused amount of revolving credit
commitments. To the extent there are letters of credit outstanding under the Credit Agreement, the
Borrower is obligated to pay the administrative agent a letter of credit fee at a rate equal to 3.3
percentage points per annum.
43
As of July 2, 2011 and July 3, 2010, there were no amounts outstanding under the Original Credit
Agreement. At July 2, 2011 and July 3, 2010, there were $1.1 million and $2.0 million,
respectively, in outstanding standby letters of credit with vendors secured under the Original
Credit Agreement and subsequently under the Credit Agreement. The outstanding standby letters of
credit for $1.1 million expire at various intervals through April 2014.
Future Cash Requirements
As of July 2, 2011, we held $62.8 million in cash and cash equivalents and $0.6 million in
restricted cash. We expect that our cash flows from operations, together with our current cash
balances and amounts expected to be available under our Credit Agreement, which are based on a
percentage of eligible accounts receivable (as defined in the Credit Agreement), will provide us
with sufficient financial resources in order to operate as a going concern through at least fiscal
year 2012. In the future, in order to strengthen our financial position, in the event of
unforeseen circumstances, or in the event we need to fund our growth in future financial periods,
we may need to raise additional funds by any one or a combination of the following: (i) issuing
equity securities, (ii) incurring indebtedness secured by our assets, (iii) issuing debt and/or
convertible debt securities, or (iv) selling product lines and/or portions of our business. There
can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at
all.
From time to time, we have engaged in discussions with third parties concerning potential
acquisitions of product lines, technologies and businesses, such as our merger with Avanex, our
acquisitions of Xtellus and Mintera, and our exchange of assets agreement with Newport. We
continue to consider potential acquisition candidates. Any such transactions could result in us
issuing significant number of new equity or debt securities (including promissory notes), the
incurrence or assumption of debt, and the utilization of our cash and cash equivalents. We may also
be required to raise additional funds to complete any such acquisition, through either the issuance
of equity securities and/or borrowings. If we raise additional funds or acquire businesses or
technologies through the issuance of equity securities, our existing stockholders may experience
significant dilution.
Risk Management Foreign Currency Risk
As our business is multinational in scope, we are increasingly subject to fluctuations based upon
changes in the exchange rates between the currencies in which we collect revenues and pay expenses.
In the future, we expect that a majority of our revenues will be denominated in U.S. dollars, while
a significant portion of our expenses will continue to be denominated in U.K. pounds sterling and
the Swiss franc. Fluctuations in the exchange rate between the U.S. dollar, the U.K. pound
sterling and the Swiss franc and, to a lesser extent, other currencies in which we collect revenues
and pay expenses could affect our operating results. This includes the Chinese yuan, the Korean
won, the Israeli shekel and the Euro in which we pay expenses in connection with operating our
facilities in Shenzhen and Shanghai, China; Daejeon, South Korea; Jerusalem, Israel and San Donato,
Italy. To the extent the exchange rate between the U.S. dollar and these currencies were to
fluctuate more significantly than experienced to date, our exposure would increase. We enter into
foreign currency forward exchange contracts in an effort to mitigate a portion of our exposure to
such fluctuations between the U.S. dollar and the U.K. pound sterling, and we may be required to
convert currencies to meet our obligations. Under certain circumstances, foreign currency forward
exchange contracts can have an adverse effect on our financial condition. As of July 2, 2011, we
held five foreign currency forward exchange contracts with a notional value of $4.0 million which
include put and call options which expire, or expired, at various dates from July 2011 to November
2011. As of July 2, 2011, we recorded an unrealized gain of $0.1 million to accumulated other
comprehensive income in connection with marking these contracts to fair value.
44
Contractual Obligations
Our contractual obligations at July 2, 2011, by nature of the obligation and amount due over
identified periods of time, are set out in the table below:
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|
|
|
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Operating
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Sublease
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|
|
Purchase
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|
Long-Term
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Leases
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Income
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Obligations
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Obligations
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(Thousands)
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Fiscal Year:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
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$
|
6,653
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|
|
$
|
(238
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)
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|
$
|
86,888
|
|
|
$
|
138
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2013
|
|
|
4,206
|
|
|
|
(128
|
)
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|
|
|
|
|
|
7
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|
2014
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|
|
3,634
|
|
|
|
(128
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)
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|
|
|
|
|
|
|
|
2015
|
|
|
3,425
|
|
|
|
(84
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)
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|
|
|
|
|
|
|
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2016
|
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3,334
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|
|
|
(62
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)
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|
|
|
|
|
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Thereafter
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24,039
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|
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$
|
45,291
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|
|
$
|
(640
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)
|
|
$
|
86,888
|
|
|
$
|
145
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|
|
|
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The purchase obligations consist of our total outstanding purchase order commitments at July 2,
2011. Any capital purchases to which we are committed are included in these outstanding purchase
order commitments. Operating leases are future annual commitments under non-cancelable operating
leases, including rents payable for land and buildings.
Off-Balance Sheet Arrangements
We indemnify our directors and certain employees as permitted by law, and have entered into
indemnification agreements with our directors and executive officers. We have not recorded a
liability associated with these indemnification arrangements as we historically have not incurred
any material costs associated with such indemnification obligations. Costs associated with such
indemnification obligations may be mitigated by insurance coverage that we maintain, however, such
insurance may not cover any, or may cover only a portion of, the amounts we may be required to pay.
In addition, we may not be able to maintain such insurance coverage in the future.
We also have indemnification clauses in various contracts that we enter into in the normal course
of business, such as indemnifications in favor of customers in respect of liabilities they may
incur as a result of purchasing our products should such products infringe the intellectual
property rights of a third party. We have not historically paid out any material amounts related to
these indemnifications; therefore, no accrual has been made for these indemnifications.
Other than as set forth above, we are not currently party to any material off-balance sheet
arrangements.
Recent Accounting Pronouncements
See Note 1,
Business and Summary of Significant Accounting Policies
, to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for information regarding the
effect of new accounting pronouncements on our consolidated financial statements.
Application of Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which have
been prepared in accordance with accounting principles generally accepted in the United States, or
U.S. GAAP. The preparation of our financial statements requires us to make estimates and judgments
that affect our reported assets and liabilities, revenues and expenses and other financial
information. Actual results may differ significantly from those based on our estimates and
judgments or could have been materially different if we had used different assumptions, estimates
or conditions. In addition, our financial condition and results of operations could vary due to a
change in the application of a particular accounting standard.
45
We regard an accounting estimate or assumption underlying our financial statements as a critical
accounting estimate where:
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the nature of the estimate or assumption is material due to the level of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility of such
matters to change; and
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the impact of such estimates and assumptions on our financial condition or operating
performance is material.
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Our significant accounting policies are described in Note 1,
Business and Summary of Significant
Accounting Policies
, to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. Not all of these significant accounting policies, however, require that we
make estimates and assumptions that we believe are critical accounting estimates. We have
discussed our accounting policies with the audit committee of our board of directors, and we
believe that the policies described below involve critical accounting estimates.
Revenue Recognition and Sales Returns
Revenue represents the amounts, excluding sales taxes, derived from the sale of goods and services
to third-party customers during a given period. Specifically, we recognize product revenue when
persuasive evidence of an arrangement exists, the product has been shipped, title has transferred,
collectability is reasonably assured, fees are fixed or determinable and there are no uncertainties
with respect to customer acceptance. For certain sales, we are required to determine, in
particular, whether the delivery has occurred, whether items will be returned and whether we will
be paid under normal commercial terms. For certain products sold to customers, we specify delivery
terms in the agreement under which the sale was made and assess each shipment against those terms,
and only recognize revenue when we are certain that the delivery terms have been met. We record a
provision for estimated sales returns in the same period as the related revenues are recorded,
which is netted against revenue. These estimates for sales returns are based on historical sales
return rates, other known factors and our return policy. Before accepting a new customer, we review
publicly available information and credit rating databases to provide ourselves with reasonable
assurance that the new customer will pay all outstanding amounts in accordance with our standard
terms. For existing customers, we monitor historic payment patterns and we perform ongoing credit
evaluations to assess whether we can expect payment in accordance with the terms set forth in the
agreement under which the sale was made.
We recognize revenues from financially distressed customers when collectability becomes reasonably
assured, assuming all other above criteria for revenue recognition have been met. In fiscal year
2009 we issued billings of $4.1 million for products that were shipped to Nortel, but for which
payment was not received prior to Nortels bankruptcy filing on January 14, 2009. As a result, the
corresponding revenue was deferred, and therefore was not recognized as revenues or accounts
receivable in the consolidated financial statements at the time of such billings, as we determined
that such amounts were not reasonably assured of collectability in accordance with our revenue
recognition policy. As of July 2, 2011, we had remaining contractual receivables from Nortel
totaling $2.7 million which are not reflected in the accompanying consolidated balance sheet. To
the extent that collectability becomes reasonably assured for these deferred billings in future
periods, our future results of operations will benefit from the recognition of these amounts.
Inventory Valuation
In general, our inventories are valued at the lower of cost to acquire or manufacture our products
or market value, less write-offs of inventory we believe could prove to be unsalable.
Manufacturing costs include the cost of the components purchased to produce our products and
related labor and overhead. We review our inventory on a quarterly basis to determine if it is
saleable. Products may be unsalable because they are technically obsolete due to substitute
products, specification changes or excess inventory relative to customer forecasts. We currently
reduce the cost basis for inventory using methods that take these factors into account. If we find
that the cost of inventory is greater than the current market price, we will write the inventory
down to the estimated selling price, less the estimated cost to complete and sell the product.
Business Combinations
Through June 27, 2009, we accounted for our acquisitions using the purchase accounting method in
accordance with Statement of Financial Accounting Standards No. 141 (SFAS No. 141),
Business
Combinations
. Under this method, we allocated the purchase price of acquired companies to the
assets acquired and liabilities assumed, based on their estimated
relative fair values at the acquisition date, with any excess allocated to goodwill (defined as the
excess of the purchase price over the fair value allocated to the assets acquired and liabilities
assumed). Our judgments as to fair value of the assets, therefore, affected the amount of goodwill
that we recorded. These judgments included estimating the useful lives over which the fair values
are or were amortized to expense.
46
For tangible assets acquired in any acquisition, such as plant and equipment, we estimate useful
lives by considering comparable lives of similar assets, past history, the intended use of the
assets and their condition. In estimating the useful life of acquired intangible assets with
definite lives, we consider the industry environment and specific factors relating to each product
relative to our business strategy and the likelihood of technological obsolescence. Acquired
intangible assets primarily include core and current technology, patents, supply agreements,
capitalized licenses and customer contracts. We amortize our acquired intangible assets with
definite lives over periods generally ranging from 1.5 to 11 years and, in the case of one specific
customer contract, 15 years.
Our acquisitions consummated after June 27, 2009, including the acquisition of the high-power laser
diodes business from Newport on July 4, 2009 and our acquisitions of Xtellus on December 17, 2009
and Mintera on July 21, 2010, were accounted for pursuant to Accounting Standards Codification
(ASC) Topic 805,
Business Combinations
. Under ASC Topic 805, there are significant differences as
compared to SFAS No. 141 in determining the purchase price of an acquired entity, including:
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Under ASC Topic 805, the purchase price is equivalent to the fair value of
consideration transferred on the date of the business combination. Previously, the value of
equity-based consideration transferred was determined based on the fair value at the time of
announcement of the business combination.
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Tangible and identifiable intangible assets acquired and liabilities assumed as
of the acquisition date are recorded at the acquisition date fair value. Such valuations
require management to make significant estimates and assumptions, especially with respect to
the identifiable intangible assets.
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Goodwill is recognized for any excess of purchase price over the net fair value
of assets acquired and liabilities assumed. A bargain purchase gain results if the fair
value of the purchase price is less than the net fair value of the assets acquired and
liabilities assumed. We recorded a $5.3 million bargain purchase gain related to our
acquisition of Newports high-power laser diodes business during fiscal year 2010.
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Management makes estimates of fair value based upon assumptions believed to be reasonable and that
of a market participant. For instance, the estimated fair value of our common stock issued in
connection with our acquisition of Xtellus was determined using the closing price of $6.70 per
share as of the acquisition date, December 17, 2009, adjusted by a discount rate to reflect the
lack of marketability due to the shares being unregistered and subject to restrictions on transfer
under Rule 144 of the Securities Act. In addition, the estimated fair value of the value protection
guarantee issued in connection with the Xtellus acquisition was determined by using management
estimates of future operating results and a Monte Carlo simulation model to determine the
likelihood of achieving certain market conditions. For our Mintera acquisition, we agreed to pay
additional revenue-based consideration whereby former security holders of Mintera are entitled to
receive up to $20.0 million, determined based on a set of sliding scale formulas, to the extent
revenue from Mintera products is more than $29.0 million in the 12 months following the acquisition
and/or more than $40.0 million in the 18 months following the acquisition. The estimated fair value
of these obligations were determined using management estimates of the total amounts expected to be
paid based on estimated operating results, discounted to their present value using our incremental
borrowing cost.
Our preliminary estimates of fair value are inherently uncertain and subject to refinement. As a
result, during the measurement period for a business combination, which may be up to one year, we
may record adjustments to the values of assets acquired and liabilities assumed. After the
conclusion of the measurement period or our final determination of the values of assets acquired or
liabilities assumed, whichever comes first, subsequent adjustments affecting earnings are recorded
within our consolidated statements of operations.
As a result of adopting the revised accounting standards provided for by ASC Topic 805 as of the
beginning of our fiscal year 2010, certain of our policies differ when accounting for acquisitions
consummated after June 27, 2009, including:
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the direct transaction costs associated with a business combination are expensed
as incurred (previously, direct transaction costs were included as part of the purchase
price);
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47
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the costs to exit or restructure certain activities of an acquired company are
accounted for separately from the business combination (previously, restructuring and exit
costs directly resulting from the business combination were included as a part of the
assumed obligations in deriving the purchase price allocation); and
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the fair value of in-process research and development is recorded as an
indefinite-lived intangible asset until the underlying project is completed, at which time
the intangible asset is amortized over its estimated useful life, or abandoned, at which
time the intangible asset is expensed (previously, in-process research and development was
expensed as of the acquisition date).
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Impairment of Goodwill and Other Intangible Assets
Goodwill is tested annually for impairment, in our case during the fourth quarter of each fiscal
year, or more often if an event or circumstance suggests impairment has occurred. In addition, we
review identifiable intangibles, excluding goodwill, for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable. Circumstances which
could trigger an impairment test include, but are not limited to, significant decreases in the
market price of the asset, significant adverse changes to the business climate or legal factors,
current period cash flow or operating losses or a forecast of continuing losses associated with the
use of the asset and a current expectation that the asset will more likely than not be sold or
disposed of significantly below carrying value before the end of its estimated useful life.
The first step of testing goodwill for impairment is based on a reporting units fair value,
which is generally determined through market prices. In certain cases, due to the absence of market
prices for a particular element of our business, we have elected to base our testing on discounted
future expected cash flows. Although the discount rates and other input variables may differ, the
model we use in this process is the same model we use to evaluate the fair value of acquisition
candidates and the fairness of offers to purchase businesses that we are considering for
divestiture. The forecasted cash flows we use are derived from the annual long-range planning
process that we perform and present to our board of directors. In this process, each reporting unit
is required to develop reasonable sales, earnings and cash flow forecasts for the next three to
seven years based on current and forecasted economic conditions. For purposes of testing for
impairment, the cash flow forecasts are adjusted as needed to reflect information that becomes
available concerning changes in business levels and general economic trends. The discount rates
used for determining discounted future cash flows are generally based on our weighted-average cost
of capital and are then adjusted for plan risk (the risk that a business will fail to achieve its
forecasted results) and country risk (the risk that economic or political instability in the
countries in which we operate will cause a business units projections to be inaccurate). Finally,
a growth factor beyond the three to seven-year period for which cash flows are planned is selected
based on expectations of future economic conditions. Virtually all of the assumptions used in our
models are susceptible to change due to global and regional economic conditions as well as
competitive factors in the industry in which we operate. Unanticipated changes in discount rates
from one year to the next can also have a significant effect on the results of the calculations.
While we believe the estimates and assumptions we use are reasonable, various economic factors
could cause the results of our goodwill testing to vary significantly.
During the fourth quarter of fiscal year 2011, we completed our annual first step analysis for
potential impairment of our goodwill, which included examining the impact of current general
economic conditions on our future prospects and the current level of our market capitalization.
Based on this analysis, we concluded that goodwill related to our WSS reporting unit was impaired.
Our WSS reporting units goodwill was originally recorded in connection with our acquisition of
Xtellus. During the fourth quarter of fiscal year 2011, we also completed our second step analysis
of goodwill impairment, determining that the $20.0 million of goodwill related to our WSS reporting
unit was fully impaired. Based upon this evaluation, we recorded $20.0 million for the goodwill
impairment loss in our consolidated statement of operations for fiscal year 2011. In conjunction
with our second step goodwill impairment analysis, we also evaluated the fair value of the
intangible assets of this reporting unit and concluded that such assets were not impaired.
During the fiscal year ended June 27, 2009, we observed indicators of potential impairment of our
goodwill, including the impact of the then current general economic downturn, our future prospects
and the continued decline of our market capitalization, which caused us to conduct a goodwill
impairment analysis. Specifically, indicators emerged within our New Focus reporting unit, which
includes the technology acquired in the March 2004 acquisition of Oclaro Photonics, Inc. and one
other reporting unit that included the technology acquired in the March 2006 acquisition of Avalon
Photonics AG (the
Avalon reporting unit). These indicators led us to conclude that an impairment test was required to
be performed for goodwill related to these reporting units.
48
During the fiscal year ended June 27, 2009, we determined, in our first step goodwill impairment
analysis, that the goodwill related to our New Focus and Avalon reporting units were in fact
impaired. We completed our full evaluation of the second step impairment analysis, which indicated
that the goodwill was fully impaired. We recorded $7.9 million for impairment losses in our
statement of operations for the year ended June 27, 2009.
In conjunction with our full evaluation of the second step goodwill impairment analysis, we also
evaluated the fair value of the intangible assets of these two reporting units. Based on this
testing, we determined that the intangibles of our New Focus reporting unit and our Avalon
reporting units were impaired. We recorded $1.2 million for the impairment loss related to these
intangibles, net of $2.8 million associated with the discontinued operations of the New Focus
business, in our statements of operations for the year ended June 27, 2009.
These impairments will not result in any current or future cash expenditures.
Accounting for Stock-Based Compensation
We recognize in our statement of operations all stock-based compensation, including grants of
employee stock options and restricted stock, based on their fair values on the grant dates.
Estimating the grant date fair value of employee stock options requires us to make judgments in the
determination of inputs into the Black-Scholes-Merton valuation model which we use to arrive at an
estimate of the fair value for such awards. These inputs are based upon highly subjective
assumptions as to the volatility of the underlying stock, risk free interest rates and the expected
life of the options. Judgment is also required in estimating the number of share-based awards that
are expected to be forfeited during any given period. As required under the accounting rules, we
review our valuation assumptions at each grant date, and, as a result, our valuation assumptions
used to value employee stock options granted in future periods may change. If actual results or
future changes in estimates differ significantly from our current estimates, stock-based
compensation expense and our consolidated results of operations could be materially impacted.
During the years ended July 2, 2011, July 3, 2010 and June 27, 2009, we recognized $6.3 million,
$4.4 million and $4.1 million of stock-based compensation expense, respectively, in our results
from continuing operations. See Note 11,
Stock-based Compensation
, to the accompanying consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for further information.
Income Taxes
We account for income taxes using an asset and liability based approach. Deferred income tax assets
and liabilities are recorded based on the differences between the financial statement and tax bases
of assets and liabilities using enacted tax rates. Valuation allowances are provided against
deferred income tax assets which are not likely to be realized.
In fiscal year 2010, we determined that it is more-likely-than-not that we will utilize net
operating losses in one of our foreign jurisdictions due to current earnings and projections of
future profitability. Accordingly, we released $1.3 million of our valuation allowance against
$1.3 million of previously unrecognized deferred tax assets during fiscal year 2010. This amount
represented the entire remaining deferred tax asset related to the accumulated net operating losses
of the foreign jurisdiction. Due to the uncertainty surrounding the realization of the tax
attributes in other jurisdictions, we have recorded a full valuation allowance against our
remaining foreign and domestic deferred tax assets as of July 2, 2011.
|
|
|
Item 7A.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
Interest rates
We finance our operations through a mixture of issuances of equity securities, finance leases,
working capital and by drawing on our Credit Agreement. Our only exposure to interest rate
fluctuations is on our cash deposits and for amounts borrowed under our Credit Agreement. At July
2, 2011 there was no amount outstanding under our Credit Agreement. As of July 2, 2011, we had
$1.1 million in three outstanding standby letters of credit with vendors secured under our Credit
Agreement.
We monitor our interest rate risk on cash balances primarily through cash flow forecasting. Cash
that is surplus to immediate requirements is invested in short-term deposits with banks accessible
with one days notice and invested in overnight money market accounts. We believe our current
interest rate risk is immaterial.
49
Foreign currency
As our business has grown and become multinational in scope, we have become increasingly subject to
fluctuations based upon changes in the exchange rates between the currencies in which we collect
revenues and pay expenses. Despite our change in domicile from the United Kingdom to the United
States in 2004, and our movement of certain functions, including assembly and test operations, from
the United Kingdom to China, in the future we expect that a majority of our revenues will continue
to be denominated in U.S. dollars, while a significant portion of our expenses will continue to be
denominated in U.K. pounds sterling and the Swiss franc. Fluctuations in the exchange rate between
the U.S. dollar, the U.K. pound sterling and the Swiss franc and, to a lesser extent, other
currencies in which we collect revenues and pay expenses, could affect our operating results. This
includes the Chinese yuan, the Korean won, the Israeli shekel and the Euro in which we pay expenses
in connection with operating our facilities in Shenzhen and Shanghai, China; Daejeon, South Korea;
Jerusalem, Israel and San Donato, Italy. To the extent the exchange rate between the U.S. dollar
and these currencies were to fluctuate more significantly than experienced to date, our exposure
would increase.
As of July 2, 2011, our U.K. subsidiary had $45.3 million, net, in U.S. dollar denominated
operating intercompany payables and $59.5 million in U.S. dollar denominated accounts receivable
related to sales to external customers. It is estimated that a 10 percent fluctuation in the U.S.
dollar relative to the U.K. pound sterling would lead to a profit of $1.4 million (U.S. dollar
strengthening), or loss of $1.4 million (U.S. dollar weakening) on the translation of these
receivables, which would be recorded as gain (loss) on foreign exchange in our consolidated
statement of operations.
Hedging Program
We enter into foreign currency forward exchange contracts in an effort to mitigate a portion of our
exposure to such fluctuations between the U.S. dollar and the U.K. pound sterling. We do not
currently hedge our exposure to the Chinese yuan, Korean won, Israeli shekel, Swiss franc or the
Euro, but we may in the future if conditions warrant. We also do not currently hedge our exposure
related to our U.S. dollar denominated intercompany payables and receivables. We may be required to
convert currencies to meet our obligations. Under certain circumstances, foreign currency forward
exchange contracts can have an adverse effect on our financial condition. As of July 2, 2011, we
held five foreign currency forward exchange contracts with a notional value of $4.0 million which
include put and call options which expire, or expired, at various dates from July 2011 to November
2011 and we have recorded an unrealized gain of $0.1 million to accumulated other comprehensive
income in connection with marking these contracts to fair value. It is estimated that a 10 percent
fluctuation in the dollar between July 2, 2011 and the maturity dates of the put and call
instruments underlying these contracts would lead to a profit of $0.4 million (U.S. dollar
weakening) or break-even (U.S. dollar strengthening) on our outstanding foreign currency forward
exchange contracts, should they be held to maturity.
|
|
|
Item 8.
|
|
Financial Statements and Supplementary Data
|
The financial statements required by this item may be found on pages F-1 through F-40 of this
Annual Report on Form 10-K.
|
|
|
Item 9.
|
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|
None.
|
|
|
Item 9A.
|
|
Controls and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of July 2, 2011. The term
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, or the Exchange Act, means controls
and other procedures of a company that are designed to ensure that information required to be
disclosed by the company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SECs rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the companys
management, including its Chief Executive Officer and Chief Financial Officer, as the principal
executive and financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure controls and procedures as of July 2,
2011, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our
disclosure controls and procedures were effective at the reasonable assurance level.
50
Managements report on our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) is included immediately below and is incorporated herein by
reference.
(b) Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its
inherent limitations, internal control over financial reporting may not prevent or detect
misstatements, fraud or the results of fraud. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of
July 2, 2011. In making its assessment of internal control over financial reporting, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated Framework.
Based on our assessment, management concluded that, as of July 2, 2011, our internal control over
financial reporting is effective based on these criteria.
Our independent registered public accounting firm has issued an attestation report on the
effectiveness of our internal control over financial reporting. This report appears under Item 8 of
this Annual Report on Form 10-K.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the most recent
fiscal quarter ended July 2, 2011 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
|
Item 9B.
|
|
Other Information
|
None.
PART III
|
|
|
Item 10.
|
|
Directors, Executive Officers and Corporate Governance
|
Information required by this Item is incorporated by reference to the information contained in our
definitive Proxy Statement for our 2011 Annual Meeting of Stockholders under the headings Proposal
1 Election of Class I Directors, Corporate Governance, Section 16(a) Beneficial Ownership
Reporting Compliance, Code of Business Conduct and Ethics and Non-Director Executive Officers.
|
|
|
Item 11.
|
|
Executive Compensation
|
Information required by this Item is incorporated by reference to the information contained in our
definitive Proxy Statement for our 2011 Annual Meeting of Stockholders under the headings
Executive Compensation, Director Compensation,
Compensation Committee Interlocks and Insider Participation, Compensation Committee Report, and
Employment, Change of Control and Severance Arrangements.
51
|
|
|
Item 12.
|
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
Information required by this Item is incorporated by reference to the information contained in our
definitive Proxy Statement for our 2011 Annual Meeting of Stockholders under the headings Security
Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information.
|
|
|
Item 13.
|
|
Certain Relationships and Related Transactions, and Director Independence
|
Information required by this Item is incorporated by reference to the information contained in our
definitive Proxy Statement for our 2011 Annual Meeting of Stockholders under the headings Policies
and Procedures for Related Person Transactions, Board Determination of Independence,
Employment, Change of Control and Severance Arrangements, Proposal 1 Election of Class I
Directors, and Corporate Governance.
|
|
|
Item 14.
|
|
Principal Accounting Fees and Services
|
Information required by this Item is incorporated by reference to the information contained in our
definitive Proxy Statement for our 2011 Annual Meeting of Stockholders under the headings
Principal Accounting Fees and Services and Pre-Approval Policies and Procedures.
PART IV
|
|
|
Item 15.
|
|
Exhibits, Financial Statement Schedules
|
(a) The following documents are filed as part of or are included in this Annual Report on Form
10-K:
1. Financial Statements
See Index to Consolidated Financial Statements on page F-1 of this Annual Report on Form
10-K.
2. Financial Statement Schedules
The Financial Statement Schedule II: Valuation and Qualifying Accounts that follows the
Notes to Consolidated Financial Statements is filed as part of this Annual Report Form 10-K.
Other financial statement schedules have been omitted since they are either not required or
the information is otherwise included.
3. List of Exhibits
The Exhibits filed as part of this Annual Report on Form 10-K, or incorporated by reference,
are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
OCLARO, INC.
(Registrant)
|
|
September 9, 2011
|
By:
|
/s/ Alain Couder
|
|
|
|
Alain Couder
|
|
|
|
Chairman of the Board and Chief Executive Officer
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Alain Couder
Alain Couder
|
|
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
|
|
September 9, 2011
|
|
|
|
|
|
/s/ Jerry Turin
Jerry Turin
|
|
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
|
September 9, 2011
|
|
|
|
|
|
/s/ Giovanni Barbarossa
Giovanni Barbarossa
|
|
Director
|
|
September 9, 2011
|
|
|
|
|
|
/s/ Edward B. Collins
Edward B. Collins
|
|
Director
|
|
September 9, 2011
|
|
|
|
|
|
/s/ Greg Dougherty
Greg Dougherty
|
|
Director
|
|
September 9, 2011
|
|
|
|
|
|
/s/ Lori Holland
Lori Holland
|
|
Director
|
|
September 9, 2011
|
|
|
|
|
|
/s/ Marissa Peterson
Marissa Peterson
|
|
Director
|
|
September 9, 2011
|
|
|
|
|
|
/s/ Joel Smith III
Joel Smith III
|
|
Director
|
|
September 9, 2011
|
53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
|
F-7
|
|
|
|
|
|
|
|
|
|
F-8
|
|
|
|
|
|
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Oclaro, Inc.
We have audited the accompanying consolidated balance sheets of Oclaro, Inc. (a Delaware
corporation) and subsidiaries as of July 2, 2011 and July 3, 2010, and the related consolidated
statements of operations, stockholders equity and comprehensive income (loss), and cash flows for
each of the three years in the period ended July 2, 2011. Our audits of the basic consolidated
financial statements included the financial statement schedule listed in the index appearing under
Item 15 (a) (2). These financial statements and financial statement schedule are the responsibility
of the Companys management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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 consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Oclaro, Inc. and subsidiaries as of July
2, 2011 and July 3, 2010, and the results of their operations and their cash flows for each of the
three years in the period ended July 2, 2011 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Oclaro, Inc. and subsidiaries internal control over financial reporting as
of July 2, 2011, based on criteria established in
Internal ControlIntegrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
September 9, 2011, expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
San Francisco, California
September 9, 2011
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Oclaro, Inc.
We have audited Oclaro, Inc. (a Delaware corporation) and subsidiaries internal control over
financial reporting as of July 2, 2011, based on criteria established in
Internal
ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Oclaro, Inc.s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on Oclaro Inc.s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Oclaro, Inc. and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of July 2, 2011, based on criteria established in
Internal ControlIntegrated Framework
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Oclaro, Inc. and subsidiaries as of July
2, 2011 and July 3, 2010, and the related consolidated statements of operations, stockholders
equity and comprehensive income (loss), and cash flows for each of the three years in the period
ended July 2, 2011. Our audits of the basic financial statements included the financial statement
schedule listed in the index appearing under Item 15(a)(2). Our report dated September 9, 2011
expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
San Francisco, California
September 9, 2011
F-3
OCLARO, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands, except par value)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
62,783
|
|
|
$
|
107,176
|
|
Restricted cash
|
|
|
574
|
|
|
|
4,458
|
|
Accounts receivable, net of allowances for doubtful accounts and
sales returns of $1,122 and $1,054 in 2011 and $2,046 and $645
in 2010
|
|
|
82,868
|
|
|
|
93,412
|
|
Inventories
|
|
|
102,201
|
|
|
|
62,570
|
|
Prepaid expenses and other current assets
|
|
|
16,495
|
|
|
|
14,905
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
264,921
|
|
|
|
282,521
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
69,374
|
|
|
|
37,516
|
|
Other intangible assets, net
|
|
|
19,698
|
|
|
|
10,610
|
|
Goodwill
|
|
|
10,904
|
|
|
|
20,000
|
|
Other non-current assets
|
|
|
10,277
|
|
|
|
10,148
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
375,174
|
|
|
$
|
360,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
66,179
|
|
|
$
|
50,103
|
|
Accrued expenses and other liabilities
|
|
|
60,703
|
|
|
|
35,404
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
126,882
|
|
|
|
85,507
|
|
|
|
|
|
|
|
|
Deferred gain on sale-leaseback
|
|
|
12,920
|
|
|
|
12,969
|
|
Other non-current liabilities
|
|
|
6,277
|
|
|
|
9,785
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
146,079
|
|
|
|
108,261
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock: 1,000 shares authorized; none issued and
outstanding
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value per share; 90,000 shares
authorized;
50,476 and 49,396 shares issued and outstanding at July 2, 2011
and July 3, 2010, respectively
|
|
|
505
|
|
|
|
494
|
|
Additional paid-in capital
|
|
|
1,313,931
|
|
|
|
1,304,779
|
|
Accumulated other comprehensive income
|
|
|
40,730
|
|
|
|
26,907
|
|
Accumulated deficit
|
|
|
(1,126,071
|
)
|
|
|
(1,079,646
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
229,095
|
|
|
|
252,534
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
375,174
|
|
|
$
|
360,795
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these consolidated financial statements.
F-4
OCLARO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands, except per share amounts)
|
|
Revenues
|
|
$
|
466,505
|
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
Cost of revenues
|
|
|
342,869
|
|
|
|
283,751
|
|
|
|
164,425
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
123,636
|
|
|
|
108,794
|
|
|
|
46,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
65,492
|
|
|
|
41,496
|
|
|
|
26,147
|
|
Selling, general and administrative
|
|
|
62,767
|
|
|
|
56,378
|
|
|
|
34,899
|
|
Amortization of intangible assets
|
|
|
2,805
|
|
|
|
951
|
|
|
|
487
|
|
Restructuring, acquisition and related costs
|
|
|
4,469
|
|
|
|
5,468
|
|
|
|
6,826
|
|
Legal settlements
|
|
|
1,678
|
|
|
|
|
|
|
|
3,829
|
|
Impairment of goodwill and other intangible assets
|
|
|
20,000
|
|
|
|
|
|
|
|
9,133
|
|
(Gain) loss on sale of property and equipment
|
|
|
35
|
|
|
|
(333
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
157,246
|
|
|
|
103,960
|
|
|
|
81,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(33,610
|
)
|
|
|
4,834
|
|
|
|
(34,811
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
16
|
|
|
|
36
|
|
|
|
575
|
|
Interest expense
|
|
|
(2,011
|
)
|
|
|
(367
|
)
|
|
|
(543
|
)
|
Gain (loss) on foreign currency translation
|
|
|
(9,174
|
)
|
|
|
2,494
|
|
|
|
11,094
|
|
Other income (expense)
|
|
|
|
|
|
|
4,892
|
|
|
|
(685
|
)
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(11,169
|
)
|
|
|
7,055
|
|
|
|
10,441
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(44,779
|
)
|
|
|
11,889
|
|
|
|
(24,370
|
)
|
Income tax provision
|
|
|
1,646
|
|
|
|
928
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(46,425
|
)
|
|
|
10,961
|
|
|
|
(25,769
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
1,420
|
|
|
|
(6,387
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(46,425
|
)
|
|
$
|
12,381
|
|
|
$
|
(32,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.96
|
)
|
|
$
|
0.27
|
|
|
$
|
(1.12
|
)
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
0.04
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.96
|
)
|
|
$
|
0.31
|
|
|
$
|
(1.40
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.96
|
)
|
|
$
|
0.26
|
|
|
$
|
(1.12
|
)
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
0.03
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.96
|
)
|
|
$
|
0.29
|
|
|
$
|
(1.40
|
)
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,444
|
|
|
|
40,322
|
|
|
|
22,969
|
|
Diluted
|
|
|
48,444
|
|
|
|
42,262
|
|
|
|
22,969
|
|
The accompanying notes form an integral part of these consolidated financial statements.
F-5
OCLARO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(46,425
|
)
|
|
$
|
12,381
|
|
|
$
|
(32,156
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on short-term investments
|
|
|
|
|
|
|
22
|
|
|
|
(100
|
)
|
Amortization of deferred gain on sale-leaseback
|
|
|
(942
|
)
|
|
|
(863
|
)
|
|
|
(938
|
)
|
Change in fair value of value protection guarantee
|
|
|
|
|
|
|
(946
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
18,125
|
|
|
|
11,811
|
|
|
|
12,491
|
|
(Gain) loss on sale of property and equipment
|
|
|
35
|
|
|
|
(333
|
)
|
|
|
(8
|
)
|
Gain on bargain purchase
|
|
|
|
|
|
|
(5,267
|
)
|
|
|
|
|
Gain on sale of New Focus business
|
|
|
|
|
|
|
(1,420
|
)
|
|
|
|
|
Impairment of goodwill and other intangible assets
|
|
|
20,000
|
|
|
|
|
|
|
|
11,915
|
|
Impairment (recovery) of short-term investments
|
|
|
|
|
|
|
(28
|
)
|
|
|
706
|
|
Stock-based compensation expense
|
|
|
6,304
|
|
|
|
4,432
|
|
|
|
4,436
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
20,706
|
|
|
|
(34,914
|
)
|
|
|
(821
|
)
|
Inventories
|
|
|
(30,921
|
)
|
|
|
3,339
|
|
|
|
6,859
|
|
Prepaid expenses and other current assets
|
|
|
(263
|
)
|
|
|
(2,400
|
)
|
|
|
533
|
|
Other non-current assets
|
|
|
(159
|
)
|
|
|
1,062
|
|
|
|
204
|
|
Accounts payable
|
|
|
10,831
|
|
|
|
15,415
|
|
|
|
(5,573
|
)
|
Accrued expenses and other liabilities
|
|
|
(1,929
|
)
|
|
|
(7,560
|
)
|
|
|
(677
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,638
|
)
|
|
|
(5,269
|
)
|
|
|
(3,129
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(41,631
|
)
|
|
|
(12,114
|
)
|
|
|
(9,231
|
)
|
Proceeds from sales of property and equipment
|
|
|
209
|
|
|
|
885
|
|
|
|
32
|
|
Purchases of available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
(6,945
|
)
|
Sales and maturities of available-for-sale investments
|
|
|
|
|
|
|
9,258
|
|
|
|
29,200
|
|
Transfer (to) from restricted cash
|
|
|
4,002
|
|
|
|
(256
|
)
|
|
|
(3,109
|
)
|
Purchase of intangibles and equipment from an asset purchase
|
|
|
|
|
|
|
(250
|
)
|
|
|
|
|
Purchase of investment in a privately held company
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
|
|
Cash acquired from (paid for) business combinations
|
|
|
(10,482
|
)
|
|
|
3,277
|
|
|
|
11,482
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(47,902
|
)
|
|
|
(6,700
|
)
|
|
|
21,429
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
2,704
|
|
|
|
77,390
|
|
|
|
4
|
|
Proceeds from borrowings under credit line
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
Repayment of borrowings under credit line and other loans
|
|
|
|
|
|
|
(2,552
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,704
|
|
|
|
77,338
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents
|
|
|
5,443
|
|
|
|
(2,754
|
)
|
|
|
(6,544
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(44,393
|
)
|
|
|
62,615
|
|
|
|
11,698
|
|
Cash and cash equivalents at beginning of period
|
|
|
107,176
|
|
|
|
44,561
|
|
|
|
32,863
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
62,783
|
|
|
$
|
107,176
|
|
|
$
|
44,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
163
|
|
|
$
|
244
|
|
|
$
|
220
|
|
Cash paid for income taxes
|
|
$
|
1,325
|
|
|
$
|
184
|
|
|
$
|
177
|
|
Supplemental disclosures of non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, stock options, restricted stock and warrants in merger the with Avanex
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32,347
|
|
Issuance of common stock and incurrence of escrow liability and value protection liability for the acquisition of Xtellus
|
|
$
|
|
|
|
$
|
29,441
|
|
|
$
|
|
|
Incurrence of earnout liability related to the acquisition of Mintera
|
|
$
|
15,148
|
|
|
$
|
|
|
|
$
|
|
|
The accompanying notes form an integral part of these consolidated financial statements.
F-6
OCLARO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
Comprehensive
|
|
|
Stock-
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Income
|
|
|
holders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(Thousands)
|
|
Balance at June 28, 2008
|
|
|
20,148
|
|
|
$
|
201
|
|
|
$
|
1,164,404
|
|
|
$
|
44,036
|
|
|
$
|
(1,059,579
|
)
|
|
|
|
|
|
$
|
149,062
|
|
Issuance of shares related to share awards and
restricted stock units
|
|
|
52
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares upon the exercise of
common stock options
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Common stock issued in connection with the
acquisition of Avanex
|
|
|
17,030
|
|
|
|
170
|
|
|
|
32,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,347
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,264
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(631
|
)
|
|
|
|
|
|
|
(631
|
)
|
|
|
(631
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,496
|
)
|
|
|
|
|
|
|
(12,496
|
)
|
|
|
(12,496
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,156
|
)
|
|
|
(32,156
|
)
|
|
|
(32,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(45,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
37,233
|
|
|
$
|
372
|
|
|
$
|
1,200,848
|
|
|
$
|
30,905
|
|
|
$
|
(1,091,735
|
)
|
|
|
|
|
|
$
|
140,390
|
|
Adjustment to prior years retained earnings to
reflect effect of adoption of ASC 805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,092,027
|
)
|
|
|
|
|
|
|
|
|
Issuance of shares related to share awards and
restricted stock units
|
|
|
500
|
|
|
|
5
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
Issuance of shares upon the exercise of
common stock options
|
|
|
71
|
|
|
|
1
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269
|
|
Common stock issued in connection with
acquisitions
|
|
|
3,698
|
|
|
|
37
|
|
|
|
22,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,246
|
|
Common stock placed in escrow for the
acquisition of Xtellus
|
|
|
994
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in public offering
|
|
|
6,900
|
|
|
|
69
|
|
|
|
77,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,074
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,512
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594
|
|
|
|
|
|
|
|
594
|
|
|
|
594
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,432
|
)
|
|
|
|
|
|
|
(3,432
|
)
|
|
|
(3,432
|
)
|
Pension adjustment, net of tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
(1,153
|
)
|
|
|
(1,153
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Net income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,381
|
|
|
|
12,381
|
|
|
|
12,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
49,396
|
|
|
$
|
494
|
|
|
$
|
1,304,779
|
|
|
$
|
26,907
|
|
|
$
|
(1,079,646
|
)
|
|
|
|
|
|
$
|
252,534
|
|
Issuance of shares related to share awards and
restricted stock units
|
|
|
565
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares of common stock
|
|
|
515
|
|
|
|
5
|
|
|
|
2,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,704
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,459
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
(139
|
)
|
|
|
(139
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,525
|
|
|
|
|
|
|
|
15,525
|
|
|
|
15,525
|
|
Pension adjustment, net of tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,568
|
)
|
|
|
|
|
|
|
(1,568
|
)
|
|
|
(1,568
|
)
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,425
|
)
|
|
|
(46,425
|
)
|
|
|
(46,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(32,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2011
|
|
|
50,476
|
|
|
$
|
505
|
|
|
$
|
1,313,931
|
|
|
$
|
40,730
|
|
|
$
|
(1,126,071
|
)
|
|
|
|
|
|
$
|
229,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these consolidated financial statements.
F-7
OCLARO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies
Business
Oclaro, Inc., a Delaware corporation (Oclaro, we, or our), is a leading provider of
high-performance core optical network components, modules and subsystems to global
telecommunications (telecom) equipment manufacturers. We leverage our proprietary core
technologies and vertically integrated product development to provide our customers with
cost-effective and innovative optical solutions in metro and long-haul network applications. In
addition, we utilize our optical expertise to address new and emerging optical product
opportunities in selective non-telecom markets, such as materials processing, consumer, medical,
industrial, printing and biotechnology. We offer our customers a differentiated solution that is
designed to make it easier for our customers to do business by combining optical technology
innovation, photonic integration, and a vertical approach to manufacturing and product development.
On April 27, 2009, Oclaro, at the time named Bookham, Inc. (Bookham), and Avanex Corporation
(Avanex) completed a merger of Avanex with and into a subsidiary of Bookham with Avanex being the
surviving corporation as a wholly-owned subsidiary of Bookham.
In a separate transaction that also occurred on April 27, 2009, following the closing of the merger
of Avanex into a subsidiary of Bookham, Bookham changed its name to Oclaro, Inc. This name change
was effected pursuant to Section 253 of the General Corporation Law of the State of Delaware by the
merger of a wholly-owned subsidiary of Bookham (the Subsidiary) into Bookham. Bookham was the
surviving corporation in this merger with the Subsidiary and, in connection with the merger,
amended its Restated Certificate of Incorporation to change its name to Oclaro, Inc. pursuant to a
Certificate of Ownership and Merger filed on April 27, 2009 with the Secretary of State of the
State of Delaware. References herein to Oclaro, we or our mean Bookham and its subsidiaries
consolidated business activities prior to April 27, 2009 and Oclaro and its subsidiaries
consolidated business activities since April 27, 2009. Subsequent to the merger, Avanex changed its
name to Oclaro (North America), Inc. All references to Avanex in time periods after the merger
refer to Oclaro (North America), Inc.
Basis of Presentation
The consolidated financial statements include the accounts of Oclaro and our subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation.
Up to and through the second quarter of fiscal year 2011, we were organized and operated as two
operating segments: (i) telecom and (ii) advanced photonics solutions (APS). In late calendar
2010, we aligned our APS portfolio to more fully leverage the assets of our telecom business. Our
APS products, strategies and infrastructure support are now more closely aligned with the rest of
our telecom business, and beginning in the third quarter of fiscal year 2011 we have operated our
business accordingly, under the same management. As a result, beginning in the third quarter of
fiscal year 2011 we no longer report APS as a separate operating segment.
In June 2009, the Financial Accounting Standards Board (FASB) issued guidance now codified as
FASB Accounting Standards Codification (ASC) Topic 105,
Generally Accepted Accounting Principles
.
ASC Topic 105 establishes the
FASB Accounting Standards Codification
(Codification) as the
single source of authoritative accounting principles generally accepted in the United States of
America (U.S. GAAP). Under the Codification, all existing accounting standards and pronouncements
were superseded and reorganized into a consistent structure arranged by topic, subtopic, section
and paragraph. Since the Codification did not change or alter existing U.S. GAAP, it did not have
any impact on our consolidated financial statements; however, it changed the way references to
accounting standards and pronouncements are presented. The provisions of ASC Topic 105 were
adopted by us in the first quarter of fiscal year 2010. References made to FASB guidance throughout
this Annual Report on Form 10-K refer to the Codification.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses during the reported periods. Examples of
significant estimates and assumptions made by management involve the fair value of goodwill and
long-lived assets, the fair value of purchase consideration paid, assets acquired and liabilities
assumed in business combinations, valuation allowances for deferred tax assets, the fair value of
stock-based compensation, estimates for allowances for doubtful accounts, and valuation of excess
and obsolete inventories. These judgments can be subjective and complex and consequently actual
results could differ materially from those estimates and assumptions.
F-8
Fiscal Years
We operate on a 52/53 week year ending on the Saturday closest to June 30. Each of the fiscal years
ended July 2, 2011 and June 27, 2009 were 52 week years. Our fiscal year ended July 3, 2010 was a
53 week year.
Cash and Cash Equivalents
Cash and cash equivalents are carried at market value. We consider all liquid investment securities
with an original maturity date of three months or less to be cash equivalents. Any realized gains
and losses on liquid investment securities are included in other income (expense) in our
consolidated statements of operations. Restricted cash of $0.6 million as of July 2, 2011 consists
of collateral for the performance of our obligations under certain facility lease agreements and
bank accounts otherwise restricted.
The following table provides details regarding our cash and cash equivalents at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash-in-bank
|
|
$
|
42,585
|
|
|
$
|
23,962
|
|
Money market funds
|
|
|
20,198
|
|
|
|
83,214
|
|
|
|
|
|
|
|
|
|
|
$
|
62,783
|
|
|
$
|
107,176
|
|
|
|
|
|
|
|
|
Concentration of Credit Risks
We place our cash and cash equivalents with and in the custody of financial institutions which at
times, are in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC).
Management monitors the ongoing creditworthiness of these institutions. Our investment policy
limits the amounts invested with any one institution, type of security and issuer. To date, we have
not experienced significant losses on these investments.
Our trade accounts receivable are concentrated with companies in the telecom industry. At July 2,
2011, no customer accounted for 10 percent or more of our gross accounts receivable. At July 3,
2010, two customers accounted for a total of 29 percent of our gross accounts receivable.
Allowance for Doubtful Accounts and Sales Return Allowance
We perform ongoing credit evaluations of our customers and record specific allowances for doubtful
accounts when a customer is unable to meet its financial obligations, as in the case of bankruptcy
filings or deteriorated financial position. Estimates are used in determining allowances for
customers based on factors such as current trends, the length of time the receivables are past due
and historical collection experience. We write-off a receivable account when all rights, remedies
and recourses against the account and its principals are exhausted and record a benefit when
previously reserved accounts are collected. We recorded provisions of $0.6 million, $1.5 million
and $0.2 million as allowances for doubtful accounts in fiscal years 2011, 2010 and 2009,
respectively.
We record a provision for estimated sales returns, which is netted against revenues, in the same
period as the related revenues are recorded. These estimates are based on historical sales
returns, other known factors and our return policy. We recorded provisions of $0.6 million, $0.2
million and $0.1 million as sales return allowances in fiscal years 2011, 2010 and 2009,
respectively.
F-9
Inventories
Inventories, consisting of raw materials, work-in-process and finished goods are stated at the
lower of cost (first in, first out basis) or market. We plan production based on orders received
and forecasted demand and maintain stock of certain items. These production estimates are dependent
on assessment of current and expected orders from our customers, including consideration that
orders are subject to cancellation with limited advance notice prior to shipment. We assess the
valuation of our inventory, including significant inventories held by contract manufacturers on our
behalf, on a quarterly basis. Products may be unsalable because they are technically obsolete due
to substitute products, specification changes or excess inventory relative to customer forecasts.
We adjust the carrying value of inventory using methods that take these factors into account. If
we find that the cost basis of our inventory is greater than the current market value, we write the
inventory down to the estimated selling price, less the estimated costs to complete and sell the
product.
The following table provides details regarding our inventories at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
38,863
|
|
|
$
|
17,732
|
|
Work-in-process
|
|
|
37,084
|
|
|
|
32,491
|
|
Finished goods
|
|
|
26,254
|
|
|
|
12,347
|
|
|
|
|
|
|
|
|
|
|
$
|
102,201
|
|
|
$
|
62,570
|
|
|
|
|
|
|
|
|
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method
based upon the estimated useful lives of the assets, which generally range from three to five
years, except for buildings which are generally depreciated over twenty years. Leasehold
improvements are amortized using the straight-line method over the estimated useful lives or the
term of the related lease, whichever is shorter. When assets are retired or otherwise disposed of,
the assets and related accumulated depreciation are removed from the accounts. Gain or loss
resulting from asset dispositions are included in (gain) loss on sale of property and equipment in
the accompanying consolidated statements of operations. Repair and maintenance costs are expensed
as incurred.
The following table provides details regarding our property and equipment, net at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
17,640
|
|
|
$
|
16,104
|
|
Plant and machinery
|
|
|
149,120
|
|
|
|
97,186
|
|
Fixtures, fittings and equipment
|
|
|
1,802
|
|
|
|
1,142
|
|
Computer equipment
|
|
|
14,235
|
|
|
|
12,232
|
|
|
|
|
|
|
|
|
|
|
|
182,797
|
|
|
|
126,664
|
|
Less: accumulated depreciation
|
|
|
(113,423
|
)
|
|
|
(89,148
|
)
|
|
|
|
|
|
|
|
|
|
$
|
69,374
|
|
|
$
|
37,516
|
|
|
|
|
|
|
|
|
Depreciation expense was $15.3 million, $10.9 million and $11.0 million for the fiscal years ended
July 2, 2011, July 3, 2010 and June 27, 2009, respectively.
Goodwill and Other Intangible Assets
We review our goodwill and other intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be recoverable and also
review goodwill annually. The values assigned to goodwill and other intangible assets are based on
estimates and judgments regarding expectations for the success and life cycle of products and
technologies acquired.
F-10
Goodwill is tested for impairment using a two-step process. In the first step, the fair value of a
reporting unit is compared to its carrying value. If the fair value of a reporting unit exceeds the
carrying value of the net assets assigned to a reporting unit, goodwill is considered not impaired
and no further testing is required. If the carrying value of the net assets assigned to a reporting
unit exceeds the fair value of a reporting unit, a second step of the impairment test is performed
whereby we hypothetically apply purchase accounting to the reporting unit using the fair values
from the first step in order to determine the implied fair value of a reporting units goodwill.
Non-Marketable Cost Method Investments
In May 2010, we made a $7.5 million investment in ClariPhy Communications, Inc. (ClariPhy), a
privately-held company, receiving in exchange a less than 20 percent equity interest in ClariPhy.
In addition, ClariPhy and Oclaro executed a co-marketing and development agreement under which we
have the opportunity to increase our initial equity interest stake in ClariPhy through achievement
of certain milestones related to this agreement. Achievement of the maximum additional equity
interest in ClariPhy through the co-marketing and development agreement would still result in a
less than 20 percent equity interest in ClariPhy.
As of July 2, 2011 and July 3, 2010, including the investment in ClariPhy, we had $8.7 million and
$9.0 million, respectively, of investments in privately-held companies. These investments consist
of less than 20 percent equity ownership interests of common stock and/or preferred stock in these
companies and are accounted for under the cost method of accounting. These investments are included
in other non-current assets in our consolidated balance sheets.
Derivative Financial Instruments
Our operating results are subject to fluctuations based upon changes in the exchange rates between
the currencies in which we collect revenues and pay expenses. A majority of our revenues are
denominated in U.S. dollars, while a significant portion of our expenses are denominated in United
Kingdom (U.K.) pounds sterling, the Chinese yuan, Swiss franc, and the Euro, in which we pay
expenses in connection with operating our facilities in the U.K., China, Switzerland and Italy. We
currently enter into foreign currency forward exchange contracts in an effort to mitigate a portion
of our exposure to fluctuations between the U.S. dollar and the U.K. pound sterling.
We recognize all derivatives, such as foreign currency forward exchange contracts, on our
consolidated balance sheets at fair value regardless of the purpose for holding the instrument. If
the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged assets, liabilities
or firm commitments through operating results or recognized in accumulated other comprehensive
income until the hedged item is recognized in operating results in our consolidated statements of
operations.
Accrued Expenses and Other Liabilities
The following table provides details for our accrued expenses and other liabilities at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Accrued expenses and other liabilities:
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
6,241
|
|
|
$
|
4,464
|
|
Compensation and benefits related accruals
|
|
|
11,097
|
|
|
|
8,688
|
|
Warranty accrual
|
|
|
2,175
|
|
|
|
2,437
|
|
Restructuring accrual
|
|
|
215
|
|
|
|
4,338
|
|
Escrow liability for Xtellus acquisition (1)
|
|
|
7,000
|
|
|
|
|
|
Earnout liability for Mintera acquisition (2)
|
|
|
16,140
|
|
|
|
|
|
Other accruals
|
|
|
17,835
|
|
|
|
15,477
|
|
|
|
|
|
|
|
|
|
|
$
|
60,703
|
|
|
$
|
35,404
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes interest expense accrued during fiscal year 2011. In fiscal year 2011, we
reclassified this escrow liability from other non-current liabilities to accrued expenses
and other liabilities.
|
|
(2)
|
|
Includes interest expense accrued during fiscal year 2011. In fiscal year 2011, we
reclassified the non-current portion of this earnout liability from other non-current
liabilities to accrued expenses and other liabilities.
|
F-11
Warranty
We accrue for the estimated costs to provide warranty services at the time revenue is recognized.
Our estimate of costs to service our warranty obligations is based on historical experience and
expectation of future conditions. To the extent we experience increased warranty claim activity or
increased costs associated with servicing those claims, our warranty costs will increase, resulting
in a decrease in gross profit and a decrease in net income.
Revenue Recognition
We recognize product revenue when (i) persuasive evidence of an arrangement exists, (ii) the
product has been shipped and title has transferred, (iii) collectability is reasonably assured,
(iv) the fees are fixed or determinable and (v) there are no uncertainties with respect to customer
acceptance. We record a provision for estimated sales returns in the same period as the related
revenues are recorded, which is netted against revenue. These estimates are based on historical
sales returns, other known factors and our return policy. We recognize revenues from financially
distressed customers when collectability becomes reasonably assured, assuming all other above
criteria for revenue recognition have been met.
In the second quarter of fiscal year 2009 we issued billings of $4.1 million for products that were
shipped to Nortel Networks Corporation (Nortel), but for which payment was not received prior to
Nortels bankruptcy filing on January 14, 2009. As a result, the corresponding revenue was
deferred, and therefore was not recognized as revenues or accounts receivable in our consolidated
financial statements at the time of such billings, as we determined that such amounts were not
reasonably assured of collectability in accordance with our revenue recognition policy. In fiscal
year 2009, we recognized revenues of $0.6 million from Nortel upon receipt of payment for billings
which had been previously deferred and Nortel returned $0.8 million in products to us which had
been shipped to Nortel prior to the bankruptcy filing and which had not been paid for by Nortel.
As of July 2, 2011, we had remaining contractual receivables from Nortel, associated with product
shipments deferred as a result of Nortels January 14, 2009 bankruptcy filing, totaling $2.7
million, which are not reflected in the accompanying consolidated balance sheets. To the extent
that collectability becomes reasonably assured for these deferred billings in future periods, our
future results will benefit from the recognition of these amounts.
Research and Development Costs
Research and development costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Our advertising costs for the years ended July 2,
2011, July 3, 2010 and June 27, 2009 were not significant.
Restructuring Expenses
We record costs associated with employee terminations and other exit activities when the liability
is incurred. Employee termination benefits are recorded when the benefit arrangement is
communicated to the employee and no significant future services are required. If employees are
required to render service until they are terminated in order to receive the termination benefits,
the fair value of the termination date liability is recognized ratably over the future service
period. Lease cancellation and commitment costs are recorded when we make a formal decision to
exit the facility. Lease cancellation and commitment costs are calculated using estimated future
lease commitments less estimated sublease income, based on current market conditions.
Impairment of Long-Lived Assets
We review property and equipment and certain identifiable intangibles, excluding goodwill, for
impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable on an annual basis. Recoverability of these assets is measured by
comparing their carrying amounts to market prices or the future undiscounted cash flows the assets
are expected to generate. If property and equipment or certain identifiable intangibles are
considered to be impaired, the impairment to be recognized would equal the amount by which the
carrying value of the asset exceeds its fair market value based on market prices or future
discounted cash flows.
F-12
Our goodwill and intangible assets with indefinite useful lives are tested for impairment at least
annually or sooner whenever events or changes in circumstances indicate that they may be impaired.
Intangible assets with definite lives are amortized over their estimated useful lives and reviewed
for impairment whenever events or changes in circumstances indicate an assets carrying value may
not be recoverable. We amortize our acquired intangible assets with definite lives over the
estimated useful life of the assets, which is generally from 1.5 to 11.5 years and 15 years as to
one specific customer contract.
Stock-Based Compensation
We use the Black-Scholes-Merton option pricing model to value the compensation expense associated
with our stock-based awards. In addition, we estimate forfeitures when recognizing compensation
expense, and we adjust our estimate of forfeitures over the requisite service period based on the
extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes
in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period
of change and will also impact the amount of compensation expense to be recognized in future
periods.
Stock options have a term of seven to ten years and generally vest over a two to four year service
period, and restricted stock awards generally vest over a one to four year period, and in certain
cases each may vest earlier based upon the achievement of specific performance-based objectives as
set by our board of directors.
Foreign Currency Transactions and Translation Gains and Losses
The assets and liabilities of our foreign operations are translated from their respective
functional currencies into U.S. dollars at the rates in effect at the consolidated balance sheet
dates, and revenue and expense amounts are translated at the average rate during the applicable
periods reflected on the consolidated statements of operations. Foreign currency translation
adjustments are recorded as accumulated other comprehensive income, except for the translation
adjustment of short-term intercompany loans which are recorded as other income or expense. Gains
and losses from foreign currency transactions, realized and unrealized in the event of foreign
currency transactions not designated as hedges, and those transactions denominated in currencies
other than our functional currency, are recorded as gain (loss) on foreign currency translation in
our consolidated statements of operations.
Income Taxes
We account for income taxes using an asset and liability based approach. Deferred income tax assets
and liabilities are recorded based on the differences between the financial statement and tax bases
of assets and liabilities using enacted tax rates. Valuation allowances are provided against
deferred income tax assets which are not likely to be realized.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using only the weighted-average number of shares of
common stock outstanding for the applicable period, while diluted net income (loss) per share is
computed assuming conversion of all potentially dilutive securities, such as stock options,
unvested restricted stock awards, warrants and obligations under escrow agreements during such
period. For the fiscal years ended July 2, 2011 and June 27, 2009, there were no stock options,
unvested restricted stock awards, warrants or obligations under escrow agreements factored into the
computation of diluted shares outstanding since we incurred a net loss in these periods which would
have resulted in their inclusion having an anti-dilutive effect.
Recent Accounting Pronouncements
With the exception of those discussed below, there have been no recent accounting pronouncements or
changes in accounting pronouncements that are of significance, or of potential significance, to us.
In December 2010, the FASB issued ASU No. 2010-29, which updates accounting guidance to clarify
that pro forma disclosures should be presented as if a business combination occurred at the
beginning of the prior annual period for purposes of preparing both the current reporting period
and the prior reporting period pro forma financial information. These disclosures should be
accompanied by a narrative description about the nature and amount of material, nonrecurring pro
forma adjustments. ASU No. 2010-29 will be effective from the beginning of our fiscal year 2012.
The adoption of this update will not have any effect on our consolidated financial statements as we
currently present pro forma financial information in accordance with the disclosure requirements of
ASU No. 2010-29.
F-13
In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04, an amendment to ASC
Topic 820,
Fair Value Measurements
, providing a consistent definition and measurement of fair
value, as well as similar disclosure requirements between U.S. GAAP and International Financial
Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the
application of existing fair value measurement and expands the ASC Topic 820 disclosure
requirements, particularly for Level 3 fair value measurements. This amendment will be effective
for our fiscal quarter beginning January 1, 2012. The adoption of this amendment is not expected to
have a material effect on our consolidated financial statements, but may require certain additional
disclosures.
In June 2011, the FASB issued ASU No. 2011-05, which amends current comprehensive income guidance.
This accounting update eliminates the option to present the components of other comprehensive
income as part of our statement of stockholders equity. Instead, we must report comprehensive
income in either a single continuous statement of comprehensive income that contains two sections,
net income and other comprehensive income, or in two separate but consecutive statements. ASU No.
2011-05 will be effective for our fiscal year beginning July 1, 2013. The adoption of this update
will not have an impact on our consolidated financial position, results of operations or cash flows
as it only requires a change in the format of our current presentation.
Note 2. Fair Value
We define fair value as the price that would be received from selling an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. When
determining fair value measurements for assets and liabilities which are required to be recorded at
fair value, we consider the principal or most advantageous market in which we would transact and
the market-based risk measurements or assumptions that market participants would use in pricing the
asset or liability, such as inherent risk, transfer restrictions and credit risk. We apply the
following fair value hierarchy, which ranks the quality and reliability of the information used to
determine fair values:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices of identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets), or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3
Unobservable inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or liabilities.
Our cash equivalents and non-current marketable securities are generally classified within Level 1
or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker
or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
The types of instruments valued based on quoted market prices in active markets include most
marketable securities and money market securities. Such instruments are generally classified within
Level 1 of the fair value hierarchy. The types of instrument valued based on other observable
inputs are foreign currency forward exchange contracts. Such instruments are generally classified
within Level 2 of the fair value hierarchy.
During fiscal year 2011, we classified earnout liabilities arising from our acquisition of Mintera
Corporation (Mintera) within Level 3 of the fair value hierarchy because their values were
primarily derived from management estimates of future operating results. See Note 3,
Business
Combinations
, for additional details regarding these liabilities.
F-14
We have a defined benefit pension plan in Switzerland whose assets are classified within Level 1 of
the fair value hierarchy for plan assets of cash, equity investments and fixed income investments,
and Level 3 of the fair value hierarchy for plan assets of real estate and alternative investments.
These pension plan assets are not reflected in the accompanying consolidated balance sheets, and
are thus not included in the tables below.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are shown in the table below by
their corresponding balance sheet caption and consisted of the following types of instruments at
July 2, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(Thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
20,198
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,198
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on currency instruments designated as cash flow hedges
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
54
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
20,364
|
|
|
$
|
54
|
|
|
$
|
|
|
|
$
|
20,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnout liability for Mintera acquisition (2)
|
|
|
|
|
|
|
|
|
|
|
16,140
|
|
|
|
16,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,140
|
|
|
$
|
16,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes $42.6 million in cash held in our bank accounts at July 2, 2011.
|
|
(2)
|
|
Includes interest expense accrued during fiscal year 2011.
|
The following table provides details regarding the changes in assets and liabilities classified
within Level 3 from July 3, 2010 to July 2, 2011:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measured and Recorded Using
|
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
Accrued Expenses
|
|
|
Other
|
|
|
|
and Other
|
|
|
Non-Current
|
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
|
(Thousands)
|
|
Balance at July 3, 2010
|
|
$
|
|
|
|
$
|
|
|
Earnout liabilities from Mintera acquisition
|
|
|
4,338
|
|
|
|
10,810
|
|
Interest expense on Mintera earnout liabilities
|
|
|
280
|
|
|
|
712
|
|
Reclass Mintera earnout liability from non-current to current liability (1)
|
|
|
11,522
|
|
|
|
(11,522
|
)
|
|
|
|
|
|
|
|
Balance at July 2, 2011
|
|
$
|
16,140
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In fiscal year 2011, we reclassified the non-current portion of this earnout liability
from other non-current liabilities to accrued expenses and other liabilities.
|
F-15
Derivative Financial Instruments
At the end of each accounting period, we mark-to-market all foreign currency forward exchange
contracts that have been designated as cash flow hedges and changes in fair value are recorded in
accumulated other comprehensive income until the underlying cash flow is settled and the contract
is recognized in other income (expense) in our consolidated statements of operations. As of July 2,
2011, we held five outstanding foreign currency forward exchange contracts to sell U.S. dollars and
buy U.K. pounds sterling. All of these contracts have been designated as cash flow hedges. These
contracts had an aggregate notional value of approximately $4.0 million of put and call options
which expire at various dates ranging from July 2011 through November 2011. To date, we have not
entered into any such contracts for longer than 12 months and, accordingly, all amounts included in
accumulated other comprehensive income as of July 2, 2011 will generally be reclassified into other
income (expense) within the next 12 months. As of July 2, 2011, each of the five designated cash
flow hedges was determined to be fully effective; therefore, we recorded an unrealized gain of $0.1
million to accumulated other comprehensive income related to recording the fair value of these
foreign currency forward exchange contracts.
Note 3. Business Combinations
During the fiscal years ended July 2, 2011 and July 3, 2010, we recorded $0.1 million and $2.5
million in legal and other direct acquisition-related costs in connection with business
combinations. These costs are recorded within restructuring, acquisition and related costs in our
consolidated statement of operations.
As of June 27, 2009, we had capitalized $0.3 million in legal and other deal-related costs
associated with our acquisition of Newport Corporations (Newport) high-power laser diodes
business. Upon adoption of ASC Topic 805,
Business Combinations
, on June 28, 2009, we wrote-off
these deferred assets to retained earnings as a cumulative effect of a change in accounting
principle.
Fiscal Year 2009
Merger of Oclaro and Avanex
On January 27, 2009, we entered into a definitive agreement providing for the merger of Oclaro and
Avanex. On April 27, 2009, we merged with Avanex through the merger of Avanex with a wholly-owned
subsidiary of Oclaro following approval by the stockholders of both companies. We issued
approximately 17 million shares of our common stock for all of the outstanding shares of Avanex on
April 27, 2009.
We accounted for this acquisition under the purchase method of accounting. For accounting purposes,
the fair value of the consideration paid to Avanex stockholders in the merger was $36.2 million;
which includes the issuance of $31.8 million in common stock, based on a price of $1.87 per share
of Oclaro common stock, which was the weighted-average of the closing market prices of our common
stock for a period beginning two days before and ending two days after January 27, 2009, the day
the merger was announced; $0.6 million for the assumption of vested stock options and warrants to
purchase Oclaro common stock; and $3.9 million in acquisition-related transaction costs.
The following table presents the allocation of the purchase price, including the fair value of
common stock options and warrants assumed, professional fees and other related transaction costs,
to the assets acquired and liabilities assumed, based on their estimated fair values as of April
27, 2009:
|
|
|
|
|
|
|
Purchase
|
|
|
|
Price Allocation
|
|
|
|
(Thousands)
|
|
Cash, cash equivalents, short-term investments and restricted cash
|
|
$
|
25,746
|
|
Accounts receivable
|
|
|
22,933
|
|
Inventories
|
|
|
13,703
|
|
Prepaid expenses and other current assets
|
|
|
6,802
|
|
Property and equipment
|
|
|
1,432
|
|
Other non-current assets
|
|
|
3,245
|
|
Accounts payable
|
|
|
(15,568
|
)
|
Accrued expenses and other liabilities
|
|
|
(17,687
|
)
|
Other non-current liabilities
|
|
|
(4,377
|
)
|
|
|
|
|
Total purchase price
|
|
$
|
36,229
|
|
|
|
|
|
F-16
Fiscal Year 2010
Sale of the New Focus Business and Acquisition of Newports High-Power Laser Diodes Business
On June 3, 2009, we signed a definitive agreement with Newport under which Newport agreed to
acquire the net assets of our New Focus business in exchange for the net assets of Newports high
power laser diodes business and $3.0 million in cash proceeds. The transaction closed on July 4,
2009. Under the agreement, we transferred to Newport substantially all of the operating assets used
or held for use in our New Focus business. In exchange, we received substantially all of the
operating assets of Newports Tucson, Arizona facility, as well as the intellectual property of the
high power laser diodes business.
Our estimate of the fair value of the assets and liabilities of the New Focus business transferred
to Newport was $9.9 million. The carrying value of these assets and liabilities on our
consolidated balance sheet as of July 4, 2009, the date of the exchange, was $8.5 million. In the
year ended July 3, 2010, we recorded a $1.4 million gain in income from discontinued operations
from the sale of the New Focus business
.
The financial results of the New Focus business have been
classified as discontinued operations for all periods presented.
The following table presents the statements of operations for the discontinued operations of the
New Focus business for the fiscal years ended July 3, 2010 and June 27, 2009. There were no
discontinued operations in the fiscal year ended July 2, 2011.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
Revenues
|
|
$
|
|
|
|
$
|
24,829
|
|
Cost of revenues
|
|
|
|
|
|
|
17,113
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
7,716
|
|
Operating expenses
|
|
|
|
|
|
|
14,106
|
|
Other income (expense), net
|
|
|
1,420
|
|
|
|
53
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
before income taxes
|
|
|
1,420
|
|
|
|
(6,337
|
)
|
Income tax provision
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
1,420
|
|
|
$
|
(6,387
|
)
|
|
|
|
|
|
|
|
We accounted for the assets acquired and liabilities assumed of Newports high-power laser
diodes business using the purchase method of accounting. The total consideration given to Newport
in connection with the exchange described above has been allocated to the assets acquired and
liabilities assumed based on their fair values as of the date of the exchange.
Our purchase price, based on the fair values of the assets acquired and liabilities assumed as of
the date of the exchange, is as follows:
|
|
|
|
|
|
|
Purchase Price
|
|
|
|
(Thousands)
|
|
Cash
|
|
$
|
3,000
|
|
Accounts receivable
|
|
|
2,240
|
|
Inventories
|
|
|
4,863
|
|
Property and equipment
|
|
|
4,800
|
|
Other intangible assets
|
|
|
1,755
|
|
Accounts payable
|
|
|
(923
|
)
|
Accrued expenses and other current liabilities
|
|
|
(568
|
)
|
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
15,167
|
|
Gain on bargain purchase
|
|
|
(5,267
|
)
|
|
|
|
|
Total purchase price
|
|
$
|
9,900
|
|
|
|
|
|
F-17
Any excess of the fair value of assets acquired and liabilities assumed over the aggregate
consideration given for such acquisition results in a gain on bargain purchase. In the year ended
July 3, 2010, we recorded a gain on bargain purchase of $5.3 million in connection with the
acquisition of Newports high-power laser diodes business, which is included in other income
(expense) in the accompanying consolidated statements of operations. The gain on bargain purchase
reflects the completion of our full valuation of the fair value of assets acquired and liabilities
assumed. Adjustments resulting from the completion of the full valuation are presented
retrospectively in our consolidated financial statements as though they had been recorded as of the
acquisition date.
Acquisition of Xtellus
On December 17, 2009, we acquired Xtellus and accounted for the assets acquired and liabilities
assumed from this acquisition using the purchase method of accounting. During fiscal year 2011, we
completed our fair value assessment of the Xtellus acquisition, which resulted in no change to the
estimated fair values of the assets acquired and liabilities assumed from the amounts we previously
reported in our 2010 Form 10-K. Under the terms of this acquisition, we issued approximately 3.7
million unregistered shares of Oclaro common stock with a fair value of $22.2 million as of the
acquisition closing date, December 17, 2009. Of these shares issued, approximately 3.5 million
shares were issued to former Xtellus stockholders and approximately 0.2 million shares were issued
to certain former debt holders of Xtellus in order to extinguish outstanding Xtellus debt. The fair
value of these shares was determined using the closing price of $6.70 per share of Oclaro common
stock as of December 17, 2009, adjusted by a discount of 10.4 percent to reflect the lack of
marketability due to the shares being unregistered and subject to restrictions on transfer under
Rule 144 of the Securities and Exchange Commission (SEC).
We are also obligated to pay an additional $7.0 million in consideration to the former Xtellus
stockholders after an 18 month escrow period established to secure the indemnification obligations
of the Xtellus stockholders under the acquisition agreement. We issued approximately 1.0 million
shares of Oclaro common stock into a third-party escrow account to secure our obligation under the
escrow agreement. We determined the net present fair value of this obligation to be $6.3 million
at the acquisition date based on our incremental borrowing cost, initially recording this amount in
other non-current liabilities in our consolidated balance sheet at July 3, 2010. During fiscal
years 2011 and 2010, we recorded $0.7 million and nil, respectively, in interest expense related to
the Xtellus escrow liability. The $7.0 million became payable in June 2011 and remained
outstanding as of July 2, 2011. During the first quarter of fiscal year 2012, we intend to settle
this obligation through issuance of approximately 0.9 million shares of our common stock.
We also agreed to pay a valuation protection guarantee (value protection liability) whereby
former stockholders of Xtellus were entitled to receive up to $7.0 million in additional
consideration if Oclaros common stock traded below certain levels at the end of calendar year 2010
and if revenue from Xtellus products was more than $17.0 million in calendar year 2010. The
estimated fair value of this valuation protection liability was $0.9 million at the acquisition
date. This estimate was determined using management estimates of future operating results and a
Monte Carlo simulation model to determine the likelihood of achieving certain market conditions.
During fiscal year 2010, we reassessed the fair value of this liability, determining that its value
declined from $0.9 million at January 2, 2010 to nil at July 3, 2010. This $0.9 million change in
fair value was recognized as income within restructuring, acquisition and related costs during the
year ended July 3, 2010. This guarantee expired in December 2010 with no liability due.
For accounting purposes, the total fair value consideration given in connection with the
acquisition of Xtellus was $29.4 million, consisting of the following:
|
|
|
|
|
|
|
Total Consideration
|
|
|
|
(Thousands)
|
|
Common shares issued to Xtellus stockholders and debtholders
|
|
$
|
22,171
|
|
Estimated fair value of escrow liability
|
|
|
6,324
|
|
Estimated fair value of value protection guarantee
|
|
|
946
|
|
|
|
|
|
Total consideration
|
|
$
|
29,441
|
|
|
|
|
|
F-18
The total consideration given to former stockholders and debtholders of Xtellus has been allocated
to the assets acquired and liabilities assumed based on their estimated fair values as of the date
of the acquisition. Our purchase price allocation is as follows:
|
|
|
|
|
|
|
Purchase Price
|
|
|
|
(Thousands)
|
|
Cash
|
|
$
|
277
|
|
Accounts receivable
|
|
|
75
|
|
Inventories
|
|
|
1,560
|
|
Property and equipment
|
|
|
2,297
|
|
Prepaid expenses and other current assets
|
|
|
1,339
|
|
Other non-current assets
|
|
|
477
|
|
Other intangible assets
|
|
|
7,309
|
|
Accounts payable
|
|
|
(1,683
|
)
|
Accrued expenses and other current liabilities
|
|
|
(1,729
|
)
|
Other non-current liabilities
|
|
|
(481
|
)
|
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
9,441
|
|
Goodwill
|
|
|
20,000
|
|
|
|
|
|
Total purchase price
|
|
$
|
29,441
|
|
|
|
|
|
This acquisition also provided for an employee retention program under which certain former
Xtellus employees received up to an aggregate of $5.0 million in a combination of cash (up to a
maximum of $1.0 million) and restricted stock awards which are generally subject to time-based
vesting over two years and were partially subject to the achievement of certain revenue targets
during calendar year 2010. The costs of this retention program are considered compensatory and are
being recorded in our results of operations. During fiscal year 2010, we recorded $1.0 million in
restructuring, acquisition and related costs in our consolidated statements of operations related
to cash payments due under the retention program.
Fiscal Year 2011
Acquisition of Mintera
On July 21, 2010, we acquired Mintera, a privately-held company providing high-performance optical
transport sub-systems solutions. We accounted for the assets acquired and liabilities assumed from
this acquisition using the purchase method of accounting. Under the terms of this agreement, we
paid $10.5 million in cash to the former security holders and creditors of Mintera at the time of
close and assumed $1.5 million in liabilities due by the security holders of Mintera, which we paid
during fiscal year 2011. We also agreed to pay additional revenue-based consideration whereby
former security holders of Mintera are entitled to receive up to $20.0 million, determined based on
a set of sliding scale formulas, to the extent revenue from Mintera products is more than $29.0
million in the 12 months following the acquisition and/or more than $40.0 million in the 18 months
following the acquisition. The earnout consideration, if any, will be payable in cash or, at our
option, newly issued shares of our common stock, or a combination of cash and stock, in October 2011 for the 12
month earnout liability and April 2012 for the 18 month earnout liability. Achieving cumulative
revenues of $40.0 million over the 12 month period and $70.0 million over the 18 month period would
lead to the maximum $20.0 million in additional consideration. The estimated fair value of these
obligations were determined using management estimates of the total amounts expected to be paid
based on estimated future operating results, discounted to their present value using our
incremental borrowing cost. The estimated net present fair value of these obligations was $15.1
million at the acquisition date. As of July 2, 2011, we reassessed the fair value of these
obligations, determining that their values should remain at $15.1 million plus accrued interest of
approximately $1.0 million from the acquisition date. These amounts are recorded in accrued
expenses and other liabilities in our consolidated balance sheet at July 2, 2011.
F-19
For accounting purposes, the total fair value of consideration given in connection with the
acquisition of Mintera was $25.6 million, consisting of the following:
|
|
|
|
|
|
|
Total Consideration
|
|
|
|
(Thousands)
|
|
Consideration to security holders and creditors of Mintera
|
|
$
|
12,000
|
|
Less: Unpaid liabilities of Mintera security holders assumed by Oclaro
|
|
|
(1,518
|
)
|
|
|
|
|
Net cash paid to security holders and creditors of Mintera
|
|
|
10,482
|
|
Estimated fair value for the 12-month earnout liability
|
|
|
4,338
|
|
Estimated fair value for the 18-month earnout liability
|
|
|
10,810
|
|
|
|
|
|
Total estimated fair value for the earnout liabilities
|
|
|
15,148
|
|
|
|
|
|
Total consideration
|
|
$
|
25,630
|
|
|
|
|
|
Our allocation of the purchase price of Mintera, based on the estimated fair values of the
assets acquired and liabilities assumed as of the acquisition date, is as follows:
|
|
|
|
|
|
|
Purchase Price
|
|
|
|
(Thousands)
|
|
Restricted cash
|
|
$
|
41
|
|
Accounts receivable, net
|
|
|
3,053
|
|
Inventories
|
|
|
2,592
|
|
Prepaid expenses and other current assets
|
|
|
130
|
|
Property and equipment
|
|
|
3,202
|
|
Other intangible assets
|
|
|
11,740
|
|
Accounts payable
|
|
|
(1,947
|
)
|
Accrued expenses and other current liabilities
|
|
|
(4,085
|
)
|
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
14,726
|
|
Goodwill
|
|
|
10,904
|
|
|
|
|
|
Total purchase price
|
|
$
|
25,630
|
|
|
|
|
|
During fiscal year 2011, we completed our fair value assessment of the Mintera acquisition, which
resulted in no change to our original estimated fair values of the assets acquired and liabilities
assumed.
Unaudited Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations have been prepared as if the
acquisition of Mintera had occurred as of June 28, 2009, the first day of our fiscal year 2010:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Unaudited, thousands)
|
|
Revenues
|
|
$
|
466,973
|
|
|
$
|
412,039
|
|
Loss from continuing operations
|
|
$
|
(48,783
|
)
|
|
$
|
(1,219
|
)
|
Net income (loss)
|
|
$
|
(48,783
|
)
|
|
$
|
201
|
|
Net income (loss) per share Basic
|
|
$
|
(1.01
|
)
|
|
$
|
|
|
Net income (loss) per share Diluted
|
|
$
|
(1.01
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share Basic
|
|
|
48,444
|
|
|
|
40,322
|
|
Shares used in computing net income (loss) per share Diluted
|
|
|
48,444
|
|
|
|
42,262
|
|
F-20
This unaudited pro forma financial information is presented for informational purposes only and is
not necessarily indicative of the results of operations that actually would have been achieved had
the Mintera acquisition been consummated as of that time, nor is it intended to be a projection of
future results. In addition, this unaudited pro forma financial information does not include the
impact of additional acquisitions completed in fiscal year 2010.
Note 4. Goodwill and Other Intangible Assets
Additions
In connection with our acquisition of the Newport high-power laser diodes business on July 4, 2009,
we recorded $1.8 million in other intangible assets. The acquired other intangible assets from
Newport consist of core and current technology assets of $1.1 million with a weighted average life
of 6 years, customer relationships of $0.6 million with a weighted average life of 6 years, and
contract backlog of $0.1 million with a weighted average life of 1.5 years.
In connection with our acquisition of Xtellus on December 17, 2009, we recorded $20.0 million in
goodwill and $7.3 million in other intangible assets. The acquired other intangible assets from
Xtellus consist of core and current technology assets of $3.1 million with a weighted average life
of 8 years, customer relationships of $1.2 million with a weighted average life of 5.5 years,
patents of $2.8 million with a weighted average life of 11.5 years and trade names of $0.2 million
with a weighted average life of 8 years.
During fiscal year 2010, we also acquired through an asset purchase $0.7 million in core and
current technology with a weighted average life of 6 years.
In connection with our acquisition of Mintera on July 21, 2010, we recorded $10.9 million in
goodwill and $11.7 million in other intangible assets. The other intangible assets acquired from
Mintera consist of core and current technology assets of $6.0 million with a weighted-average life
of 6 years, a development agreement of $3.4 million with a weighted-average life of 7 years,
customer relationships of $1.4 million with a weighted-average life of 8.5 years, manufacturing
software of $0.7 million with a weighted-average life of 6 years, patents of $0.1 million with a
weighted-average life of 5.5 years, trade names of $0.1 million with a weighted-average life of 1.5
years and backlog of $30,000 with a weighted-average life of 1.5 years.
Impairment Assessments
During the fourth quarter of fiscal year 2011 we completed our annual first step analysis for
potential impairment of our goodwill, which included examining the impact of current general
economic conditions on our future prospects and the current level of our market capitalization.
Based on this analysis, we concluded that goodwill related to our wavelength selective switches
(WSS) reporting unit was impaired. Our WSS reporting units goodwill was originally recorded in
connection with our acquisition of Xtellus. During the fourth quarter of fiscal year 2011 we also
completed our second step analysis of goodwill impairment, determining that the $20.0 million of
goodwill related to our WSS reporting unit was fully impaired. Based upon this evaluation, we
recorded $20.0 million for the goodwill impairment loss in our consolidated statement of operations
for fiscal year 2011. In conjunction with our second step goodwill impairment analysis, we also
evaluated the fair value of the intangible assets of this reporting unit and concluded that such
assets were not impaired.
During the fiscal year ended June 27, 2009, we observed indicators of potential impairment of our
goodwill, including the impact of the current general economic downturn on our future prospects and
the continued decline of our market capitalization, which caused us to conduct a goodwill
impairment analysis. Specifically, indicators emerged within our New Focus reporting unit, which
included the technology acquired in the March 2004 acquisition of Oclaro Photonics, Inc. and one
other reporting unit that included the technology acquired in the March 2006 acquisition of Avalon
Photonics AG (the Avalon reporting unit). These indicators led us to conclude that an impairment
test was required to be performed for goodwill related to these reporting units.
During the fiscal year ended June 27, 2009, we determined, in our first step goodwill impairment
analysis, that our goodwill related to the New Focus and Avalon reporting units was in fact
impaired. We completed our full evaluation of the second step impairment analysis, which indicated
that the goodwill was fully impaired. We recorded $7.9 million in goodwill impairment in our
statement of operations for the year ended June 27, 2009.
F-21
In conjunction with our full evaluation of the second step goodwill impairment analysis, we also
evaluated the fair value of the intangible assets of these two reporting units. Based on this
testing, we determined that the intangibles of our New Focus reporting unit and our Avalon
reporting units were impaired. We recorded $1.2 million for the impairment loss related to these
intangibles, net of $2.8 million associated with the discontinued operations of the New Focus
business, in our statements of operations for the year ended June 27, 2009.
These impairments will not result in any current or future cash expenditures.
Amortization
Amortization of other intangible assets for the years ended July 2, 2011, July 3, 2010 and June 27,
2009, was $2.8 million, $1.0 million and $0.5 million, respectively. Amortization is recorded as an
operating expense within the consolidated statements of operations. Estimated future amortization
expense of other intangible assets is $2.9 million for fiscal year 2012, $3.2 million for fiscal
year 2013 through fiscal year 2015 and $2.7 million for fiscal year 2016 based on the current level
of our intangible assets.
The following table provides details regarding the changes in our goodwill for each of the three
years in the fiscal years ended:
|
|
|
|
|
|
|
Total
|
|
|
|
(Thousands)
|
|
Balance at June 28, 2008
|
|
$
|
7,881
|
|
Impairment
|
|
|
(7,881
|
)
|
|
|
|
|
Balance at June 27, 2009
|
|
|
|
|
Addition arising from Xtellus acquisition
|
|
|
20,000
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
20,000
|
|
Addition arising from Mintera acquisition
|
|
|
10,904
|
|
Impairment
|
|
|
(20,000
|
)
|
|
|
|
|
Balance at July 2, 2011
|
|
$
|
10,904
|
|
|
|
|
|
The following table summarizes the activity related to our other intangible assets for fiscal years
ended July 2, 2011, July 3, 2010 and June 27, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core and
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
and Supply
|
|
|
Customer
|
|
|
Patent
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
Agreements
|
|
|
Relationships
|
|
|
Portfolio
|
|
|
Intangibles
|
|
|
Amortization
|
|
|
Total
|
|
|
|
(Thousands)
|
|
Balance at June 28, 2008
|
|
$
|
12,654
|
|
|
$
|
4,026
|
|
|
$
|
1,168
|
|
|
$
|
2,216
|
|
|
$
|
135
|
|
|
$
|
(12,370
|
)
|
|
$
|
7,829
|
|
Disposals
|
|
|
(2,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,734
|
|
|
|
|
|
Impairment and
amortization
|
|
|
(2,925
|
)
|
|
|
|
|
|
|
(300
|
)
|
|
|
(809
|
)
|
|
|
|
|
|
|
(1,229
|
)
|
|
|
(5,263
|
)
|
Translations and
adjustments
|
|
|
(345
|
)
|
|
|
(773
|
)
|
|
|
(149
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
674
|
|
|
|
(615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
6,650
|
|
|
|
3,253
|
|
|
|
719
|
|
|
|
1,385
|
|
|
|
135
|
|
|
|
(10,191
|
)
|
|
|
1,951
|
|
Additions
|
|
|
4,921
|
|
|
|
|
|
|
|
1,760
|
|
|
|
2,780
|
|
|
|
310
|
|
|
|
|
|
|
|
9,771
|
|
Disposals
|
|
|
(6,650
|
)
|
|
|
|
|
|
|
(719
|
)
|
|
|
(1,385
|
)
|
|
|
(135
|
)
|
|
|
8,889
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(951
|
)
|
|
|
(951
|
)
|
Translations and
adjustments
|
|
|
(12
|
)
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
4,909
|
|
|
|
3,056
|
|
|
|
1,760
|
|
|
|
2,780
|
|
|
|
310
|
|
|
|
(2,205
|
)
|
|
|
10,610
|
|
Additions
|
|
|
6,030
|
|
|
|
3,350
|
|
|
|
1,440
|
|
|
|
130
|
|
|
|
790
|
|
|
|
|
|
|
|
11,740
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,805
|
)
|
|
|
(2,805
|
)
|
Translations and
adjustments
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2011
|
|
$
|
10,939
|
|
|
$
|
6,559
|
|
|
$
|
3,200
|
|
|
$
|
2,910
|
|
|
$
|
1,100
|
|
|
$
|
(5,010
|
)
|
|
$
|
19,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
Note 5. Restructuring Liabilities
Fiscal Year 2009
In connection with earlier plans of restructuring, during fiscal year 2009 we accrued approximately
$1.7 million in additional expenses for revised estimates of the cash flows for lease cancellations
and commitments, and approximately $0.6 million for additional employee separation charges, and
continued to make scheduled payments during fiscal year 2009, reducing the related lease
liabilities and employee severance and retention obligations.
In connection with the merger with Avanex, during the fourth quarter of fiscal year 2009, we
initiated an overhead cost reduction plan which included workforce reductions as well as facility
and site consolidation of our Fremont, California and Villebon, France locations. We also assumed
from Avanex facilities-related restructuring accruals of $6.2 million related to four locations in
Fremont and Newark, California and one location in Villebon, France. During fiscal year 2009, we
accrued restructuring charges of approximately $0.3 million for lease commitments related to
vacating the Fremont and Villebon locations, and approximately $5.1 million for employee separation
charges, and continued to make scheduled payments, reducing the related lease liabilities and
employee severance and retention obligations.
Fiscal Year 2010
In connection with earlier cost reduction and restructuring plans, we accrued $0.4 million in
additional expenses, net of adjustments, for revised estimates related to lease cancellations and
commitments and $2.2 million in additional employee separation costs.
During fiscal year 2010, we initiated a new restructuring plan resulting from our acquisition of
Newports high-power laser diodes business. This plan involved the transfer of Newports
high-power laser diodes manufacturing operations from Tucson, Arizona to our European manufacturing
facilities. We incurred $0.5 million in restructuring accruals for employee separation charges
under the Newport plan. During fiscal year 2010, we also wrote-down $0.8 million in inventory,
which became impaired through the integration of our WSS product lines.
Fiscal Year 2011
We incurred $1.5 million in employee separation costs during fiscal year 2011 in connection with
cost reduction and restructuring plans, including $0.6 million related to a restructuring plan
specific to our acquisition of Mintera. During fiscal year 2011, we recorded reductions to our
restructuring reserve of $0.5 million resulting from revised estimates for lease cancellations and
commitments and other charges. We also recorded a reduction to our restructuring reserve of $0.2
million related to employee separation costs during fiscal year 2011. We do not expect to incur
significant additional restructuring costs in connection with previously announced restructuring
plans.
As of July 2, 2011, our $0.2 million in accrued restructuring liabilities relates to an inventory
impairment.
For all periods presented, separation payments under the restructuring and cost reduction efforts
were accrued and charged to restructuring in the period that the amounts were both determined and
communicated to the affected employees.
F-23
The following table summarizes the activity related to our restructuring liability for the years
ended July 2, 2011, July 3, 2010 and June 27, 2009. Accrued restructuring costs related to earlier
restructuring activities of the New Focus business were not assumed by Newport in the July 4, 2009
exchange of assets, and are therefore included at the corresponding balance sheet dates in the
table below. The related amounts charged to restructuring charges are included in income (loss)
from discontinued operations in the accompanying consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellations,
|
|
|
Payments to
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
Employees
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
and Other
|
|
|
and Related
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
Costs
|
|
|
Charges
|
|
|
Current
|
|
|
Non-Current
|
|
|
|
(Thousands)
|
|
Balance at June 28, 2008
|
|
$
|
2,074
|
|
|
$
|
754
|
|
|
$
|
2,828
|
|
|
$
|
1,720
|
|
|
$
|
1,108
|
|
Charged to restructuring costs
|
|
|
2,027
|
|
|
|
5,693
|
|
|
|
7,720
|
|
|
|
|
|
|
|
|
|
Paid or written off
|
|
|
(1,966
|
)
|
|
|
(1,682
|
)
|
|
|
(3,648
|
)
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
6,185
|
|
|
|
(46
|
)
|
|
|
6,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
8,320
|
|
|
|
4,719
|
|
|
|
13,039
|
|
|
$
|
9,485
|
|
|
$
|
3,554
|
|
Charged to restructuring costs
|
|
|
1,694
|
|
|
|
2,706
|
|
|
|
4,400
|
|
|
|
|
|
|
|
|
|
Paid or written off
|
|
|
(5,422
|
)
|
|
|
(7,254
|
)
|
|
|
(12,676
|
)
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
(485
|
)
|
|
|
60
|
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
4,107
|
|
|
|
231
|
|
|
|
4,338
|
|
|
$
|
4,338
|
|
|
$
|
|
|
Charged to restructuring costs
|
|
|
14
|
|
|
|
1,465
|
|
|
|
1,479
|
|
|
|
|
|
|
|
|
|
Paid or written off
|
|
|
(3,365
|
)
|
|
|
(1,453
|
)
|
|
|
(4,818
|
)
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
(541
|
)
|
|
|
(243
|
)
|
|
|
(784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2011
|
|
$
|
215
|
|
|
$
|
|
|
|
$
|
215
|
|
|
$
|
215
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6. Credit Agreement
Information presented in this footnote reflects the terms and conditions of our senior secured
credit facility as of July 2, 2011. See Note 16,
Subsequent Event
, for a description of a further
amendment and restatement of this credit facility made on July 26, 2011.
On August 2, 2006, we entered into a $25.0 million senior secured revolving credit facility with
Wells Fargo Capital Finance, Inc. and other lenders. On April 27, 2009, we, with our wholly-owned
subsidiaries Oclaro Technology Ltd, Oclaro Photonics, Inc. and Oclaro Technology, Inc.,
collectively the Borrowers, entered into an amendment to the existing credit agreement (the
Amended Credit Agreement) with Wells Fargo Capital Finance, Inc. and other lenders regarding the
$25.0 million senior secured revolving credit facility, extending the term to August 1, 2012. We
further amended the Amended Credit Agreement from time to time, most recently on May 13, 2011.
Under the Amended Credit Agreement, advances are available based on 80 percent of qualified
accounts receivable, as defined in the Amended Credit Agreement.
The obligations of the Borrowers under the Amended Credit Agreement are guaranteed by Oclaro,
Oclaro (North America), Inc., Oclaro (Canada) Inc., Bookham Nominees Limited and Bookham
International Ltd., each also a wholly-owned subsidiary, (which are referred to collectively as the
Guarantors and together with the Borrowers, as the Obligors), and are secured pursuant to a
security agreement, or the Security Agreement, by the assets of the Obligors, including a pledge of
the capital stock holdings of the Obligors in some of their direct subsidiaries.
Pursuant to the terms of the Amended Credit Agreement, borrowings made under the facility bear
interest at a rate based on either the London Interbank Offered Rate (LIBOR) plus 2.75 percentage
points or the banks prime rate plus 1.75 percentage points. In the absence of an event of
default, any amounts outstanding under the Amended Credit Agreement may be repaid and re-borrowed
anytime until maturity, which is August 1, 2012.
F-24
The obligations of the Borrowers under the Amended Credit Agreement may be accelerated upon the
occurrence of an event of default under the Amended Credit Agreement, which includes customary
events of default, including payment defaults, defaults in the performance of affirmative and
negative covenants, the inaccuracy of representations or warranties, a cross-default related to
indebtedness in an aggregate amount of $1.0 million or more, bankruptcy and insolvency related
defaults, defaults relating to such matters as ERISA and certain judgments in excess of $1.0
million, and a change of control default. The Amended Credit Agreement contains negative covenants
applicable to the Borrowers and their subsidiaries, including a financial covenant that the
Borrowers maintain a minimum fixed charge coverage ratio (defined as the ratio of EBITDA minus
capital expenditures made or incurred during such period, to fixed charges for such period), of no
less than 1.10 to 1.00, if the Borrowers have not maintained minimum liquidity (defined as $30.0
million of qualified cash and excess availability, each as also defined in the Amended Credit
Agreement), and to also include restrictions on liens, investments, indebtedness, fundamental
changes to the Borrowers business, dispositions of property, making certain restricted payments
(including restrictions on dividends and stock repurchases), entering into new lines of business
and transactions with affiliates.
In connection with the Amended Credit Agreement, we paid a closing fee of $250,000 and agreed to
pay a monthly servicing fee of $3,000 and an unused line fee equal to 0.50 percentage points per
annum, payable monthly on the unused amount of revolving credit commitments. To the extent there
are letters of credit outstanding under the Amended Credit Agreement, the Borrowers are obligated
to pay the administrative agent a letter of credit fee at a rate equal to 3.50 percentage points
per annum.
As of July 2, 2011 and July 3, 2010, there were no amounts outstanding under the Amended Credit
Agreement. At July 2, 2011 and July 3, 2010, there were $1.1 million and $2.0 million,
respectively, in outstanding standby letters of credit with vendors secured under the Amended
Credit Agreement. The outstanding standby letters of credit for $1.1 million expire at various
intervals through April 2014.
Note 7. Post-Retirement Benefits
4
01(k)
Plan
In the U.S., we sponsor a 401(k) plan that allows voluntary contributions by eligible employees,
who may elect to contribute up to the maximum allowed under the U.S. Internal Revenue Service
regulations. We generally make 50 percent matching contributions (up to a maximum of $9,800 per
eligible employee per year) and we recorded related expenses of $0.9 million, $0.7 million and $0.4
million in the fiscal years ended July 2, 2011, July 3, 2010 and June 27, 2009, respectively.
Defined Contribution Plan
We contribute to a U.K. based defined contribution pension scheme for employees. Contributions
under this plan and the related expenses were $1.3 million, $1.1 million and $1.1 million in the
fiscal years ended July 2, 2011, July 3, 2010 and June 27, 2009, respectively.
Switzerland Defined Benefit Plan
We have a pension plan covering employees of our Swiss subsidiary (the Swiss plan) which has
historically not been recorded in the financial statements because the amounts were immaterial. Due
to the increased significance of our Swiss pension plan in fiscal year 2010, we concluded that as
of July 3, 2010 our Swiss pension plan should be recorded as a defined benefit plan. As a result,
we increased other non-current liabilities by $1.5 million and other non-current assets by $0.3
million, and decreased accumulated other comprehensive income by $1.2 million, net of tax, to
reflect the under-funded pension liability.
Employer and employee contributions are made to the Swiss plan based on various percentages of
salary and wages that vary according to employee age and other factors. Employer contributions to
the Swiss plan for years ended July 2, 2011 and July 3, 2010 were $2.4 million and $1.6 million,
respectively. Employer contributions to the Swiss plan in fiscal year 2012 are estimated to be
approximately $2.6 million.
F-25
The funded status of the Swiss plan at July 2, 2011 and July 3, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of period
|
|
$
|
21,732
|
|
|
$
|
19,664
|
|
Service cost
|
|
|
1,892
|
|
|
|
1,523
|
|
Interest cost
|
|
|
840
|
|
|
|
690
|
|
Participant contributions
|
|
|
1,158
|
|
|
|
801
|
|
Benefits paid (received)
|
|
|
422
|
|
|
|
(933
|
)
|
Actuarial gain on obligation
|
|
|
(463
|
)
|
|
|
(536
|
)
|
Currency translation adjustment
|
|
|
6,046
|
|
|
|
523
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of period
|
|
$
|
31,627
|
|
|
$
|
21,732
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of period
|
|
$
|
20,263
|
|
|
$
|
18,610
|
|
Actual return on plan assets
|
|
|
(768
|
)
|
|
|
(334
|
)
|
Employer contributions
|
|
|
2,378
|
|
|
|
1,624
|
|
Participant contributions
|
|
|
1,158
|
|
|
|
801
|
|
Benefits paid (received)
|
|
|
422
|
|
|
|
(934
|
)
|
Currency translation adjustment
|
|
|
5,637
|
|
|
|
496
|
|
|
|
|
|
|
|
|
Plan assets at fair value, end of period
|
|
$
|
29,090
|
|
|
$
|
20,263
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
$
|
316
|
|
|
$
|
316
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Underfunded pension liability
|
|
$
|
2,537
|
|
|
$
|
1,469
|
|
Amounts recognized in accumulated other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Pension adjustment
|
|
$
|
2,721
|
|
|
$
|
1,153
|
|
Accumulated benefit obligation, end of period
|
|
$
|
27,340
|
|
|
$
|
18,113
|
|
Net periodic pension cost associated with the Swiss plan in the years ended July 2, 2011 and
July 3, 2010 include the following components:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Service cost
|
|
$
|
1,892
|
|
|
$
|
1,523
|
|
Interest cost
|
|
|
840
|
|
|
|
690
|
|
Expected return on plan assets
|
|
|
(1,115
|
)
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
1,617
|
|
|
$
|
1,419
|
|
|
|
|
|
|
|
|
F-26
The projected and accumulated benefit obligations for the Swiss plan were calculated as of
July 2, 2011 and July 3, 2010 using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
Discount rate
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
Salary increase rate
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
Expected return on plan assets
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
Expected average remaining working life (in years)
|
|
|
13.8
|
|
|
|
13.7
|
|
The discount rate is based on assumed pension benefit maturity and estimates developed using the
rate of return and yield curves for high quality Swiss corporate and government bonds. The 2.0
percent salary increase rate is based on our best assessment for on-going increases over time. The
4.0 percent expected long-term rate of return on plan assets is based on the expected asset
allocation and taking into consideration historical long-term rates of return for the relevant
asset categories.
The Swiss plan is legally separate from Oclaro, as are the assets of the plan. As of July 2, 2011
and July 3, 2010, the Swiss plans asset allocation was as follows:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
Fixed income investments
|
|
|
33.0
|
%
|
|
|
24.0
|
%
|
Equity investments
|
|
|
48.0
|
%
|
|
|
48.0
|
%
|
Real estate
|
|
|
10.0
|
%
|
|
|
11.0
|
%
|
Cash
|
|
|
7.0
|
%
|
|
|
15.0
|
%
|
Alternative investments
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
The Swiss plan assets are measured at fair value and are classified into two distinct levels of the
fair value hierarchy, as defined in Note 2,
Fair Value
. The Swiss plan assets are comprised of
Level 1 assets, which include cash, equity investments and fixed income investments, and Level 3
assets, which include real estate and alternative investments. The investment strategy of the Swiss
plans pension committee is to achieve a consistent long-term return which will provide sufficient
funding for future pension obligations while limiting risk. The investment strategy is reviewed
regularly.
None of the $2.7 million balance in accumulated other comprehensive income at July 2, 2011 is
expected to be amortized into net periodic benefit income in fiscal year 2012. Estimated future
benefit payments from the Swiss plan are $0.9 million in fiscal year 2012, $1.2 million in fiscal
year 2013, $0.8 million in fiscal year 2014, $1.4 million in fiscal year 2015, $1.4 million in
fiscal year 2016 and $12.1 million in the following five years.
Note 8. Commitments and Contingencies
Guarantees
We indemnify our directors and certain employees as permitted by law, and have entered into
indemnification agreements with our directors and executive officers. We have not recorded a
liability associated with these indemnification arrangements, as we historically have not incurred
any material costs associated with such indemnification obligations. Costs associated with such
indemnification obligations may be mitigated by insurance coverage that we maintain, however, such
insurance may not cover any, or may cover only a portion of, the amounts we may be required to pay.
In addition, we may not be able to maintain such insurance coverage in the future.
We also have indemnification clauses in various contracts that we enter into in the normal course
of business, such as indemnifications in favor of customers in respect of liabilities they may
incur as a result of purchasing our products should such products infringe the intellectual
property rights of a third party. We have not historically paid out any material amounts related to
these indemnifications; therefore, no accrual has been made for these indemnifications.
F-27
Warranty accrual
We accrue for the estimated costs to provide warranty services at the time revenue is recognized.
Our estimate of costs to service our warranty obligations is based on historical experience and
expectation of future conditions. To the extent we experience increased warranty claim activity or
increased costs associated with servicing those claims, our warranty costs would increase,
resulting in a decrease in gross profit and a decrease in our net income, or an increase in our net
loss.
The following table summarizes movements in the warranty accrual for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
Warranty provision beginning of period
|
|
$
|
2,437
|
|
|
$
|
2,228
|
|
|
$
|
2,598
|
|
Warranties assumed in acquisitions
|
|
|
357
|
|
|
|
261
|
|
|
|
250
|
|
Warranties issued
|
|
|
1,933
|
|
|
|
3,516
|
|
|
|
2,811
|
|
Warranties utilized or expired
|
|
|
(2,661
|
)
|
|
|
(3,426
|
)
|
|
|
(3,000
|
)
|
Currency translation adjustment
|
|
|
109
|
|
|
|
(142
|
)
|
|
|
(431
|
)
|
|
|
|
|
|
|
|
|
|
|
Warranty provision end of period
|
|
$
|
2,175
|
|
|
$
|
2,437
|
|
|
$
|
2,228
|
|
|
|
|
|
|
|
|
|
|
|
Litigation
On June 26, 2001, the first of a number of securities class actions was filed in the United States
District Court for the Southern District of New York against New Focus, Inc., now known as Oclaro
Photonics, Inc. (New Focus), certain of our officers and directors, and certain underwriters for
New Focus initial and secondary public offerings. A consolidated amended class action complaint,
captioned
In re New Focus, Inc. Initial Public Offering Securities Litigation
, No. 01 Civ. 5822,
was filed on April 20, 2002. The complaint generally alleges that various underwriters engaged in
improper and undisclosed activities related to the allocation of shares in New Focus initial
public offering and seeks unspecified damages for claims under the Exchange Act on behalf of a
purported class of purchasers of common stock from May 17, 2000 to December 6, 2000.
The lawsuit against New Focus is coordinated for pretrial proceedings with a number of other
pending litigations challenging underwriter practices in over 300 cases, as
In re Initial Public
Offering Securities Litigation
, 21 MC 92 (SAS), including actions against Bookham Technology plc,
now known as Oclaro Technology Ltd (Bookham Technology) and Avanex Corporation, now known as
Oclaro (North America), Inc. (Avanex), and certain of each entitys respective officers and
directors, and certain of the underwriters of their public offerings. In October 2002, the claims
against the directors and officers of New Focus, Bookham Technology and Avanex were dismissed,
without prejudice, subject to the directors and officers execution of tolling agreements.
The parties have reached a global settlement of the litigation. On October 5, 2009, the Court
entered an order certifying a settlement class and granting final approval of the settlement. Under
the settlement, the insurers will pay the full amount of the settlement share allocated to New
Focus, Bookham Technology and Avanex, and New Focus, Bookham Technology and Avanex will bear no
financial liability. New Focus, Bookham Technology and Avanex, as well as the officer and director
defendants who were previously dismissed from the action pursuant to tolling agreements, will
receive complete dismissals from the case. Certain objectors have appealed the Courts October 5,
2009 order to the Second Circuit Court of Appeals. If for any reason the settlement does not
become effective, we believe that Bookham Technology, New Focus and Avanex have meritorious
defenses to the claims and therefore believe that such claims will not have a material effect on
our financial position, results of operations or cash flows.
On December 6, 2010, a bankruptcy preferential transfer avoidance action was filed by Nortel
Networks Inc.
et al.
against Oclaro Technology Ltd. (formerly Bookham Technology Plc.) and Oclaro
(North America), Inc. (formerly Avanex Corporation) in the United States Bankruptcy Court for the
District of Delaware, Adversary Proceeding No. 10-55919-KG. The complaint alleges, among other
things, that Nortel Networks Inc., and/or its affiliated debtors in the Chapter 11 bankruptcy cases
also pending before the Delaware Bankruptcy Court (Jointly Administered Case No. 09-10138-KG), made
at least approximately $4.6 million in preferential transfers to the defendants predecessors,
Bookham Technology Plc. and
Avanex Corporation, in the 90 days prior to the commencement of the Nortel Chapter 11 bankruptcy
cases on January 14, 2009. We intend to vigorously contest the claims set forth in the complaint.
F-28
On May 19, 2011, Curtis and Charlotte Westley filed a purported class action complaint in the
United States District Court for the Northern District of California, against us and certain of our
officers and directors, allegedly on behalf of persons who purchased or otherwise acquired our
common stock between May 6 and October 27, 2010. The complaint, captioned as Westley v. Oclaro,
Inc., No. 11 Civ. 2448 EMC (N.D. Cal. filed May 19, 2011), alleges generally that defendants issued
materially false and misleading statements during the relevant time period regarding our current
business and financial condition, including projections for our revenues, earnings, and gross
margins, for the first quarter of fiscal year 2011 as well as the full fiscal year. The complaint
alleges violations of section 10(b) of the Securities Exchange Act and Securities and Exchange
Commission Rule 10b-5, as well as section 20(a) of the Securities Exchange Act. The complaint
seeks damages and costs of an unspecified amount. Discovery has not commenced, and no trial has
been scheduled in this action. We intend to defend this litigation vigorously.
On June 10, 2011, a purported shareholder, Stanley Moskal, filed a purported derivative action in
the Superior Court for the State of California, County of Santa Clara, against us, as nominal
defendant, and certain of our current and former officers and directors, as defendants. The case
is styled Moskal v. Couder, No. 1:11 CV 202880 (Santa Clara County Super. Ct. filed June 10, 2011).
Four other purported shareholders, Matteo Guindani, Jermaine Coney, Jefferson Braman and Toby
Aguilar, separately filed substantially similar lawsuits in the United States District Court for
the Northern District of California on June 27, June 28, July 7 and July 26, 2011, respectively.
The cases are styled Guindani v. Couder, No. 11 Civ. 3176 PSG (N.D. Cal. filed June 27, 2011),
Coney v. Couder, No. 11 Civ. 3214 HRL (N.D. Cal. filed June 28, 2011), and Braman v. Couillaud, No.
11 Civ. 3322 RS (N.D. Cal. filed July 7, 2011), and Aguilar v. Couillaud, No. 11 CV 3668 EDL (N.D.
Cal. filed July 26, 2011). Each purported derivative complaint alleges that Oclaro has been, or
will be, damaged by the actions alleged in the Westley complaint, and the litigation of the Westley
action, and any damages or settlement paid in the Westley action. Each purported derivative
complaint alleges counts for breaches of fiduciary duty, waste, and unjust enrichment.
Additionally, the complaint in Aguilar alleges claims for contribution pursuant to Sections 10(b)
and 21D of the Securities Exchange Act, and Securities and Exchange Commission Rule 10b-5, and
Section 20(a) of the Securities Exchange Act. Each purported derivative complaint seeks damages
and costs of an unspecified amount, as well as injunctive relief. Discovery has not commenced, and
no trial has been scheduled in any of these actions. We intend to defend this litigation
vigorously.
Sale-Leaseback
On March 10, 2006, our Oclaro Technology Ltd subsidiary entered into multiple agreements with a
subsidiary of Scarborough Development (Scarborough) for the sale and leaseback of the land and
buildings located at our Caswell, U.K., manufacturing site. The sale transaction, which closed on
March 30, 2006, resulted in immediate proceeds to Oclaro Technology Ltd of £13.75 million
(approximately U.S. $24 million on the date of the transaction). Under these agreements, Oclaro
Technology Ltd leases back the Caswell site for an initial term of 20 years, with options to renew
the lease term for 5 years following the initial term and for rolling 2-year terms thereafter.
Based on the exchange rate of $1.61 as of July 1, 2011, annual rent for the next 5 years of the
lease is approximately £1.2 million, or $2.0 million per year; annual rent for the subsequent 5
years of the lease is approximately £1.4 million, or $2.3 million per year; and annual rent for the
last 5 years of the lease is approximately £1.6 million, or $2.6 million per year. Rent during the
optional renewal terms will be determined according to the then market rent for the site. The
obligations of Oclaro Technology Ltd under these agreements are guaranteed by us. In addition,
Scarborough and Oclaro entered into a pre-emption agreement with the buyer under which Oclaro
Technology Ltd, within the initial 20-year term, has a right to purchase the Caswell site in whole
or in part on terms acceptable to Scarborough if Scarborough agrees to terms with or receives an
offer from a third party to purchase the Caswell facility. As a result of these agreements, we
deferred a related gain of $20.4 million, which is being amortized ratably against rent expense
over the initial 20-year term of the lease. As of July 2, 2011, the unamortized balance of this
deferred gain was $13.9 million.
At the inception of the Caswell lease, we determined the total minimum lease payments which were to
be paid over the lease term, and we are recognizing the effects of scheduled rent increases, which
are included in the total minimum lease payments, on a straight-line basis over the lease term.
F-29
Operating Leases
We lease certain facilities under non-cancelable operating lease agreements that expire at various
dates through 2026. Our future fiscal year minimum lease payments under non-cancelable operating
leases and related sublease income, including the sale-leaseback of our Caswell facility, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Operating Lease
|
|
|
Sublease
|
|
|
|
Payments
|
|
|
Income
|
|
|
|
(Thousands)
|
|
Fiscal Year:
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
6,653
|
|
|
$
|
(238
|
)
|
2013
|
|
|
4,206
|
|
|
|
(128
|
)
|
2014
|
|
|
3,634
|
|
|
|
(128
|
)
|
2015
|
|
|
3,425
|
|
|
|
(84
|
)
|
2016
|
|
|
3,334
|
|
|
|
(62
|
)
|
Thereafter
|
|
|
24,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,291
|
|
|
$
|
(640
|
)
|
|
|
|
|
|
|
|
Rent expense for these leases was $8.6 million, $9.1 million and $6.8 million during the fiscal
years ended July 2, 2011, July 3, 2010 and June 27, 2009, respectively.
Note 9. Stockholders Equity
Common Stock
On May 12, 2010, we completed a public offering of 6.9 million shares of our common stock pursuant
to a shelf registration statement that was previously filed and declared effective by the
Securities and Exchange Commission. We received net proceeds of approximately $77.1 million from
the offering after deducting underwriting discounts and commissions and estimated offering
expenses.
On April 14, 2010, we announced that our board of directors had approved a 1-for-5 reverse split of
our common stock, pursuant to previously obtained stockholder authorization. This reverse stock
split, which became effective at 6:00 p.m., Eastern Time, on April 29, 2010, reduced the number of
shares of our common stock issued and outstanding from approximately 212 million to approximately
42 million and reduced the number of authorized shares of our common stock from 450 million to 90
million.
On December 17, 2009, in connection with our acquisition of Xtellus, we issued approximately 3.7
million shares of our common stock to the former shareholders and debt holders of Xtellus, and
issued approximately 1.0 million shares of our common stock into a third-party escrow account to
secure our obligations under an 18 month escrow agreement entered into in connection with this
acquisition. This obligation remained outstanding as of July 2, 2011. During the first quarter of
fiscal year 2012, we intend to settle this obligation through the issuance of approximately 0.9
million shares of our common stock.
On April 27, 2009, in connection with the merger of Avanex and Oclaro, we issued approximately 17.0
million shares of our common stock for all of the outstanding shares of common stock of Avanex.
F-30
Warrants
The following table summarizes activity relating to warrants to purchase our common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Warrants
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
|
(Thousands)
|
|
|
|
|
Balance at June 28, 2008
|
|
|
2,016
|
|
|
$
|
21.20
|
|
Assumed April 27, 2009 in acquisition
|
|
|
531
|
|
|
|
37.15
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
2,547
|
|
|
|
24.55
|
|
Expired on December 20, 2009
|
|
|
(400
|
)
|
|
|
30.00
|
|
Expired on March 8, 2010
|
|
|
(531
|
)
|
|
|
37.15
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
1,616
|
|
|
|
18.78
|
|
Expired on January 13, 2011
|
|
|
(217
|
)
|
|
|
35.00
|
|
Expired on April 24, 2011
|
|
|
(1
|
)
|
|
|
200.00
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2011
|
|
|
1,398
|
|
|
$
|
16.18
|
|
|
|
|
|
|
|
|
|
On March 22, 2007, we entered into a private placement agreement which included warrants to
purchase up to 818,417 shares of common stock with certain institutional accredited investors. The
warrants are exercisable during the period from September 23, 2007 through September 22, 2012. As
of July 2, 2011, the exercise price was $13.48 per share, which is subject to adjustment based on
a weighted average anti-dilution formula if we effect certain equity issuances in the future for
consideration per share that is less than the then current exercise price per share of such
warrants.
On August 31, 2006, we entered into a private placement agreement which included issuance of
warrants to purchase up to 434,804 shares of common stock. On September 19, 2006, through a second
closing of this private placement, we issued additional warrants to purchase up to 144,935 shares
of common stock. The warrants are exercisable during the period beginning on March 2, 2007 through
September 1, 2011, at an exercise price of $20.00 per share.
Preferred Stock
Our restated certificate of incorporation authorizes us to issue up to 1.0 million shares of
preferred stock with designations, rights and preferences determined from time-to-time by our board
of directors. To date, we have not issued any preferred stock.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Currency
translation adjustments, net of tax
|
|
$
|
43,536
|
|
|
$
|
28,011
|
|
Unrealized gain on currency instruments designated
as cash flow hedges
|
|
|
54
|
|
|
|
49
|
|
Unrealized loss on marketable securities
|
|
|
(139
|
)
|
|
|
|
|
Adjustment for the Swiss defined benefit plan
|
|
|
(2,721
|
)
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
$
|
40,730
|
|
|
$
|
26,907
|
|
|
|
|
|
|
|
|
F-31
Note 10. Employee Stock Plans
Our Amended and Restated 2004 Stock Incentive Plan (Plan) was amended by stockholder approval on
October 27, 2010. The primary changes to the Plan resulting from this amendment include: (1) an
increase in the number of shares available under the Plan from 3.8 million shares to 7.8 million
shares, (2) issuance of full value awards being counted as 1.25 shares of common stock for purposes
of the share limit, and (3) a prohibition on recycling of repurchased shares in cases where shares
are used to exercise an award or shares are withheld for taxes. As amended, the Plan now expires
on October 26, 2020.
On November 2, 2009, we filed a Tender Offer Statement on Schedule TO with the SEC, related to an
offer by us to certain of our employees to exchange some or all of their outstanding options to
purchase our common stock for fewer replacement stock options with exercise prices equal to $6.80
per share, which was the closing price per share of our common stock on December 2, 2009, the date
of grant and the last day of the tender offer (the Offer). A stock option was eligible for
exchange in the Offer if: (i) it had an exercise price of at least $10.00 per share; (ii) it was
granted at least 12 months prior to the commencement of the Offer; (iii) it was held by an employee
who was eligible to participate in the Offer; and (iv) it remained outstanding (i.e., unexpired and
unexercised) as of the date of grant of the replacement options (Eligible Options). We made the
Offer to all of our U.S. and international employees who held Eligible Options (Eligible
Employees), except for (i) members of our board of directors and (ii) our named executive
officers. As of December 2, 2009, when the Offer expired, Eligible Employees surrendered
approximately 0.8 million Eligible Options with a weighted-average exercise price of $37.55 per
share in exchange for approximately 0.4 million replacement stock options with an exercise price of
$6.80 per share. The fair value of the replacement options granted was measured as the total of
the unrecognized compensation cost of the original options tendered and the incremental
compensation cost of the new options granted. The incremental compensation cost of the new options
granted was measured as the excess of the fair value of the new options granted over the fair value
of the original options immediately before cancellation. The total remaining unrecognized
compensation expense related to the original options tendered will be recognized over the remaining
requisite service period of the original options. The incremental compensation cost of the new
options granted was $20,000.
During fiscal year 2010, we reduced our shares available for grant by 0.7 million shares, of which
0.6 million shares available for grant were cancelled in connection with the Offer and 0.1 million
shares available for grant were cancelled upon the expiration of the Avanex Corporation 1998 Stock
Plan in December 2009.
The following table summarizes the combined activity under all of our equity incentive plans for
the three-year period ended July 2, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
Stock
|
|
|
Weighted-
|
|
|
Restricted Stock
|
|
|
Weighted-
|
|
|
|
Available
|
|
|
Options
|
|
|
Average
|
|
|
Awards / Units
|
|
|
Average Grant
|
|
|
|
For Grant
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Date Fair Value
|
|
|
|
(Thousands)
|
|
|
(Thousands)
|
|
|
|
|
|
(Thousands)
|
|
|
|
|
Balances at June 28, 2008
|
|
|
1,919
|
|
|
|
1,365
|
|
|
$
|
29.35
|
|
|
|
301
|
|
|
$
|
15.00
|
|
Assumed in acquisition
|
|
|
1,510
|
|
|
|
979
|
|
|
|
29.95
|
|
|
|
391
|
|
|
|
2.80
|
|
Granted
|
|
|
(1,149
|
)
|
|
|
1,149
|
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
Exercised or released
|
|
|
|
|
|
|
(3
|
)
|
|
|
1.50
|
|
|
|
(215
|
)
|
|
|
13.30
|
|
Cancelled or forfeited
|
|
|
281
|
|
|
|
(254
|
)
|
|
|
24.40
|
|
|
|
(46
|
)
|
|
|
20.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 27, 2009
|
|
|
2,561
|
|
|
|
3,236
|
|
|
|
21.00
|
|
|
|
431
|
|
|
|
4.15
|
|
Granted
|
|
|
(1,614
|
)
|
|
|
1,044
|
|
|
|
4.84
|
|
|
|
570
|
|
|
|
6.80
|
|
Granted in connection with tender offer
|
|
|
(354
|
)
|
|
|
354
|
|
|
|
6.80
|
|
|
|
|
|
|
|
|
|
Exercised or released
|
|
|
|
|
|
|
(71
|
)
|
|
|
3.98
|
|
|
|
(222
|
)
|
|
|
4.05
|
|
Cancelled or forfeited
|
|
|
536
|
|
|
|
(600
|
)
|
|
|
20.77
|
|
|
|
(76
|
)
|
|
|
3.35
|
|
Cancelled in connection with tender
offer
|
|
|
704
|
|
|
|
(777
|
)
|
|
|
37.55
|
|
|
|
|
|
|
|
|
|
Reduction in available for grant
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 3, 2010
|
|
|
1,089
|
|
|
|
3,186
|
|
|
|
8.78
|
|
|
|
703
|
|
|
|
6.42
|
|
Granted
|
|
|
(1,466
|
)
|
|
|
852
|
|
|
|
11.57
|
|
|
|
564
|
|
|
|
11.60
|
|
Exercised or released
|
|
|
|
|
|
|
(515
|
)
|
|
|
4.64
|
|
|
|
(255
|
)
|
|
|
5.78
|
|
Cancelled or forfeited
|
|
|
104
|
|
|
|
(173
|
)
|
|
|
12.01
|
|
|
|
(213
|
)
|
|
|
6.89
|
|
Increase in available for grant
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 2, 2011
|
|
|
3,727
|
|
|
|
3,350
|
|
|
$
|
9.38
|
|
|
|
799
|
|
|
$
|
10.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
Supplemental disclosure information about our stock options outstanding as of July 2, 2011 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
(Thousands)
|
|
|
|
|
|
(Years)
|
|
|
(Thousands)
|
|
Options exercisable at July 2, 2011
|
|
|
1,510
|
|
|
$
|
11.24
|
|
|
|
6.3
|
|
|
$
|
2,311
|
|
Options outstanding at July 2, 2011
|
|
|
3,350
|
|
|
|
9.38
|
|
|
|
7.4
|
|
|
|
4,720
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value,
based on our closing stock price of $6.74 as of July 1, 2011, which would have been received by the
option holders had all option holders exercised their options as of that date. There were
approximately 0.6 million shares of common stock subject to in-the-money options which were
exercisable as of July 2, 2011. We settle employee stock option exercises with newly issued shares
of common stock.
Note 11. Stock-based Compensation
We recognize compensation expense in our statement of operations related to all share-based awards,
including grants of stock options, based on the grant date fair value of such share-based awards.
Estimating the grant date fair value of such share-based wards requires us to make judgments in the
determination of inputs into the Black-Scholes-Merton stock option pricing model which we use to
arrive at an estimate of the grant date fair value for such awards. This model requires
assumptions to be made related to expected stock price volatility, expected option life, risk-free
interest rate and dividend yield. While the risk-free interest rate is a less subjective
assumption, typically based on factual data derived from public sources, the expected stock price
volatility and option life assumptions require a greater level of judgment, which makes them
critical accounting estimates. We have not issued and do not anticipate issuing dividends to
stockholders and accordingly use a zero percent dividend yield assumption for all
Black-Scholes-Merton stock option pricing calculations. We use an expected stock-price volatility
assumption that is based on an implied and historical realized volatility of our underlying common
stock during a period of time. With regard to the weighted-average option life assumption, we
evaluate the exercise behavior of past grants and comparison to industry peer companies as a basis
to predict future activity.
The weighted-average assumptions used in this model to value stock option grants for the fiscal
years ended July 2, 2011, July 3, 2010 and June 27, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
Expected life
|
|
4.5 years
|
|
|
4.5 years
|
|
|
4.5 years
|
|
Risk-free interest rate
|
|
|
1.3
|
%
|
|
|
2.2
|
%
|
|
|
2.4
|
%
|
Volatility
|
|
|
96.8
|
%
|
|
|
98.6
|
%
|
|
|
83.5
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
The amounts included in cost of revenues, operating expenses and income (loss) from discontinued
operations for stock-based compensation expenses for the fiscal years ended July 2, 2011, July 3,
2010 and June 27, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(thousands)
|
|
Stock-based compensation by category of expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
1,385
|
|
|
$
|
1,110
|
|
|
$
|
1,168
|
|
Research and development
|
|
|
1,414
|
|
|
|
1,090
|
|
|
|
888
|
|
Selling, general and administrative
|
|
|
3,505
|
|
|
|
2,232
|
|
|
|
2,016
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,304
|
|
|
$
|
4,432
|
|
|
$
|
4,436
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
3,656
|
|
|
$
|
2,865
|
|
|
$
|
3,477
|
|
Restricted stock awards
|
|
|
2,803
|
|
|
|
1,646
|
|
|
|
787
|
|
Inventory adjustment to cost of revenues
|
|
|
(155
|
)
|
|
|
(79
|
)
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,304
|
|
|
$
|
4,432
|
|
|
$
|
4,436
|
|
|
|
|
|
|
|
|
|
|
|
As of July 2, 2011 and July 3, 2010, we had capitalized $0.4 million and $0.2 million,
respectively, of stock-based compensation as inventory.
Note 12. Income Taxes
For financial reporting purposes, our income (loss) from continuing operations before income taxes
includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
Domestic
|
|
$
|
(33,205
|
)
|
|
$
|
(6,211
|
)
|
|
$
|
(18,064
|
)
|
Foreign
|
|
|
(11,574
|
)
|
|
|
18,100
|
|
|
|
(6,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(44,779
|
)
|
|
$
|
11,889
|
|
|
$
|
(24,370
|
)
|
|
|
|
|
|
|
|
|
|
|
The components of our income tax provision were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
36
|
|
|
$
|
61
|
|
|
$
|
|
|
Foreign
|
|
|
2,279
|
|
|
|
2,175
|
|
|
|
1,399
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(669
|
)
|
|
|
(1,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,646
|
|
|
$
|
928
|
|
|
$
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
The primary differences between the effective tax rate and the U.S. federal statutory tax rate for
fiscal year 2011 relates to taxes in foreign jurisdictions with a tax rate different than the U.S.
federal statutory rate and benefited and unbenefited foreign and domestic tax attributes
.
The
primary differences between the effective tax rate and the U.S. federal statutory tax rate for
fiscal years 2010 and 2009 related to taxes in foreign jurisdictions with a tax rate different than
the U.S. federal statutory rate, benefited and unbenefited foreign and domestic tax attributes, and
the release of valuation allowance on certain foreign deferred tax assets due to certainty around
future profitability in relation to an established transfer pricing regime.
F-34
Reconciliations of our income tax provision at the statutory rate to our income tax provision are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
Tax expense (benefit) at U.S. federal
statutory rate
|
|
$
|
(15,225
|
)
|
|
$
|
4,043
|
|
|
$
|
(8,286
|
)
|
Tax expense (benefit) at state statutory rate
|
|
|
(3,846
|
)
|
|
|
189
|
|
|
|
(592
|
)
|
Permanent adjustments
|
|
|
(1,329
|
)
|
|
|
(1,466
|
)
|
|
|
3,278
|
|
Foreign rate differential
|
|
|
2,642
|
|
|
|
(2,152
|
)
|
|
|
(427
|
)
|
Change in valuation allowance
|
|
|
10,730
|
|
|
|
240
|
|
|
|
7,034
|
|
Non-deductible goodwill impairment loss
|
|
|
8,533
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
141
|
|
|
|
74
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
1,646
|
|
|
$
|
928
|
|
|
$
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
We have not provided for U.S. federal and state income taxes on non-U.S. subsidiaries
undistributed earnings as of July 2, 2011 because such earnings are intended to be reinvested in
the operations of our international subsidiaries indefinitely. Upon distribution of those earnings
in the form of dividends or otherwise, we would be subject to applicable U.S. federal and state
income taxes.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
185,910
|
|
|
$
|
176,738
|
|
Depreciation and capital losses
|
|
|
57,153
|
|
|
|
64,230
|
|
Capitalized research and development
|
|
|
15,119
|
|
|
|
6,602
|
|
Tax credit carryforwards
|
|
|
4,664
|
|
|
|
5,882
|
|
Accruals and reserves
|
|
|
3,648
|
|
|
|
5,241
|
|
Stock-based compensation
|
|
|
1,927
|
|
|
|
2,432
|
|
Other asset impairments
|
|
|
1,670
|
|
|
|
1,678
|
|
Foreign pension plan
|
|
|
741
|
|
|
|
316
|
|
Inventory valuation
|
|
|
408
|
|
|
|
333
|
|
Other
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
271,428
|
|
|
|
263,452
|
|
Valuation allowance
|
|
|
(263,243
|
)
|
|
|
(251,447
|
)
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
8,185
|
|
|
|
12,005
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquired intangibles
|
|
|
(6,558
|
)
|
|
|
(2,539
|
)
|
Other deferred liabilities
|
|
|
|
|
|
|
(7,842
|
)
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(6,558
|
)
|
|
|
(10,381
|
)
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
1,627
|
|
|
$
|
1,624
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. In evaluating our ability to
recover our deferred tax assets, we consider all available positive and negative evidence including
our past operating results, the existence of cumulative losses and our forecast of future taxable
income, which are consistent with the plans and estimates we are using to manage our underlying
businesses.
F-35
In the fourth quarter of fiscal year 2010, we determined that it is more-likely-than-not that we
will utilize net operating losses in one of our foreign jurisdictions due to current earnings and
projections of future profitability. Accordingly, we released $1.3 million of our valuation
allowance against $1.3 million of previously unrecognized deferred tax assets during the fourth
quarter of fiscal year 2010. This amount represented the entire remaining deferred tax asset
related to the accumulated net operating losses of the foreign jurisdiction. Due to the uncertainty
surrounding the realization of the tax attributes in other jurisdictions, we have recorded a full
valuation allowance against our remaining foreign and domestic deferred tax assets as of July 2,
2011.
As of July 2, 2011, we had foreign net operating loss carry forwards of approximately $480.9
million, $19.3 million, $0.1 million and $2.3 million in the United Kingdom, Switzerland, Canada
and France, respectively. The United Kingdom and France net operating losses do not expire, the
Swiss net operating loss will expire at various times from 2012 through 2019 if unused, and the
Canada net operating loss will expire at various times from 2028 through 2031. We also have U.S.
federal and California net operating losses of approximately $151.3 million and $78.8 million,
respectively, which will expire in various years from 2012 through 2032 if unused. As of July 2,
2011, we had U.S. federal, California and foreign research and development credits of approximately
$0.7 million, $1.0 million and $1.7 million, respectively. The U.S. federal credits will expire
from 2012 through 2032. The California credits may be carried forward indefinitely and the foreign
credits will expire at various times from 2027 through 2030 if unused.
Utilization of net operating loss carryforwards and credit carryforwards are subject to annual
limitations due to ownership changes as provided in the Internal Revenue Code of 1986, as amended,
as well as similar state and foreign tax laws. This annual limitation may result in the expiration
of a significant portion of the net operating loss carryforwards and tax credits before
utilization.
Our total amount of unrecognized tax benefits as of July 2, 2011 was approximately $6.9 million.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax
rate is $1.8 million as of July 2, 2011. While it is often difficult to predict the final outcome
of any particular uncertain tax position, we do not expect that changes to our unrecognized tax
benefits will be significant in the next twelve months. Unrecognized deferred tax benefits related
to stock-based awards totaled $1.1 million and $0.1 million for federal and state as of July 2,
2011, respectively, and if and when realized through a reduction in income taxes payable, will be
accounted for as a credit to additional paid-in capital.
A reconciliation of the beginning balance and the ending balance of gross unrecognized tax
benefits, net of interest and penalties, for fiscal year ended July 2, 2011 and July 3, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
Balance at beginning of period
|
|
$
|
8,397
|
|
|
$
|
2,451
|
|
Additions for tax positions related to the current year
|
|
|
378
|
|
|
|
598
|
|
Additions for tax positions related to prior years
|
|
|
1,922
|
|
|
|
5,348
|
|
Reductions for tax positions related to prior years
|
|
|
(3,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
6,853
|
|
|
$
|
8,397
|
|
|
|
|
|
|
|
|
We include interest and penalties related to unrecognized tax benefits within the provision for
income taxes on our consolidated statements of operations. As of July 2, 2011 and July 3, 2010, we
had accrued approximately $0.3 million and $18,000 for payment of interest and penalties related to
unrecognized tax benefits, respectively.
We file U.S. federal, state and foreign tax returns and have determined that our major tax
jurisdictions are the United States, the United Kingdom, Italy, France, Switzerland and China.
Certain jurisdictions remain open to examination by the appropriate governmental agencies; U.S.
federal, Italy, France, and China tax years 2006 to 2010, various U.S. states tax years 2005 to
2010, and the United Kingdom tax years 2004 to 2010. We are currently
under audit in the United States and France.
F-36
Note 13. Net Income (loss) Per Share
The following table presents the calculation of basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands, except per share amounts)
|
|
Net income (loss)
|
|
$
|
(46,425
|
)
|
|
$
|
12,381
|
|
|
$
|
(32,156
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
48,444
|
|
|
|
40,322
|
|
|
|
22,969
|
|
Effect of dilutive potential common shares from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,059
|
|
|
|
|
|
Restricted stock awards
|
|
|
|
|
|
|
535
|
|
|
|
|
|
Obligations under escrow agreement
|
|
|
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
48,444
|
|
|
|
42,262
|
|
|
|
22,969
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.96
|
)
|
|
$
|
0.31
|
|
|
$
|
(1.40
|
)
|
Diluted net income (loss) per share
|
|
$
|
(0.96
|
)
|
|
$
|
0.29
|
|
|
$
|
(1.40
|
)
|
Basic net income (loss) per share is computed using only the weighted-average number of shares of
common stock outstanding for the applicable period, while diluted net income (loss) per share is
computed assuming conversion of all potentially dilutive securities, such as stock options,
unvested restricted stock awards, warrants and obligations under escrow agreements during such
period.
For fiscal years 2011 and 2009, there were no stock options, unvested restricted stock awards,
warrants or obligations under escrow agreements factored into the computation of diluted shares
outstanding since we incurred a net loss in these periods which would have resulted in their
inclusion having an anti-dilutive effect.
For fiscal years ended July 2, 2011, July 3, 2010 and June 27, 2009, we excluded 5.1 million, 3.2
million and 4.5 million, respectively, of outstanding stock options, warrants and restricted stock
units from the calculation of diluted net income (loss) per share because their effect would have
been anti-dilutive.
Note 14. Geographic and Customer Concentration Information
Geographic Information
The following table shows revenues by geographic area for the fiscal years ended July 2, 2011, July
3, 2010 and June 27, 2009, based on the delivery locations of our products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
June 27, 2009
|
|
|
|
(Thousands)
|
|
United States
|
|
$
|
80,350
|
|
|
$
|
75,907
|
|
|
$
|
42,776
|
|
Canada
|
|
|
13,090
|
|
|
|
14,845
|
|
|
|
14,596
|
|
Europe
|
|
|
126,310
|
|
|
|
96,387
|
|
|
|
53,236
|
|
Asia
|
|
|
219,777
|
|
|
|
176,534
|
|
|
|
86,951
|
|
Rest of world
|
|
|
26,978
|
|
|
|
28,872
|
|
|
|
13,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
466,505
|
|
|
$
|
392,545
|
|
|
$
|
210,923
|
|
|
|
|
|
|
|
|
|
|
|
F-37
The following table sets forth our long-lived tangible assets and total assets by geographic region
as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived Tangible Assets
|
|
|
Total Assets
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(Thousands)
|
|
United States
|
|
$
|
8,048
|
|
|
$
|
8,213
|
|
|
$
|
98,248
|
|
|
$
|
151,821
|
|
Canada
|
|
|
232
|
|
|
|
275
|
|
|
|
799
|
|
|
|
886
|
|
Europe
|
|
|
16,096
|
|
|
|
8,824
|
|
|
|
167,350
|
|
|
|
139,383
|
|
Asia
|
|
|
44,998
|
|
|
|
20,204
|
|
|
|
108,777
|
|
|
|
68,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,374
|
|
|
$
|
37,516
|
|
|
$
|
375,174
|
|
|
$
|
360,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Customers and Concentration of Credit Risk
For the fiscal year ended July 2, 2011, Huawei Technologies Co., Ltd. (Huawei) accounted for 15
percent and Alcatel-Lucent accounted for 11 percent of our revenues. For the fiscal year ended July
3, 2010, Huawei accounted for 13 percent and Alcatel-Lucent accounted for 10 percent of our
revenues. For the fiscal year ended June 27, 2009, Huawei accounted for 17 percent and Nortel
accounted for 14 percent of revenues.
As of July 2, 2011, no customer accounted for 10 percent or more of our accounts receivable. As of
July 3, 2010, Alcatel-Lucent accounted for 15 percent and Huawei accounted for 14 percent of our
accounts receivable.
Note 15. Related Party Transactions
In connection with the merger with Avanex on April 27, 2009, we entered into a one year consulting
agreement with Giovanni Barbarossa, which became effective upon consummation of the merger. Under
the consulting agreement, Dr. Barbarossa provided consulting services to us for the purpose of
assisting in the integration of Avanexs operations into those of Oclaro, including, among other
things, advice and assistance on strategic and technological matters and customer relations. Under
the consulting agreement, Dr. Barbarossa received consulting fees of $300,000 and $60,000 for the
fiscal years ended July 3, 2010 and June 27, 2009, respectively.
Note 16. Subsequent Event
On August 2, 2006, Oclaro, Inc., along with Oclaro Technology Ltd., Oclaro Photonics, Inc. and
Oclaro Technology, Inc., each a wholly-owned subsidiary of Oclaro (collectively the Original
Borrowers), entered into a credit agreement, or the Original Credit Agreement, with Wells Fargo
Capital Finance, Inc. and certain other lenders, which Original Credit Agreement has previously
been amended from time to time. See Note 6,
Credit Agreement
, for additional information.
On July 26, 2011, Oclaro Technology Ltd., as Borrower, and Oclaro, Inc., as Parent, entered
into an amendment and restatement to the Original Credit Agreement, or the Credit Agreement, with
Wells Fargo Capital Finance, Inc. and the other lenders regarding the senior secured revolving
credit facility, increasing the facility size from $25 million to $45 million and extending the
term thereof to August 1, 2014. Under the Credit Agreement, advances are available based on 80
percent of qualified accounts receivable, as defined in the Credit Agreement.
The obligations of the Borrower under the Credit Agreement are guaranteed by Parent and all
significant subsidiaries of Parent and Borrower (collectively, the Guarantors), and are secured,
pursuant to two security agreements (the Security Agreements), by substantially all of the assets
of Borrower and Guarantors, including a pledge of the capital stock holdings of the Borrower and
certain Guarantors in their direct subsidiaries.
Borrowings made under the Credit Agreement bear interest at a rate based on either the London
Interbank Offered Rate plus 2.50 percentage points or the banks prime rate plus 1.50 percentage
points. In the absence of an event of default, any amounts outstanding under the Credit Agreement
may be repaid and re-borrowed at any time until maturity, which is August 1, 2014.
F-38
The Credit Agreement contains negative covenants applicable to Parent, Borrower and their
subsidiaries, including a financial covenant that, on a consolidated basis, requires Parent to
maintain a minimum fixed charge coverage ratio of no less than 1.10 to 1.00, if Parent and its
subsidiaries have not maintained minimum liquidity (defined as $15 million of qualified cash and
excess availability, each as defined in the Credit Agreement). The Credit Agreement also contains
restrictions on liens, certain investments, indebtedness, fundamental changes to the Borrowers
business, certain dispositions of property, making certain restricted payments (including
restrictions on dividends and stock repurchases), entering into new lines of business and
transactions with affiliates.
The obligations of the Borrower under the Credit Agreement may be accelerated upon the occurrence
of an event of default under the Credit Agreement, which includes customary events of default,
including payment defaults, defaults in the performance of affirmative and negative covenants, the
inaccuracy of representations or warranties, a cross-default related to indebtedness in an
aggregate amount of $2.0 million or more, bankruptcy and insolvency related defaults, defaults
relating to such matters as the Employee Retirement Income Security Act and certain judgments in
excess of $2.0 million and a change of control default.
In connection with the Credit Agreement, the Borrower paid a closing fee of $250,000 and agreed to
pay a monthly servicing fee of $3,000 and a variable unused line fee equal to between 0.375 and
0.50 percentage points per annum, payable monthly on the unused amount of revolving credit
commitments. To the extent there are letters of credit outstanding under the Credit Agreement, the
Borrower is obligated to pay the administrative agent a letter of credit fee at a rate equal to 3.3
percentage points per annum.
Note 17. Selected Quarterly Consolidated Financial Data
(Unaudited)
The following tables set forth our unaudited condensed consolidated statements of operations data
for each of the eight quarterly periods ended July 2, 2011. We have prepared this unaudited
information on a basis consistent with our audited consolidated financial statements, reflecting
all normal recurring adjustments that we consider necessary for a fair presentation of our
financial position and operating results for the fiscal quarters presented. Basic and diluted net
income (loss) per share is computed independently for each of the quarters presented. Therefore,
the sum of quarterly basic and diluted per share information may not equal annual basic and diluted
net income (loss) per share.
F-39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
July 2,
|
|
|
April 2,
|
|
|
January 1,
|
|
|
October 2,
|
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
(Thousands)
|
|
Revenues
|
|
$
|
109,178
|
|
|
$
|
115,681
|
|
|
$
|
120,299
|
|
|
$
|
121,347
|
|
Cost of revenues
|
|
|
84,523
|
|
|
|
87,269
|
|
|
|
84,556
|
|
|
|
86,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
24,655
|
|
|
|
28,412
|
|
|
|
35,743
|
|
|
|
34,826
|
|
Operating expenses
|
|
|
(58,285
|
)
|
|
|
(35,052
|
)
|
|
|
(34,117)
|
|
|
|
(29,792
|
)
|
Other income (expense), net
|
|
|
(2,908
|
)
|
|
|
(2,519
|
)
|
|
|
(1,589
|
)
|
|
|
(4,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes
|
|
|
(36,538
|
)
|
|
|
(9,159
|
)
|
|
|
37
|
|
|
|
881
|
|
Income tax provision
|
|
|
203
|
|
|
|
668
|
|
|
|
250
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(36,741
|
)
|
|
|
(9,827
|
)
|
|
|
(213
|
)
|
|
|
356
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(36,741
|
)
|
|
$
|
(9,827
|
)
|
|
$
|
(213
|
)
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.75
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
(0.75
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
|
|
|
$
|
0.01
|
|
Shares used in computing net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,811
|
|
|
|
48,587
|
|
|
|
48,262
|
|
|
|
48,115
|
|
Diluted
|
|
|
48,811
|
|
|
|
48,587
|
|
|
|
48,262
|
|
|
|
50,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
July 3,
|
|
|
April 3,
|
|
|
January 2,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands)
|
|
Revenues
|
|
$
|
112,709
|
|
|
$
|
101,152
|
|
|
$
|
93,574
|
|
|
$
|
85,110
|
|
Cost of revenues
|
|
|
78,595
|
|
|
|
73,322
|
|
|
|
68,715
|
|
|
|
63,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
34,114
|
|
|
|
27,830
|
|
|
|
24,859
|
|
|
|
21,991
|
|
Operating expenses
|
|
|
(25,490
|
)
|
|
|
(27,797
|
)
|
|
|
(27,604)
|
|
|
|
(23,069
|
)
|
Other income (expense), net
|
|
|
1,668
|
|
|
|
671
|
|
|
|
790
|
|
|
|
3,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes
|
|
|
10,292
|
|
|
|
704
|
|
|
|
(1,955
|
)
|
|
|
2,848
|
|
Income tax provision (benefit)
|
|
|
(318
|
)
|
|
|
499
|
|
|
|
524
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,610
|
|
|
|
205
|
|
|
|
(2,479
|
)
|
|
|
2,625
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,610
|
|
|
$
|
205
|
|
|
$
|
(2,479
|
)
|
|
$
|
4,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
Shares used in computing net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,153
|
|
|
|
41,095
|
|
|
|
37,980
|
|
|
|
37,240
|
|
Diluted
|
|
|
48,228
|
|
|
|
43,829
|
|
|
|
37,980
|
|
|
|
38,100
|
|
F-40
Financial Statement Schedule II: Valuation and Qualifying Accounts
For the Years Ended July 2, 2011, July 3, 2010 and June 27, 2009
|
|
|
|
|
|
|
|
|
|
|
Allowance for
|
|
|
Allowance for
|
|
|
|
Doubtful Accounts
|
|
|
Sales Returns
|
|
|
|
(Thousands)
|
|
Balance at June 28, 2008
|
|
$
|
171
|
|
|
$
|
188
|
|
Balances assumed in acquisitions
|
|
|
332
|
|
|
|
144
|
|
Additions charged to cost and expenses
|
|
|
171
|
|
|
|
53
|
|
Deductions and write-offs
|
|
|
(51
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
Balance at June 27, 2009
|
|
|
623
|
|
|
|
277
|
|
Balances assumed in acquisitions
|
|
|
186
|
|
|
|
|
|
Additions charged to cost and expenses
|
|
|
1,500
|
|
|
|
243
|
|
Deductions, write-offs and adjustments
|
|
|
(263
|
)
|
|
|
125
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
|
2,046
|
|
|
|
645
|
|
Additions charged to cost and expenses
|
|
|
599
|
|
|
|
645
|
|
Deductions and write-offs
|
|
|
(1,523
|
)
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
Balance at July 2, 2011
|
|
$
|
1,122
|
|
|
$
|
1,054
|
|
|
|
|
|
|
|
|
F-41
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
2.1
|
|
Agreement of Merger among: Oclaro, Inc.,
a Delaware corporation; Rio
Acquisition corp.,
a Delaware corporation; Xtellus Inc., a Delaware
corporation; and Alta Berkeley LLP, as the Stockholders Agent. Dated as of
December 16, 2009 (previously filed as Exhibit 2.1 to Registrants Current
Report on Form 8-K filed on December 22, 2009 and incorporated herein by
reference).
|
|
|
|
2.2
|
|
Agreement of Merger among: Oclaro, Inc., a Delaware corporation; Nikko
Acquisition Corp., a Delaware corporation; Mintera Corporation, a Delaware
corporation; and Shareholder Representative Services LLC, as the Stockholders
Agent. Dated as of July 20, 2010 (previously filed as Exhibit 2.1 to
Registrants Current Report on Form 8-K filed on July 26, 2010 and incorporated
herein by reference).
|
|
|
|
3.1
|
|
Amended and Restated Bylaws of Oclaro, Inc., including Amendments No. 1 and No.
2 thereto (formerly Bookham, Inc.) (previously filed as Exhibit 3.1 to
Registrants Registration Statement on Form S-8 dated May 5, 2009 and
incorporated herein by reference).
|
|
|
|
3.2
|
|
Amendment No. 3 to Amended and Restated By-Laws of Oclaro, Inc. (previously
filed as Exhibit 3.1 to Registrants Current Report on Form 8-K filed on July
28, 2011 and incorporated herein by reference).
|
|
|
|
3.3
|
|
Restated Certificate of Incorporation of Oclaro, Inc. (previously filed as
Exhibit 3.2 to Registrants Annual Report on Form 10-K filed on
September 1, 2010 and incorporated herein by reference)
|
|
|
|
10.1
|
|
Form of Warrant (previously filed as Exhibit 99.3 to Registrants Current Report
on Form 8-K filed on September 5, 2006 and incorporated herein by reference).
|
|
|
|
10.2
|
|
Form of Warrant (previously filed as Exhibit 99.3 to Registrants Current Report
on Form 8-K filed on March 26, 2007 and incorporated herein by reference).
|
|
|
|
10.3
|
|
Credit Agreement, dated as of August 2, 2006, among Oclaro, Inc., Oclaro
Technology Ltd (formerly Bookham Technology plc), Oclaro Photonics, Inc.
(formerly New Focus, Inc.) and Oclaro Technology, Inc. (formerly Bookham (US),
Inc.), Wells Fargo Capital Finance, Inc. (formerly Wells Fargo Foothill, Inc.)
and other lenders party thereto. (previously filed as Exhibit 10.53 to
Registrants Annual Report on Form 10-K for the year ended July 1, 2006, and
incorporated herein by reference).
|
|
|
|
10.4
|
|
Amendment Number One to Credit Agreement, dated as of April 30, 2007, by and
among Wells Fargo Capital Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd,
Oclaro Photonics, Inc. and Oclaro Technology, Inc. (previously filed
as Exhibit 10.6 to Registrants Annual Report on Form 10-K filed on September 1, 2010 and incorporated herein by reference)
|
|
|
|
10.5
|
|
Amendment Number Two to Credit Agreement, dated as of April 30, 2007, by and
among Wells Fargo Capital Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd,
Oclaro Photonics, Inc. and Oclaro Technology, Inc. (previously filed
as Exhibit 10.7 to Registrants Annual Report on Form 10-K filed on September 1, 2010 and incorporated herein by reference)
|
|
|
|
10.6
|
|
Amendment Number Three to Credit Agreement, dated as of April 27, 2009, by and
among Wells Fargo Capital Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd,
Oclaro Photonics, Inc. and Oclaro Technology, Inc. (previously filed as Exhibit
99.1 to the registrants Current Report on Form 8-K on May 1, 2009, and
incorporated herein by reference).
|
|
|
|
10.7
|
|
Amendment Number Four to Credit Agreement, dated as of May 22, 2009, by and
among Wells Fargo Capital Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd,
Oclaro Photonics, Inc. and Oclaro Technology, Inc. (previously filed
as Exhibit 10.9 to Registrants Annual Report on Form 10-K filed on September 1, 2010 and incorporated herein by reference)
|
|
|
|
10.8
|
|
Amendment Number Five to Credit Agreement, dated as of December 16, 2009, by and
among Wells Fargo Capital Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd,
Oclaro Photonics, Inc. and Oclaro Technology, Inc. (previously filed
as Exhibit 10.10 to Registrants Annual Report on Form 10-K filed on September 1, 2010 and incorporated herein by reference)
|
|
|
|
10.9
|
|
Amendment Number Six to Credit Agreement, dated as of July 20, 2010, by and
among Wells Fargo Capital Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd,
Oclaro Photonics, Inc. and Oclaro Technology, Inc. (previously filed
as Exhibit 10.11 to Registrants Annual Report on Form 10-K filed on September 1, 2010 and incorporated herein by reference)
|
|
|
|
10.10(1)(3)
|
|
Amendment Number Seven to Credit Agreement, dated as of May 13, 2011, by and
among Wells Fargo Capital Finance, Inc., Oclaro, Inc., Oclaro Technology Ltd,
Oclaro Photonics, Inc. and Oclaro Technology, Inc.
|
|
|
|
10.11(1)(3)
|
|
Amended and Restated Credit Agreement, dated as of July 26, 2011, among Oclaro,
Inc., Oclaro Technology Ltd, Wells Fargo Capital Finance, Inc. and other lenders
party thereto.
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.12
|
|
Security Agreement, dated as of August 2, 2006, among Oclaro, Inc., Onetta,
Inc., Focused Research, Inc., Globe Y. Technology, Inc., Ignis Optics, Inc.,
Oclaro (Canada) Inc., Bookham Nominees Limited and Bookham International Ltd.,
Wells Fargo Capital Finance, Inc. and other secured parties party thereto.
(previously filed as Exhibit 10.54 to Registrants Annual Report on Form 10-K
for the year ended July 1, 2006, and incorporated herein by reference).
|
|
|
|
10.13(1)(3)
|
|
Security Agreement (Domestic), dated as of July 26, 2011, among Oclaro, Inc.,
Oclaro Photonics, Inc., Oclaro Technology, Inc., Oclaro (New Jersey), Inc.,
Oclaro (North America), Inc., Mintera Corporation, Wells Fargo Capital Finance,
Inc. and other lenders party thereto.
|
|
|
|
10.14(1)(3)
|
|
Security Agreement (Foreign), dated as of July 26, 2011, among Oclaro, Inc.,
Oclaro Technology Ltd., Bookham International, Ltd., Bookham Nominees Ltd.,
Oclaro (Canada), Inc., Oclaro Innovations LLP, Wells Fargo Capital Finance, Inc.
and other lenders party thereto.
|
|
|
|
10.15
|
|
Loan Facility Agreement dated August 10, 2005 between City Leasing (Creekside)
Limited and Deutsche Bank AG, Limited, for a facility of up to £18,348,132.33
(previously filed as Exhibit 10.2 to Registrants Quarterly Report on Form 10-Q
for the quarter ended October 1, 2005, and incorporated herein by reference).
|
|
|
|
10.16
|
|
Loan Facility Agreement dated August 10, 2005 between City Leasing (Creekside)
Limited and Deutsche Bank AG, Limited for a facility of up to £42,500,000.00
(previously filed as Exhibit 10.3 to Registrants Quarterly Report on Form 10-Q
for the quarter ended October 1, 2005, and incorporated herein by reference).
|
|
|
|
10.17
|
|
Lease dated December 23, 1999 by and between Silicon Valley Properties, LLC and
Oclaro Photonics, Inc., with respect to 2560 Junction Avenue, San Jose,
California (previously filed as Exhibit 10.32 to Registrants Amendment No. 1 to
Transition Report on Form 10-K for the for the transition period from January 1,
2004 to July 3, 2004, and incorporated herein by reference).
|
|
|
|
10.18(3)
|
|
Second Amendment to Lease dated November 30, 2010 by and between 702/703
Investors LLC and Oclaro, Inc., with respect to 2560 Junction Avenue, San Jose,
California.
|
|
|
|
10.19
|
|
Pre-emption Agreement dated as of March 10, 2006, by and among Oclaro Technology
Ltd, Coleridge (No. 24) Limited and Oclaro, Inc. (previously filed as Exhibit
10.4 to Registrants Quarterly Report on Form 10-Q for the quarter ended April
1, 2006, and incorporated herein by reference).
|
|
|
|
10.20
|
|
Lease dated as of March 10, 2006, by and among Oclaro Technology Ltd, Coleridge
(No. 24) Limited and Oclaro, Inc. (previously filed as Exhibit 10.5 to
Registrants Quarterly Report on Form 10-Q for the quarter ended April 1, 2006,
and incorporated herein by reference).
|
|
|
|
10.21(1)
|
|
Volume Supply Agreement, dated May 6, 2004, between Avanex Corporation and
Fabrinet. (previously filed as Exhibit 10.12 of Avanex Corporations Quarterly
Report (File No. 000-29175) on Form 10-Q filed on February 14, 2006, and
incorporated herein by reference).
|
|
|
|
10.22(1)
|
|
First Amendment to the Volume Supply Agreement, dated April 1, 2008, between
Avanex Corporation and Fabrinet. (previously filed as Exhibit 10.33 of Avanex
Corporations Annual Report on Form 10-K (File No. 000-29175) filed on September
5, 2008, and incorporated herein by reference).
|
|
|
|
10.23(2)
|
|
2004 Sharesave Scheme (previously filed as Exhibit 10.20 to Registrants
Transition Report on Form 10-K for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
|
|
10.24(2)
|
|
U.K. Subplan to the 2004 Stock Incentive Plan (previously filed as Exhibit 10.4
to Registrants Quarterly Report on Form 10-Q for the quarter ended April 2,
2005, and incorporated herein by reference).
|
|
|
|
10.25(2)(3)
|
|
Form of Incentive Stock Option, Form of Non-Statutory Stock Option, Form of
Restricted Stock Unit Agreement and Form of Restricted Stock Award Agreement.
|
|
|
|
10.26(2)
|
|
Oclaro, Inc. Amended and Restated 2004 Stock Incentive Plan (previously filed as
Exhibit 10.1 to Registrants Current Report on Form 8-K, filed with the SEC on
October 28, 2010, and incorporated herein by reference).
|
|
|
|
10.27(2)
|
|
Form of amendment to restricted stock award agreement issued pursuant to Amended
and Restated 2004 Stock Incentive Plan (previously filed as Exhibit 10.4 to
Registrants Quarterly Report on Form 10-Q dated May 7, 2009 and incorporated
herein by reference).
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.28(2)
|
|
Contract of Employment between Oclaro Technology Ltd and Jim Haynes (previously
filed as Exhibit 10.38 to Registrants Annual Report on Form 10-K for the year
ended July 2, 2005, and incorporated herein by reference).
|
|
|
|
10.29(2)
|
|
Restricted Stock Agreement dated November 11, 2005 between Oclaro, Inc. and Jim
Haynes (previously filed as Exhibit 10.5 to Registrants Quarterly Report on
Form 10-Q for the quarter ended December 31, 2005, and incorporated herein by
reference).
|
|
|
|
10.30(2)
|
|
Amended and Restated Employment Agreement, dated August 4, 2010, between the
Oclaro, Inc. and Alain Couder (previously filed as Exhibit 10.1 to Registrants
Current Report on Form 8-K filed on August 10, 2010 and incorporated herein by
reference).
|
|
|
|
10.31(2)
|
|
Form of Indemnification Agreement, between Oclaro, Inc. and directors and
executive officers (previously filed as Exhibit 10.2 to Registrants Quarterly
Report on Form 10-Q for the quarter ended December 29, 2007 and incorporated
herein by reference).
|
|
|
|
10.32(2)
|
|
Form of Executive Severance and Retention Agreement, between Oclaro, Inc. and
its executive officers (previously filed as Exhibit 10.1 to Registrants
Quarterly Report on Form 10-Q for the quarter ended March 29, 2008 and
incorporated herein by reference).
|
|
|
|
10.33(2)(3)
|
|
Form of Executive Severance and Retention Agreement, between Oclaro, Inc. and
its executive officers.
|
|
|
|
10.34(2)
|
|
First Amendment to the Executive Severance and Retention Agreement, dated as of
December 14, 2010, by and between Oclaro, Inc., a Delaware corporation, and
Catherine Hunt Rundle (also known as Kate Rundle) (previously filed as Exhibit
10.4 to Registrants Quarterly Report on Form 10-Q, filed with the SEC on
February 10, 2011 and incorporated herein by reference).
|
|
|
|
10.35(2)
|
|
First Amendment to the Executive Severance and Retention Agreement, dated as of
December 14, 2010, by and between Oclaro, Inc., a Delaware corporation, and
Jerry Turin (previously filed as Exhibit 10.5 to Registrants Quarterly Report
on Form 10-Q, filed with the SEC on February 10, 2011 and incorporated herein by
reference).
|
|
|
|
10.36(2)
|
|
Consulting Agreement between Oclaro, Inc. (formerly known as Bookham, Inc.),
Avanex Corporation and Giovanni Barbarossa (previously filed as Exhibit 10.40 to
Registrants Annual Report on Form 10-K for the year ended June 27, 2009 and
incorporated herein by reference).
|
|
|
|
10.37(2)
|
|
Form of Indemnification Agreement between Avanex Corporation and each of its
directors and officers (previously filed as Exhibit 10.1 of Avanex Corporations
Registration Statement No. 333-92027 on Form S-1 filed on December 3, 1999 and
incorporated herein by reference).
|
|
|
|
10.38(2)
|
|
Avanex 1998 Stock Plan, as amended and restated (previously filed as Exhibit
10.2 of Avanex Corporations Annual Report on Form 10-K (File No. 000-29175)
filed on September 5, 2008 and incorporated herein by reference).
|
|
|
|
10.39(2)
|
|
Avanex 1999 Director Option Plan, as amended (previously filed as Exhibit 10.5
of Avanex Corporations Annual Report on Form 10-K (File No. 000-29175) filed on
September 5, 2008 and incorporated herein by reference).
|
|
|
|
10.40(2)
|
|
Form of stock option agreement between Avanex and certain of its directors
(previously filed as Exhibit 10.45 to Registrants Annual Report on Form 10-K
for the year ended June 27, 2009 and incorporated herein by reference).
|
|
|
|
10.41(2)
|
|
Form of stock option agreement between Avanex and certain of its executive
officers (previously filed as Exhibit 10.46 to Registrants Annual Report on
Form 10-K for the year ended June 27, 2009 and incorporated herein by
reference).
|
|
|
|
10.42(2)
|
|
Form of stock option agreement between Avanex and certain of its employees
(previously filed as Exhibit 10.47 to Registrants Annual Report on Form 10-K
for the year ended June 27, 2009 and incorporated herein by reference).
|
|
|
|
10.43(2)
|
|
Form of Restricted Stock Unit Agreement between Avanex and certain of its
executive officers (previously filed as Exhibit 10.48 to Registrants Annual
Report on Form 10-K for the year ended June 27, 2009 and incorporated herein by
reference).
|
|
|
|
10.44(2)
|
|
Form of Restricted Stock Unit Agreement between Avanex and certain of its
employees (previously filed as Exhibit 10.49 to Registrants Annual Report on
Form 10-K for the year ended June 27, 2009 and incorporated herein by
reference).
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.45(2)
|
|
Variable Pay Plan (previously filed as Exhibit 5.02 to Registrants Current
report on Form 8-K filed on August 2, 2010 and incorporated herein by
reference).
|
|
|
|
21.1 (3)
|
|
List of Oclaro, Inc. subsidiaries
|
|
|
|
23.1 (3)
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
31.1 (3)
|
|
Certification of Chief Executive Officer Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002
|
|
|
|
31.2 (3)
|
|
Certification of Chief Financial Officer Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.1 (3)
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
|
|
32.2 (3)
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
|
|
(1)
|
|
Portions of this exhibit have been omitted pursuant to a request
for confidential treatment submitted to the Securities and
Exchange Commission.
|
|
(2)
|
|
Management contract or compensatory plan or arrangement.
|
|
(3)
|
|
Filed herewith.
|
Exhibit 10.11
AMENDED AND RESTATED
CREDIT AGREEMENT
by and among
OCLARO, INC.
as Parent,
OCLARO TECHNOLOGY LIMITED
as Borrower,
THE LENDERS THAT ARE SIGNATORIES HERETO
as the Lenders,
and
WELLS FARGO CAPITAL FINANCE, INC.
as the Agent
Dated as of July 26, 2011
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
1. DEFINITIONS AND CONSTRUCTION
|
|
|
1
|
|
1.1 Definitions
|
|
|
1
|
|
1.2 Accounting Terms
|
|
|
1
|
|
1.3 Code
|
|
|
1
|
|
1.4 Construction
|
|
|
2
|
|
1.5 Schedules and Exhibits
|
|
|
2
|
|
2. LOANS AND TERMS OF PAYMENT
|
|
|
2
|
|
2.1 Revolver Advances
|
|
|
2
|
|
2.2 Reserved
|
|
|
3
|
|
2.3 Borrowing Procedures and Settlements
|
|
|
3
|
|
2.4 Payments; Prepayments
|
|
|
8
|
|
2.5 Overadvances
|
|
|
10
|
|
2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations
|
|
|
10
|
|
2.7 Crediting Payments
|
|
|
12
|
|
2.8 Designated Account
|
|
|
12
|
|
2.9 Maintenance of Loan Account; Statements of Obligations
|
|
|
12
|
|
2.10 Fees
|
|
|
12
|
|
2.11 Letters of Credit
|
|
|
13
|
|
2.12 LIBOR Option
|
|
|
16
|
|
2.13 Capital Requirements
|
|
|
18
|
|
3. CONDITIONS; TERM OF AGREEMENT
|
|
|
19
|
|
3.1 Conditions Precedent to the Initial Extension of Credit
|
|
|
19
|
|
3.2 Conditions Precedent to all Extensions of Credit
|
|
|
19
|
|
3.3 Maturity
|
|
|
19
|
|
3.4 Effect of Maturity
|
|
|
19
|
|
3.5 Early Termination by Borrower
|
|
|
20
|
|
3.6 Conditions Subsequent
|
|
|
20
|
|
4. REPRESENTATIONS AND WARRANTIES
|
|
|
20
|
|
4.1 Due Organization and Qualification; Subsidiaries
|
|
|
20
|
|
4.2 Due Authorization; No Conflict
|
|
|
21
|
|
4.3 Governmental Consents
|
|
|
21
|
|
4.4 Binding Obligations; Perfected Liens
|
|
|
21
|
|
4.5 Title to Assets; No Encumbrances
|
|
|
22
|
|
4.6 Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims
|
|
|
22
|
|
-i-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
4.7 Litigation
|
|
|
22
|
|
4.8 Compliance with Laws
|
|
|
22
|
|
4.9 No Material Adverse Change
|
|
|
23
|
|
4.10 Fraudulent Transfer
|
|
|
23
|
|
4.11 Employee Benefits
|
|
|
23
|
|
4.12 Environmental Condition
|
|
|
23
|
|
4.13 Intellectual Property
|
|
|
23
|
|
4.14 Leases
|
|
|
23
|
|
4.15 Deposit Accounts and Securities Accounts
|
|
|
24
|
|
4.16 Complete Disclosure
|
|
|
24
|
|
4.17 Material Contracts
|
|
|
24
|
|
4.18 Patriot Act
|
|
|
24
|
|
4.19 Indebtedness
|
|
|
24
|
|
4.20 Payment of Taxes
|
|
|
25
|
|
4.21 Margin Stock
|
|
|
25
|
|
4.22 Governmental Regulation
|
|
|
25
|
|
4.23 OFAC
|
|
|
25
|
|
4.24 Employee and Labor Matters
|
|
|
25
|
|
4.25 Parent as a Holding Company
|
|
|
25
|
|
4.26 Eligible Accounts
|
|
|
26
|
|
4.27 Inventory
|
|
|
26
|
|
4.28 Equipment
|
|
|
26
|
|
4.29 Locations of Inventory and Equipment
|
|
|
26
|
|
4.30 Inventory Records
|
|
|
26
|
|
4.31 Inactive Obligors
|
|
|
26
|
|
4.32 Inactive Subsidiaries
|
|
|
26
|
|
5. AFFIRMATIVE COVENANTS
|
|
|
27
|
|
5.1 Financial Statements, Reports, Certificates
|
|
|
27
|
|
5.2 Collateral Reporting
|
|
|
27
|
|
5.3 Existence
|
|
|
27
|
|
5.4 Maintenance of Properties
|
|
|
27
|
|
5.5 Taxes
|
|
|
27
|
|
5.6 Insurance
|
|
|
28
|
|
5.7 Inspection
|
|
|
28
|
|
-ii-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
5.8 Compliance with Laws
|
|
|
28
|
|
5.9 Environmental
|
|
|
29
|
|
5.10 Disclosure Updates
|
|
|
29
|
|
5.11 Formation of Subsidiaries
|
|
|
29
|
|
5.12 Further Assurances
|
|
|
30
|
|
5.13 Lender Meetings
|
|
|
30
|
|
5.14 Material Contracts
|
|
|
30
|
|
5.15 Location of Inventory and Equipment
|
|
|
31
|
|
5.16 Assignable Material Contracts
|
|
|
31
|
|
6. NEGATIVE COVENANTS
|
|
|
31
|
|
6.1 Indebtedness
|
|
|
31
|
|
6.2 Liens
|
|
|
31
|
|
6.3 Restrictions on Fundamental Changes
|
|
|
31
|
|
6.4 Disposal of Assets
|
|
|
32
|
|
6.5 Change Name
|
|
|
32
|
|
6.6 Nature of Business
|
|
|
32
|
|
6.7 Prepayments and Amendments
|
|
|
32
|
|
6.8 Change of Control
|
|
|
33
|
|
6.9 Restricted Junior Payments
|
|
|
33
|
|
6.10 Accounting Methods
|
|
|
33
|
|
6.11 Investments; Controlled Investments
|
|
|
33
|
|
6.12 Transactions with Affiliates
|
|
|
34
|
|
6.13 Use of Proceeds
|
|
|
34
|
|
6.14 Limitation on Issuance of Stock
|
|
|
34
|
|
6.15 Parent as Holding Company
|
|
|
34
|
|
6.16 Consignments
|
|
|
34
|
|
6.17 Inventory and Equipment with Bailees
|
|
|
34
|
|
7. FINANCIAL COVENANTS
|
|
|
34
|
|
7.1 Fixed Charge Coverage Ratio
|
|
|
34
|
|
8. EVENTS OF DEFAULT
|
|
|
35
|
|
9. RIGHTS AND REMEDIES
|
|
|
37
|
|
9.1 Rights and Remedies
|
|
|
37
|
|
9.2 Remedies Cumulative
|
|
|
37
|
|
-iii-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
10. WAIVERS; INDEMNIFICATION
|
|
|
37
|
|
10.1 Demand; Protest; etc
|
|
|
37
|
|
10.2 The Lender Groups Liability for Collateral
|
|
|
37
|
|
10.3 Indemnification
|
|
|
38
|
|
11. NOTICES
|
|
|
39
|
|
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
|
|
|
40
|
|
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS
|
|
|
41
|
|
13.1 Assignments and Participations
|
|
|
41
|
|
13.2 Successors
|
|
|
43
|
|
14. AMENDMENTS; WAIVERS
|
|
|
43
|
|
14.1 Amendments and Waivers
|
|
|
43
|
|
14.2 Replacement of Certain Lenders
|
|
|
44
|
|
14.3 No Waivers; Cumulative Remedies
|
|
|
45
|
|
15. AGENT; THE LENDER GROUP
|
|
|
45
|
|
15.1 Appointment and Authorization of Agent
|
|
|
45
|
|
15.2 Delegation of Duties
|
|
|
46
|
|
15.3 Liability of Agent
|
|
|
46
|
|
15.4 Reliance by Agent
|
|
|
46
|
|
15.5 Notice of Default or Event of Default
|
|
|
47
|
|
15.6 Credit Decision
|
|
|
47
|
|
15.7 Costs and Expenses; Indemnification
|
|
|
48
|
|
15.8 Agent in Individual Capacity
|
|
|
48
|
|
15.9 Successor Agent
|
|
|
48
|
|
15.10 Lender in Individual Capacity
|
|
|
49
|
|
15.11 Collateral Matters
|
|
|
49
|
|
15.12 Restrictions on Actions by Lenders; Sharing of Payments
|
|
|
50
|
|
15.13 Agency for Perfection
|
|
|
53
|
|
15.14 Payments by Agent to the Lenders
|
|
|
53
|
|
15.15 Concerning the Collateral and Related Loan Documents
|
|
|
53
|
|
15.16 Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information
|
|
|
53
|
|
15.17 Several Obligations; No Liability
|
|
|
53
|
|
16. WITHHOLDING TAXES
|
|
|
55
|
|
17. GENERAL PROVISIONS
|
|
|
58
|
|
17.1 Effectiveness
|
|
|
58
|
|
17.2 Section Headings
|
|
|
58
|
|
-iv-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
17.3 Interpretation
|
|
|
58
|
|
17.4 Severability of Provisions
|
|
|
58
|
|
17.5 Bank Product Providers
|
|
|
58
|
|
17.6 Debtor-Creditor Relationship
|
|
|
59
|
|
17.7 Counterparts; Electronic Execution
|
|
|
59
|
|
17.8 Revival and Reinstatement of Obligations
|
|
|
59
|
|
17.9 Confidentiality
|
|
|
59
|
|
17.10 Lender Group Expenses
|
|
|
60
|
|
17.11 Survival
|
|
|
60
|
|
17.12 Patriot Act
|
|
|
60
|
|
17.13 Integration
|
|
|
60
|
|
17.14 Judgment Currency
|
|
|
61
|
|
17.15 Amendment and Restatement of Original Credit Agreement
|
|
|
61
|
|
-v-
CREDIT AGREEMENT
THIS CREDIT AGREEMENT
(this
Agreement
), is entered into as of July 26, 2011, by and
among the lenders identified on the signature pages hereof (each of such lenders, together with
their respective successors and permitted assigns, are referred to hereinafter as a
Lender
, as that term is hereinafter further defined),
WELLS FARGO CAPITAL FINANCE, INC.
,
a California corporation, as administrative agent for the Lenders (in such capacity, together with
its successors and assigns in such capacity,
Agent
),
OCLARO, INC.
, a Delaware corporation
(
Parent
), and
OCLARO TECHNOLOGY LIMITED
, a company incorporated under the laws of England
and Wales (
Borrower
).
WHEREAS
, Agent and the Lenders, on the one hand, and Parent, Borrower and other Subsidiaries
of Parent as borrowers, on the other hand, are parties to that certain Credit Agreement, dated as
of August 2, 2006 (as amended, supplemented, or otherwise modified from time to time prior to the
Closing Date, the
Original Credit Agreement
);
WHEREAS,
Parent and Borrower have requested that the Original Credit Agreement be amended and
restated to, among other things, extend the maturity of the obligations thereunder and remove
certain parties as borrowers thereunder.
WHEREAS
, subject to the foregoing, Agent and the Lenders are willing to so amend and restate
the Original Credit Agreement in accordance with the terms and conditions hereof; it being
understood that no repayment of the outstanding amounts payable under the Original Credit Agreement
as of the Closing Date is being effected hereby but is merely an amendment and restatement in
accordance with the terms hereof.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
.
1.1
Definitions
.
Capitalized terms used in this Agreement shall have the meanings
specified therefor on Schedule 1.1.
1.2
Accounting Terms
.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP;
provided
,
however
, that if Borrower notifies
Agent that Borrower requests an amendment to any provision hereof to eliminate the effect of any
Accounting Change occurring after the Closing Date or in the application thereof on the operation
of such provision (or if Agent notifies Borrower that the Required Lenders request an amendment to
any provision hereof for such purpose), regardless of whether any such notice is given before or
after such Accounting Change or in the application thereof, then Agent and Borrower agree that they
will negotiate in good faith amendments to the provisions of this Agreement that are directly
affected by such Accounting Change with the intent of having the respective positions of the
Lenders and Borrower after such Accounting Change conform as nearly as possible to their respective
positions as of the date of this Agreement and, until any such amendments have been agreed upon and
agreed to by the Required Lenders, the provisions in this Agreement shall be calculated as if no
such Accounting Change had occurred. When used herein, the term financial statements shall
include the notes and schedules thereto. Whenever the term Borrower or the term Parent is used
in respect of a financial covenant or a related definition, it shall be understood to mean Borrower
and its Subsidiaries or Parent and its Subsidiaries, as applicable, on a consolidated basis, unless
the context clearly requires otherwise.
1.3
Code
. Any terms used in this Agreement that are defined in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein;
provided
,
however
, that to the extent that the Code is used to define any term herein and such term
is defined differently in different Articles of the Code, the definition of such term contained in
Article 9 of the Code shall govern.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
1.4
Construction
.
Unless the context of this Agreement or any other Loan Document
clearly requires otherwise, references to the plural include the singular, references to the
singular include the plural, the terms includes and including are not limiting, and the term
or has, except where otherwise indicated, the inclusive meaning represented by the phrase
and/or. The words hereof, herein, hereby, hereunder, and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be,
as a whole and not to any particular provision of this Agreement or such other Loan Document, as
the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this
Agreement unless otherwise specified. Any reference in this Agreement or in any other Loan
Document to any agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders,
and supplements set forth herein). The words asset and property shall be construed to have the
same meaning and effect and to refer to any and all tangible and intangible assets and properties.
Any reference herein or in any other Loan Document to the satisfaction, repayment, or payment in
full of the Obligations shall mean the repayment in full in cash or immediately available funds
(or, (a) in the case of contingent reimbursement obligations with respect to Letters of Credit,
providing Letter of Credit Collateralization, and (b) in the case of obligations with respect to
Bank Products (other than Hedge Obligations), providing Bank Product Collateralization) of all of
the Obligations (including the payment of any Lender Group Expenses that have accrued irrespective
of whether demand has been made therefor and the payment of any termination amount then applicable
(or which would or could become applicable as a result of the repayment of the other Obligations)
under Hedge Agreements provided by Hedge Providers) other than (i) unasserted contingent
indemnification Obligations, (ii) any Bank Product Obligations (other than Hedge Obligations) that,
at such time, are allowed by the applicable Bank Product Provider to remain outstanding without
being required to be repaid or cash collateralized, and (iii) any Hedge Obligations that, at such
time, are allowed by the applicable Hedge Provider to remain outstanding without being required to
be repaid. Any reference herein to any Person shall be construed to include such Persons
successors and assigns. Any requirement of a writing contained herein or in any other Loan
Document shall be satisfied by the transmission of a Record.
1.5
Schedules and Exhibits
.
All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.
2. LOANS AND TERMS OF PAYMENT
.
2.1
Revolver Advances
.
(a) Subject to the terms and conditions of this Agreement, and during the term of this
Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and
severally) to make revolving loans (
Advances
) to Borrower in an amount at any one time
outstanding not to exceed
the lesser of
:
(i) such Lenders Revolver Commitment, or
(ii) such Lenders Pro Rata Share of an amount equal to
the lesser of
:
(A) the Maximum Revolver Amount less the sum of (1) the Letter of Credit Usage at such time,
plus
(2) the principal amount of Swing Loans outstanding at such time, and
(B) the Borrowing Base at such time less the sum of (1) the Letter of Credit Usage at such
time,
plus
(2) the principal amount of Swing Loans outstanding at such time.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
2
(b) Amounts borrowed pursuant to this
Section 2.1
may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement.
The outstanding principal amount of the Advances, together with interest accrued and unpaid
thereon, shall be due and payable on the Maturity Date or, if earlier, on the date on which they
are declared due and payable pursuant to the terms of this Agreement.
(c) Anything to the contrary in this
Section 2.1
notwithstanding, Agent shall have the
right (but not the obligation) to establish, increase, reduce, eliminate, or otherwise adjust
reserves from time to time against the Borrowing Base or the Maximum Revolver Amount in such
amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem
necessary or appropriate, including (i) reserves in an amount equal to the Bank Product Reserve
Amount, and (ii) reserves with respect to (A) sums that Parent or its Subsidiaries are required to
pay under this Agreement or any other Loan Document (such as taxes, assessments, insurance
premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and
has failed to pay when due, and (B) amounts owing by Parent or its Subsidiaries to any Person to
the extent secured by a Lien on, or trust over, or preferential claim by operation of law over, or
claim of retention of title to, any of the Collateral (other than a Permitted Lien which is a
permitted purchase money Lien or the interest of a lessor under a Capital Lease), which Lien or
trust, in the Permitted Discretion of Agent likely would have a priority superior to Agents Liens
(such as Liens, preferred claims, claims of retention of title, or trusts in favor of employees,
creditors, landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or
Liens or trusts for
ad valorem
, excise, sales, or other taxes where given priority under applicable
law) in and to such item of the Collateral.
2.2
Reserved
.
2.3
Borrowing Procedures and Settlements
.
(a)
Procedure for Borrowing.
Each Borrowing shall be made by a written request by an
Authorized Person delivered to Agent. Unless Swing Lender is not obligated to make a Swing Loan
pursuant to
Section 2.3(b)
below, such notice must be received by Agent no later than 10:00
a.m. (California time) on the Business Day that is the requested Funding Date specifying (i) the
amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day;
provided
,
however
, that if Swing Lender is not obligated to make a Swing Loan as to
a requested Borrowing, such notice must be received by Agent no later than 10:00 a.m. (California
time) on the Business Day prior to the date that is the requested Funding Date. At Agents
election, in lieu of delivering the above-described written request, any Authorized Person may give
Agent telephonic notice of such request by the required time. In such circumstances, Borrower
agrees that any such telephonic notice will be confirmed in writing within 24 hours of the giving
of such telephonic notice, but the failure to provide such written confirmation shall not affect
the validity of the request.
(b)
Making of Swing Loans.
In the case of a request for an Advance and so long as either (i)
the aggregate amount of Swing Loans made since the last Settlement Date, minus the amount of
Collections or payments applied to Swing Loans since the last Settlement Date, plus the amount of
the requested Advance does not exceed $4,500,000, or (ii) Swing Lender, in its sole discretion,
shall agree to make a Swing Loan notwithstanding the foregoing limitation, Swing Lender shall make
an Advance in the amount of such requested Borrowing (any such Advance made solely by Swing Lender
pursuant to this
Section 2.3(b)
being referred to as a
Swing Loan
and such
Advances being referred to as
Swing Loans
) available to Borrower on the Funding Date
applicable thereto by transferring immediately available funds to the Designated Account. Anything
contained herein to the contrary notwithstanding, the Swing Lender may, but shall not be obligated
to, make Swing Loans at any time that one or more of the Lenders is a Defaulting Lender. Each
Swing Loan shall be deemed to be an Advance hereunder and shall be subject to all the terms and
conditions (including Section 3) applicable to other Advances, except that all payments on any
Swing Loan shall be payable to Swing Lender solely for its own account. Subject to the provisions
of
Section 2.3(d)(ii)
, Swing Lender shall not make and shall not be obligated to make any
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
3
Swing
Loan if Swing Lender has actual knowledge that (i) one or more of the applicable conditions precedent set forth in
Section 3
will not be satisfied on the requested Funding Date for the applicable Borrowing,
or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Swing Lender
shall not otherwise be required to determine whether the applicable conditions precedent set forth
in
Section 3
have been satisfied on the Funding Date applicable thereto prior to making any
Swing Loan. The Swing Loans shall be secured by Agents Liens, constitute Advances and Obligations
hereunder, and bear interest at the rate applicable from time to time to Advances that are Base
Rate Loans. Notwithstanding anything in this
Section 2.3(b)
to the contrary, at any time
that there is only one Lender, the Swing Lender shall not be obligated to make a Swing Loan and
requested Borrowings shall be made pursuant to
Section 2.3(c)
.
(c)
Making of Loans
.
(i) In the event that Swing Lender is not obligated to make a Swing Loan, then promptly after
receipt of a request for a Borrowing pursuant to
Section 2.3(a)
, Agent shall notify the
Lenders, not later than 1:00 p.m. (California time) on the Business Day immediately preceding the
Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of
the requested Borrowing. Each Lender shall make the amount of such Lenders Pro Rata Share of the
requested Borrowing available to Agent in immediately available funds, to Agents Account, not
later than 10:00 a.m. (California time) on the Funding Date applicable thereto. After Agents
receipt of the proceeds of such Advances, Agent shall make the proceeds thereof available to
Borrower on the applicable Funding Date by transferring immediately available funds equal to such
proceeds received by Agent to the Designated Account;
provided
,
however
, that,
subject to the provisions of
Section 2.3(d)(ii)
, Agent shall not request any Lender to make
any Advance if it has knowledge that, and no Lender shall have the obligation to make any Advance,
if (1) one or more of the applicable conditions precedent set forth in
Section 3
will not
be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has
been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date.
(ii) Unless Agent receives notice from a Lender prior to 9:00 a.m. (California time) on the
date of a Borrowing, that such Lender will not make available as and when required hereunder to
Agent for the account of Borrower the amount of that Lenders Pro Rata Share of the Borrowing,
Agent may assume that each Lender has made or will make such amount available to Agent in
immediately available funds on the Funding Date and Agent may (but shall not be so required), in
reliance upon such assumption, make available to Borrower on such date a corresponding amount. If
any Lender shall not have made its full amount available to Agent in immediately available funds
and if Agent in such circumstances has made available to Borrower such amount, that Lender shall on
the Business Day following such Funding Date make such amount available to Agent, together with
interest at the Defaulting Lender Rate for each day during such period. A notice submitted by
Agent to any Lender with respect to amounts owing under this
Section 2.3(c)(ii)
shall be
conclusive, absent manifest error. If such amount is so made available, such payment to Agent
shall constitute such Lenders Advance on the date of Borrowing for all purposes of this Agreement.
If such amount is not made available to Agent on the Business Day following the Funding Date,
Agent will notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay
such amount to Agent for Agents account, together with interest thereon for each day elapsed since
the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Advances composing such Borrowing.
(d)
Protective Advances and Optional Overadvances
.
(i) Any contrary provision of this Agreement or any other Loan Document notwithstanding, Agent
hereby is authorized by Borrower and the Lenders, from time to time in Agents sole discretion, (A)
after the occurrence and during the continuance of a Default or an Event of Default, or (B) at any
time that any of the other applicable conditions precedent set forth in
Section 3
are not
satisfied, to make Advances to, or for the benefit of, Borrower on behalf of the Lenders that
Agent, in its Permitted Discretion deems necessary or desirable (1) to preserve or protect the
Collateral, or any portion thereof, or (2) to enhance the likelihood of repayment of the
Obligations (other than the Bank Product
Obligations) (any of the Advances described in this
Section 2.3(d)(i)
shall be
referred to as
Protective Advances
).
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
4
(ii) Any contrary provision of this Agreement or any other Loan Document notwithstanding, the
Lenders hereby authorize Agent or Swing Lender, as applicable, and either Agent or Swing Lender, as
applicable, may, but is not obligated to, knowingly and intentionally, continue to make Advances
(including Swing Loans) to Borrower notwithstanding that an Overadvance exists or would be created
thereby, so long as (A) after giving effect to such Advances, the outstanding Revolver Usage does
not exceed the Borrowing Base by more than $4,500,000, and (B) after giving effect to such
Advances, the outstanding Revolver Usage (except for and excluding amounts charged to the Loan
Account for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount.
In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted
by the immediately foregoing provisions, regardless of the amount of, or reason for, such excess,
Agent shall notify the Lenders as soon as practicable (and prior to making any (or any additional)
intentional Overadvances (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in
imminent harm to the Collateral or its value, in which case Agent may make such Overadvances and
provide notice as promptly as practicable thereafter), and the Lenders with Revolver Commitments
thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be
implemented with Borrower intended to reduce, within a reasonable time, the outstanding principal
amount of the Advances to Borrower to an amount permitted by the preceding sentence. In such
circumstances, if any Lender with a Revolver Commitment objects to the proposed terms of reduction
or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented
according to the determination of the Required Lenders. The foregoing provisions are meant for the
benefit of the Lenders and Agent and are not meant for the benefit of Borrower, which shall
continue to be bound by the provisions of
Section 2.5
. Each Lender with a Revolver
Commitment shall be obligated to settle with Agent as provided in
Section 2.3(e)
for the
amount of such Lenders Pro Rata Share of any unintentional Overadvances by Agent reported to such
Lender, any intentional Overadvances made as permitted under this
Section 2.3(d)(ii)
, and
any Overadvances resulting from the charging to the Loan Account of interest, fees, or Lender Group
Expenses.
(iii) Each Protective Advance and each Overadvance shall be deemed to be an Advance hereunder,
except that no Protective Advance or Overadvance shall be eligible to be a LIBOR Rate Loan and,
prior to Settlement therefor, all payments on the Protective Advances shall be payable to Agent
solely for its own account. The Protective Advances and Overadvances shall be repayable on demand,
secured by Agents Liens, constitute Obligations hereunder, and bear interest at the rate
applicable from time to time to Advances that are Base Rate Loans. The ability of Agent to make
Protective Advances is separate and distinct from its ability to make Overadvances and its ability
to make Overadvances is separate and distinct from its ability to make Protective Advances. For
the avoidance of doubt, the limitations on Agents ability to make Protective Advances do not apply
to Overadvances and the limitations on Agents ability to make Overadvances do not apply to
Protective Advances. The provisions of this
Section 2.3(d)
are for the exclusive benefit
of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrower in any way.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
5
(e)
Settlement.
It is agreed that each Lenders funded portion of the Advances is intended by
the Lenders to equal, at all times, such Lenders Pro Rata Share of the outstanding Advances. Such
agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall
not be for the benefit of Borrower) that in order to facilitate the administration of this
Agreement and the other Loan Documents, settlement among the Lenders as to the Advances, the Swing
Loans, and the Protective Advances shall take place on a periodic basis in accordance with the
following provisions:
(i) Agent shall request settlement (
Settlement
) with the Lenders on a weekly basis,
or on a more frequent basis if so determined by Agent (1) on behalf of Swing Lender, with respect
to the outstanding Swing Loans, (2) for itself, with respect to the outstanding Protective Advances
or Overadvances, and (3) with respect to Borrowers or its Subsidiaries Collections or payments
received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of
transmission, of such requested
Settlement, no later than 2:00 p.m. (California time) on the Business Day immediately prior to
the date of such requested Settlement (the date of such requested Settlement being the
Settlement Date
). Such notice of a Settlement Date shall include a summary statement of
the amount of outstanding Advances, Swing Loans, Overadvances, and Protective Advances for the
period since the prior Settlement Date. Subject to the terms and conditions contained herein
(including
Section 2.3(g))
: (y) if the amount of the Advances (including Swing Loans,
Overadvances, and Protective Advances) made by a Lender that is not a Defaulting Lender exceeds
such Lenders Pro Rata Share of the Advances (including Swing Loans, Overadvances, and Protective
Advances) as of a Settlement Date, then Agent shall, by no later than 12:00 p.m. (California time)
on the Settlement Date, transfer in immediately available funds to a Deposit Account of such Lender
(as such Lender may designate), an amount such that each such Lender shall, upon receipt of such
amount, have as of the Settlement Date, its Pro Rata Share of the Advances (including Swing Loans,
Overadvances, and Protective Advances), and (z) if the amount of the Advances (including Swing
Loans, Overadvances, and Protective Advances) made by a Lender is less than such Lenders Pro Rata
Share of the Advances (including Swing Loans, Overadvances, and Protective Advances) as of a
Settlement Date, such Lender shall no later than 12:00 p.m. (California time) on the Settlement
Date transfer in immediately available funds to Agents Account, an amount such that each such
Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of
the Advances (including Swing Loans, Overadvances, and Protective Advances). Such amounts made
available to Agent under clause (z) of the immediately preceding sentence shall be applied against
the amounts of the applicable Swing Loans, Overadvances, or Protective Advances and, together with
the portion of such Swing Loans, Overadvances, or Protective Advances representing Swing Lenders
Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made
available to Agent by any Lender on the Settlement Date applicable thereto to the extent required
by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from
such Lender together with interest thereon at the Defaulting Lender Rate.
(ii) In determining whether a Lenders balance of the Advances, Swing Loans, Overadvances, and
Protective Advances is less than, equal to, or greater than such Lenders Pro Rata Share of the
Advances, Swing Loans, Overadvances, and Protective Advances as of a Settlement Date, Agent shall,
as part of the relevant Settlement, apply to such balance the portion of payments actually received
in good funds by Agent with respect to principal, interest, fees payable by Borrower and allocable
to the Lenders hereunder, and proceeds of Collateral.
(iii) Between Settlement Dates, Agent, to the extent Protective Advances, Overadvances, or
Swing Loans are outstanding, may pay over to Agent or Swing Lender, as applicable, any Collections
or payments received by Agent, that in accordance with the terms of this Agreement would be applied
to the reduction of the Advances, for application to the Protective Advances, Overadvances, or
Swing Loans. Between Settlement Dates, Agent, to the extent no Protective Advances, Overadvances,
or Swing Loans are outstanding, may pay over to Swing Lender any Collections or payments received
by Agent, that in accordance with the terms of this Agreement would be applied to the reduction of
the Advances, for application to Swing Lenders Pro Rata Share of the Advances. If, as of any
Settlement Date, Collections or payments of Parent or its Subsidiaries received since the then
immediately preceding Settlement Date have been applied to Swing Lenders Pro Rata Share of the
Advances other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall
pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders (other than a
Defaulting Lender if Agent has implemented the provisions of
Section 2.3(g))
, to be applied
to the outstanding Advances of such Lenders, an amount such that each such Lender shall, upon
receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances.
During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with
respect to Protective Advances and Overadvances, and each Lender with respect to the Advances other
than Swing Loans, Overadvances, and Protective Advances, shall be entitled to interest at the
applicable rate or rates payable under this Agreement on the daily amount of funds employed by
Swing Lender, Agent, or the Lenders, as applicable.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
6
(iv) Anything in this
Section 2.3(e)
to the contrary notwithstanding, in the event
that a Lender is a Defaulting Lender, Agent shall be entitled to refrain from remitting settlement
amounts to the Defaulting Lender and, instead, shall be entitled to elect to implement the
provisions set forth in
Section 2.3(g)
.
(f)
Notation.
Agent, as a non-fiduciary agent for Borrower, shall maintain a register showing
the principal amount of the Advances owing to each Lender, including the Swing Loans owing to Swing
Lender, and Protective Advances and Overadvances owing to Agent, and the interests therein of each
Lender, from time to time and such register shall, absent manifest error, conclusively be presumed
to be correct and accurate.
(g)
Defaulting Lenders.
Agent shall not be obligated to transfer to a Defaulting Lender any
payments made by Borrower to Agent for the Defaulting Lenders benefit or any Collections or
proceeds of Collateral that would otherwise be remitted hereunder to the Defaulting Lender, and, in
the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments (A)
first, to Swing Lender to the extent of any Swing Loans that were made by Swing Lender and that
were required to be, but were not, paid by the Defaulting Lender, (B) second, to the Issuing
Lender, to the extent of the portion of a Letter of Credit Disbursement that was required to be,
but was not, paid by the Defaulting Lender, (C) third, to each non-Defaulting Lender ratably in
accordance with their Revolver Commitments (but, in each case, only to the extent that such
Defaulting Lenders portion of an Advance (or other funding obligation) was funded by such other
non-Defaulting Lender), (D) to a suspense account maintained by Agent, the proceeds of which shall
be retained by Agent and may be made available to be re-advanced to or for the benefit of Borrower
as if such Defaulting Lender had made its portion of Advances (or other funding obligations)
hereunder, and (E) from and after the date on which all other Obligations have been paid in full,
to such Defaulting Lender in accordance with tier (L) of
Section 2.4(b)(ii)
. Subject to
the foregoing, Agent may hold and, in its discretion, re-lend to Borrower for the account of such
Defaulting Lender the amount of all such payments received and retained by Agent for the account of
such Defaulting Lender. Solely for the purposes of voting or consenting to matters with respect to
the Loan Documents (including the calculation of Pro Rata Share in connection therewith) and for
the purpose of calculating the fee payable under
Section 2.10(b)
, such Defaulting Lender
shall be deemed not to be a Lender and such Lenders Revolver Commitment shall be deemed to be
zero. The provisions of this
Section 2.3(g)
shall remain effective with respect to such
Defaulting Lender until the earlier of (y) the date on which all of the non-Defaulting Lenders,
Agent, Issuing Lender, and Borrower shall have waived, in writing, the application of this
Section 2.3(g)
to such Defaulting Lender, or (z) the date on which such Defaulting Lender
makes payment of all amounts that it was obligated to fund hereunder, pays to Agent all amounts
owing by Defaulting Lender in respect of the amounts that it was obligated to fund hereunder, and,
if requested by Agent, provides adequate assurance of its ability to perform its future obligations
hereunder. The operation of this
Section 2.3(g)
shall not be construed to increase or
otherwise affect the Revolver Commitment of any Lender, to relieve or excuse the performance by
such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve
or excuse the performance by Borrower of its duties and obligations hereunder to Agent, Issuing
Lender, or to the Lenders other than such Defaulting Lender. Any failure by a Defaulting Lender to
fund amounts that it was obligated to fund hereunder shall constitute a material breach by such
Defaulting Lender of this Agreement and shall entitle Borrower, at its option, upon written notice
to Agent, to arrange for a substitute Lender to assume the Revolver Commitment of such Defaulting
Lender, such substitute Lender to be reasonably acceptable to Agent. In connection with the
arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be
replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance
in favor of the substitute Lender (and agrees that it shall be deemed to have executed and
delivered such document if it fails to do so) subject only to being paid its share of the
outstanding Obligations (other than Bank Product Obligations, but including (1) all interest, fees,
and other amounts that may be due and payable in respect thereof, and (2) an assumption of its Pro
Rata Share of its participation in the Letters of Credit);
provided
,
however
, that
any such assumption of the Revolver Commitment of such Defaulting Lender shall not be deemed to
constitute a waiver of any of the Lender Groups or Borrowers rights or remedies against any such
Defaulting Lender arising out of or in relation to such failure to fund. In the event of a direct
conflict
between the priority provisions of this
Section 2.3(g)
and any other provision
contained in this Agreement or any other Loan Document, it is the intention of the parties hereto
that such provisions be read together and construed, to the fullest extent possible, to be in
concert with each other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of this
Section 2.3(g)
shall control and
govern.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
7
(h)
Independent Obligations.
All Advances (other than Swing Loans, Overadvances, and
Protective Advances) shall be made by the Lenders contemporaneously and in accordance with their
Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any
other Lender to perform its obligation to make any Advance (or other extension of credit)
hereunder, nor shall any Revolver Commitment of any Lender be increased or decreased as a result of
any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any
Lender to perform its obligations hereunder shall excuse any other Lender from its obligations
hereunder.
2.4
Payments; Reductions of Commitments; Prepayments
.
(a)
Payments by Borrower
.
(i) Except as otherwise expressly provided herein, all payments by Borrower shall be made to
Agents Account for the account of the Lender Group and shall be made in immediately available
funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment
received by Agent later than 11:00 a.m. (California time) shall be deemed to have been received on
the following Business Day and any applicable interest or fee shall continue to accrue until such
following Business Day.
(ii) Unless Agent receives notice from Borrower prior to the date on which any payment is due
to the Lenders that Borrower will not make such payment in full as and when required, Agent may
assume that Borrower has made (or will make) such payment in full to Agent on such date in
immediately available funds and Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the amount then due such
Lender. If and to the extent Borrower does not make such payment in full to Agent on the date when
due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender,
together with interest thereon at the Defaulting Lender Rate for each day from the date such amount
is distributed to such Lender until the date repaid.
(b)
Apportionment and Application
.
(i) So long as no Application Event has occurred and is continuing and except as otherwise
provided herein with respect to Defaulting Lenders, all principal and interest payments received by
Agent shall be apportioned ratably among the Lenders (according to the unpaid principal balance of
the Obligations to which such payments relate held by each Lender) and all payments of fees and
expenses received by Agent (other than fees or expenses that are for Agents separate account or
for the separate account of the Issuing Lender) shall be apportioned ratably among the Lenders
having a Pro Rata Share of the type of Revolver Commitment or Obligation to which a particular fee
or expense relates. All payments to be made hereunder by Borrower shall be remitted to Agent and
all (subject to
Section 2.4(b)(iv)
and
Section 2.4(b)(ii))
such payments, and all
proceeds of Collateral received by Agent, shall be applied, so long as no Application Event has
occurred and is continuing, to reduce the balance of the Advances outstanding and, thereafter, to
Borrower (to be wired to the Designated Account) or such other Person entitled thereto under
applicable law.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
8
(ii) At any time that an Application Event has occurred and is continuing and except as
otherwise provided herein with respect to Defaulting Lenders, all payments remitted to Agent and
all proceeds of Collateral received by Agent shall be applied as follows:
(A)
first
, to pay any Lender Group Expenses (including cost or expense reimbursements)
or indemnities then due to Agent under the Loan Documents, until paid in full,
(B)
second
, to pay any fees or premiums then due to Agent under the Loan Documents
until paid in full,
(C)
third
, to pay interest due in respect of all Protective Advances until paid in
full,
(D)
fourth
, to pay the principal of all Protective Advances until paid in full,
(E)
fifth
, ratably, to pay any Lender Group Expenses (including cost or expense
reimbursements) or indemnities then due to any of the Lenders under the Loan Documents, until paid
in full,
(F)
sixth
, ratably, to pay any fees or premiums then due to any of the Lenders under
the Loan Documents until paid in full,
(G)
seventh
, to pay interest accrued in respect of the Swing Loans until paid in full,
(H)
eighth
, to pay the principal of all Swing Loans until paid in full,
(I)
ninth
, ratably, to pay interest accrued in respect of the Advances (other than
Protective Advances) until paid in full,
(J)
tenth
, ratably (i) to pay the principal of all Advances until paid in full, (ii)
to Agent, to be held by Agent, for the benefit of Issuing Lender (and for the ratable benefit of
each of the Lenders that have an obligation to pay to Agent, for the account of the Issuing Lender,
a share of each Letter of Credit Disbursement), as cash collateral in an amount up to 105% of
Dollar denominated Letters of Credit and 115% of foreign currency denominated Letters of Credit
comprising the Letter of Credit Usage (to the extent permitted by applicable law, such cash
collateral shall be applied to the reimbursement of any Letter of Credit Disbursement as and when
such disbursement occurs and, if a Letter of Credit expires undrawn, the cash collateral held by
Agent in respect of such Letter of Credit shall, to the extent permitted by applicable law, be
reapplied pursuant to this
Section 2.4(b)(ii)
, beginning with tier (A) hereof), and (iii)
ratably, to the Bank Product Providers based upon amounts then certified by the applicable Bank
Product Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to
such Bank Product Providers on account of Bank Product Obligations,
(K)
eleventh
, to pay any other Obligations other than Obligations owed to Defaulting
Lenders,
(L)
twelfth
, ratably to pay any Obligations owed to Defaulting Lenders; and
(M)
thirteenth
, to Borrower (to be wired to the Designated Account) or such other
Person entitled thereto under applicable law.
(iii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire
instructions received from each Lender in writing, such funds as it may be entitled to receive,
subject to a Settlement delay as provided in
Section 2.3(e)
.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
9
(iv) In each instance, so long as no Application Event has occurred and is continuing,
Section 2.4(b)(i)
shall not apply to any payment made by Borrower to Agent and specified by
Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under
any provision of this Agreement or any other Loan Document.
(v) For purposes of
Section 2.4(b)(ii)
, paid in full of a type of Obligation means
payment in cash or immediately available funds of all amounts owing on account of such type of
Obligation, including interest accrued after the commencement of any Insolvency Proceeding, default
interest, interest on interest, and expense reimbursements, irrespective of whether any of the
foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.
(vi) In the event of a direct conflict between the priority provisions of this
Section
2.4
and any other provision contained in this Agreement or any other Loan Document, it is the
intention of the parties hereto that such provisions be read together and construed, to the fullest
extent possible, to be in concert with each other. In the event of any actual, irreconcilable
conflict that cannot be resolved as aforesaid, if the conflict relates to the provisions of
Section 2.3(g)
and this
Section 2.4
, then the provisions of
Section 2.3(g)
shall control and govern, and if otherwise, then the terms and provisions of this
Section
2.4
shall control and govern.
(c)
Reduction of Revolver Commitments
. The Revolver Commitments shall terminate on the
Maturity Date. Borrower may reduce the Revolver Commitments to an amount (which may be zero) not
less than the sum of (A) the Revolver Usage as of such date, plus (B) the principal amount of all
Advances not yet made as to which a request has been given by Borrower under
Section
2.3(a)
, plus (C) the amount of all Letters of Credit not yet issued as to which a request has
been given by Borrower pursuant to
Section 2.11(a)
. Each such reduction shall be in an
amount which is not less than [***] (unless the Revolver Commitments are being reduced to zero and
the amount of the Revolver Commitments in effect immediately prior to such reduction are less than
[***]), shall be made by providing not less than 5 Business Days prior written notice to Agent, and
shall be irrevocable. Once reduced, the Revolver Commitments may not be increased. Each such
reduction of the Revolver Commitments shall reduce the Revolver Commitments of each Lender
proportionately in accordance with its ratable share thereof.
(d)
Optional Prepayments.
Borrower may prepay the principal of any Advance at any time in
whole or in part.
2.5
Overadvances
. If, at any time or for any reason, the amount of Obligations owed
by Borrower to the Lender Group pursuant to
Section 2.1
or
Section 2.11
is greater
than any of the limitations set forth in
Section 2.1
or
Section 2.11
, as applicable
(an
Overadvance
), Borrower shall immediately (or, with respect to any intentional
Overadvances made by Agent pursuant to
Section 2.3(d)(ii)
, on such other terms as shall be
imposed by Agent and Lenders) pay to Agent, in cash, the amount of such excess, which amount shall
be used by Agent to reduce the Obligations in accordance with the priorities set forth in
Section 2.4(b)
.
2.6
Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations
.
(a)
Interest Rates.
Except as provided in
Section 2.6(c)
, all Obligations (except for
undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof
shall bear interest on the Daily Balance thereof as follows:
(i) if the relevant Obligation is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR
Rate plus the LIBOR Rate Margin, and
(ii) otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
10
(b)
Letter of Credit Fee.
Borrower shall pay Agent (for the ratable benefit of the Lenders
with a Revolver Commitment), a Letter of Credit fee (in addition to the charges, commissions, fees,
and costs set forth in
Section 2.11(f))
which shall accrue at a rate equal to the LIBOR
Rate Margin per annum
times
the Daily Balance of the undrawn amount of all outstanding Letters of
Credit.
(c)
Default Rate.
Upon the occurrence and during the continuation of an Event of Default and
at the election of the Required Lenders,
(i) all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan
Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per
annum rate equal to 2 percentage points above the per annum rate otherwise applicable thereunder,
and
(ii) the Letter of Credit fee provided for in
Section 2.6(b)
shall be increased to 2
percentage points above the per annum rate otherwise applicable hereunder.
(d)
Payment.
Except to the extent provided to the contrary in
Section 2.10
or
Section 2.12(a)
, all interest, all Letter of Credit fees, all other fees payable hereunder
or under any of the other Loan Documents, all costs and expenses payable hereunder or under any of
the other Loan Documents, and all Lender Group Expenses shall be due and payable, in arrears, on
the first day of each month at any time that Obligations or Revolver Commitments are outstanding.
Borrower hereby authorizes Agent, from time to time without prior notice to Borrower, to charge all
interest, Letter of Credit fees, and all other fees payable hereunder or under any of the other
Loan Documents (in each case, as and when due and payable), all costs and expenses payable
hereunder or under any of the other Loan Documents (in each case, as and when accrued or incurred),
and all Lender Group Expenses (as and when accrued or incurred), all charges, commissions, fees,
and costs provided for in
Section 2.11(f)
(as and when accrued or incurred), all fees and
costs provided for in
Section 2.10
(as and when accrued or incurred), and all other payment
obligations as and when due and payable under any Loan Document or any Bank Product Agreement
(including any amounts due and payable to the Bank Product Providers in respect of Bank Products)
to the Loan Account, which amounts thereafter shall constitute Advances hereunder and, initially,
shall accrue interest at the rate then applicable to Advances that are Base Rate Loans. Any
interest, fees, costs, expenses, Lender Group Expenses, or other amounts payable hereunder or under
any other Loan Document or under any Bank Product Agreement that are charged to the Loan Account
shall thereupon constitute Advances hereunder and shall initially accrue interest at the rate then
applicable to Advances that are Base Rate Loans (unless and until converted into LIBOR Rate Loans
in accordance with the terms of this Agreement).
(e)
Computation.
All interest and fees chargeable under the Loan Documents shall be computed
on the basis of a 360 day year, in each case, for the actual number of days elapsed in the period
during which the interest or fees accrue. In the event the Base Rate is changed from time to time
hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately
shall be increased or decreased by an amount equal to such change in the Base Rate.
(f)
Intent to Limit Charges to Maximum Lawful Rate.
In no event shall the interest rate or
rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the
highest rate permissible under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated
within it;
provided
,
however
, that, anything contained herein to the contrary
notwithstanding, if such rate or rates of interest or manner of payment exceeds the maximum
allowable under applicable law, then,
ipso facto
, as of the date of this Agreement, Borrower is and
shall be liable only for the payment of such maximum amount as is allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall be applied to
reduce the principal balance of the Obligations to the extent of such excess.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
11
2.7
Crediting Payments
. The receipt of any payment item by Agent shall not be
considered a payment on account unless such payment item is a wire transfer of immediately
available federal funds made to Agents Account or unless and until such payment item is honored
when presented for payment. Should any payment item not be honored when presented for payment,
then Borrower shall be deemed not to have made such payment and interest shall be calculated
accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be
deemed received by Agent only if it is received into Agents Account on a Business Day on or before
11:00 a.m. (California time). If any payment item is received into Agents Account on a
non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to
have been received by Agent as of the opening of business on the immediately following Business
Day.
2.8
Designated Account
.
Agent is authorized to make the Advances and Issuing Lender
is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Person or, without instructions,
if pursuant to
Section 2.6(d)
. Borrower agrees to establish and maintain the Designated
Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances
requested by Borrower and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent
and Borrower, any Advance or Swing Loan requested by Borrower and made by Agent or the Lenders
hereunder shall be made to the Designated Account.
2.9
Maintenance of Loan Account; Statements of Obligations
.
Agent shall maintain an
account on its books in the name of Borrower (the
Loan Account
) on which Borrower will be
charged with all Advances (including Protective Advances and Swing Loans) made by Agent, Swing
Lender, or the Lenders to Borrower or for Borrowers account, the Letters of Credit issued or
arranged by Issuing Lender for Borrowers account, and with all other payment Obligations hereunder
or under the other Loan Documents, including, accrued interest, fees and expenses, and Lender Group
Expenses. In accordance with
Section 2.7
, the Loan Account will be credited with all
payments received by Agent from Borrower or for Borrowers account. Agent shall render monthly
statements regarding the Loan Account to Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Lender Group Expenses owing, and
such statements, absent manifest error, shall be conclusively presumed to be correct and accurate
and constitute an account stated between Borrower and the Lender Group unless, within 30 days after
receipt thereof by Borrower, Borrower shall deliver to Agent written objection thereto describing
the error or errors contained in any such statements.
2.10
Fees
.
Borrower shall pay to Agent,
(a) for the account of Agent, as and when due and payable under the terms of the Fee Letter,
the fees set forth in the Fee Letter.
(b) for the ratable account of those Lenders with Revolver Commitments, on the first day of
each month from and after the Closing Date up to the first day of the month prior to the Payoff
Date and on the Payoff Date, an unused line fee in an amount equal to (i) 0.50% per annum times the
result of (A) the aggregate amount of the Revolver Commitments, less (B) the average Daily Balance
of the Revolver Usage during the immediately preceding month (or portion thereof) if the result of
clauses (A) and (B) above is greater than or equal to $22,500,000, and (ii) 0.375% per annum times
the result of (A) the aggregate amount of the Revolver Commitments, less (B) the average Daily
Balance of the Revolver Usage during the immediately preceding month (or portion thereof) if the
result of clauses (A) and (B) above is less than $22,500,000.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
12
2.11
Letters of Credit
.
(a) Subject to the terms and conditions of this Agreement, upon the request of Borrower made
in accordance herewith, the Issuing Lender agrees to issue, or to cause an Underlying Issuer
(including, as Issuing Lenders agent) to issue, a requested Letter of Credit. If Issuing Lender,
at its option,
elects to cause an Underlying Issuer to issue a requested Letter of Credit, then Issuing
Lender agrees that it will enter into arrangements relative to the reimbursement of such Underlying
Issuer (which may include, among other means, by becoming an applicant with respect to such Letter
of Credit or entering into undertakings which provide for reimbursements of such Underlying Issuer
with respect to such Letter of Credit; each such obligation or undertaking, irrespective of whether
in writing, a
Reimbursement Undertaking
) with respect to Letters of Credit issued by such
Underlying Issuer. By submitting a request to Issuing Lender for the issuance of a Letter of
Credit, Borrower shall be deemed to have requested that Issuing Lender issue or that an Underlying
Issuer issue the requested Letter of Credit and to have requested Issuing Lender to issue a
Reimbursement Undertaking with respect to such requested Letter of Credit if it is to be issued by
an Underlying Issuer (it being expressly acknowledged and agreed by Borrower that Borrower is and
shall be deemed to be an applicant (within the meaning of Section 5-102(a)(2) of the Code) with
respect to each Underlying Letter of Credit). Each request for the issuance of a Letter of Credit,
or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be made in
writing by an Authorized Person and delivered to the Issuing Lender via hand delivery,
telefacsimile, or other electronic method of transmission reasonably in advance of the requested
date of issuance, amendment, renewal, or extension. Each such request shall be in form and
substance reasonably satisfactory to the Issuing Lender and shall specify (i) the amount of such
Letter of Credit, (ii) the date of issuance, amendment, renewal, or extension of such Letter of
Credit, (iii) the proposed expiration date of such Letter of Credit, (iv) the name and address of
the beneficiary of the Letter of Credit, and (v) such other information (including, the conditions
of drawing, and, in the case of an amendment, renewal, or extension, identification of the Letter
of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew,
or extend such Letter of Credit. Anything contained herein to the contrary notwithstanding, the
Issuing Lender may, but shall not be obligated to, issue or cause the issuance of a Letter of
Credit or to issue a Reimbursement Undertaking in respect of an Underlying Letter of Credit, in
either case, that supports the obligations of Parent or its Subsidiaries (1) in respect of (A) a
lease of real property, or (B) an employment contract, or (2) at any time that one or more of the
Lenders is a Defaulting Lender. The Issuing Lender shall have no obligation to issue a Letter of
Credit or a Reimbursement Undertaking in respect of an Underlying Letter of Credit, in either case,
if any of the following would result after giving effect to the requested issuance:
(i) the Letter of Credit Usage would exceed the Borrowing Base less the outstanding amount of
Advances (inclusive of Swing Loans), or
(ii) the Letter of Credit Usage would exceed $10,000,000, or
(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount
less
the outstanding
amount of Advances (including Swing Loans).
Borrower and the Lender Group hereby acknowledge and agree that all Existing Letters of Credit
shall constitute Letters of Credit under this Agreement on and after the Closing Date with the same
effect as if such Existing Letters of Credit were issued by Issuing Lender or an Underlying Issuer
at the request of Borrower on the Closing Date. Each Letter of Credit shall be in form and
substance reasonably acceptable to the Issuing Lender, including the requirement that the amounts
payable thereunder must be payable in Dollars. If Issuing Lender makes a payment under a Letter of
Credit or an Underlying Issuer makes a payment under an Underlying Letter of Credit, Borrower shall
pay to Agent an amount equal to the applicable Letter of Credit Disbursement on the date such
Letter of Credit Disbursement is made and, in the absence of such payment, the amount of the Letter
of Credit Disbursement immediately and automatically shall be deemed to be an Advance hereunder
and, initially, shall bear interest at the rate then applicable to Advances that are Base Rate
Loans. If a Letter of Credit Disbursement is deemed to be an Advance hereunder (notwithstanding any
failure to satisfy any condition precedent set forth in
Section 3
), Borrowers obligation
to pay the amount of such Letter of Credit Disbursement to Issuing Lender shall be automatically
converted into an obligation to pay the resulting Advance. Promptly following receipt by Agent of
any payment from Borrower pursuant to this paragraph, Agent shall distribute such payment to the
Issuing Lender or, to the
extent that Lenders have made payments pursuant to
Section 2.11(b)
to reimburse the
Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
13
(b) Promptly following receipt of a notice of a Letter of Credit Disbursement pursuant to
Section 2.11(a)
, each Lender with a Revolver Commitment agrees to fund its Pro Rata Share
of any Advance deemed made pursuant to
Section 2.11(a)
on the same terms and conditions as
if Borrower had requested the amount thereof as an Advance and Agent shall promptly pay to Issuing
Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit or a
Reimbursement Undertaking (or an amendment, renewal, or extension of a Letter of Credit or a
Reimbursement Undertaking) and without any further action on the part of the Issuing Lender or the
Lenders with Revolver Commitments, the Issuing Lender shall be deemed to have granted to each
Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to
have purchased, a participation in each Letter of Credit issued by Issuing Lender and each
Reimbursement Undertaking, in an amount equal to its Pro Rata Share of such Letter of Credit or
Reimbursement Undertaking, and each such Lender agrees to pay to Agent, for the account of the
Issuing Lender, such Lenders Pro Rata Share of any Letter of Credit Disbursement made by Issuing
Lender or an Underlying Issuer under the applicable Letter of Credit. In consideration and in
furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and
unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lenders Pro
Rata Share of each Letter of Credit Disbursement made by Issuing Lender or an Underlying Issuer and
not reimbursed by Borrower on the date due as provided in
Section 2.11(a)
, or of any
reimbursement payment required to be refunded (or that Agent or Issuing Lender elects, based upon
the advice of counsel, to refund) to Borrower for any reason. Each Lender with a Revolver
Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the
Issuing Lender, an amount equal to its respective Pro Rata Share of each Letter of Credit
Disbursement pursuant to this
Section 2.11(b)
shall be absolute and unconditional and such
remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or
Default or the failure to satisfy any condition set forth in
Section 3
. If any such Lender
fails to make available to Agent the amount of such Lenders Pro Rata Share of a Letter of Credit
Disbursement as provided in this Section, such Lender shall be deemed to be a Defaulting Lender and
Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand
from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full.
(c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group and each
Underlying Issuer harmless from any damage, loss, cost, expense, or liability (other than Taxes,
which shall be governed by
Section 16
), and reasonable attorneys fees incurred by Issuing
Lender, any other member of the Lender Group, or any Underlying Issuer arising out of or in
connection with any Reimbursement Undertaking or any Letter of Credit;
provided
,
however
, that Borrower shall not be obligated hereunder to indemnify for any loss, cost,
expense, or liability that a court of competent jurisdiction finally determines to have resulted
from the gross negligence or willful misconduct of the Issuing Lender, any other member of the
Lender Group, or any Underlying Issuer. Borrower agrees to be bound by the Underlying Issuers
regulations and interpretations of any Letter of Credit or by Issuing Lenders interpretations of
any Reimbursement Undertaking even though this interpretation may be different from Borrowers own,
and Borrower understands and agrees that none of the Issuing Lender, any other member of the Lender
Group, or any Underlying Issuer shall be liable for any error, negligence, or mistake, whether of
omission or commission, in following Borrowers instructions or those contained in the Letter of
Credit or any modifications, amendments, or supplements thereto. Borrower understands that the
Reimbursement Undertakings may require Issuing Lender to indemnify the Underlying Issuer for
certain costs or liabilities arising out of claims by Borrower against such Underlying Issuer.
Borrower hereby agrees to indemnify, save, defend, and hold Issuing Lender and the other members of
the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability (other than Taxes, which shall be governed by
Section 16
) incurred by
them as a result of the Issuing Lenders indemnification of an Underlying Issuer;
provided
,
however
, that Borrower shall not be obligated hereunder to indemnify for any such loss,
cost, expense, or liability to the extent that it is caused by the gross negligence or willful
misconduct of the Issuing Lender or any other member of the Lender Group. Borrower hereby
acknowledges and agrees that none of the
Issuing Lender, any other member of the Lender Group, or any Underlying Issuer shall be
responsible for delays, errors, or omissions resulting from the malfunction of equipment in
connection with any Letter of Credit.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
14
(d) The obligation of Borrower to reimburse the Issuing Lender for each drawing under each
Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances, including the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or
another Loan Document,
(ii) the existence of any claim, counterclaim, setoff, defense or other right that Parent or
any of its Subsidiaries may have at any time against any beneficiary or any transferee of such
Letter of Credit (or any Person for whom any such beneficiary or any such transferee maybe acting),
the Issuing Lender or any other Person, whether in connection with this Agreement, the transactions
contemplated hereby or such Letter of Credit or any agreement or instrument relating thereto, or
any unrelated transaction,
(iii) any draft, demand, certificate or other document presented under such Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect, or any loss or delay in the transmission or otherwise of
any document required in order to make a drawing under such Letter of Credit,
(iv) any payment by the Issuing Lender under such Letter of Credit against presentation of a
draft or certificate that does not substantially or strictly comply with the terms of such Letter
of Credit (including, without limitation, any requirement that presentation be made at a particular
place or by a particular time of day), or any payment made by the Issuing Lender under such Letter
of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee
for the benefit of creditors, liquidator, receiver or other representative of or successor to any
beneficiary or any transferee of such Letter of Credit,
(v) any other circumstance or happening whatsoever, whether or not similar to any of the
foregoing, including any other circumstance that might otherwise constitute a defense available to,
or discharge of, Borrower or any of its Subsidiaries, or
(vi) the fact that any Event of Default shall have occurred and be continuing.
(e) Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing
Lender all instruments, documents, and other writings and property received by such Underlying
Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing
Lenders instructions with respect to all matters arising in connection with such Underlying Letter
of Credit and the related application.
(f) Borrower acknowledges and agrees that any and all issuance charges, usage charges,
commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of
Credit shall be Lender Group Expenses for purposes of this Agreement and shall be reimbursable
immediately by Borrower to Agent for the account of the Issuing Lender; it being acknowledged and
agreed by Borrower that, as of the Closing Date, the usage charge imposed by the Underlying Issuer
is .825% per annum times the undrawn amount of each Underlying Letter of Credit, that such usage
charge may be changed from time to time, and that the Underlying Issuer also imposes a schedule of
charges for amendments, extensions, drawings, and renewals.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
15
(g) If by reason of (i) any change after the Closing Date in any applicable law, treaty, rule,
or regulation or any change in the interpretation or application thereof by any Governmental
Authority, or (ii) compliance by the Issuing Lender, any other member of the Lender Group, or
Underlying Issuer with any direction, request, or requirement (irrespective of whether having the
force of law) of any Governmental Authority or monetary authority including, Regulation D of the
Federal Reserve Board as from time to time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect
of any Letter of Credit issued or caused to be issued hereunder or hereby, or
(ii) there shall be imposed on the Issuing Lender, any other member of the Lender Group, or
Underlying Issuer any other condition regarding any Letter of Credit or Reimbursement Undertaking,
and the result of the foregoing is to increase, directly or indirectly, the cost to the Issuing
Lender, any other member of the Lender Group, or an Underlying Issuer of issuing, making,
participating in, or maintaining any Reimbursement Undertaking or Letter of Credit or to reduce the
amount receivable in respect thereof, then, and in any such case, Agent may, at any time within a
reasonable period after the additional cost is incurred or the amount received is reduced, notify
Borrower, and Borrower shall pay within 30 days after demand therefor, such amounts as Agent may
specify to be necessary to compensate the Issuing Lender, any other member of the Lender Group, or
an Underlying Issuer for such additional cost or reduced receipt, together with interest on such
amount from the date of such demand until payment in full thereof at the rate then applicable to
Base Rate Loans hereunder;
provided
,
however
, that Borrower shall not be required
to provide any compensation pursuant to this
Section 2.11(g)
for any such amounts incurred
more than 180 days prior to the date on which the demand for payment of such amounts is first made
to Borrower;
provided
further
,
however
, that if an event or circumstance
giving rise to such amounts is retroactive, then the 180-day period referred to above shall be
extended to include the period of retroactive effect thereof. The determination by Agent of any
amount due pursuant to this
Section 2.11(g)
, as set forth in a certificate setting forth
the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable
error, be final and conclusive and binding on all of the parties hereto.
2.12
LIBOR Option
.
(a)
Interest and Interest Payment Dates.
In lieu of having interest charged at the rate based
upon the Base Rate, Borrower shall have the option, subject to
Section 2.12(b)
below (the
LIBOR Option
) to have interest on all or a portion of the Advances be charged (whether at
the time when made (unless otherwise provided herein), upon conversion from a Base Rate Loan to a
LIBOR Rate Loan, or upon continuation of a LIBOR Rate Loan as a LIBOR Rate Loan) at a rate of
interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on the earliest
of (i) the last day of the Interest Period applicable thereto; (ii) the date on which all or any
portion of the Obligations are accelerated pursuant to the terms hereof, or (iii) the date on which
this Agreement is terminated pursuant to the terms hereof. On the last day of each applicable
Interest Period, unless Borrower properly has exercised the LIBOR Option with respect thereto, the
interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of
interest then applicable to Base Rate Loans of the same type hereunder. At any time that an Event
of Default has occurred and is continuing, at the written election of the Required Lenders,
Borrower no longer shall have the option to request that Advances bear interest at a rate based
upon the LIBOR Rate.
(b)
LIBOR Election
.
(i) Borrower may, at any time and from time to time, so long as no Event of Default has
occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior to 11:00
a.m. (California time) at least 3 Business Days prior to the commencement of the proposed Interest
Period (the
LIBOR Deadline
). Notice of Borrowers election of the LIBOR Option for a
permitted portion
of the Advances and an Interest Period pursuant to this Section shall be made by delivery to
Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice
received by Agent before the LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice
received by Agent prior to 5:00 p.m. (California time) on the same day). Promptly upon its receipt
of each such LIBOR Notice, Agent shall provide a copy thereof to each of the affected Lenders.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
16
(ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In connection with each
LIBOR Rate Loan, Borrower shall indemnify, defend, and hold Agent and the Lenders harmless against
any loss, cost, or expense actually incurred by Agent or any Lender as a result of (A) the payment
of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (B) the conversion of any LIBOR Rate Loan
other than on the last day of the Interest Period applicable thereto, or (C) the failure to borrow,
convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered
pursuant hereto (such losses, costs, or expenses,
Funding Losses
). A certificate of
Agent or a Lender delivered to Borrower setting forth in reasonable detail any amount or amounts
that Agent or such Lender is entitled to receive pursuant to this
Section 2.12
shall be
conclusive absent manifest error. Borrower shall pay such amount to Agent or the Lender, as
applicable, within 30 days of the date of its receipt of such certificate.
(iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect at any given time.
Borrower only may exercise the LIBOR Option for proposed LIBOR Rate Loans of at
least
$1,000,000.
(c)
Conversion
. Borrower may convert LIBOR Rate Loans to Base Rate Loans at any time;
provided
,
however
, that in the event that LIBOR Rate Loans are converted or prepaid
on any date that is not the last day of the Interest Period applicable thereto, including as a
result of any automatic prepayment through the required application by Agent of proceeds of
Borrowers and its Subsidiaries Collections in accordance with
Section 2.4(b)
or for any
other reason, including early termination of the term of this Agreement or acceleration of all or
any portion of the Obligations pursuant to the terms hereof, Borrower shall indemnify, defend, and
hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in
accordance with
Section 2.12 (b)(ii)
.
(d)
Special Provisions Applicable to LIBOR Rate
.
(i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis
to take into account any additional or increased costs to such Lender of maintaining or obtaining
any eurodollar deposits or increased costs, in each case, due to changes in applicable law (other
than changes in laws relative to Taxes, which shall be governed by Section 16) occurring subsequent
to the commencement of the then applicable Interest Period, including changes in tax laws (except
(a) changes of general applicability in corporate income tax laws and (b) changes in the rate of
tax on the overall income of the Lender) and changes in the reserve requirements imposed by the
Board of Governors of the Federal Reserve System (or any successor), which additional or increased
costs would increase the cost of funding or maintaining loans bearing interest at the LIBOR Rate.
In any such event, the affected Lender shall give Borrower and Agent notice of such a determination
and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its
receipt of the notice from the affected Lender, Borrower may, by notice to such affected Lender
(y) require such Lender to furnish to Borrower a statement setting forth the basis for adjusting
such LIBOR Rate and the method for determining the amount of such adjustment, or (z) repay the
LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under
Section 2.12(b)(ii))
.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
17
(ii) In the event that any change in market conditions or any law, regulation, treaty, or
directive, or any change therein or in the interpretation or application thereof, shall at any time
after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for
such Lender to fund or maintain LIBOR Rate Loans or to continue such funding or maintaining, or to
determine or
charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed
circumstances to Agent and Borrower and Agent promptly shall transmit the notice to each other
Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date
specified in such Lenders notice shall be deemed to be the last day of the Interest Period of such
LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue
interest at the rate then applicable to Base Rate Loans, and (z) Borrower shall not be entitled to
elect the LIBOR Option until such Lender determines that it would no longer be unlawful or
impractical to do so.
(e)
No Requirement of Matched Funding.
Anything to the contrary contained herein
notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually
to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest
accrues at the LIBOR Rate.
2.13
Capital Requirements
.
(a) If, after the date hereof, any Lender determines that (i) the adoption of or change in any
law, rule, regulation or guideline regarding capital or reserve requirements for banks or bank
holding companies, or any change in the interpretation, implementation, or application thereof by
any Governmental Authority charged with the administration thereof, or (ii) compliance by such
Lender or its parent bank holding company with any guideline, request or directive of any such
entity regarding capital adequacy (whether or not having the force of law), has the effect of
reducing the return on such Lenders or such holding companys capital as a consequence of such
Lenders Revolver Commitments hereunder to a level below that which such Lender or such holding
company could have achieved but for such adoption, change, or compliance (taking into consideration
such Lenders or such holding companys then existing policies with respect to capital adequacy and
assuming the full utilization of such entitys capital) by any amount deemed by such Lender to be
material, then such Lender may notify Borrower and Agent thereof. Following receipt of such
notice, Borrower agrees to pay such Lender on demand the amount of such reduction of return of
capital as and when such reduction is determined, payable within 30 days after presentation by such
Lender of a statement in the amount and setting forth in reasonable detail such Lenders
calculation thereof and the assumptions upon which such calculation was based (which statement
shall be deemed true and correct absent manifest error); provided, however, that Borrower shall not
be required to compensate any Lender pursuant to this
Section 2.13(a)
for such reduction of
rate of return on capital incurred more than 90 days prior to the date that such Lender delivers
such statement. In determining such amount, such Lender may use any reasonable averaging and
attribution methods. Failure or delay on the part of any Lender to demand compensation pursuant to
this Section shall not constitute a waiver of such Lenders right to demand such compensation;
provided
that Borrower shall not be required to compensate a Lender pursuant to this
Section for any reductions in return incurred more than 180 days prior to the date that such Lender
notifies Borrower of such law, rule, regulation or guideline giving rise to such reductions and of
such Lenders intention to claim compensation therefor;
provided
further
that if
such claim arises by reason of the adoption of or change in any law, rule, regulation or guideline
that is retroactive, then the 180-day period referred to above shall be extended to include the
period of retroactive effect thereof.
(b) If any Lender requests additional or increased costs referred to in
Section
2.12(d)(i)
or amounts under
Section 2.13(a)
or sends a notice under
Section
2.12(d)(ii)
relative to changed circumstances (any such Lender, an
Affected Lender
),
then such Affected Lender shall use reasonable efforts to promptly designate a different one of its
lending offices or to assign its rights and obligations hereunder to another of its offices or
branches, if (i) in the reasonable judgment of such Affected Lender, such designation or assignment
would eliminate or reduce amounts payable pursuant to
Section 2.12(d)(i)
or
Section
2.13(a)
, as applicable, or would eliminate the illegality or impracticality of funding or
maintaining LIBOR Rate Loans and (ii) in the reasonable judgment of such Affected Lender, such
designation or assignment would not subject it to any material unreimbursed cost or expense and
would not otherwise be materially disadvantageous to it. Borrower agrees to pay all reasonable
out-of-pocket costs and expenses incurred by
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
18
such Affected Lender in connection with any such
designation or assignment. If, after such reasonable efforts, such Affected Lender does not so designate a different one of its lending
offices or assign its rights to another of its offices or branches so as to eliminate Borrowers
obligation to pay any future amounts to such Affected Lender pursuant to
Section 2.12(d)(i)
or
Section 2.13(a)
, as applicable, or to enable Borrower to obtain LIBOR Rate Loans, then
Borrower (without prejudice to any amounts then due to such Affected Lender under
Section
2.12(d)(i)
or
Section 2.13(a)
, as applicable) may, unless prior to the effective date
of any such assignment the Affected Lender withdraws its request for such additional amounts under
Section 2.12(d)(i)
or
Section 2.13(a)
, as applicable, or indicates that it is no
longer unlawful or impractical to fund or maintain LIBOR Rate Loans, seek a substitute Lender
reasonably acceptable to Agent to purchase the Obligations owed to such Affected Lender and such
Affected Lenders Revolver Commitments hereunder (a
Replacement Lender
), and if such
Replacement Lender agrees to such purchase, such Affected Lender shall assign to the Replacement
Lender its Obligations and Revolver Commitments, pursuant to an Assignment and Acceptance
Agreement, and upon such purchase by the Replacement Lender, such Replacement Lender shall be
deemed to be a Lender for purposes of this Agreement and such Affected Lender shall cease to be a
Lender for purposes of this Agreement.
3. CONDITIONS; TERM OF AGREEMENT
.
3.1
Conditions Precedent to the Initial Extension of Credit
.
The obligation of each
Lender to make its initial extension of credit provided for hereunder is subject to the
fulfillment, to the satisfaction of Agent and each Lender, of each of the conditions precedent set
forth on
Schedule 3.1
(the making of such initial extension of credit by a Lender being
conclusively deemed to be its satisfaction or waiver of the conditions precedent ).
3.2
Conditions Precedent to all Extensions of Credit
.
The obligation of the Lender
Group (or any member thereof) to make any Advances hereunder (or to extend any other credit
hereunder) at any time shall be subject to the following conditions precedent:
(a) the representations and warranties of Parent or its Subsidiaries contained in this
Agreement or in the other Loan Documents shall be true and correct in all material respects (except
that such materiality qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof) on and as of the date of such
extension of credit, as though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date); and
(b) no Default or Event of Default shall have occurred and be continuing on the date of such
extension of credit, nor shall either result from the making thereof.
3.3
Maturity
.
This Agreement shall continue in full force and effect for a term
ending on August 1, 2014 (the
Maturity Date
). The foregoing notwithstanding, the Lender
Group, upon the election of the Required Lenders, shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.4
Effect of Maturity
.
On the Maturity Date, all commitments of the Lender Group to
provide additional credit hereunder shall automatically be terminated and all of the Obligations
immediately shall become due and payable without notice or demand and Borrower shall be required to
repay all of the Obligations in full. No termination of the obligations of the Lender Group (other
than payment in full of the Obligations and termination of the Revolver Commitments) shall relieve
or discharge any Loan Party of its duties, obligations, or covenants hereunder or under any other
Loan Document and Agents Liens in the Collateral shall continue to secure the Obligations and
shall remain in effect until all Obligations have been paid in full and the Revolver Commitments
have been terminated. When all of the Obligations have been paid in full and the Lender Groups
obligations to provide additional credit under the Loan Documents have been terminated irrevocably,
Agent will, at Borrowers sole expense, execute and deliver any termination statements, lien
releases, discharges of security interests, and other similar discharge or release documents
(and, if applicable, in recordable form) as are reasonably necessary to release, as of record,
Agents Liens and all notices of security interests and liens previously filed by Agent.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
19
3.5
Early Termination by Borrower
.
Borrower has the option, at any time upon 10
Business Days (or a shorter time if agreed by Agent) prior written notice to Agent, to terminate
this Agreement and terminate the Revolver Commitments hereunder by repaying to Agent all of the
Obligations in full.
3.6
Conditions Subsequent
.
The obligation of the Lender Group (or any member thereof)
to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment,
on or before the date applicable thereto, of the conditions subsequent set forth on Schedule 3.6
(the failure by Borrower to so perform or cause to be performed such conditions subsequent as and
when required by the terms thereof, shall constitute an Event of Default).
4. REPRESENTATIONS AND WARRANTIES
.
In order to induce the Lender Group to enter into this Agreement, each of Parent and Borrower,
jointly and severally, makes the following representations and warranties to the Lender Group which
shall be true, correct, and complete, in all material respects (except that such materiality
qualifier shall not be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof), as of the Closing Date, and shall be true,
correct, and complete, in all material respects (except that such materiality qualifier shall not
be applicable to any representations and warranties that already are qualified or modified by
materiality in the text thereof), as of the date of the making of each Advance (or other extension
of credit) made thereafter, as though made on and as of the date of such Advance (or other
extension of credit) (except to the extent that such representations and warranties relate solely
to an earlier date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
4.1
Due Organization and Qualification; Subsidiaries
.
(a) Parent and each of its Subsidiaries (i) is duly organized or incorporated and existing and
in good standing under the laws of the jurisdiction of its organization or incorporation, (ii) is
qualified to do business in any state where the failure to be so qualified could reasonably be
expected to result in a Material Adverse Change, and (iii) has all requisite power and authority to
own and operate its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Loan Documents to which it is a party and to carry out the
transactions contemplated thereby.
(b) Set forth on
Schedule 4.1(b)
is a complete and accurate description, as of the
Closing Date, of the authorized capital Stock of Parent, by class, and of the number of shares of
each such class that are issued and outstanding. Other than as described on
Schedule
4.1(b)
, as of the Closing Date, there are no subscriptions, options, warrants, or calls
relating to any shares of Parents capital Stock, including any right of conversion or exchange
under any outstanding security or other instrument, except for options, warrants, and restricted
stock granted to employees, management, and directors in the ordinary course of Parents business
as in effect on the Closing Date so long as the granting of such options, warrants or restricted
stock (x) does not result in a Change of Control and (y) is not otherwise prohibited hereunder.
Parent is not subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital Stock or any security convertible into or exchangeable
for any of its capital Stock, except for certain cash payments with respect to the warrants issued
on March 22, 2007, to the investors who purchased the Stock issued by Parent on or about the same
date (the
2007 Warrants
), in connection with a Major Transaction (as such term is defined
in the 2007 Warrants). The foregoing sentence is not intended as the Lender Groups consent to any
cash payments with respect to the 2007 Warrants.
(c) Set forth on
Schedule 4.1(c)
(as such Schedule may be updated from time to time to
reflect changes resulting from transactions permitted under this Agreement), is a complete and
accurate list of the Parents direct and indirect Subsidiaries, showing: (i) the number of shares
of each class of common
and preferred Stock authorized for each of such Subsidiaries, and (ii) the number and the
percentage of the outstanding shares of each such class owned directly or indirectly by Parent.
All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully
paid and non-assessable.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
20
(d) Except as set forth on
Schedule 4.1(c)
, there are no subscriptions, options,
warrants, or calls relating to any shares of Parents Subsidiaries capital Stock, including any
right of conversion or exchange under any outstanding security or other instrument. Except as set
forth in
Section 6.9(a)
, neither Parent nor any of its Subsidiaries is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of
Parents Subsidiaries capital Stock or any security convertible into or exchangeable for any such
capital Stock.
4.2
Due Authorization; No Conflict
.
(a) As to each Loan Party, the execution, delivery, and performance by such Loan Party of the
Loan Documents to which it is a party have been duly authorized by all necessary action on the part
of such Loan Party.
(b) As to each Loan Party, the execution, delivery, and performance by such Loan Party of the
Loan Documents to which each, individually or collectively, is a party do not and will not (i)
violate any material provision of any foreign or domestic federal, state, or local law or
regulation applicable to any Loan Party or its Subsidiaries, the Governing Documents of any Loan
Party or its Subsidiaries, or any order, judgment, or decree of any court or other Governmental
Authority binding on any Loan Party or its Subsidiaries, (ii) conflict with, result in a breach of,
or constitute (with due notice or lapse of time or both) a default under any Material Contract of
any Loan Party or its Subsidiaries except to the extent that any such conflict, breach or default
could not individually or in the aggregate reasonably be expected to have a Material Adverse
Change, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever
upon any assets of any Loan Party, other than Permitted Liens, or (iv) require any approval of any
Loan Partys interestholders or any approval or consent of any Person under any Material Contract
of any Loan Party, other than consents or approvals that have been obtained and that are still in
force and effect and except, in the case of Material Contracts, for consents or approvals, the
failure to obtain which could not individually or in the aggregate reasonably be expected to cause
a Material Adverse Change.
4.3
Governmental Consents
.
The execution, delivery, and performance by each Loan
Party of the Loan Documents to which such Loan Party is a party and the consummation of the
transactions contemplated by the Loan Documents do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any Governmental Authority,
other than registrations, consents, approvals, notices, or other actions that have been obtained
and that are still in force and effect and except for filings and recordings with respect to the
Collateral to be made, or otherwise delivered to Agent for filing or recordation, as of the Closing
Date.
4.4
Binding Obligations; Perfected Liens
.
(a) Each Loan Document has been duly executed and delivered by each Loan Party that is a party
thereto and is the legally valid and binding obligation of such Loan Party, enforceable against
such Loan Party in accordance with its respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors rights generally.
(b) Agents Liens are validly created, perfected (other than (i) in respect of motor vehicles
that are subject to a certificate of title and as to which Agent has not caused its Lien to be
noted on the applicable certificate of title and (ii) any Deposit Accounts and Securities Accounts
not subject to a Control Agreement as permitted by
Section 6.11
, and subject only to the
filing of financing statements and
other foreign perfection filings, in each case, in the appropriate filing offices), and first
priority Liens, subject only to Permitted Liens.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
21
4.5
Title to Assets; No Encumbrances
.
Each of Parent and its Subsidiaries has (a)
good, sufficient and legal title to (in the case of fee interests or freehold interest, as
applicable, in Real Property), (b) valid leasehold interests in (in the case of leasehold interests
in real or personal property), and (c) good and marketable title to (in the case of all other
personal property), all of their respective assets reflected in their most recent financial
statements delivered pursuant to
Section 5.1
, in each case except for assets disposed of
since the date of such financial statements to the extent permitted hereby. All of such assets are
free and clear of Liens except for Permitted Liens.
4.6
Jurisdiction of Organization; Location of Chief Executive Office; Organizational
Identification Number; Commercial Tort Claims
.
(a) The name of (within the meaning of Section 9-503 of the Code) and jurisdiction of
organization of Parent and each of its Subsidiaries is set forth on
Schedule 4.6(a)
(as
such Schedule may be updated from time to time to reflect changes resulting from transactions
permitted under this Agreement).
(b) The chief executive office of Parent and each of its Subsidiaries is located at the
address indicated on
Schedule 4.6(b)
(as such Schedule may be updated from time to time to
reflect changes resulting from transactions permitted under this Agreement).
(c) Parents and each of its Subsidiaries tax identification numbers and organizational
identification numbers, if any, are identified on
Schedule 4.6(c)
(as such Schedule may be
updated from time to time to reflect changes resulting from transactions permitted under this
Agreement).
(d) As of the Closing Date, neither Parent nor any of its Subsidiaries holds any commercial
tort claims having a value in excess of $100,000, except as set forth on
Schedule 4.6(d)
.
4.7
Litigation
.
(a) Except as disclosed on
Schedule 4.7(a)
, there are no actions, suits, or
proceedings pending or, to the knowledge of Parent, after due inquiry, threatened in writing
against Parent or any of its Subsidiaries that either individually or in the aggregate could
reasonably be expected to result in a Material Adverse Change.
(b)
Schedule 4.7(b)
sets forth a complete and accurate description, with respect to
each of the actions, suits, or proceedings that, as of the Closing Date, is pending or, to the
knowledge of Parent, after due inquiry, threatened against Parent or any of its Subsidiaries, that
individually if determined adversely to Parent or any of its Subsidiaries could reasonably be
expected to result in a liability in excess of $1,000,000, of (i) the parties to such actions,
suits, or proceedings, (ii) the nature of the dispute that is the subject of such actions, suits,
or proceedings, (iii) the status, as of the Closing Date, with respect to such actions, suits, or
proceedings, and (iv) whether any liability of Parents and its Subsidiaries in connection with
such actions, suits, or proceedings is covered by insurance.
4.8
Compliance with Laws
.
Neither Parent nor any of its Subsidiaries (a) is in
violation of any applicable laws, rules, regulations, executive orders, or codes (including
Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Change, or (b) is subject to or in default with respect to any final
judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Change.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
22
4.9
No Material Adverse Change
.
All financial statements relating to Parent and its
Subsidiaries that have been delivered by Parent to Agent in connection with the execution hereof at
any time after the Closing Date have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to year-end audit
adjustments) and present fairly in all material respects, Parents and its Subsidiaries
consolidated financial condition as of the date thereof and results of operations for the period
then ended. Since April 2, 2011, except for a goodwill impairment charge recorded by parent in
June 2011 which has been disclosed by Parent to Agent prior to the Closing Date, no event,
circumstance, or change has occurred that has or could reasonably be expected to result in a
Material Adverse Change with respect to the Parent and its Subsidiaries.
4.10
Fraudulent Transfer
.
(a) Each Loan Party is Solvent.
(b) No transfer of property is being made by any Loan Party and no obligation is being
incurred by any Loan Party in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either present or future
creditors of such Loan Party.
4.11
Employee Benefits
.
Except as set forth on
Schedule 4.11
, neither Parent
nor any of its Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to any
Benefit Plan.
4.12
Environmental Condition
.
Except as set forth on
Schedule 4.12
, (a) to
Parents knowledge, after due inquiry, neither Parent nor any of its Subsidiaries properties or
assets has ever been used by Parent, its Subsidiaries, or by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials,
where such disposal, production, storage, handling, treatment, release or transport was in
violation, in any material respect, of any applicable Environmental Law and expected to involve
liabilities in an aggregate amount in excess of $1,000,000, (b) to Parents knowledge, neither
Parent nor any of its Subsidiaries properties or assets has ever been designated or identified in
any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site
which designation or identification could be expected to result in liabilities in an aggregate
amount in excess of $1,000,000, (c) neither Parent nor any of its Subsidiaries has received notice
that a Lien arising under any Environmental Law involving an aggregate amount in excess of
$1,000,000 has attached to any revenues or to any Real Property owned or operated by Parent or its
Subsidiaries, and (d) neither Parent nor any of its Subsidiaries nor any of their respective
facilities or operations is subject to any outstanding written order, consent decree, or settlement
agreement with any Person relating to any Environmental Law or Environmental Liability that,
individually or in the aggregate, could reasonably be expected to result in a Material Adverse
Change.
4.13
Intellectual Property
.
To the knowledge of Parent and Borrower, each of Parent
and its Subsidiaries own, or hold licenses in, all trademarks, trade names, copyrights, patents,
and licenses that are necessary to the conduct of its business as currently conducted, and attached
hereto as
Schedule 4.13
(as updated from time to time) is a true, correct, and complete
listing of all material trademarks, trade names, copyrights, patents, and licenses as to which
Parent or one of its Subsidiaries is the owner or is an exclusive licensee;
provided
,
however
, that Borrower may amend
Schedule 4.13
to add additional material
intellectual property so long as such amendment occurs by written notice to Agent at the time that
Parent provides its Compliance Certificate pursuant to
Section 5.1
.
4.14
Leases
.
Each of Parent and its Subsidiaries enjoy peaceful and undisturbed
possession under all leases material to their business and to which they are parties or under which
they are operating, and, subject to Permitted Protests, all of such material leases are valid and
subsisting and no material default by the Parent or its Subsidiaries exists under any of them.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
23
4.15
Deposit Accounts and Securities Accounts
.
Set forth on
Schedule 4.15
(as
updated pursuant to the provisions of the Security Agreement from time to time) is a listing of all
of Parents and its Subsidiaries Deposit Accounts and Securities Accounts, including, with respect
to each bank or securities intermediary (a) the name and address of such Person, and (b) the
account numbers of the Deposit Accounts or Securities Accounts maintained with such Person.
4.16
Complete Disclosure
.
All factual information taken as a whole (other than
forward-looking information and projections and information of a general economic nature and
general information about Parents industry) furnished by or on behalf of Parent or its
Subsidiaries in writing to Agent or any Lender (including all information contained in the
Schedules hereto or in the other Loan Documents) for purposes of or in connection with this
Agreement or the other Loan Documents, and all other such factual information taken as a whole
(other than forward-looking information and projections and information of a general economic
nature and general information about Parents industry) hereafter furnished by or on behalf of
Parent or its Subsidiaries in writing to Agent or any Lender will be, true and accurate, in all
material respects, on the date as of which such information is dated or certified and not
incomplete by omitting to state any fact necessary to make such information (taken as a whole) not
misleading in any material respect at such time in light of the circumstances under which such
information was provided. The Projections delivered to Agent on June 30, 2011 represent, and as of
the date on which any other Projections are delivered to Agent, such additional Projections
represent, Parents good faith estimate, on the date such Projections are delivered, of the Parent
and its Subsidiaries future performance for the periods covered thereby based upon assumptions
believed by Parent to be reasonable at the time of the delivery thereof to Agent (it being
understood that such Projections are subject to uncertainties and contingencies, many of which are
beyond the control of Parent and its Subsidiaries, that no assurances can be given that such
Projections will be realized, and that actual results may differ in a material manner from such
Projections).
4.17
Material Contracts
.
Set forth on
Schedule 4.17
(as such Schedule may be
updated from time to time in accordance herewith) is a reasonably detailed description of the
Material Contracts of Parent and its Subsidiaries as of the most recent date on which Parent
provided its Compliance Certificate pursuant to
Section 5.1
;
provided
,
however
, that Borrower may amend
Schedule 4.17
to add additional Material Contracts
so long as such amendment occurs by written notice to Agent on the date that Parent provides its
Compliance Certificate. Except for matters which, either individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Change, each Material Contract (other
than those that have expired at the end of their normal terms) (a) is in full force and effect and
is binding upon and enforceable against Parent or its Subsidiary and, to Parent and Borrowers
knowledge, after due inquiry, each other Person that is a party thereto in accordance with its
terms, (b) has not been otherwise amended or modified (other than amendments or modifications
permitted by
Section 6.7(b))
, and (c) is not in default due to the action or inaction of
Parent or its Subsidiary.
4.18
Patriot Act
.
To the extent applicable, each Loan Party is in compliance, in all
material respects, with the (a) Trading with the Enemy Act, as amended, and each of the foreign
assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V,
as amended) and any other enabling legislation or executive order relating thereto, and (b) Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism (USA Patriot Act of 2001) (the
Patriot Act
). No part of the proceeds of the
loans made hereunder will be used by Parent or any of its Affiliates, directly or indirectly, for
any payments to any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation of the United
States Foreign Corrupt Practices Act of 1977, as amended.
4.19
Indebtedness
.
Set forth on
Schedule 4.19
is a true and complete list of
all Indebtedness of Parent and each of its Subsidiaries outstanding immediately prior to the
Closing Date that is to remain outstanding immediately after giving effect to the closing hereunder
on the Closing Date and such Schedule accurately sets forth the aggregate principal amount of such
Indebtedness as of the Closing Date.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
24
4.20
Payment of Taxes
.
Except as otherwise permitted under
Section 5.5
, all
tax returns and reports of Parent and its Subsidiaries required to be filed by any of them have
been timely filed, and all taxes shown on such tax returns to be due and payable and all
assessments, fees and other governmental charges upon Parent and its Subsidiaries and upon their
respective assets, income, businesses and franchises that are due and payable have been paid when
due and payable. Parent and each of its Subsidiaries have made adequate provision in accordance
with GAAP for all taxes not yet due and payable. Neither Parent nor Borrower knows of any proposed
tax assessment against Parent or any of its Subsidiaries that is not being actively contested by
Parent or such Subsidiary diligently, in good faith, and by appropriate proceedings;
provided
such reserves or other appropriate provisions, if any, as shall be required in
conformity with GAAP shall have been made or provided therefor.
4.21
Margin Stock
.
Neither Parent nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of extending credit for the purpose of
purchasing or carrying any Margin Stock. No part of the proceeds of the loans made to Borrower
will be used to purchase or carry any such Margin Stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock or for any purpose that violates the
provisions of Regulation T, U or X of the Board of Governors of the United States Federal Reserve.
4.22
Governmental Regulation
.
Neither Parent nor any of its Subsidiaries is subject
to regulation under the Federal Power Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur Indebtedness or which
may otherwise render all or any portion of the Obligations unenforceable. Neither Parent nor any
of its Subsidiaries is a registered investment company or a company controlled by a registered
investment company or a principal underwriter of a registered investment company as such terms
are defined in the Investment Company Act of 1940.
4.23
OFAC
.
Neither Parent nor any of its Subsidiaries is in violation of any of the
country or list based economic and trade sanctions administered and enforced by OFAC. Neither
Parent nor any of its Subsidiaries (a) is a Sanctioned Person or a Sanctioned Entity, (b) has its
assets located in Sanctioned Entities, or (c) derives revenues from investments in, or transactions
with Sanctioned Persons or Sanctioned Entities. No proceeds of any loan made hereunder will be
used to fund any operations in, finance any investments or activities in, or make any payments to,
a Sanctioned Person or a Sanctioned Entity.
4.24
Employee and Labor Matters
.
There is (i) no unfair labor practice complaint
pending or, to the knowledge of Parent and Borrower, threatened against Parent or its Subsidiaries
before any Governmental Authority and no grievance or arbitration proceeding pending or threatened
against Parent or its Subsidiaries which arises out of or under any collective bargaining agreement
and that could reasonably be expected to result in a material liability, (ii) no strike, labor
dispute, slowdown, stoppage or similar action or grievance pending or threatened in writing against
Parent or its Subsidiaries that could reasonably be expected to result in a material liability, or
(iii) to the knowledge of Parent or Borrower, after due inquiry, no union representation question
existing with respect to the employees of Parent or its Subsidiaries and no union organizing
activity taking place with respect to any of the employees of Parent or its Subsidiaries. None of
Parent or its Subsidiaries has incurred any liability or obligation under the Worker Adjustment and
Retraining Notification Act or similar state law, which remains unpaid or unsatisfied. The hours
worked and payments made to employees of Parent or its Subsidiaries have not been in violation of
the Fair Labor Standards Act or any other applicable legal requirements, except to the extent such
violations could not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Change. All material payments due from Parent or its Subsidiaries on account of
wages and employee health and welfare insurance and other benefits have been paid or accrued as a
liability on the books of Parent, except where the failure to do so could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Change.
4.25
Reserved
.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
25
4.26
Eligible Accounts
.
As to each Account that is identified by Borrower as an
Eligible Account in a Borrowing Base Certificate submitted to Agent, such Account is (a) a bona
fide existing payment obligation of the applicable Account Debtor created by the sale and delivery
of Inventory or the rendition of services to such Account Debtor in the ordinary course of
Borrowers business, (b) at the time so identified, owed to Borrower without any known defenses,
disputes, offsets, counterclaims, or rights of return or cancellation, and (c) at the time so
identified, not excluded as ineligible by virtue of one or more of the excluding criteria (other
than Agent-discretionary criteria) set forth in the definition of Eligible Accounts.
4.27
Inventory
. Inventory of Loan Parties is, in all material respects, of good and
merchantable quality, free from known defects.
4.28
Equipment
. Each material item of Equipment of Loan Parties is used or held for
use in their business and is, in all material respects, in good working order, ordinary wear and
tear and damage by casualty excepted.
4.29
Locations of Inventory and Equipment
.
Except as disclosed on
Schedule
4.29
, the Inventory and Equipment (other than vehicles or Equipment out for repair and
Inventory on consignment subject to the limitations set forth in
Section 6.16
) of Loan
Parties with an aggregate fair market value in excess of $100,000 at any one location or $250,000
in the aggregate for all such locations are not stored with a bailee, warehouseman, or similar
party and are located only at, or in-transit between or to, the locations identified on
Schedule 4.29
(as such Schedule may be updated pursuant to
Section 5.15
).
4.30
Inventory Records
.
Each Loan Party keeps correct and accurate records itemizing
and describing the type, quality, and quantity of its and its Subsidiaries Inventory and the book
value thereof.
4.31
Inactive Subsidiaries
. Each of the Inactive Subsidiaries is inactive and does
not conduct any business operations, except as may be related to the dissolution of such Inactive
Subsidiary or the consolidation or merger of such Inactive Subsidiary with one or more Loan Parties
as permitted under the terms of this Agreement.
4.32
Registration of UK establishment
. No Loan Party is an overseas company that is
registered within the meaning of Part 3 of The Overseas Companies (Execution of Documents and
Registration of Charges) Regulations 2009 (England & Wales legislation).
4.33
Pensions
. The Borrower is not, nor has it at any time been:
(a) an employer (for purposes of sections 38 to 51 of the Pensions Act 2004 (England & Wales
legislation)) of an occupational pension scheme which is not a money purchase scheme (both terms as
defined in the Pensions Schemes Act 1993 (England & Wales legislation)); and
(b) connected with or an associate (as those terms are used in sections 38 and 43 of the
Pensions Act 2004 (England & Wales legislation)) of such an employer.
4.34
No Filing or Stamp Taxes
. Under the law of each Loan Partys jurisdiction of
incorporation it is not necessary that any Loan Documents be filed, recorded or enrolled with any
court or other authority in that jurisdiction or that any stamp, registration or similar tax be
paid on or in relation to the Loan Documents or the transactions contemplated by the Loan
Documents, except:
(a) registration of particulars of the UK Collateral Documents at the Companies Registration
Office in England and Wales in accordance with Part 25 (
Company Charges
) of the Companies Act 2006
(England & Wales legislation) or any regulations relating to the registration of charges made
under, or applying the provisions of, the Companies Act 2006 (England & Wales legislation) and
payment of associated fees;
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
26
(b) registration of particulars of the UK Collateral Documents (to the extent that they
include a lien over trade marks and/or patents) at the Trade Marks Registry at the Patent Office in
England and Wales and payment of associated fees;
(c) registration of the UK Collateral Documents (to the extent that include a lien over Real
Property) at the Land Registry or Land Charges Registry in England and Wales and payment of
associated fees;
which registrations, filings, taxes and fees (if not already made and paid at the date of this
Agreement) will be made and paid promptly after the date of the relevant Loan Document.
5.
AFFIRMATIVE COVENANTS
.
Each of Parent and Borrower covenants and agrees that, until termination of all of the
Revolver Commitments and payment in full of the Obligations, Parent shall and shall cause each of
their Subsidiaries to comply with each of the following:
5.1
Financial Statements, Reports, Certificates
.
Deliver to Agent, with copies to
each Lender, each of the financial statements, reports, and other items set forth on
Schedule
5.1
no later than the times specified therein. In addition, Parent agrees that none of its
Subsidiaries will have a fiscal year different from that of Parent. In addition, Parent agrees to
maintain a system of accounting that enables Parent to produce financial statements in accordance
with GAAP.
5.2
Collateral Reporting
.
Provide Agent (and if so requested by Agent, with copies
for each Lender) with each of the reports set forth on
Schedule 5.2
at the times specified
therein. In addition, Borrower agrees to use commercially reasonable efforts in cooperation with
Agent to facilitate and implement a system of electronic collateral reporting in order to provide
electronic reporting of each of the items set forth on such Schedule.
5.3
Existence
.
Except as otherwise permitted under
Section 6.3
or
Section
6.4
or in connection with a Permitted Restructuring Transaction, at all times maintain and
preserve in full force and effect its existence (including being in good standing in its
jurisdiction of organization) and all rights and franchises, licenses and permits material to its
business.
5.4
Maintenance of Properties
. Maintain and preserve all of its assets that are
necessary or useful in the proper conduct of its business in good working order and condition,
ordinary wear, tear, and casualty excepted, and Permitted Dispositions excepted, and comply with
the material provisions of all material leases to which it is a party as lessee, so as to prevent
the loss or forfeiture thereof, unless such provisions are the subject of a Permitted Protest.
5.5
Taxes
. Cause all assessments and taxes imposed, levied, or assessed against
Parent or its Subsidiaries, or any of their respective assets or in respect of any of its income,
businesses, or franchises to be paid in full, before delinquency or before the expiration of any
extension period, except to the extent that the validity of such assessment or tax shall be the
subject of a Permitted Protest and so long as, in the case of an assessment or tax that has or may
become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay
the sale of any portion of the Collateral to satisfy such assessment or tax.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
27
5.6
Insurance
.
(a) At Borrowers expense, maintain insurance respecting each of Parents and its
Subsidiaries assets wherever located, covering loss or damage by fire, theft, explosion, and all
other hazards and risks as ordinarily are insured against by other Persons engaged in the same or
similar businesses. Parent and its Subsidiaries also shall maintain (with respect to each of Parent
and its Subsidiaries) business
interruption, general liability, product liability insurance, directors and officers
liability insurance, fiduciary liability insurance, and employment practices liability insurance,
as well as insurance against larceny, embezzlement, and criminal misappropriation. All such
policies of insurance shall be with responsible and reputable insurance companies acceptable to
Agent and in such amounts as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and located and in any event in amount, adequacy
and scope reasonably satisfactory to Agent. All property insurance policies covering the Collateral
are to be made payable to Agent for the benefit of Agent and the Lenders, as their interests may
appear, in case of loss, pursuant to a standard loss payable endorsement with a standard non
contributory lender or secured party clause and are to contain such other provisions as Agent
may reasonably require to fully protect the Lenders interest in the Collateral and to any payments
to be made under such policies. All certificates of property and general liability insurance are
to be delivered to Agent, with the loss payable (but only in respect of Collateral) and additional
insured endorsements in favor of Agent and shall provide for not less than 30 days (10 days in the
case of non-payment) prior written notice to Agent of the exercise of any right of cancellation.
If Parent and its Subsidiaries fail to maintain such insurance, Agent may arrange for such
insurance, but at Borrowers expense and without any responsibility on Agents part for obtaining
the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the
collection of claims. Borrower shall give Agent prompt notice of any loss exceeding $250,000
covered by its casualty or business interruption insurance. Upon the occurrence and during the
continuance of an Event of Default, Agent shall have the sole right to file claims under any
property and general liability insurance policies in respect of the Collateral, to receive, receipt
and give acquittance for any payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims under any such insurance
policies.
(b) Any monies received as payment for any loss under any insurance policy mentioned above
(other than liability insurance policies or casualty policies respecting assets that are not
Collateral) or as payment of any award or compensation for condemnation or taking by eminent domain
with respect to Collateral, shall be paid over to Agent to be applied at the option of the Required
Lenders either to the prepayment of the Obligations (provided that any such prepayment shall not
result in a permanent reduction of the Commitments) or to be disbursed to Borrower under staged
payment terms reasonably satisfactory to the Required Lenders for application to the cost of
repairs, replacements, or restorations; provided, however, that, with respect to any such monies in
an aggregate amount during any 12 consecutive month period not in excess of $1,000,000, so long as
(A) no Default or Event of Default shall have occurred and is continuing, (B) Borrower shall have
given Agent prior written notice of Parents or its respective Subsidiaries intention to apply
such monies to the cost of repair, replacement, or restoration of the property which is the subject
of the loss, destruction, or taking by condemnation, (C) the monies are held in Borrowers Deposit
Account subject to a Control Agreement, and (D) Parent or its Subsidiaries complete such repairs,
replacements, or restorations within 180 days after the initial receipt of such monies, Parent or
such Subsidiaries shall have the option to apply such monies to the cost of repair, replacement, or
restoration of the property which is the subject of the loss, destruction, or taking by
condemnation unless and to the extent that such applicable period shall have expired or an Event of
Default shall have occurred without such repair, replacement, or restoration being made, in which
case, any amounts remaining in the cash collateral account shall be applied to the Obligations in
accordance with Section 2.4(b)(ii).
5.7
Inspection
. Permit Agent and each of its duly authorized representatives or
agents to visit any of its properties and inspect any of its assets or books and records, to
conduct appraisals and valuations, to examine and make copies of its books and records, and to
discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers
and employees at such reasonable times and intervals as Agent may designate and, so long as no
Default or Event of Default exists, with reasonable prior notice to Borrower.
5.8
Compliance with Laws
. Comply with the requirements of all applicable laws, rules,
regulations, and orders of any Governmental Authority, other than laws, rules, regulations, and
orders the non-
compliance with which, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Change.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
28
5.9
Environmental
.
(a) Keep any property either owned or operated by Parent or its Subsidiaries free of any
Environmental Liens involving an aggregate amount in excess of $1,000,000 or post bonds or other
financial assurances sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens,
(b) Comply, in all material respects, with Environmental Laws and provide to Agent
documentation of such compliance which Agent reasonably requests, where the failure to comply could
be expected to involve potential liabilities in excess of $1,000,000 in the aggregate,
(c) Promptly notify Agent of any release of which Borrower has knowledge of a Hazardous
Material in any reportable quantity from or onto property owned or operated by Parent or its
Subsidiaries and take any Remedial Actions required to abate said release or otherwise to come into
compliance, in all material respects, with applicable Environmental Law, and
(d) Promptly, but in any event within 5 Business Days of its receipt thereof, provide Agent
with written notice of any of the following: (i) notice that an Environmental Lien involving an
aggregate amount in excess of $1,000,000 has been filed against any of the real or personal
property of Parent or its Subsidiaries, (ii) commencement of any Environmental Action or written
notice that an Environmental Action will be filed against Parent or its Subsidiaries which could
reasonably be expected to involve potential liabilities in excess of $1,000,000 in the aggregate,
and (iii) written notice of a material violation, citation, or other administrative order from a
Governmental Authority.
5.10
Disclosure Updates
. Promptly and in no event later than 5 Business Days after
obtaining knowledge thereof, notify Agent if any written information, exhibit, or report furnished
to Agent or the Lenders contained, at the time it was furnished, any untrue statement of a material
fact or omitted to state any material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made. The foregoing to the contrary
notwithstanding, any notification pursuant to the foregoing provision will not cure or remedy the
effect of the prior untrue statement of a material fact or omission of any material fact nor shall
any such notification have the effect of amending or modifying this Agreement or any of the
Schedules hereto.
5.11
Formation of Subsidiaries
. At the time that any Loan Party forms any direct or
indirect Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date, such Loan
Party shall (a) within 30 days of such formation or acquisition (90 days with respect to such
formation or acquisition in connection with a Permitted Acquisition or in any event such later date
as permitted by Agent in its sole discretion) cause any such new Subsidiary to provide to Agent a
joinder to the Guaranty and the Security Agreement, together with such other security documents
(including mortgages with respect to any Real Property owned in fee of such new Subsidiary with a
fair market value of at least $500,000), (or its equivalent in any other currency), as well as
appropriate financing statements (and with respect to all property subject to a mortgage, fixture
filings), all in form and substance reasonably satisfactory to Agent (including being sufficient to
grant Agent a first priority Lien (subject to Permitted Liens) in and to the assets of such newly
formed or acquired Subsidiary);
provided
that the Guaranty, the Security Agreement, and
such other security documents shall not be required to be provided to Agent with respect to any
Subsidiary of Parent if such Subsidiary is organized in any jurisdiction other than the United
States of America (or a state thereof) or the United Kingdom or perfecting the security interests
created thereby are unreasonably excessive (as determined by Agent in consultation with Borrower)
in relation to the benefits of Agent and the Lenders of the security or guarantee afforded thereby,
(b) within 30 days of such formation or acquisition (90 days with respect to such formation or
acquisition in connection with a Permitted Acquisition or in any event such later date as permitted
by Agent in its sole discretion)
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
29
provide to Agent a pledge agreement (or an addendum to the
Security Agreement) and appropriate certificates and powers or financing statements, pledging all of
the direct or beneficial ownership interest in such new Subsidiary reasonably satisfactory to
Agent;
provided
that only 65% of the total outstanding voting Stock of any first tier
Subsidiary of Parent or other Loan Party that is a CFC (and none of the Stock of any Subsidiary of
such CFC) shall be required to be pledged if pledging a greater amount would result in adverse tax
consequences or the costs to the Loan Parties of providing such pledge or perfecting the security
interests created thereby are unreasonably excessive (as determined by Agent in consultation with
Borrower) in relation to the benefits of Agent and the Lenders of the security or guarantee
afforded thereby (which pledge, if reasonably requested by Agent, shall be governed by the laws of
the jurisdiction of such Subsidiary), and (c) within 30 days of such formation or acquisition (90
days with respect to such formation or acquisition in connection with a Permitted Acquisition or in
any event such later date as permitted by Agent in its sole discretion) provide to Agent all other
documentation, including one or more opinions of counsel reasonably satisfactory to Agent, which in
its opinion is appropriate with respect to the execution and delivery of the applicable
documentation referred to above (including policies of title insurance or other documentation with
respect to all Real Property owned in fee and subject to a mortgage and supplements to the
schedules to the Loan Documents supplementing the then existing schedules with information related
to the formed or acquired subsidiary). Any document, agreement, or instrument executed or issued
pursuant to this
Section 5.11
shall be a Loan Document.
5.12
Further Assurances
. At any time upon the reasonable request of Agent, execute or
deliver to Agent any and all financing statements, fixture filings, security agreements, pledges,
assignments, endorsements of certificates of title, mortgages, deeds of trust, opinions of counsel,
and all other documents (the
Additional Documents
) that Agent may reasonably request in
form and substance reasonably satisfactory to Agent, to create, perfect, and continue perfected or
to better perfect Agents Liens in all of the assets of the Loan Parties (whether now owned or
hereafter arising or acquired, tangible or intangible, real or personal), to create and perfect
Liens in favor of Agent in any Real Property acquired by the Loan Parties after the Closing Date
with a fair market value in excess of $500,000 (or its equivalent in any other currency), and in
order to fully consummate all of the transactions contemplated hereby and under the other Loan
Documents;
provided
that the foregoing shall not apply to any Subsidiary of Parent that is
a CFC if providing such documents would result in adverse tax consequences or the costs to the Loan
Parties of providing such documents are unreasonably excessive (as determined by Agent in
consultation with Borrower) in relation to the benefits of Agent and the Lenders of the benefits
afforded thereby. To the maximum extent permitted by applicable law, if Parent refuses or fails
to execute or deliver any reasonably requested Additional Documents within a reasonable period of
time following the request to do so, Parent hereby authorizes Agent to execute any such Additional
Documents in the applicable Loan Partys or its Subsidiarys name, as applicable, and authorizes
Agent to file such executed Additional Documents in any appropriate filing office. In furtherance
and not in limitation of the foregoing, each Loan Party shall take such actions as Agent may
reasonably request from time to time to ensure that the Obligations are guarantied by the
Guarantors and are secured by substantially all of the assets of the Loan Parties and all of the
outstanding capital Stock of Loan Parties Subsidiaries (subject to exceptions and limitations
contained in the Loan Documents with respect to CFCs).
5.13
Lender Meetings
. Within 90 days after the close of each fiscal year of Parent,
at the request of Agent or of the Required Lenders and upon reasonable prior notice, hold a meeting
(at a mutually agreeable location and time or, at the option of Agent, by conference call) with all
Lenders who choose to attend such meeting at which meeting shall be reviewed the financial results
of the previous fiscal year and the financial condition of Parent and its Subsidiaries and the
projections presented for the current fiscal year of Parent.
5.14
Material Contracts
. Contemporaneously with the delivery of each Compliance
Certificate pursuant to
Section 5.1
, provide Agent with copies of (a) each Material
Contract entered into since the delivery of the previous Compliance Certificate, and (b) each
material amendment or modification of any Material Contract entered into since the delivery of the
previous Compliance Certificate.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
30
5.15
Location of Inventory and Equipment
. Keep each Loan Partys Inventory and
Equipment (other than vehicles or Equipment out for repair and Inventory on consignment subject to
the limitations set forth in
Section 6.16
) only at the locations identified on
Schedule
4.29
and their chief executive offices only at the locations identified on
Schedule
4.6(b)
; provided, however, that Borrower may amend
Schedule 4.29
or
Schedule
4.6(b)
so long as such amendment occurs by written notice to Agent not less than 10 days prior
to the date on which such Inventory or Equipment is moved to such new location or such chief
executive office is relocated and so long as such new location is within the continental United
States, Canada or United Kingdom and so long as, at the time of such written notification, Borrower
provides Agent a Collateral Access Agreement with respect with respect to such locations at which
Inventory or Equipment with an aggregate fair market value in excess of $100,000 at any one
location or $250,000 for all such locations is located (it being understood that in the event a
Loan Party is unable to obtain any such Collateral Access Agreement, Agent may establish such
reserves against Availability as it deems necessary in its Permitted Discretion with respect to
such Inventory or Equipment), and (y) except as otherwise expressly permitted hereunder, at the
time any such Inventory or Equipment is moved or transferred, Agents Liens on such Inventory and
Equipment are not adversely affected.
5.16
Reserved
.
5.17
Accounts Receivables
. Each Loan Party shall collect and realise its Accounts and
other monies and receipts and, save to the extent that the Agent otherwise agrees in writing or as
set forth in
Section 6.11
, pay the proceeds of the Accounts into a Deposit Account which
is either subject to a Controlled Account Agreement or is subject to a fixed charge under a UK
Collateral Document.
5.18
Center of Main Interests
. Each UK Loan party shall maintain its centre of main
interests in England and Wales for the purposes of the Council Regulation (EC) No.1346/2000 of 29
May 2000 on Insolvency Proceedings.
5.19
Pensions
. Except in relation to the defined benefit scheme operated or
contributed by Oclaro (Switzerland) AG, the Parent and each of its Subsidiaries shall ensure that
it is not, nor has been at any time an employer (for the purposes of sections 38 to 51 of the
Pensions Act 2004 (England & Wales legislation)) of an occupational pension scheme which is not a
money purchase scheme (both terms as defined in the Pensions Schemes Act 1993 (England & Wales
legislation)) or connected with or an associate of (as those terms are defined in sections 38
or 43 of the Pension Act 2004 (England & Wales legislation)) such an employer.
6. NEGATIVE COVENANTS
.
Each of Parent and Borrower, jointly and severally, covenants and agrees that, until
termination of all of the Revolver Commitments and payment in full of the Obligations, such Person
will not and will not permit any of its Subsidiaries to do any of the following:
6.1
Indebtedness
. Create, incur, assume, suffer to exist, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any Indebtedness, except for
Permitted Indebtedness.
6.2
Liens
. Create, incur, assume, or suffer to exist, directly or indirectly, any
Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired,
or any income or profits therefrom, except for Permitted Liens.
6.3
Restrictions on Fundamental Changes
.
(a) Other than in order to consummate a Permitted Acquisition or Permitted Restructuring
Transaction, enter into any merger, consolidation, reorganization, or recapitalization, or
reclassify its Stock, except for (i) any merger between Loan Parties, provided that Borrower must
be the
surviving entity of any such merger to which it is a party, (ii) any merger between a Loan
Party and Subsidiaries of such Loan Party that are not Loan Parties so long as such Loan Party is
the surviving entity of any such merger, and (iii) any merger between Subsidiaries of Parent that
are not Loan Parties,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
31
(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), except
for (i) the liquidation or dissolution of non-operating Subsidiaries of Parent with nominal assets
and nominal liabilities, (ii) the liquidation or dissolution of a Loan Party (other than Parent or
Borrower) or any of its wholly-owned Subsidiaries so long as all of the assets (including any
interest in any Stock) of such liquidating or dissolving Loan Party or Subsidiary are transferred
to a Loan Party that is not liquidating or dissolving, (iii) the liquidation or dissolution of a
Subsidiary of Parent that is not a Loan Party (other than any such Subsidiary the Stock of which
(or any portion thereof) is subject to a Lien in favor of Agent) or the liquidation or dissolution
of an Inactive Subsidiary, so long as, in each case, all of the assets of such liquidating or
dissolving Subsidiary are transferred to a Subsidiary of Parent that is not liquidating or
dissolving, or
(c) Suspend or go out of a substantial portion of its or their business, except as permitted
pursuant to clauses (a) or (b) above or in connection with the transactions permitted pursuant to
Section 6.4
.
6.4
Disposal of Assets
. Other than Permitted Dispositions or transactions expressly
permitted by
Sections 6.
3 or
6.11
, convey, sell, lease, license, assign, transfer,
or otherwise dispose of (or enter into an agreement to convey, sell, lease, license, assign,
transfer, or otherwise dispose of) any of Parents or its Subsidiaries assets.
6.5
Change Name
. Change Parents or any of its Subsidiaries name, organizational
identification number, state of organization or organizational identity; provided, however, that
Parent or any of its Subsidiaries may change its name upon at least 15 days prior written notice to
Agent of such change.
6.6
Nature of Business
. Make any change in the nature of its or their business as
described in
Schedule 6.6
or acquire any properties or assets that are not reasonably
related to the conduct of such business activities; provided, however, that the foregoing shall not
prevent Parent and its Subsidiaries from engaging in any business that is reasonably related or
ancillary to its or their business.
6.7
Prepayments and Amendments
.
(a) Except in connection with Refinancing Indebtedness permitted by
Section 6.1
,
(i) optionally prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of
Parent or its Subsidiaries, other than (A) the Obligations in accordance with this Agreement, and
(B) Permitted Intercompany Advances so long as such prepayment, redemption, defeasance or purchase
is permitted under the terms of the Intercompany Subordination Agreement, or
(ii) make any payment on account of Indebtedness that has been contractually subordinated in
right of payment to the Obligations if such payment is not permitted at such time under the
subordination terms and conditions, or
(iii) convert into Stock of Parent any Permitted Indebtedness of Parent which by its terms is
convertible into the Stock of Parent, or
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
32
(b) Directly or indirectly, amend, modify, or change any of the terms or provisions of
(i) any agreement, instrument, document, indenture, or other writing evidencing or concerning
Permitted Indebtedness other than (A) the Obligations in accordance with this Agreement, (B)
Permitted Intercompany Advances, and (C) Indebtedness permitted under clauses (c), (h), (j) and (k)
of the definition of Permitted Indebtedness,
(ii) any Material Contract except to the extent that such amendment, modification, or change
could not, individually or in the aggregate, reasonably be expected to be materially adverse to the
interests of the Lenders, or
(iii) the Governing Documents of Parent or any of its Subsidiaries if the effect thereof,
either individually or in the aggregate, could reasonably be expected to be materially adverse to
the interests of the Lenders.
6.8
Change of Control
. Cause, permit, or suffer, directly or indirectly, any Change
of Control.
6.9
Restricted Junior Payments
. Make any Restricted Junior Payment; provided,
however, that, so long as it is permitted by law, and so long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom,
(a) Parent may make distributions to former employees, officers, or directors of Parent (or
any spouses, ex-spouses, or estates of any of the foregoing) on account of redemptions of Stock of
Parent held by such Persons, provided, however, that the aggregate amount of such redemptions made
by Parent during the term of this Agreement does not exceed $100,000 in the aggregate,
(b) Parent may make distributions to former employees, officers, or directors of Parent (or
any spouses, ex-spouses, or estates of any of the foregoing), solely in the form of forgiveness of
Indebtedness of such Persons owing to Parent on account of repurchases of the Stock of Parent held
by such Persons;
provided
that such Indebtedness was incurred by such Persons solely to
acquire Stock of Parent, and
(c) a Loan Party may make cash distributions or declare and make dividend payments to another
Loan Party, and a Subsidiary of Parent which is not a Loan Party may make cash distributions or
declare and make dividend payments to any Subsidiary of Parent.
6.10
Accounting Methods
. Modify or change its fiscal year or its method of accounting
(other than as may be required to conform to GAAP).
6.11
Investments; Controlled Investments
.
(a) Except for Permitted Investments, directly or indirectly, make or acquire any Investment
or incur any liabilities (including contingent obligations) for or in connection with any
Investment.
(b) Other than (i) an aggregate amount of not more than $25,000 at any one time, in the case
of Loan Parties, (ii) amounts deposited into Deposit Accounts specially and exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for Parents or its
Subsidiaries employees, (iii) in the case of Subsidiaries of Parent that are not Loan Parties and
the San Donato Accounts, an aggregate amount of not more than $15,000,000 at any one time (in each
case, calculated at current exchange rates), and (iv) the Excluded Accounts; make, acquire, or
permit to exist Permitted Investments consisting of cash, Cash Equivalents, or amounts credited to
Deposit Accounts or Securities Accounts unless Parent or its Subsidiary, as applicable, and the
applicable bank or securities intermediary have entered into Control Agreements with Agent
governing such Permitted Investments in order to perfect (and further establish) Agents Liens in
such Permitted Investments.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
33
6.12
Transactions with Affiliates
. Directly or indirectly enter into or permit to
exist any transaction with any Affiliate of Parent or any of its Subsidiaries except for:
(a) Permitted Intercompany Transactions, Permitted Intercompany Advances, Permitted
Dispositions and Permitted Investments,
(b) so long as it has been approved by Parents or its applicable Subsidiarys board of
directors (or comparable governing body) in accordance with applicable law, any indemnity provided
for the benefit of directors (or comparable managers) of Parent or its applicable Subsidiary,
(c) so long as it has been approved by Parents or its applicable Subsidiarys board of
directors (or comparable governing body) in accordance with applicable law, the payment of
reasonable compensation, severance, or employee benefit arrangements to employees, officers, and
outside directors of Parent and its Subsidiaries in the ordinary course of business and consistent
with industry practice, and
(d) transactions permitted by
Section 6.3
or
Section 6.9
.
6.13
Use of Proceeds
. Use the proceeds of any loan made hereunder for any purpose
other than: (i) on the Closing Date, to pay transactional fees, costs, and expenses incurred in
connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby, and (ii) thereafter, consistent with the terms and conditions hereof, for their lawful
and permitted purposes (including that no part of the proceeds of the loans made to Borrower will
be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or for any purpose that violates the provisions of
Regulation T, U or X of the Board of Governors of the United States Federal Reserve).
6.14
Limitation on Issuance of Stock
. Except for the issuance or sale of common stock
or Permitted Preferred Stock by Parent or issuance of Stock by a Subsidiary of Parent in connection
with the transfer of the ownership interest of one Subsidiary of Parent to Parent or another
Subsidiary of Parent so long as such transfer is a Permitted Disposition, issue or sell or enter
into any agreement or arrangement for the issuance and sale of any of its Stock.
6.15
Reserved
6.16
Consignments
. Except as set forth on
Schedule 4.29
and as permitted by
Section 5.15
, with respect to Inventory having a value in excess of [***], consign any of
its or their Inventory or sell any of its or their Inventory on bill and hold, sale or return, sale
on approval, or other conditional terms of sale.
6.17
Inventory and Equipment with Bailees
. Except as set forth on
Schedule
4.29
and as permitted by
Section 5.15
, store the inventory or Equipment of Parent or
its Subsidiaries that are Loan Parties at any time now or hereafter with a bailee, warehouseman, or
similar party unless such bailee, warehouseman, or similar party has first provided Agent with a
Collateral Access Agreement.
7. FINANCIAL COVENANTS
.
Each of Parent and Borrower covenants and agrees that, until termination of all of the
Revolver Commitments and payment in full of the Obligations, Parent will:
7.1
Fixed Charge Coverage Ratio
. Maintain a Fixed Charge Coverage Ratio, measured on
a fiscal quarter-end basis, not less than 1.10 to 1.00, for any measurement date occurring
immediately before the occurrence or at any time during the existence of a Triggering Period.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
34
8. EVENTS OF DEFAULT
.
Any one or more of the following events shall constitute an event of default (each, an
Event of Default
) under this Agreement:
8.1
If any Loan Party fails to pay when due and payable, or when declared due and payable, (a)
all or any portion of the Obligations consisting of interest, fees, or charges due the Lender
Group, reimbursement of Lender Group Expenses, or other amounts (other than any portion thereof
constituting principal) constituting Obligations (including any portion thereof that accrues after
the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole
or in part as a claim in any such Insolvency Proceeding), and such failure continues for a period
of 3 Business Days, or (b) all or any portion of the principal of the Obligations;
8.2
If Parent or any of its Subsidiaries:
(a) fails to perform or observe any covenant or other agreement contained in any of (i)
Sections 3.6, 5.1, 5.2, 5.3 (solely if Loan Party is not in good standing in its jurisdiction of
organization or incorporation, as appropriate), 5.6, 5.7 (solely if Loan Party refuses to allow
Agent or its representatives or agents to visit Loan Partys properties, inspect its assets or
books or records, examine and make copies of its books and records, or discuss Loan Partys
affairs, finances, and accounts with officers and employees of that Loan Party), 5.10, 5.11, 5.13,
5.14, or
5.15
of this Agreement, (ii)
Sections 6.1
through
6.16
of this
Agreement, (iii) Section 7 of this Agreement, or (iv) Section 6 of the Security Agreement;
(b) fails to perform or observe any covenant or other agreement contained in any of
Sections 5.3
(other than if a Loan Party is not in good standing in its jurisdiction of
organization),
5.4, 5.5, 5.8
, and
5.12
of this Agreement and such failure continues
for a period of 10 days after the earlier of (i) the date on which such failure shall first become
known to any officer of Borrower or (ii) the date on which written notice thereof is given to
Borrower by Agent; or
(c) fails to perform or observe any covenant or other agreement contained in this Agreement,
or in any of the other Loan Documents, in each case, other than any such covenant or agreement that
is the subject of another provision of this
Section 8
(in which event such other provision
of this
Section 8
shall govern), and such failure continues for a period of 30 days after
the earlier of (i) the date on which such failure shall first become known to any officer of
Borrower or (ii) the date on which written notice thereof is given to Borrower by Agent;
8.3
If one or more judgments, orders, or awards for the payment of money involving an
aggregate amount of $2,000,000, (or its equivalent in any other currency) or more (except to the
extent fully covered (other than to the extent of customary deductibles) by insurance pursuant to
which the insurer has not denied coverage) or any analogous process in any jurisdiction is entered
or filed against Parent or any of its Subsidiaries, or with respect to any of their respective
assets, and either (a) there is a period of 30 consecutive days at any time after the entry of any
such judgment, order, award or any analogous process in any jurisdiction during which (1) the same
is not discharged, satisfied, vacated, or bonded pending appeal, or (2) a stay of enforcement
thereof is not in effect, or (b) enforcement proceedings are commenced upon such judgment, order,
or award;
8.4
If an Insolvency Proceeding is commenced by Parent or any of its Subsidiaries;
8.5
If an Insolvency Proceeding is commenced against Parent or of its Subsidiaries (other than
Borrower) and any of the following events occur: (a) Parent or such Subsidiary consents to the
institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency
Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 60 calendar days of the date of the filing thereof with respect to a Parent or any
of its Subsidiaries that are organized under the
laws of the United States of America or any of its states and within 7 days for all other
Subsidiaries of Parent, (d) an interim trustee, liquidator, supervisor, receiver, administrator,
administrative receiver, compulsory manager or other similar officer is appointed to take
possession of all or any substantial portion of the properties or assets of, or to operate all or
any substantial portion of the business of, Parent or its Subsidiary, or (e) an order for relief
shall have been issued or entered therein;
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
35
8.6
If an Insolvency Proceeding is commenced against the Borrower, unless such Insolvency
Proceeding is frivolous or vexatious and is discharged, stayed or dismissed within 3 days of
commencement;
8.7
If any UK Loan Party is unable or admits inability to pay its debts as they fall due or is
deemed or declared to be unable to pay its debts under applicable law, suspends or threatens to
suspend making payments on any of its debts or, by reason of actual or anticipated financial
difficulties, commences negotiations with one or more of its creditors with a view to rescheduling
any of its Indebtedness, or if the value of the assets of any UK Loan Party is less than its
liabilities (taking into account contingent and prospective liabilities) (this Section 8.7 shall be
governed by and construed in accordance with the laws of England and Wales);
8.8
If Parent, any Loan Party, Oclaro China or Oclaro Switzerland is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any material part of the
business affairs of Parent and its Subsidiaries, taken as a whole;
8.9
If there is (a) a default in one or more agreements to which Parent or any of its
Subsidiaries is a party with one or more third Persons relative to Parents or any of its
Subsidiaries Indebtedness involving an aggregate amount of $2,000,000 (or its equivalent in any
other currency) or more, and such default (i) occurs at the final maturity of the obligations
thereunder, or (ii) results in a right by such third Person, irrespective of whether exercised, to
accelerate the maturity of Parents or its Subsidiarys obligations thereunder, or (b) a default in
or an involuntary early termination of one or more Hedge Agreements to which Parent or any of its
Subsidiaries is a party;
8.10
If any warranty, representation, certificate, statement, or Record made herein or in any
other Loan Document or delivered in writing to Agent or any Lender in connection with this
Agreement or any other Loan Document proves to be untrue in any material respect (except that such
materiality qualifier shall not be applicable to any representations and warranties that already
are qualified or modified by materiality in the text thereof) as of the date of issuance or making
or deemed making thereof;
8.11
If the obligation of any Guarantor under the Guaranty is limited or terminated by
operation of law or by such Guarantor (other than in accordance with the terms of this Agreement);
8.12
If the Security Agreement, UK Collateral Documents or any other Loan Document that
purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected
and, except to the extent of Permitted Liens, first priority Lien on the Collateral covered
thereby, except (a) as a result of a disposition of the applicable Collateral in a transaction
permitted under this Agreement, or (b) as the result of an action or failure to act on the part of
Agent; or
8.13
The validity or enforceability of any Loan Document shall at any time for any reason
(other than solely as the result of an action or failure to act on the part of Agent) be declared
to be null and void, or a proceeding shall be commenced by Parent or its Subsidiaries, or by any
Governmental Authority having jurisdiction over Parent or its Subsidiaries, seeking to establish
the invalidity or unenforceability thereof, or Parent or its Subsidiaries shall deny that Parent or
its Subsidiaries has any liability or obligation purported to be created under any Loan Document.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
36
9. RIGHTS AND REMEDIES
.
9.1
Rights and Remedies
. Upon the occurrence and during the continuation of an Event
of Default, Agent may, and, at the instruction of the Required Lenders, shall (in each case under
clauses (a) or (b) by written notice to Borrower), in addition to any other rights or remedies
provided for hereunder or under any other Loan Document or by applicable law, do any one or more of
the following:
(a) declare the Obligations (other than the Bank Product Obligations), whether evidenced by
this Agreement or by any of the other Loan Documents immediately due and payable, whereupon the
same shall become and be immediately due and payable and Borrower shall be obligated to repay all
of such Obligations in full, without presentment, demand, protest, or further notice or other
requirements of any kind, all of which are hereby expressly waived by Borrower;
(b) declare the Revolver Commitments terminated, whereupon the Revolver Commitments shall
immediately be terminated together with (i) any obligation of any Lender hereunder to make
Advances, (ii) the obligation of the Swing Lender to make Swing Loans, and (iii) the obligation of
the Issuing Lender to issue Letters of Credit; and
(c) exercise all other rights and remedies available to Agent or the Lenders under the Loan
Documents or applicable law.
The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default
described in
Section 8.4
or
Section 8.5
, in addition to the remedies set forth
above, without any notice to Borrower or any other Person or any act by the Lender Group, the
Revolver Commitments shall automatically terminate and the Obligations (other than the Bank Product
Obligations), inclusive of all accrued and unpaid interest thereon and all fees and all other
amounts owing under this Agreement or under any of the other Loan Documents, shall automatically
and immediately become due and payable and Borrower shall be obligated to repay all of such
Obligations in full, without presentment, demand, protest, or notice of any kind, all of which are
expressly waived by Parent and Borrower.
9.2
Remedies Cumulative
. The rights and remedies of the Lender Group under this
Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender
Group shall have all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed
an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing
waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it.
10. WAIVERS; INDEMNIFICATION
.
10.1
Demand; Protest; etc
. Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and
guarantees at any time held by the Lender Group on which Borrower may in any way be liable.
10.2
The Lender Groups Liability for Collateral
. Borrower hereby agrees that: (a)
so long as Agent complies with its obligations, if any, under the Code, the Lender Group shall not
in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any
loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the
Collateral shall be borne by Borrower.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
37
10.3
Indemnification
. Borrower shall pay, indemnify, defend, and hold the
Agent-Related Persons, the Lender-Related Persons, and each Participant (each, an
Indemnified
Person
) harmless
(to the fullest extent permitted by law) from and against any and all claims, demands, suits,
actions, investigations, proceedings, liabilities, fines, costs, penalties, and damages, and all
reasonable fees and disbursements of attorneys, experts, or consultants and all other costs and
expenses actually incurred in connection therewith or in connection with the enforcement of this
indemnification (as and when they are incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a
result of or related to the execution and delivery (provided that Borrower shall not be liable for
costs and expenses (including attorneys fees) of any Lender (other than WFCF) incurred in advising,
structuring, drafting, reviewing, administering or syndicating the Loan Documents), enforcement,
performance, or administration (including any restructuring or workout with respect hereto) of this
Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby or
the monitoring of Parents and its Subsidiaries compliance with the terms of the Loan Documents
(provided, however, that the indemnification in this clause (a) shall not extend to (i) disputes
solely between or among the Lenders, (ii) disputes solely between or among the Lenders and their
respective Affiliates; it being understood and agreed that the indemnification in this clause (a)
shall extend to Agent (but not the Lenders) relative to disputes between or among Agent on the one
hand, and one or more Lenders, or one or more of their Affiliates, on the other hand, or (iii) any
Taxes or any costs attributable to Taxes, which shall be governed by Section 16), (b) with respect
to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document,
or the use of the proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner
related thereto, and (c) in connection with or arising out of any presence or release of Hazardous
Materials at, on, under, to or from any assets or properties owned, leased or operated by Borrower
or any of its Subsidiaries or any Environmental Actions, Environmental Liabilities or Remedial
Actions related in any way to any such assets or properties of Borrower or any of its Subsidiaries
(each and all of the foregoing, the
Indemnified Liabilities
). The foregoing to the
contrary notwithstanding, Borrower shall have no obligation to any Indemnified Person under this
Section 10.3
with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of
such Indemnified Person or its officers, directors, employees, attorneys, or agents. This
provision shall survive the termination of this Agreement and the repayment of the Obligations. If
any Indemnified Person makes any payment to any other Indemnified Person with respect to an
Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person
receiving such payment, the Indemnified Person making such payment is entitled to be indemnified
and reimbursed by Borrower with respect thereto.
WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL
APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART
ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY
OTHER PERSON
.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
38
11. NOTICES
.
Unless otherwise provided in this Agreement, all notices or demands relating to this Agreement
or any other Loan Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return receipt requested),
overnight courier, electronic mail (at such email addresses as a party may designate in accordance
herewith), or telefacsimile. In the case of notices or demands to Parent or Agent, as the case may
be, they shall be sent to the respective address set forth below:
|
|
|
If to Parent:
|
|
OCLARO INC.
|
|
|
2560 Junction Avenue
|
|
|
San Jose, California 95134
|
|
|
Attn: Topher Croddy, Corporate Controller
|
|
|
Fax No.: __.__.____
|
|
|
e-mail: _____
|
with copies to:
|
|
WILMER CUTLER PICKERING HALE AND DORR LLP
|
|
|
60 State Street
|
|
|
Boston, Massachusetts 02109
|
|
|
Attn: Mitchel Appelbaum, Esq.
|
|
|
Fax No.: __.__.____
|
|
|
e-mail: _____
|
If to Borrower:
|
|
OCLARO TECHNOLOGY LIMITED
|
|
|
2560 Junction Avenue
|
|
|
San Jose, California 95134
|
|
|
Attn: Topher Croddy, Corporate Controller
|
|
|
Fax No.: __.__.____
|
|
|
e-mail: _____
|
with copies to:
|
|
WILMER HALE
|
|
|
60 State Street
|
|
|
Boston, Massachusetts 02109
|
|
|
Attn: Mitchel Appelbaum, Esq.
|
|
|
Fax No.: __.__.____
|
|
|
e-mail: _____
|
If to Agent:
|
|
WELLS FARGO CAPITAL FINANCE, INC.
|
|
|
2450 Colorado Avenue
|
|
|
Suite 3000 West
|
|
|
Santa Monica, California 90404
|
|
|
Attn: Business Finance Division Manager
|
|
|
Fax No.: __.__.____
|
with copies to:
|
|
BUCHALTER NEMER
|
|
|
1000 Wilshire Boulevard, Suite 1500
|
|
|
Los Angeles, CA 90017-2457
|
|
|
Attn: Robert J. Davidson, Esq.
|
|
|
Fax No.: __.__.____
|
Any party hereto may change the address at which they are to receive notices hereunder, by
notice in writing in the foregoing manner given to the other party. All notices or demands sent in
accordance with this
Section 11
, shall be deemed received on the earlier of the date of
actual receipt or 3 Business Days after the deposit thereof in the mail;
provided
, that (a)
notices sent by overnight courier service shall be deemed to have been given when received, (b)
notices by facsimile shall be deemed to have been given when sent (except that, if not given during
normal business hours for the recipient, shall be deemed to have been given at the opening of
business on the next Business Day for the recipient) and (c) notices by electronic mail shall be
deemed received upon the senders receipt of an acknowledgment from the intended recipient (such as
by the function, as available, return email or other written acknowledgment).
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
39
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a)
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO
THE CONTRARY IN THIS AGREEMENT OR IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH PROVISION OF THIS
AGREEMENT OR SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
(b)
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO
BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF PARENT AND
BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 12(b)
.
(c)
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF PARENT AND BORROWER AND EACH
MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH OF PARENT AND BORROWER AND EACH MEMBER OF THE LENDER GROUP
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(d)
EACH OF PARENT AND BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES AND
THE STATE OF CALIFORNIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENTS, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT. EACH OF THE PARTIES HERETO AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT AGENT MAY OTHERWISE HAVE TO
BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY
LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
40
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS
.
13.1
Assignments and Participations
.
(a) With the prior written consent of Borrower, which consent of Borrower shall not be
unreasonably withheld, delayed or conditioned, and shall not be required (1) if an Event of Default
has occurred and is continuing, or (2) in connection with an assignment to a Person that is a
Lender or an Affiliate (other than individuals) of a Lender; provided that Borrower shall be deemed
to have consented to a proposed assignment unless it objects thereto by written notice to Agent
within 5 Business Days after having received written notice thereof, and with the prior written
consent of Agent, which consent of Agent shall not be unreasonably withheld, delayed or
conditioned, and shall not be required in connection with an assignment to a Person that is a
Lender or an Affiliate (other than individuals) of a Lender, any Lender may assign and delegate to
one or more assignees so long as such prospective assignee is an Eligible Transferee (each, an
Assignee
; provided, however, that no Loan Party, or Affiliate of a Loan Party, shall be
permitted to become an Assignee) all or any portion of the Obligations, the Revolver Commitments
and the other rights and obligations of such Lender hereunder and under the other Loan Documents,
in a minimum amount (unless waived by Agent) of $5,000,000 (except such minimum amount shall not
apply to (x) an assignment or delegation by any Lender to any other Lender or an Affiliate of any
Lender or (y) a group of new Lenders, each of which is an Affiliate of each other or a Related Fund
of such new Lender to the extent that the aggregate amount to be assigned to all such new Lenders
is at least $5,000,000); provided, however, that Borrower and Agent may continue to deal solely and
directly with such Lender in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions, addresses, and related
information with respect to the Assignee, have been given to Borrower and Agent by such Lender and
the Assignee, (ii) such Lender and its Assignee have delivered to Borrower and Agent an Assignment
and Acceptance and Agent has notified the assigning Lender of its receipt thereof in accordance
with
Section 13.1(b)
, and (iii) unless waived by Agent, the assigning Lender or Assignee
has paid to Agent for Agents separate account a processing fee in the amount of $3,500.
(b) From and after the date that Agent notifies the assigning Lender (with a copy to Borrower)
that it has received an executed Assignment and Acceptance and, if applicable, payment of the
required processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall be a Lender and shall have the rights and obligations of a Lender under the
Loan Documents, and (ii) the assigning Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights (except with respect to
Section 10.3
) and be released
from any future obligations under this Agreement (and in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Lenders rights and obligations under this
Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto);
provided, however, that nothing contained herein shall release any assigning Lender from
obligations that survive the termination of this Agreement, including such assigning Lenders
obligations under
Section 15
and
Section 17.9(a)
.
(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder
and the Assignee thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any
other Loan Document furnished pursuant hereto, (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial condition of Borrower or
the performance or observance by Borrower of any of its obligations under this Agreement or any
other Loan Document furnished pursuant hereto, (iii) such Assignee confirms that it has received a
copy of this Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such Assignment and
Acceptance, (iv) such Assignee will, independently and without reliance upon Agent, such
assigning Lender or any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action
under this Agreement, (v) such Assignee appoints and authorizes Agent to take such actions and to
exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent,
by the terms hereof and thereof, together with such powers as are reasonably incidental thereto,
and (vi) such Assignee agrees that it will perform all of the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
41
(d) Immediately upon Agents receipt of the required processing fee, if applicable, and
delivery of notice to the assigning Lender pursuant to
Section 13.1(b)
, this Agreement
shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Revolver Commitments arising
therefrom. The Revolver Commitment allocated to each Assignee shall reduce such Revolver
Commitments of the assigning Lender
pro tanto
.
(e) Any Lender may at any time sell to one or more commercial banks, financial institutions,
or other Persons (a
Participant
) participating interests in all or any portion of its
Obligations, its Revolver Commitment, and the other rights and interests of that Lender (the
Originating Lender
) hereunder and under the other Loan Documents; provided, however, that
(i) the Originating Lender shall remain a Lender for all purposes of this Agreement and the other
Loan Documents and the Participant receiving the participating interest in the Obligations, the
Revolver Commitments, and the other rights and interests of the Originating Lender hereunder shall
not constitute a Lender hereunder or under the other Loan Documents and the Originating Lenders
obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain
solely responsible for the performance of such obligations, (iii) Borrower, Agent, and the Lenders
shall continue to deal solely and directly with the Originating Lender in connection with the
Originating Lenders rights and obligations under this Agreement and the other Loan Documents, (iv)
no Lender shall transfer or grant any participating interest under which the Participant has the
right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment to, or consent or waiver with respect to
this Agreement or of any other Loan Document would (A) extend the final maturity date of the
Obligations hereunder in which such Participant is participating, (B) reduce the interest rate
applicable to the Obligations hereunder in which such Participant is participating, (C) release all
or substantially all of the Collateral or guaranties (except to the extent expressly provided
herein or in any of the Loan Documents) supporting the Obligations hereunder in which such
Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or
fees payable to such Participant through such Lender (other than a waiver of default interest), or
(E) decrease the amount or postpone the due dates of scheduled principal repayments or prepayments
or premiums payable to such Participant through such Lender, and (v) all amounts payable by
Borrower hereunder shall be determined as if such Lender had not sold such participation, except
that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be
derivative through the Originating Lender with whom such Participant participates and no
Participant shall have any rights under this Agreement or the other Loan Documents or any direct
rights as to the other Lenders, Agent, Borrower, the Collections of Borrower or its Subsidiaries,
the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to
participate directly in the making of decisions by the Lenders among themselves.
(f) In connection with any such assignment or participation or proposed assignment or
participation or any grant of a security interest in, or pledge of, its rights under and interest
in this Agreement, a Lender may, subject to the provisions of
Section 17.9
, disclose all
documents and information which it now or hereafter may have relating to Parent and its
Subsidiaries and their respective businesses.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
42
(g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a
security interest in, or pledge, all or any portion of its rights under and interest in this
Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal
Reserve Bank or U.S. Treasury Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
13.2
Successors
. This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that Borrower may not assign this
Agreement or any rights or duties hereunder without the Lenders prior written consent and any
prohibited assignment shall be absolutely void
ab initio
. No consent to assignment by the Lenders
shall release Borrower from its Obligations. A Lender may assign this Agreement and the other Loan
Documents and its rights and duties hereunder and thereunder pursuant to
Section 13.1
and,
except as expressly required pursuant to
Section 13.1
, no consent or approval by Borrower
is required in connection with any such assignment.
14. AMENDMENTS; WAIVERS
.
14.1
Amendments and Waivers
.
(a) No amendment, waiver or other modification of any provision of this Agreement or any other
Loan Document (other than Bank Product Agreements or the Fee Letter), and no consent with respect
to any departure by Parent or Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request of the Required
Lenders) and the Loan Parties that are party thereto and then any such waiver or consent shall be
effective, but only in the specific instance and for the specific purpose for which given;
provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed
by all of the Lenders directly affected thereby and all of the Loan Parties that are party thereto,
do any of the following:
(i) increase the amount of or extend the expiration date of any Revolver Commitment of any
Lender or amend, modify, or eliminate the last sentence of
Section 2.4(b)(i)
,
(ii) postpone or delay any date fixed by this Agreement or any other Loan Document for any
payment of principal, interest, fees, or other amounts due hereunder or under any other Loan
Document,
(iii) reduce the principal of, or the rate of interest on, any loan or other extension of
credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan
Document (except in connection with the waiver of applicability of
Section 2.6(c)
(which
waiver shall be effective with the written consent of the Required Lenders)),
(iv) amend, modify, or eliminate this Section or any provision of this Agreement providing for
consent or other action by all Lenders,
(v) amend, modify, or eliminate
Section 15.11
,
(vi) other than as permitted by
Section 15.11
, release Agents Lien in and to any of
the Collateral,
(vii) amend, modify, or eliminate the definition of Required Lenders or Pro Rata Share,
(viii) contractually subordinate any of Agents Liens,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
43
(ix) other than in connection with a merger, liquidation, dissolution or sale of such Person
expressly permitted by the terms hereof or the other Loan Documents, release Borrower or any
Guarantor from any obligation for the payment of money or consent to the assignment or transfer by
Borrower or any Guarantor of any of its rights or duties under this Agreement or the other Loan
Documents,
(x) amend, modify, or eliminate any of the provisions of
Section 2.4(b)(i)
,
(xi) amend, modify, or eliminate any of the provisions of
Section 13.1(a)
to permit a
Loan Party, or an Affiliate of a Loan Party to be permitted to become an Assignee, or
(xii) amend, modify, or eliminate the definition of Borrowing Base or any of the defined terms
(including the definition of Eligible Accounts) that are used in such definition to the extent that
any such change results in more credit being made available to Borrower based upon the Borrowing
Base, but not otherwise, or the definitions of Maximum Revolver Amount,
(b) No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive
(i) the definition of, or any of the terms or provisions of, the Fee Letter, without the written
consent of Agent and Borrower (and shall not require the written consent of any of the Lenders),
and (ii) any provision of Section 15 pertaining to Agent, or any other rights or duties of Agent
under this Agreement or the other Loan Documents, without the written consent of Agent, Borrower,
and the Required Lenders,
(c) No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive
any provision of this Agreement or the other Loan Documents pertaining to Issuing Lender, or any
other rights or duties of Issuing Lender under this Agreement or the other Loan Documents, without
the written consent of Issuing Lender, Agent, Borrower, and the Required Lenders,
(d) No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive
any provision of this Agreement or the other Loan Documents pertaining to Swing Lender, or any
other rights or duties of Swing Lender under this Agreement or the other Loan Documents, without
the written consent of Swing Lender, Agent, Borrower, and the Required Lenders,
(e) Anything in this
Section 14.1
to the contrary notwithstanding, (i) any amendment,
modification, elimination, waiver, consent, termination, or release of, or with respect to, any
provision of this Agreement or any other Loan Document that relates only to the relationship of the
Lender Group among themselves, and that does not affect the rights or obligations of Parent or
Borrower, shall not require consent by or the agreement of any Loan Party, and (ii) any amendment,
waiver, modification, elimination, or consent of or with respect to any provision of this Agreement
or any other Loan Document may be entered into without the consent of, or over the objection of,
any Defaulting Lender.
14.2
Replacement of Certain Lenders
.
(a) If (i) any action to be taken by the Lender Group or Agent hereunder requires the consent,
authorization, or agreement of all Lenders or all Lenders affected thereby and if such action has
received the consent, authorization, or agreement of the Required Lenders but not of all Lenders or
all Lenders affected thereby, or (ii) any Lender makes a claim for compensation under
Section
16
, then Borrower or Agent, upon at least 5 Business Days prior irrevocable notice, may
permanently replace any Lender that failed to give its consent, authorization, or agreement (a
Holdout Lender
) or any Lender that made a claim for compensation (a
Tax Lender
)
with one or more Replacement Lenders, and the Holdout Lender or Tax Lender, as applicable, shall
have no right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender or Tax
Lender, as applicable, shall specify an effective date for such replacement, which date shall not
be later than 15 Business Days after the date such notice is given.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
44
(b) Prior to the effective date of such replacement, the Holdout Lender or Tax Lender, as
applicable, and each Replacement Lender shall execute and deliver an Assignment and Acceptance,
subject only to the Holdout Lender or Tax Lender, as applicable, being repaid in full its share of
the outstanding Obligations (without any premium or penalty of any kind whatsoever, but including
(i) all interest, fees and other amounts that may be due in payable in respect thereof, and (ii) an
assumption of its Pro Rata Share of participations in the Letters of Credit). If the Holdout
Lender or Tax Lender, as applicable, shall refuse or fail to execute and deliver any such
Assignment and Acceptance prior to the effective date of such replacement, Agent may, but shall not
be required to, execute and deliver such Assignment and Acceptance in the name or and on behalf of
the Holdout Lender or Tax Lender, as applicable, and irrespective of whether Agent executes and
delivers such Assignment and Acceptance, the Holdout Lender or Tax Lender, as applicable, shall be
deemed to have executed and delivered such Assignment and Acceptance. The replacement of any
Holdout Lender or Tax Lender, as applicable, shall be made in accordance with the terms of
Section 13.1
. Until such time as one or more Replacement Lenders shall have acquired all
of the Obligations, the Revolver Commitments, and the other rights and obligations of the Holdout
Lender or Tax Lender, as applicable, hereunder and under the other Loan Documents, the Holdout
Lender or Tax Lender, as applicable, shall remain obligated to make the Holdout Lenders or Tax
Lenders, as applicable, Pro Rata Share of Advances and to purchase a participation in each Letter
of Credit, in an amount equal to its Pro Rata Share of such Letters of Credit.
14.3
No Waivers; Cumulative Remedies
. No failure by Agent or any Lender to exercise
any right, remedy, or option under this Agreement or any other Loan Document, or delay by Agent or
any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any
Lender will be effective unless it is in writing, and then only to the extent specifically stated.
No waiver by Agent or any Lender on any occasion shall affect or diminish Agents and each Lenders
rights thereafter to require strict performance by Parent and Borrower of any provision of this
Agreement. Agents and each Lenders rights under this Agreement and the other Loan Documents will
be cumulative and not exclusive of any other right or remedy that Agent or any Lender may have.
15. AGENT; THE LENDER GROUP
.
15.1
Appointment and Authorization of Agent
. Each Lender hereby designates and
appoints WFCF as its agent under this Agreement and the other Loan Documents and each Lender hereby
irrevocably authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider
shall be deemed to designate, appoint, and authorize) Agent to execute and deliver each of the
other Loan Documents on its behalf and to take such other action on its behalf under the provisions
of this Agreement and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to act as agent for
and on behalf of the Lenders (and the Bank Product Providers) on the conditions contained in this
Section 15
. Any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except
those expressly set forth herein or in the other Loan Documents, nor shall Agent have or be deemed
to have any fiduciary relationship with any Lender (or Bank Product Provider), and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against Agent. Without limiting the
generality of the foregoing, the use of the term agent in this Agreement or the other Loan
Documents with reference to Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law. Instead, such term is
used merely as a matter of market custom, and is intended to create or reflect only a
representative relationship between independent contracting parties. Each Lender hereby further
authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider shall be
deemed to authorize) Agent to act as the secured party under each of the Loan Documents that create
a Lien on any item of Collateral. Except as expressly otherwise provided in this Agreement, Agent
shall have and may use its sole discretion with respect to exercising or refraining from exercising
any discretionary rights or taking or
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
45
refraining from taking any actions that Agent expressly is
entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or
of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree
that Agent shall have the right to exercise the following powers as long as this Agreement remains
in effect: (a) maintain, in accordance with its customary business practices, ledgers and records
reflecting the status of the Obligations, the Collateral, the Collections of Parent and its
Subsidiaries, and related matters, (b) execute or file any and all financing or similar statements
or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and
other written agreements with respect to the Loan Documents, (c) make Advances, for itself or on
behalf of Lenders, as provided in the Loan Documents, (d) exclusively receive, apply, and
distribute the Collections of Parent and its Subsidiaries as provided in the Loan Documents, (e)
open and maintain such bank accounts and cash management arrangements as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the
Collateral and the Collections of Parent and its Subsidiaries, (f) perform, exercise, and enforce
any and all other rights and remedies of the Lender Group with respect to Parent or its
Subsidiaries, the Obligations, the Collateral, the Collections of Parent and its Subsidiaries, or
otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such
Lender Group Expenses as Agent may deem necessary or appropriate for the performance and
fulfillment of its functions and powers pursuant to the Loan Documents.
15.2
Delegation of Duties
. Agent may execute any of its duties under this Agreement
or any other Loan Document by or through agents, employees or attorneys in fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be
responsible for the negligence or misconduct of any agent or attorney in fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
15.3
Liability of Agent
. None of the Agent-Related Persons shall (a) be liable for
any action taken or omitted to be taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders (or
Bank Product Providers) for any recital, statement, representation or warranty made by Parent or
any of its Subsidiaries or Affiliates, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection with, this Agreement or
any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or any other Loan Document, or for any failure of Parent or its Subsidiaries or
any other party to any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lenders (or Bank Product Providers) to
ascertain or to inquire as to the observance or performance of any of the agreements contained in,
or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or
properties of Parent or its Subsidiaries.
15.4
Reliance by Agent
. Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter,
telegram, telefacsimile or other electronic method of transmission, telex or telephone message,
statement or other document or conversation believed by it to be genuine and correct and to have
been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal
counsel (including counsel to Borrower or counsel to any Lender), independent accountants and other
experts selected by Agent. Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless Agent shall first receive such advice
or concurrence of the Lenders as it deems appropriate and until such instructions are received,
Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall
first be indemnified to its reasonable satisfaction by the Lenders (and, if it so elects, the Bank
Product Providers) against any and all liability and expense that may be incurred by it by reason
of taking or continuing to take any such action. Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance
with a request or consent of the Required Lenders and such request and any action taken or failure
to act pursuant thereto shall be binding upon all of the Lenders (and Bank Product Providers).
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
46
15.5
Notice of Default or Event of Default
. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except with respect to
defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for
the account of the Lenders and, except with respect to Events of Default of which Agent has actual
knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to
this Agreement, describing such Default or Event of Default, and stating that such notice is a
notice of default. Agent promptly will notify the Lenders of its receipt of any such notice or
of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of
such Event of Default. Each Lender shall be solely responsible for giving any notices to its
Participants, if any. Subject to
Section 15.4
, Agent shall take such action with respect
to such Default or Event of Default as may be requested by the Required Lenders in accordance with
Section 9
; provided, however, that unless and until Agent has received any such request,
Agent may (but shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable.
15.6
Credit Decision
. Each Lender (and Bank Product Provider) acknowledges that none
of the Agent-Related Persons has made any representation or warranty to it, and that no act by
Agent hereinafter taken, including any review of the affairs of Parent and its Subsidiaries or
Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related
Person to any Lender (or Bank Product Provider). Each Lender represents (and by entering into a
Bank Product Agreement, each Bank Product Provider shall be deemed to represent) to Agent that it
has, independently and without reliance upon any Agent-Related Person and based on such due
diligence, documents and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower or any other Person party to a Loan Document, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrower. Each Lender also represents (and by
entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to represent)
that it will, independently and without reliance upon any Agent-Related Person and based on such
documents and information as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this Agreement and the
other Loan Documents, and to make such investigations as it deems necessary to inform itself as to
the business, prospects, operations, property, financial and other condition and creditworthiness
of Borrower or any other Person party to a Loan Document. Except for notices, reports, and other
documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have
any duty or responsibility to provide any Lender (or Bank Product Provider) with any credit or
other information concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of Borrower or any other Person party to a Loan Document that may
come into the possession of any of the Agent-Related Persons. Each Lender acknowledges (and by
entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge)
that Agent does not have any duty or responsibility, either initially or on a continuing basis
(except to the extent, if any, that is expressly specified herein) to provide such Lender (or Bank
Product Provider) with any credit or other information with respect to Borrower, its Affiliates or
any of their respective business, legal, financial or other affairs, and irrespective of whether
such information came into Agents or its Affiliates or representatives possession before or
after the date on which such Lender became a party to this Agreement (or such Bank Product Provider
entered into a Bank Product Agreement).
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
47
15.7
Costs and Expenses; Indemnification
. Agent may incur and pay Lender Group
Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and
fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including
court costs, attorneys fees and expenses, fees and expenses of financial accountants, advisors,
consultants, and appraisers, costs of collection by outside collection agencies, auctioneer fees
and expenses, and costs of security guards or insurance premiums paid to maintain the Collateral,
whether or not Borrower is obligated to reimburse Agent or Lenders for such expenses pursuant to
this Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient
amounts from the Collections of Parent and its Subsidiaries received by Agent to
reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any
amounts to Lenders (or Bank Product Providers). In the event Agent is not reimbursed for such
costs and expenses by Parent or its Subsidiaries, each Lender hereby agrees that it is and shall be
obligated to pay to Agent such Lenders ratable thereof. Whether or not the transactions
contemplated hereby are consummated, each of the Lenders, on a ratable basis, shall indemnify and
defend the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and
without limiting the obligation of Borrower to do so) from and against any and all Indemnified
Liabilities; provided, however, that no Lender shall be liable for the payment to any Agent-Related
Person of any portion of such Indemnified Liabilities resulting solely from such Persons gross
negligence or willful misconduct nor shall any Lender be liable for the obligations of any
Defaulting Lender in failing to make an Advance or other extension of credit hereunder. Without
limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lenders
ratable share of any costs or out of pocket expenses (including attorneys, accountants, advisors,
and consultants fees and expenses) incurred by Agent in connection with the preparation, execution,
delivery, administration, modification, amendment, or enforcement (whether through negotiations,
legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such
expenses by or on behalf of Borrower. The undertaking in this Section shall survive the payment of
all Obligations hereunder and the resignation or replacement of Agent.
15.8
Agent in Individual Capacity
. WFCF and its Affiliates may make loans to, issue
letters of credit for the account of, accept deposits from, provide Bank Products to, acquire
equity interests in, and generally engage in any kind of banking, trust, financial advisory,
underwriting, or other business with Parent and its Subsidiaries and Affiliates and any other
Person party to any Loan Document as though WFCF were not Agent hereunder, and, in each case,
without notice to or consent of the other members of the Lender Group. The other members of the
Lender Group acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider
shall be deemed to acknowledge) that, pursuant to such activities, WFCF or its Affiliates may
receive information regarding Parent or its Affiliates or any other Person party to any Loan
Documents that is subject to confidentiality obligations in favor of Parent or such other Person
and that prohibit the disclosure of such information to the Lenders (or Bank Product Providers),
and the Lenders acknowledge (and by entering into a Bank Product Agreement, each Bank Product
Provider shall be deemed to acknowledge) that, in such circumstances (and in the absence of a
waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts
to obtain), Agent shall not be under any obligation to provide such information to them. The terms
Lender and Lenders include WFCF in its individual capacity.
15.9
Successor Agent
. Agent may resign as Agent upon 30 days prior written notice to
the Lenders (unless such notice is waived by the Required Lenders) and Borrower (unless such notice
is waived by Borrower) and without any notice to the Bank Product Providers. If Agent resigns
under this Agreement, the Required Lenders shall be entitled, with (so long as no Event of Default
has occurred and is continuing) the consent of Borrower (such consent not to be unreasonably
withheld, delayed, or conditioned), appoint a successor Agent for the Lenders (and the Bank Product
Providers). If, at the time that Agents resignation is effective, it is acting as the Issuing
Lender or the Swing Lender, such resignation shall also operate to effectuate its resignation as
the Issuing Lender or the Swing Lender, as applicable, and it shall automatically be relieved of
any further obligation to issue Letters of Credit, to cause the Underlying Issuer to issue Letters
of Credit, or to make Swing Loans. If no successor Agent is appointed prior to the effective date
of the resignation of Agent, Agent may appoint, after consulting with the Lenders and Borrower, a
successor Agent. If Agent has materially breached or failed to perform any material provision of
this Agreement or of applicable law, the Required Lenders may agree in writing to remove and
replace Agent with a successor Agent from among the Lenders with (so long as no Event of Default
has occurred and is continuing) the consent of Borrower (such consent not to be unreasonably
withheld, delayed, or conditioned). In any such event, upon the acceptance of its appointment as
successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties
of the retiring Agent and the term Agent shall mean such successor Agent and the retiring Agents
appointment, powers, and duties as Agent shall be terminated. After any retiring Agents
resignation hereunder as Agent, the provisions of this
Section 15
shall inure to its
benefit
as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.
If no successor Agent has accepted appointment as Agent by the date which is 30 days following a
retiring Agents notice of resignation, the retiring Agents resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until
such time, if any, as the Lenders appoint a successor Agent as provided for above.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
48
15.10
Lender in Individual Capacity
. Any Lender and its respective Affiliates may
make loans to, issue letters of credit for the account of, accept deposits from, provide Bank
Products to, acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting, or other business with Parent and its Subsidiaries and Affiliates
and any other Person party to any Loan Documents as though such Lender were not a Lender hereunder
without notice to or consent of the other members of the Lender Group (or the Bank Product
Providers). The other members of the Lender Group acknowledge (and by entering into a Bank Product
Agreement, each Bank Product Provider shall be deemed to acknowledge) that, pursuant to such
activities, such Lender and its respective Affiliates may receive information regarding Parent or
its Affiliates or any other Person party to any Loan Documents that is subject to confidentiality
obligations in favor of Parent or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge (and by entering into a Bank Product
Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in such circumstances
(and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will
use its reasonable best efforts to obtain), such Lender shall not be under any obligation to
provide such information to them.
15.11
Collateral Matters
.
(a) The Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement,
each Bank Product Provider shall be deemed to authorize) Agent to release any Lien on any
Collateral (i) upon the termination of the Revolver Commitments and payment and satisfaction in
full by Borrower of all of the Obligations, (ii) constituting property being sold or disposed of if
a release is required or desirable in connection therewith and if Borrower certifies to Agent that
the sale or disposition is permitted under
Section 6.4
(and Agent may rely conclusively on
any such certificate, without further inquiry), (iii) constituting property in which Parent or its
Subsidiaries owned no interest at the time Agents Lien was granted nor at any time thereafter, or
(iv) constituting property leased to Parent or its Subsidiaries under a lease that has expired or
is terminated in a transaction permitted under this Agreement, or (v) constituting property of a
Subsidiary, the Stock of which is being sold in accordance with the terms of this Agreement. The
Loan Parties and the Lenders hereby irrevocably authorize (and by entering into a Bank Product
Agreement, each Bank Product Provider shall be deemed to authorize) Agent, based upon the
instruction of the Required Lenders, to (a) consent to, credit bid or purchase (either directly or
through one or more acquisition vehicles) all or any portion of the Collateral at any sale thereof
conducted under the provisions of the Bankruptcy Code, including under Section 363 of the
Bankruptcy Code, (b) credit bid or purchase (either directly or through one or more acquisition
vehicles) all or any portion of the Collateral at any sale or other disposition thereof conducted
under the provisions of the Code, including pursuant to Sections 9-610 or 9-620 of the Code, or (c)
credit bid or purchase (either directly or through one or more acquisition vehicles) all or any
portion of the Collateral at any other sale or foreclosure conducted by Agent (whether by judicial
action or otherwise) in accordance with applicable law. In connection with any such credit bid or
purchase, the Obligations owed to the Lenders and the Bank Product Providers shall be entitled to
be, and shall be, credit bid on a ratable basis (with Obligations with respect to contingent or
unliquidated claims being estimated for such purpose if the fixing or liquidation thereof would not
unduly delay the ability of Agent to credit bid or purchase at such sale or other disposition of
the Collateral and, if such claims cannot be estimated without unduly delaying the ability of Agent
to credit bid, then such claims shall be disregarded, not credit bid, and not entitled to any
interest in the asset or assets purchased by means of such credit bid) and the Lenders and the Bank
Product Providers whose Obligations are credit bid shall be entitled to receive interests (ratably
based upon the proportion of their Obligations credit bid in relation to the aggregate amount of
Obligations so credit bid) in the asset or assets so purchased (or in the Stock of the acquisition
vehicle or vehicles that are used to consummate such purchase). Except as provided
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
49
above, Agent
will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all
or substantially all of the Collateral, all of the Lenders (without requiring the authorization of
the Bank Product Providers), or (z) otherwise, the Required Lenders (without requiring the
authorization of the Bank Product Providers). Upon request by Agent or Borrower at any time, the
Lenders will (and if so requested, the Bank Product Providers will) confirm in writing Agents
authority to release any such Liens on particular types or items of Collateral pursuant to this
Section 15.11
; provided, however, that (1) Agent shall not be required to execute any
document necessary to evidence such release on terms that, in Agents opinion, would expose Agent
to liability or create any obligation or entail any consequence other than the release of such Lien
without recourse, representation, or warranty, and (2) such release shall not in any manner
discharge, affect, or impair the Obligations or any Liens (other than those expressly being
released) upon (or obligations of Borrower in respect of) all interests retained by Borrower,
including, the proceeds of any sale, all of which shall continue to constitute part of the
Collateral. The Lenders further hereby irrevocably authorize (and by entering into a Bank Product
Agreement, each Bank Product Provider shall be deemed to authorize) Agent, at its option and in its
sole discretion, to subordinate any Lien granted to or held by Agent under any Loan Document to the
holder of any Permitted Lien on such property if such Permitted Lien secures Permitted Purchase
Money Indebtedness.
(b) Agent shall have no obligation whatsoever to any of the Lenders (or the Bank Product
Providers) to assure that the Collateral exists or is owned by Parent or its Subsidiaries or is
cared for, protected, or insured or has been encumbered, or that Agents Liens have been properly
or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any
particular priority, or that any particular items of Collateral meet the eligibility criteria
applicable in respect thereof or whether to impose, maintain, reduce, or eliminate any particular
reserve hereunder or whether the amount of any such reserve is appropriate or not, or to exercise
at all or in any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or available to Agent
pursuant to any of the Loan Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission, or event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given
Agents own interest in the Collateral in its capacity as one of the Lenders and that Agent shall
have no other duty or liability whatsoever to any Lender (or Bank Product Provider) as to any of
the foregoing, except as otherwise provided herein.
15.12
Collateral Matters for UK Transaction Security
.
(a) Each Secured Party appoints the Agent to hold the UK Transaction Security, and all rights,
powers, discretions and remedies vested in the Agent by the UK Collateral Documents or by law, on
trust for the Secured Parties, and the Agent accepts that appointment.
(b) The Agent, its subsidiaries and associated companies may each retain for its own account
and benefit any fee, remuneration and profits paid to it in connection with (i) its activities
under the Loan Documents; and (ii) its engagement in any kind of banking or other business with any
Loan Party.
(c) Nothing in this Agreement constitutes the Agent as a trustee or fiduciary of, nor shall
the Agent have any duty or responsibility to, any Loan Party.
(d) The Agent shall have no duties or obligations to any other Person except for those which
are expressly specified in the Loan Documents or mandatorily required by applicable law.
(e) Unless a contrary indication appears in a UK Collateral Document, the Agent (in its
capacity as security trustee) shall (subject to its legal obligations) act (or refrain from taking
action) in accordance with any instructions given to it by Required Lenders.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
50
(f) In the absence of instructions from the Required Lenders (or, if appropriate, the Lenders)
the Agent shall act (or refrain from taking action) in such manner as it considers appropriate and
for the benefit of the Secured Parties.
(g) The Agent may: (i) assume that any instructions it receives from the Required Lenders are
in accordance with the Loan Documents and that those instructions have not been revoked, unless it
has received actual notice to the contrary and (ii) request instructions or clarification from the
Required Lenders about whether, and in what manner, it should exercise or refrain from exercising
any duty, right, power or discretion, and may refrain from acting until it receives such
instructions or clarification.
(h) The Agent may appoint one or more Delegates on such terms (which may include the power to
sub-delegate) and subject to such conditions as it thinks fit, to exercise and perform all or any
of the duties, rights, powers and discretions vested in it by any of the UK Collateral Documents
and shall not be obliged to supervise any Delegate or be responsible to any person for any loss
incurred by reason of any act, omission, misconduct or default on the part of any Delegate.
(i) The Agent may (whether for the purpose of complying with any law or regulation of any
overseas jurisdiction, or for any other reason) appoint (and subsequently remove) any person to act
jointly with the Agent either as a separate trustee or as a co-trustee on such terms and subject to
such conditions as the Agent thinks fit and with such of the duties, rights, powers and discretions
vested in the Agent by any UK Collateral Document as may be conferred by the instrument of
appointment of that person.
(j) The Agent shall notify the Secured Parties of the appointment of each Appointee (other
than a Delegate).
(k) The Agent may pay reasonable remuneration to any Delegate or Appointee, together with any
costs and expenses (including legal fees) reasonably incurred by the Delegate or Appointee in
connection with its appointment. All such remuneration, costs and expenses shall be treated, for
the purposes of this Agreement and any Fee Letter, as paid or incurred by the Agent.
(l) Each Delegate and each Appointee shall have every benefit, right, power and discretion and
the benefit of every exculpation (together Rights) of the Agent (in its capacity as security
trustee) under the UK Collateral Documents, and each reference to the Agent (where the context
requires that such reference is to the Agent in its capacity as security trustee) in the provisions
of the UK Collateral Documents which confer Rights shall be deemed to include a reference to each
Delegate and each Appointee.
(m) Each Secured Party confirms its approval of the UK Transaction Security and the UK
Collateral Documents and authorizes and instructs the Agent: (i) to execute and deliver the UK
Collateral Documents; (ii) to exercise the rights, powers and discretions given to the Agent (in
its capacity as security trustee) under or in connection with the UK Collateral Documents together
with any other incidental rights, powers and discretions; and (iii) to give any authorizations and
confirmations to be given by the Agent (in its capacity as security trustee) on behalf of the
Secured Parties under the UK Collateral Documents.
(n) The Agent may accept without inquiry the title (if any) which any Person may have to the
Charged Property.
(o) Each other Secured Party confirms that it does not wish to be registered as a joint
proprietor of any UK Transaction Security and accordingly authorizes: (a) the Agent to hold the UK
Transaction Security in its sole name (or in the name of any Delegate or Appointee) as trustee for
the Secured Parties; and (b) the Land Registry (or other relevant registry) to register the Agent
(or any Delegate or Appointee) as a sole proprietor of the UK Transaction Security.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
51
(p) Except to the extent that a UK Collateral Document otherwise requires, any moneys which
the Agent receives under or pursuant to a UK Collateral Document may be: (a) invested in any
investments which the Agent selects and which are authorized by applicable law; or (b) placed on
deposit at any bank or institution (including the Agent) on terms that the Agent thinks fit, in
each case in the name or under the control of the Agent, and the Agent shall hold those moneys,
together with any accrued income (net of any applicable Taxes) to the order of the Lenders, and
shall pay them to the Lenders on demand.
(q) On a disposal of any of the Charged Property which is permitted under the Loan Documents,
the Agent shall (at the cost of the Loan Parties) execute any release of the UK Collateral
Documents or other claim over that Charged Property and issue any certificates of
non-crystallisation of floating charges that may be required or take any other action that the
Agent considers desirable.
(r) The Agent shall not be liable for: (i) any defect in or failure of the title (if any)
which any person may have to any assets over which security is intended to be created by any UK
Collateral Document; any loss resulting from the investment or deposit at any bank of moneys which
it invests or deposits in a manner permitted by the UK Collateral Documents; (ii) the exercise of,
or the failure to exercise, any right, power or discretion given to it by or in connection with any
Loan Document or any other agreement, arrangement or document entered into, or executed in
anticipation of, under or in connection with, any Loan Document; or any shortfall which arises on
enforcing the UK Collateral Document.
(s) The Agent shall not be obligated to (i) obtain any authorization or environmental permit
in respect of any of the Charged Property or any of the UK Collateral Documents; (ii) hold in its
own possession any UK Collateral Document, title deed or other document relating to the Charged
Property or the UK Collateral Documents; (iii) perfect, protect, register, make any filing or give
any notice in respect of the UK Collateral Documents (or the order of ranking of any UK Collateral
Document), unless that failure arises directly from its own gross negligence or wilful misconduct;
or (iv) require any further assurances in relation to any UK Collateral Document.
(t) In respect of the UK Collateral Documents, the Agent shall not be obligated to (i) insure,
or require any other person to insure, the Charged Property; or (ii) make any enquiry or conduct
any investigation into the legality, validity, effectiveness, adequacy or enforceability of any
insurance existing over the Charged Property.
(u) In respect of the UK Collateral Documents, the Agent shall not have any obligation or duty
to any person for any loss suffered as a result of: (i) the lack or inadequacy of any insurance; or
(ii) the failure of the Agent to notify the insurers of any material fact relating to the risk
assumed by them, or of any other information of any kind, unless Required Lenders have requested it
to do so in writing and the Agent has failed to do so within fourteen (14) days after receipt of
that request.
(v) Every appointment of a successor Agent under the UK Collateral Documents shall be by deed.
(w) Section 1 of the Trustee Act 2000 shall not apply to the duty of the Agent in relation to
the trusts constituted by this Agreement.
(x) In the case of any conflict between the provisions of this Agreement and those of the
Trustee Act 1925 or the Trustee Act 2000, the provisions of this Agreement shall prevail to the
extent allowed by law, and shall constitute a restriction or exclusion for the purposes of the
Trustee Act 2000.
(y) This Section 15.12 shall be governed by and construed in accordance with the laws of
England & Wales
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
52
15.13
Restrictions on Actions by Lenders; Sharing of Payments
.
(a) Each of the Lenders agrees that it shall not, without the express written consent of
Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the written request
of Agent, set off against the Obligations, any amounts owing by such Lender to Parent or its
Subsidiaries or any deposit accounts of Parent or its Subsidiaries now or hereafter maintained with
such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested
to do so in writing by Agent, take or cause to be taken any action, including, the commencement of
any legal or equitable proceedings to enforce any Loan Document against Borrower or any Guarantor
or to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral.
(b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or
otherwise, any proceeds of Collateral or any payments with respect to the Obligations, except for
any such proceeds or payments received by such Lender from Agent pursuant to the terms of this
Agreement, or (ii) payments from Agent in excess of such Lenders Pro Rata Share of all such
distributions by Agent, such Lender promptly shall (A) turn the same over to Agent, in kind, and
with such endorsements as may be required to negotiate the same to Agent, or in immediately
available funds, as applicable, for the account of all of the Lenders and for application to the
Obligations in accordance with the applicable provisions of this Agreement, or (B) purchase,
without recourse or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably as among the
Lenders in accordance with their Pro Rata Shares;
provided
,
however
, that to the
extent that such excess payment received by the purchasing party is thereafter recovered from it,
those purchases of participations shall be rescinded in whole or in part, as applicable, and the
applicable portion of the purchase price paid therefor shall be returned to such purchasing party,
but without interest except to the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
15.14
Agency for Perfection
. Agent hereby appoints each other Lender (and each Bank
Product Provider) as its agent (and each Lender hereby accepts (and by entering into a Bank Product
Agreement, each Bank Product Provider shall be deemed to accept) such appointment) for the purpose
of perfecting Agents Liens in assets which, in accordance with Article 8 or Article 9, as
applicable, of the Code can be perfected by possession or control. Should any Lender obtain
possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly
upon Agents request therefor shall deliver possession or control of such Collateral to Agent or in
accordance with Agents instructions.
15.15
Payments by Agent to the Lenders
. All payments to be made by Agent to the
Lenders (or Bank Product Providers) shall be made by bank wire transfer of immediately available
funds pursuant to such wire transfer instructions as each party may designate for itself by written
notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment
(or any portion thereof) represents principal, premium, fees, or interest of the Obligations.
15.16
Concerning the Collateral and Related Loan Documents
. Each member of the Lender
Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents. Each
member of the Lender Group agrees (and by entering into a Bank Product Agreement, each Bank Product
Provider shall be deemed to agree) that any action taken by Agent in accordance with the terms of
this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of
its powers set forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders (and such Bank Product Provider).
15.17
Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other
Reports and Information
. By becoming a party to this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes
available, a copy of each field audit or examination report respecting Parent or its Subsidiaries
(each, a
Report
) prepared by or at the request of Agent, and Agent shall so furnish each
Lender with such Reports,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
53
(b) expressly agrees and acknowledges that Agent does not (i) make any representation or
warranty as to the accuracy of any Report, and (ii) shall not be liable for any information
contained in any Report,
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that Agent or other party performing any audit or examination will inspect only
specific information regarding Parent and its Subsidiaries and will rely significantly upon
Parents and its Subsidiaries books and records, as well as on representations of Borrowers
personnel,
(d) agrees to keep all Reports and other material, non-public information regarding Parent and
its Subsidiaries and their operations, assets, and existing and contemplated business plans in a
confidential manner in accordance with
Section 17.9
, and
(e) without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold Agent and any other Lender preparing a Report harmless from any
action the indemnifying Lender may take or fail to take or any conclusion the indemnifying Lender
may reach or draw from any Report in connection with any loans or other credit accommodations that
the indemnifying Lender has made or may make to Borrower, or the indemnifying Lenders
participation in, or the indemnifying Lenders purchase of, a loan or loans of Borrower, and (ii)
to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a
Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and
other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender
preparing a Report as the direct or indirect result of any third parties who might obtain all or
part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing
that Agent provide to such Lender a copy of any report or document provided by Parent or its
Subsidiaries to Agent that has not been contemporaneously provided by Parent or such Subsidiary to
such Lender, and, upon receipt of such request, Agent promptly shall provide a copy of same to such
Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to
request additional reports or information from Parent or its Subsidiaries, any Lender may, from
time to time, reasonably request Agent to exercise such right as specified in such Lenders notice
to Agent, whereupon Agent promptly shall request of Borrower the additional reports or information
reasonably specified by such Lender, and, upon receipt thereof from Parent or such Subsidiary,
Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to
Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each
Lender.
15.18
Several Obligations; No Liability
. Notwithstanding that certain of the Loan
Documents now or hereafter may have been or will be executed only by or in favor of Agent in its
capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of
Agent (if any) to make any credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their respective Revolver
Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time
outstanding, the amount of their respective Revolver Commitments. Nothing contained herein shall
confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect
of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to the Loan Documents
to the extent any such notice may be required, and no Lender shall have any obligation, duty, or
liability to any Participant of any other Lender. Except as provided in
Section 15.7
, no
member of the Lender Group shall have any liability for the acts of any other member of the Lender
Group. No Lender shall be responsible to Borrower or any other Person for any failure by any other
Lender (or Bank Product Provider) to fulfill its obligations to make credit available hereunder,
nor to advance for such Lender (or Bank Product Provider) or on its behalf, nor to take any other
action on behalf of such Lender (or Bank Product Provider) hereunder or in connection with the
financing contemplated herein.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
54
16. WITHHOLDING TAXES
.
(a) All payments made by Borrower hereunder or under any note or other Loan Document will be
made without setoff, counterclaim, or other defense. In addition, all such payments will be made
free and clear of, and without deduction or withholding for, any present or future Taxes, and in
the event any deduction or withholding of Taxes is required, Borrower shall comply with the next
sentence of this
Section 16(a)
. If any Taxes are so levied or imposed, Borrower agrees to
pay the full amount of such Taxes and such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement, any note, or Loan Document, including any amount
paid pursuant to this
Section 16(a)
after withholding or deduction for or on account of any
Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall
not be required to increase any such amounts if the increase in such amount payable results from
Agents or such Lenders own willful misconduct or gross negligence (as finally determined by a
court of competent jurisdiction). Borrower will furnish to Agent as promptly as possible after the
date the payment of any Tax is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by Borrower.
(b) Borrower agrees to pay any present or future stamp, value added or documentary taxes or
any other excise or property taxes, charges, or similar levies that arise from any payment made
hereunder or from the execution, delivery, performance, recordation, or filing of, or otherwise
with respect to this Agreement or any other Loan Document.
(c) If a Lender or Participant is entitled to claim an exemption or reduction from United
States withholding tax, such Lender or Participant agrees with and in favor of Agent, to deliver to
Agent (or, in the case of a Participant, to the Lender granting the participation only) one of the
following before receiving its first payment under this Agreement:
(i) if such Lender or Participant is entitled to claim an exemption from United States
withholding tax pursuant to the portfolio interest exception, (A) a statement of the Lender or
Participant, signed under penalty of perjury, that it is not a (I) a bank as described in Section
881(c)(3)(A) of the IRC, (II) a 10% shareholder of Borrower (within the meaning of Section
871(h)(3)(B) of the IRC), or (III) a controlled foreign corporation related to Borrower within the
meaning of Section 864(d)(4) of the IRC, and (B) a properly completed and executed IRS Form W-8BEN
or Form W-8IMY (with proper attachments);
(ii) if such Lender or Participant is entitled to claim an exemption from, or a reduction of,
withholding tax under a United States tax treaty, a properly completed and executed copy of IRS
Form W-8BEN;
(iii) if such Lender or Participant is entitled to claim that interest paid under this
Agreement is exempt from United States withholding tax because it is effectively connected with a
United States trade or business of such Lender, a properly completed and executed copy of IRS Form
W-8ECI;
(iv) if such Lender or Participant is entitled to claim that interest paid under this
Agreement is exempt from United States withholding tax because such Lender or Participant serves as
an intermediary, a properly completed and executed copy of IRS Form W-8IMY (with proper
attachments); or
(v) a properly completed and executed copy of any other form or forms, including IRS Form W-9,
as may be required under the IRC or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding or backup withholding tax.
Each Lender or Participant shall provide new forms (or successor forms) upon the expiration or
obsolescence of any previously delivered forms and to promptly notify Agent (or, in the case of a
Participant, to the Lender
granting the participation only) of any change in circumstances which would modify or render
invalid any claimed exemption or reduction.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
55
(d) Subject to
Section 16(l)
, if a Lender or Participant claims an exemption from
withholding tax in a jurisdiction other than the United States, such Lender or such Participant
agrees with and in favor of Agent, to deliver to Agent (or, in the case of a Participant, to the
Lender granting the participation only) any such form or forms, as may be required under the laws
of such jurisdiction as a condition to exemption from, or reduction of, foreign withholding or
backup withholding tax before receiving its first payment under this Agreement, but only if such
Lender or such Participant is legally able to deliver such forms. Each Lender and each Participant
shall provide new forms (or successor forms) upon the expiration or obsolescence of any previously
delivered forms and to promptly notify Agent (or, in the case of a Participant, to the Lender
granting the participation only) of any change in circumstances which would modify or render
invalid any claimed exemption or reduction.
(e) If a Lender or Participant claims exemption from, or reduction of, withholding tax and
such Lender or Participant sells, assigns, grants a participation in, or otherwise transfers all or
part of the Obligations of Borrower to such Lender or Participant, such Lender or Participant
agrees to notify Agent (or, in the case of a sale of a participation interest, to the Lender
granting the participation only) of the percentage amount in which it is no longer the beneficial
owner of Obligations of Borrower to such Lender or Participant. To the extent of such percentage
amount, Agent will treat such Lenders or such Participants documentation provided pursuant to
Section 16(c)
or
16(d)
as no longer valid. With respect to such percentage amount,
such Participant or Assignee will, if legally permissible, provide new documentation, pursuant to
Section 16(c)
or
16(d)
, if applicable. Borrower agrees that each Participant shall
be entitled to the benefits of this Section 16 with respect to its participation in any portion of
the Revolver Commitments and the Obligations so long as such Participant complies with the
obligations set forth in this
Section 16
with respect thereto.
(f) If a Lender or a Participant is entitled to a reduction in the applicable withholding tax,
Agent (or, in the case of a Participant, to the Lender granting the participation) may withhold
from any interest payment to such Lender or such Participant an amount equivalent to the applicable
withholding tax after taking into account such reduction. If the forms or other documentation
required by
Section 16(c)
or
16(d)
are not delivered to Agent (or, in the case of a
Participant, to the Lender granting the participation), then Agent (or, in the case of a
Participant, to the Lender granting the participation) may withhold from any interest payment to
such Lender or such Participant not providing such forms or other documentation an amount
equivalent to the applicable withholding tax.
(g) If the IRS or any other Governmental Authority of the United States or other jurisdiction
asserts a claim that Agent (or, in the case of a Participant, to the Lender granting the
participation) did not properly withhold tax from amounts paid to or for the account of any Lender
or any Participant due to a failure on the part of the Lender or any Participant (because the
appropriate form was not delivered, was not properly executed, or because such Lender failed to
notify Agent (or such Participant failed to notify the Lender granting the participation) of a
change in circumstances which rendered the exemption from, or reduction of, withholding tax
ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless (or, in
the case of a Participant, such Participant shall indemnify and hold the Lender granting the
participation harmless) for all amounts paid, directly or indirectly, by Agent (or, in the case of
a Participant, to the Lender granting the participation), as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent
(or, in the case of a Participant, to the Lender granting the participation only) under this
Section 16
, together with all costs and expenses (including attorneys fees and expenses).
The obligation of the Lenders and the Participants under this subsection shall survive the payment
of all Obligations and the resignation or replacement of Agent.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
56
(h) If Agent or a Lender determines, in its sole discretion, that it has received a refund of
any Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has
paid additional amounts pursuant to this
Section 16
, so long as no Default or Event of
Default has occurred and is continuing, it shall pay over such refund to Borrower (but only to the
extent of payments made, or additional amounts paid, by Borrower under this
Section 16
with
respect to Taxes giving rise to such a refund), net of all out-of-pocket expenses of Agent or such
Lender and without interest (other than any interest paid by the relevant Governmental Authority
with respect to such a refund); provided, that Borrower, upon the request of Agent or such Lender,
agrees to repay the amount paid over to Borrower (plus any penalties, interest or other charges,
imposed by the relevant Governmental Authority, other than such penalties, interest or other
charges imposed as a result of the willful misconduct or gross negligence of Agent hereunder) to
Agent or such Lender in the event Agent or such Lender is required to repay such refund to such
Governmental Authority. Notwithstanding anything in this Agreement to the contrary, this
Section 16
shall not be construed to require Agent or any Lender to make available its tax
returns (or any other information which it deems confidential) to Borrower or any other Person.
(i) WFCF, in its capacity as a Lender, hereby represents and warrants to Borrower that it is a
Treaty Lender at the date of this Agreement. Treaty Lender means, in relation to any Lender,
that the Lender: (i) is a resident of a Treaty State for the purposes of the relevant Treaty, and
is entitled to the full benefit of that Treaty with respect to interest payments, (ii) is the
beneficial owner of any payments made hereunder by Borrower for the purposes of the relevant
Treaty, and (iii) does not carry on a business in any state other than the Treaty State through a
permanent establishment with which that Lenders receipt of any payments hereunder is effectively
connected. Treaty State means a jurisdiction having a Treaty with the United Kingdom which makes
provision for full exemption from Tax imposed by the United Kingdom on any payment of interest.
Treaty means a double taxation convention.
(j) Notwithstanding anything else in this Agreement, in respect of United Kingdom Taxes only,
so long as no Event of Default shall have occurred and be continuing, no Lender shall be able to
assign the benefit of Section 16(a) (pursuant to Section 13 or otherwise) unless the Assignee
represents to Borrower Agent, Agent, and the assigning Lender that it is a Treaty Lender or a
Qualifying Lender at the date of that assignment. Qualifying Lender means a bank within the
charge to United Kingdom corporation tax or a company resident in the United Kingdom for United
Kingdom Tax purposes (provided that such company or bank does not carry on any business through a
permanent establishment outside of the United Kingdom with which that Lenders receipt of any
payments hereunder is effectively connected).
(k)
Section 16(d)
shall not apply where a Lender claims an exemption from withholding
tax in the United Kingdom and that Lender wishes the HMRC DT Treaty Passport Scheme to apply to
this Agreement and has notified the Borrower in writing of its scheme reference number and its
jurisdiction of tax residence. Each Lender and each Participant shall provide new details (or
successor details) upon the expiration or obsolescence of any previously delivered details and to
promptly notify Agent (or, in the case of a Participant, to the Lender granting the participation
only) of any change in circumstances which would modify or render invalid any claimed exemption or
reduction claimed under the HMRC DT Treaty Passport Scheme.
(l) WFCF, in its capacity as Lender, holds a passport under the HMRC DT Treaty Passport
scheme, and wishes that scheme to apply to this Agreement, for its own benefit and without
liability to any Loan Party. The HMRC DT Treaty Passport scheme number for WFCF is [***] and its
jurisdiction of tax residence is the United States of America. The Borrower shall accordingly file
a duly completed form DTTP2 in respect of WFCF as Lender with HM Revenue & Customs within 30 days
of the date of this Agreement and shall promptly provide the Lender with a copy of that filing.
Each Lender and each Participant shall provide new details (or successor details) upon the
expiration or obsolescence of any previously delivered details and to promptly notify Agent (or, in
the case of a Participant, to the Lender granting the participation only) of any change in
circumstances which would modify or render invalid any claimed exemption or reduction claimed under
the HMRC DT Treaty Passport Scheme.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
57
17. GENERAL PROVISIONS
.
17.1
Effectiveness
. This Agreement shall be binding and deemed effective when
executed by Parent, Borrower, Agent, and each Lender whose signature is provided for on the
signature pages hereof.
17.2
Section Headings
. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything contained in each
Section applies equally to this entire Agreement.
17.3
Interpretation
. Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed against the Lender Group or Parent or Borrower, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and
shall be construed and interpreted according to the ordinary meaning of the words used so as to
accomplish fairly the purposes and intentions of all parties hereto.
17.4
Severability of Provisions
. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
17.5
Bank Product Providers
. Each Bank Product Provider shall be deemed a third party
beneficiary hereof and of the provisions of the other Loan Documents for purposes of any reference
in a Loan Document to the parties for whom Agent is acting. Agent hereby agrees to act as agent
for such Bank Product Providers and, by virtue of entering into a Bank Product Agreement, the
applicable Bank Product Provider shall be automatically deemed to have appointed Agent as its agent
and to have accepted the benefits of the Loan Documents; it being understood and agreed that the
rights and benefits of each Bank Product Provider under the Loan Documents consist exclusively of
such Bank Product Providers being a beneficiary of the Liens and security interests (and, if
applicable, guarantees) granted to Agent and the right to share in payments and collections out of
the Collateral as more fully set forth herein. In addition, each Bank Product Provider, by virtue
of entering into a Bank Product Agreement, shall be automatically deemed to have agreed that Agent
shall have the right, but shall have no obligation, to establish, maintain, relax, or release
reserves in respect of the Bank Product Obligations and that if reserves are established there is
no obligation on the part of Agent to determine or insure whether the amount of any such reserve is
appropriate or not. In connection with any such distribution of payments or proceeds of
Collateral, Agent shall be entitled to assume no amounts are due or owing to any Bank Product
Provider unless such Bank Product Provider has provided a written certification (setting forth a
reasonably detailed calculation) to Agent as to the amounts that are due and owing to it and such
written certification is received by Agent a reasonable period of time prior to the making of such
distribution. Agent shall have no obligation to calculate the amount due and payable with respect
to any Bank Products, but may rely upon the written certification of the amount due and payable
from the relevant Bank Product Provider. In the absence of an updated certification, Agent shall
be entitled to assume that the amount due and payable to the relevant Bank Product Provider is the
amount last certified to Agent by such Bank Product Provider as being due and payable (less any
distributions made to such Bank Product Provider on account thereof). Borrower may obtain Bank
Products from any Bank Product Provider, although Borrower is not required to do so. Borrower
acknowledges and agrees that no Bank Product Provider has committed to provide any Bank Products
and that the providing of Bank Products by any Bank Product Provider is in the sole and absolute
discretion of such Bank Product Provider. Notwithstanding anything to the contrary in this
Agreement or any other Loan Document, no provider or holder of any Bank Product shall have any
voting or approval rights hereunder (or be deemed a Lender) solely by virtue of its status as the
provider or holder of such agreements or products or the Obligations owing thereunder, nor shall
the consent of any such provider or holder be required (other than in their capacities as Lenders,
to the extent applicable) for any matter hereunder or under any of the other Loan Documents,
including as to any matter relating to the Collateral or the release of Collateral or Guarantors.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
58
17.6
Debtor-Creditor Relationship
. The relationship between the Lenders and Agent, on
the one hand, and the Loan Parties, on the other hand, is solely that of creditor and debtor. No
member of the Lender Group has (or shall be deemed to have) any fiduciary relationship or duty to
any Loan Party arising out of or in connection with the Loan Documents or the transactions
contemplated thereby, and there is no agency or joint venture relationship between the members of
the Lender Group, on the one hand, and the Loan Parties, on the other hand, by virtue of any Loan
Document or any transaction contemplated therein.
17.7
Counterparts; Electronic Execution
. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement
by telefacsimile or other electronic method of transmission shall be equally as effective as
delivery of an original executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of transmission also
shall deliver an original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document
mutatis mutandis
.
17.8
Revival and Reinstatement of Obligations
. If the incurrence or payment of the
Obligations by Borrower or Guarantor or the transfer to the Lender Group of any property should for
any reason subsequently be asserted or declared to be void or voidable under any state or federal
law relating to creditors rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, or other voidable or recoverable payments of money or
transfers of property (each, a
Voidable Transfer
), and if the Lender Group is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the
advice of counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender
Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of the Lender Group related thereto, the liability of Borrower or Guarantor
automatically shall be revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
17.9
Confidentiality
.
(a) Agent and Lenders each individually (and not jointly or jointly and severally) agree that
material, non-public information regarding Parent and its Subsidiaries, their operations, assets,
and existing and contemplated business plans (
Confidential Information
) shall be treated
by Agent and the Lenders in a confidential manner, and shall not be disclosed by Agent and the
Lenders to Persons who are not parties to this Agreement, except: (i) to attorneys for and other
advisors, accountants, auditors, and consultants to any member of the Lender Group and to
employees, directors and officers of any member of the Lender Group (the Persons in this clause
(i),
Lender Group Representatives
) on a need to know basis in connection with this
Agreement and the transactions contemplated hereby and on a confidential basis, (ii) to
Subsidiaries and Affiliates of any member of the Lender Group (including the Bank Product
Providers), provided that any such Subsidiary or Affiliate shall have agreed to receive such
information hereunder subject to the terms of this
Section 17.9
, (iii) as may be required
by regulatory authorities so long as such authorities are informed of the confidential nature of
such information, (iv) as may be required by statute, decision, or judicial or administrative
order, rule, or regulation; provided that (x) prior to any disclosure under this clause (iv), the
disclosing party agrees to provide Borrower with prior notice thereof, to the extent that it is
practicable to do so and to the extent that the disclosing party is permitted to provide such prior
notice to Borrower pursuant to the terms of the applicable statute, decision, or judicial or
administrative order, rule, or regulation and (y) any disclosure under this clause (iv) shall be
limited to the portion of the Confidential Information as may be required by such statute,
decision, or judicial or administrative order, rule, or regulation, (v) as may be agreed to in
advance in writing by Borrower, (vi) as requested or required by any Governmental Authority
pursuant to any subpoena or other legal process, provided, that, (x) prior to any disclosure under
this clause (vi) the disclosing party agrees to provide Borrower with prior written notice thereof,
to the extent that it is practicable to do so and to the extent that the disclosing party is
permitted to provide such prior written notice to Borrower
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
59
pursuant to the terms of the subpoena or
other legal process and (y) any disclosure under this clause (vi) shall be limited to the portion of the Confidential Information as may be required
by such Governmental Authority pursuant to such subpoena or other legal process, (vii) as to any
such information that is or becomes generally available to the public (other than as a result of
prohibited disclosure by Agent or the Lenders or the Lender Group Representatives), (viii) in
connection with any assignment, participation or pledge of any Lenders interest under this
Agreement, provided that prior to receipt of Confidential Information any such assignee,
participant, or pledgee shall have agreed in writing to receive such Confidential Information
hereunder subject to the terms of this Section, (ix) in connection with any litigation or other
adversary proceeding involving parties hereto which such litigation or adversary proceeding
involves claims related to the rights or duties of such parties under this Agreement or the other
Loan Documents; provided, that, prior to any disclosure to any Person (other than any Loan Party,
Agent, any Lender, any of their respective Affiliates, or their respective counsel) under this
clause (ix) with respect to litigation involving any Person (other than Borrower, Agent, any
Lender, any of their respective Affiliates, or their respective counsel), the disclosing party
agrees to provide Borrower with prior written notice thereof, and (x) in connection with, and to
the extent reasonably necessary for, the exercise of any secured creditor remedy under this
Agreement or under any other Loan Document.
(b) Anything in this Agreement to the contrary notwithstanding, Agent may (i) provide
customary information concerning the terms and conditions of this Agreement and the other Loan
Documents to loan syndication and pricing reporting services, and (ii) use the name, logos, and
other insignia of Borrower and the Loan Parties and the Revolver Commitments provided hereunder in
any tombstone or comparable advertising, on its website or in other marketing materials of Agent.
17.10
Lender Group Expenses
. Borrower agrees to pay the Lender Group Expenses on the
earlier of (a) the first day of the month following the date on which such Lender Group Expenses
were first incurred or (b) the date on which demand therefor is made by Agent. Borrower agrees
that its obligations contained in this Section 17.10 shall survive payment or satisfaction in full
of all other Obligations.
17.11
Survival
. All representations and warranties made by the Loan Parties in the
Loan Documents and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon
by the other parties hereto and shall survive the execution and delivery of the Loan Documents and
the making of any loans and issuance of any Letters of Credit, regardless of any investigation made
by any such other party or on its behalf and notwithstanding that Agent, the Issuing Lender, or any
Lender may have had notice or knowledge of any Default or Event of Default or incorrect
representation or warranty at the time any credit is extended hereunder, and shall continue in full
force and effect as long as the principal of or any accrued interest on any loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Revolver Commitments have not expired or terminated.
17.12
Patriot Act
. Each Lender that is subject to the requirements of the Patriot Act
hereby notifies Borrower that pursuant to the requirements of the Act, it is required to obtain,
verify and record information that identifies Borrower, which information includes the name and
address of Borrower and other information that will allow such Lender to identify Borrower in
accordance with the Patriot Act. In addition, if Agent is required by law or regulation or
internal policies to do so, it shall have the right to periodically conduct (a) Patriot Act
searches, OFAC/PEP searches, and customary individual background checks for the Loan Parties and
(b) OFAC/PEP searches and customary individual background checks for the Loan Parties senior
management and key principals, and Borrower agrees to cooperate in respect of the conduct of such
searches and further agrees that the reasonable costs and charges for such searches shall
constitute Lender Expenses hereunder and be for the account of Borrower.
17.13
Integration
. This Agreement, together with the other Loan Documents, reflects
the entire understanding of the parties with respect to the transactions contemplated hereby and
shall not be contradicted or qualified by any other agreement, oral or written, before the date
hereof. The foregoing to the contrary notwithstanding, all Bank Product Agreements, if any, are
independent agreements governed by the
written provisions of such Bank Product Agreements, which will remain in full force and
effect, unaffected by any repayment, prepayments, acceleration, reduction, increase, or change in
the terms of any credit extended hereunder, except as otherwise expressly provided in such Bank
Product Agreement.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
60
17.14
Judgment Currency
. The specification under this Agreement of Dollars is of the
essence. Each Loan Partys obligations hereunder and under the other Loan Documents to make
payments in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any
judgment expressed in or converted into any currency other than Dollars, except to the extent that
such tender or recovery results in the effective receipt by the Lender Group of the full amount of
Dollars expressed to be payable to the Lender Group under this Agreement or the other Loan
Documents. If, for the purpose of obtaining or enforcing judgment in any court, it is necessary to
convert into or from any currency other than Dollars (such other currency being hereinafter
referred to as the Judgment Currency) an amount due in Dollars, the rate of exchange used shall
be that at which Agent could, in accordance with normal banking procedures, purchase Dollars with
the Judgment Currency on the Business Day preceding that on which final judgment is given. The
obligation of each Loan Party in respect of any such sum due from it to Agent or Lenders hereunder
shall, notwithstanding any judgment in such Judgment Currency, be discharged only to the extent
that, on the Business Day immediately following the date on which Agent or such Lenders receive any
sum adjudged to be so due in the Judgment Currency, Agent or such Lenders may, in accordance with
normal banking procedures, purchase Dollars with the Judgment Currency. If the Dollars so
purchased are less than the sum originally due to Agent or such Lenders in Dollars, each Loan Party
agrees, as a separate obligation and notwithstanding any such judgment, to indemnify Agent or such
Lenders, as the case may be, against such loss, and if the Dollars so purchased exceed the sum
originally due to Agent or Lenders in Dollars, Agent or Lenders, as the case may be, agree to remit
to such Loan Party such excess.
17.15
Amendment and Restatement of Original Credit Agreement
. This Agreement
constitutes an amendment and restatement of the Original Credit Agreement effective from and after
the Closing Date. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby are not intended by the parties to be, and shall not constitute, a
novation or an accord and satisfaction of the Obligations or any other obligations owing to Agent
or the Lenders under the Original Credit Agreement or any other loan document executed in
connection therewith. On the Closing Date, the credit facilities and the terms and conditions
thereof described in the Original Credit Agreement shall be amended and replaced in their entirety
by the credit facilities and the terms and conditions described herein, and all Advances and other
Obligations of Borrower outstanding as of such date under the Original Credit Agreement shall be
deemed to be Advances, Letters of Credit and Obligations outstanding under the corresponding
facilities described herein (such that all Obligations which are outstanding on the Closing Date
under the Original Credit Agreement shall become Obligations under this Agreement), without further
action by any Person. Each of the parties hereto hereby acknowledges and agrees that the grant of
the security interests in the Collateral pursuant to the Security Agreement and in any other Loan
Document (unless explicitly agreed to by Agent in writing) is not intended to, nor shall it be
construed, as constituting a release of any prior security interests granted by any Loan Party in
favor of Agent for the benefit of itself, the Lenders, Issuing Lender, Underlying Issuer and the
Bank Product Providers in or to any Collateral or any other Property of such Loan Party, but is
intended to constitute a restatement and reconfirmation of the prior security interests granted by
the Loan Parties in favor of Agent for the benefit of itself, the Lenders, Issuing Lender,
Underlying Issuer and the Bank Product Providers in and to the Collateral and a grant of a new
security interest in any Collateral that is not included in the prior security grants by the Loan
Parties and in favor of Agent for the benefit of itself, the Lenders, Issuing Lender, Underlying
Issuer and the Bank Product Providers to the extent such grant was not included in the prior
security grants.
[Signature pages to follow.]
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
61
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be executed and delivered
as of the date first above written.
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OCLARO, INC.
a Delaware corporation
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By:
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Title:
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OCLARO TECHNOLOGY LIMITED
,
a company incorporated under the laws of England and
Wales
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By:
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Title:
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WELLS FARGO CAPITAL FINANCE, INC.
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a California corporation,
as Agent and as a Lender
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By:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
62
Schedule 1.1
As used in the Agreement, the following terms shall have the following definitions:
Account
means an account (as that term is defined in the Code) and shall include:
(a) all book and other debts in existence from time to time (including, without limitation,
any sums whatsoever owed by banks or similar institutions) both present and future, actual or
contingent, due, owing to or which may become due, owing to or purchased or otherwise acquired by
any Loan Party; and
(b) the benefit of all rights whatsoever relating to the debts referred to in (a) above
including, without limitation, any related agreements, documents, rights and remedies (including,
without limitation, negotiable or non-negotiable instruments, guarantees, indemnities, legal and
equitable charges, reservation of proprietary rights, rights of tracing, unpaid vendors liens and
all similar connected or related rights and assets).
Account Debtor
means any Person who is obligated on an Account, chattel paper, or a
general intangible.
Accounting Changes
means changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants (or successor thereto or
any agency with similar functions).
Acquired Indebtedness
means Indebtedness of a Person whose assets or Stock is
acquired by Parent or any of its Subsidiaries in a Permitted Acquisition;
provided
,
however, that such Indebtedness (a) is Permitted Indebtedness, (b) was in existence prior to the
date of such Permitted Acquisition, and (c) was not incurred in connection with, or in
contemplation of, such Permitted Acquisition.
Acquisition
means (a) the purchase or other acquisition by a Person or its
Subsidiaries of all or substantially all of the assets of (or any division or business line of) any
other Person, or (b) the purchase or other acquisition (whether by means of a merger,
consolidation, or otherwise) by a Person or its Subsidiaries of all or substantially all of the
Stock of any other Person.
Additional Documents
has the meaning specified therefor in
Section 5.12
of
the Agreement.
Advances
has the meaning specified therefor in
Section 2.1(a)
of the
Agreement.
Affected Lender
has the meaning specified therefor in
Section 2.13(b)
of the
Agreement.
Affiliate
means, as applied to any Person, any other Person who controls, is
controlled by, or is under common control with, such Person. For purposes of this definition,
control means the possession, directly or indirectly through one or more intermediaries, of the
power to direct the management and policies of a Person, whether through the ownership of Stock, by
contract, or otherwise;
provided
,
however
, that, for purposes of the definition of
Eligible Accounts and
Section 6.12
of the Agreement: (a) any Person which owns directly or
indirectly 10% or more of the Stock having ordinary voting power for the election of directors or
other members of the governing body of a Person or 10% or more of the partnership or other
ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an
Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to
be an Affiliate of such Person, and (c) each partnership in which a Person is a general partner
shall be deemed an Affiliate of such Person.
Agent
has the meaning specified therefor in the preamble to the Agreement.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
1
Agent-Related Persons
means Agent, together with its Affiliates, officers,
directors, employees, attorneys, and agents.
Agents Account
means the Deposit Account of Agent identified on
Schedule
A-1
.
Agents Liens
means the Liens granted by Parent or its Subsidiaries to Agent under
the Loan Documents.
Agreement
means the Credit Agreement to which this
Schedule 1.1
is attached.
Application Event
means the occurrence of (a) a failure by Borrower to repay all of
the Obligations in full on the Maturity Date, or (b) an Event of Default and the election by Agent
or the Required Lenders to require that payments and proceeds of Collateral be applied pursuant to
Section 2.4(b)(ii)
of the Agreement.
Appointee
means any receiver, administrator or other insolvency officer appointed in
respect of any Loan Party or its assets.
Assignee
has the meaning specified therefor in
Section 13.1(a)
of the
Agreement.
Assignment and Acceptance
means an Assignment and Acceptance Agreement substantially
in the form of
Exhibit A-1
.
Authorized Person
means any one of the individuals identified on
Schedule
A-2
, as such schedule is updated from time to time by written notice from Borrower to Agent.
Availability
means, as of any date of determination, the amount that Borrower is
entitled to borrow as Advances under
Section 2.1
of the Agreement (after giving effect to
all then outstanding Obligations (other than Bank Product Obligations)).
Avanex China
means Avanex Communications Technologies Co. Ltd., a company organized
under the laws of The Republic of China.
Bank Product
means any one or more of the following financial products or
accommodations extended to Borrower by a Bank Product Provider: (a) credit cards, (b) credit card
processing services, (c) debit cards, (d) stored value cards, (e) purchase cards (including
so-called procurement cards or P-cards), (f) Cash Management Services, or (g) transactions
under Hedge Agreements.
Bank Product Agreements
means those agreements entered into from time to time by
Borrower with a Bank Product Provider in connection with the obtaining of any of the Bank Products.
Bank Product Collateralization
means providing cash collateral (pursuant to
documentation reasonably satisfactory to Agent) to be held by Agent for the benefit of the Bank
Product Providers (other than the Hedge Providers) in an amount determined by Agent as sufficient
to satisfy the reasonably estimated credit exposure with respect to the then existing Bank Product
Obligations (other than Hedge Obligations).
Bank Product Obligations
means (a) all obligations, liabilities, reimbursement
obligations, fees, or expenses owing by Borrower to any Bank Product Provider pursuant to or
evidenced by a Bank Product Agreement and irrespective of whether for the payment of money, whether
direct or indirect, absolute or contingent, due or to become due, now existing or hereafter
arising, (b) all Hedge Obligations, and (c) all amounts that Agent or any Lender is obligated to
pay to a Bank Product Provider as a result of Agent or such Lender purchasing participations from,
or executing guarantees or indemnities or reimbursement obligations to, a Bank Product Provider
with respect to the Bank Products provided by such Bank Product Provider to Borrower.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
2
Bank Product Provider
means Wells Fargo or any of its Affiliates (including WFCF).
Bank Product Reserve Amount
means, as of any date of determination, the Dollar
amount of reserves that Agent has determined it is necessary or appropriate to establish (based
upon the Bank Product Providers reasonable determination of their credit exposure in respect of
Bank Product Obligations) in respect of Bank Products then provided or outstanding.
Bankruptcy Code
means title 11 of the United States Code, as in effect from time to
time.
Base Rate
means the greatest of (a) the Federal Funds Rate plus
1
/
2
%, (b) the LIBOR
Rate (which rate shall be calculated based upon an Interest Period of 3 months and shall be
determined on a daily basis), plus 1 percentage point, and (c) the rate of interest announced, from
time to time, within Wells Fargo at its principal office in San Francisco as its prime rate, with
the understanding that the prime rate is one of Wells Fargos base rates (not necessarily the
lowest of such rates) and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto and is evidenced by the recording thereof after its
announcement in such internal publications as Wells Fargo may designate.
Base Rate Loan
means each portion of the Advances that bears interest at a rate
determined by reference to the Base Rate.
Base Rate Margin
means 1.50 percentage points.
Benefit Plan
means a defined benefit plan (as defined in Section 3(35) of ERISA)
for which Parent or any of its Subsidiaries or ERISA Affiliates has been an employer (as defined
in Section 3(5) of ERISA) within the past six years.
Board of Directors
means the board of directors (or comparable managers) of Parent
or any committee thereof duly authorized to act on behalf of the board of directors (or comparable
managers).
Borrower
has the meaning specified therefor in the preamble to the Agreement.
Borrowing
means a borrowing consisting of Advances made on the same day by the
Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent
in the case of a Protective Advance.
Borrowing Base
means, as of any date of determination, the result of 80% of the
amount of Eligible Accounts, minus the sum of (i) the amount, if any, of the Dilution Reserve, and
(ii) the aggregate amount of reserves, if any, established by Agent under
Section 2.1(c)
of
the Agreement.
Borrowing Base Certificate
means a certificate in the form of
Exhibit B-1
.
Business Day
means any day that is not a Saturday, Sunday, or other day on which
banks are authorized or required to close in the state of California or London (UK), except that,
if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term Business Day
also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London
interbank market.
Capital Expenditures
means, with respect to any Person for any period, the aggregate
of all expenditures by such Person and its Subsidiaries during such period that are capital
expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or
financed;
provided
, that Capital Expenditures shall not include expenditures made with
proceeds of insurance, condemnation awards or other settlements in respect of lost, destroyed,
damaged or condemned assets to the extent such expenditures are to repair or replace such assets as
permitted under the Agreement.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
3
Capitalized Lease Obligation
means that portion of the obligations under a Capital
Lease that is required to be capitalized in accordance with GAAP.
Capital Lease
means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Cash Equivalents
means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within 1 year from the date of
acquisition thereof, (b) marketable direct obligations issued or fully guaranteed by the United
Kingdom or any state of the United States or any political subdivision of any such state or any
public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at
the time of acquisition, having one of the two highest ratings obtainable from either Standard &
Poors Rating Group (
S&P
) or Moodys Investors Service, Inc. (
Moodys
), (c)
commercial paper maturing no more than 270 days from the date of creation thereof and, at the time
of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moodys, (d)
certificates of deposit, time deposits, overnight bank deposits or bankers acceptances maturing
within 1 year from the date of acquisition thereof issued by any bank organized under the laws of
the United States or of the United Kingdom or any state thereof or the District of Columbia or any
United States branch of a foreign bank having at the date of acquisition thereof combined capital
and surplus of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank that
satisfies the criteria described in clause (d) above, or (ii) any other bank organized under the
laws of the United States or any state thereof so long as the full amount maintained with any such
other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations of
any commercial bank satisfying the requirements of clause (d) of this definition or recognized
securities dealer having combined capital and surplus of not less than $250,000,000, having a term
of not more than seven days, with respect to securities satisfying the criteria in clauses (a) or
(d) above, (g) debt securities with maturities of six months or less from the date of acquisition
backed by standby letters of credit issued by any commercial bank satisfying the criteria described
in clause (d) above, and (h) Investments in money market funds substantially all of whose assets
are invested in the types of assets described in clauses (a) through (g) above.
Cash Management Services
means any cash management or related services including
treasury, depository, return items, overdraft, controlled disbursement, merchant store value
cards, e-payables services, electronic funds transfer, interstate depository network, automatic
clearing house transfer (including the Automated Clearing House processing of electronic funds
transfers through the direct Federal Reserve Fedline system) and other cash management
arrangements.
CFC
means a controlled foreign corporation (as that term is defined in the IRC).
Change of Control
means that (a) any person or group (within the meaning of
Sections 13(d) and 14(d) of the Exchange Act), becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 35%, or more, of the Stock of Parent
having the right to vote for the election of members of the Board of Directors of Parent, or (b) a
majority of the members of the Board of Directors of Parent do not constitute Continuing Directors,
or (c) any Loan Party ceases to own and control, directly or indirectly, 100% (or such lesser
percentage owned by such Loan Party as of the Closing Date) of the outstanding capital Stock of
each of its respective Subsidiaries existing as of the Closing Date, other than as a result of a
Permitted Disposition or as otherwise specifically permitted under the Agreement.
Charged Property
means all of the assets of the Loan Parties the subject of the UK
Transaction Security.
Closing Date
means the date of the making of the initial Advance (or other extension
of credit) under the Agreement.
Code
means the California Uniform Commercial Code, as in effect from time to time.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
4
Collateral
means all assets and interests in assets and proceeds thereof now owned
or hereafter acquired by Parent or its Subsidiaries in or upon which a Lien is granted by such
Person in favor of Agent or the Lenders under any of the Loan Documents.
Collateral Access Agreement
means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in
possession of, having a Lien upon, or having rights or interests in Parents or its Subsidiaries
books and records, Equipment, or Inventory, in each case, in form and substance reasonably
satisfactory to Agent.
Collections
means
all
cash, checks, notes, instruments, and other items of payment
(including insurance proceeds, cash proceeds of asset sales, rental proceeds, and tax refunds).
Compliance Certificate
means a certificate substantially in the form of
Exhibit
C-1
delivered by the chief financial officer of Parent to Agent.
Confidential Information
has the meaning specified therefor in
Section
17.9(a)
of the Agreement.
Continuing Director
means (a) any member of the Board of Directors who was a
director (or comparable manager) of Parent on the Closing Date, and (b) any individual who becomes
a member of the Board of Directors of Parent after the Closing Date if such individual was
approved, appointed or nominated for election to the Board of Directors of Parent by a majority of
the Continuing Directors, but excluding any such individual originally proposed for election in
opposition to the Board of Directors in office at the Closing Date in an actual or threatened
election contest relating to the election of the directors (or comparable managers) of Parent and
whose initial assumption of office resulted from such contest or the settlement thereof.
Control Agreement
means a control agreement, in form and substance reasonably
satisfactory to Agent, executed and delivered by Parent or one of its Subsidiaries, Agent, and the
applicable securities intermediary (with respect to a Securities Account) or bank (with respect to
a Deposit Account).
Controlled Account Agreement
has the meaning specified therefor in the Security
Agreement.
Copyright Security Agreement
has the meaning specified therefor in the Security
Agreement.
Daily Balance
means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.
Default
means an event, condition, or default that, with the giving of notice, the
passage of time, or both, would be an Event of Default.
Defaulting Lender
means any Lender that (a) has failed to fund any amounts required
to be funded by it under the Agreement on the date that it is required to do so under the Agreement
(including the failure to make available to Agent amounts required pursuant to a Settlement or to
make a required payment in connection with a Letter of Credit Disbursement), (b) notified Borrower,
Agent, or any Lender in writing that it does not intend to comply with all or any portion of its
funding obligations under the Agreement, (c) has made a public statement to the effect that it does
not intend to comply with its funding obligations under the Agreement or under other agreements
generally (as reasonably determined by Agent) under which it has committed to extend credit, (d)
failed, within 1 Business Day after written request by Agent, to confirm that it will comply with
the terms of the Agreement relating to its obligations to fund any amounts required to be funded by
it under the Agreement, (e) otherwise failed to pay over to Agent or any other Lender any other
amount required to be paid by it under the Agreement on the date that it is required to do so under
the Agreement, or (f) (i) becomes or is insolvent or has a parent company that has become or is
insolvent or (ii) becomes the subject of a bankruptcy or insolvency proceeding, or has had a
receiver, conservator, trustee, or
custodian or appointed for it, or has taken any action in furtherance of, or indicating its
consent to, approval of or acquiescence in any such proceeding or appointment or has a parent
company that has become the subject of a bankruptcy or insolvency proceeding, or has had a
receiver, conservator, trustee, or custodian appointed for it, or has taken any action in
furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or
appointment.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
5
Defaulting Lender Rate
means (a) for the first 3 days from and after the date the
relevant payment is due, the Base Rate, and (b) thereafter, the interest rate then applicable to
Advances that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto).
Delegate
means any delegate, agent, attorney or co-trustee appointed by the Agent
(in its capacity as security trustee) appointed under
Section 15.12(h)
of the Agreement.
Deposit Account
means any deposit account (as that term is defined in the Code).
Designated Account
means the Deposit Account of Borrower identified on
Schedule
D-1
.
Designated Account Bank
has the meaning specified therefor in
Schedule D-1
.
Dilution
means, as of any date of determination, a percentage, based upon the
experience of the immediately prior 90 consecutive days, that is the result of dividing the Dollar
amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive
items with respect to Borrowers Accounts during such period, by (b) Borrowers billings with
respect to Accounts during such period.
Dilution Reserve
means, as of any date of determination, an amount sufficient to
reduce the advance rate against Eligible Accounts by 1 percentage point for each percentage point
by which Dilution is in excess of 5%.
Dollars
or
$
means United States dollars.
Earn-Outs
shall mean unsecured liabilities of a Loan Party arising under an
agreement to make any deferred payment as a part of the Purchase Price for a Permitted Acquisition,
including performance bonuses or consulting payments in any related services, employment or similar
agreement, in an amount that is subject to or contingent upon the revenues, income, cash flow or
profits (or the like) of the underlying target.
EBITDA
means, with respect to any fiscal period, the sum of:
(a) Parents and its Subsidiaries consolidated net earnings (or loss) for such period, plus
(b) without duplication, the sum of the following amounts for such period, to the extent such
amounts were deducted in determining such consolidated net earnings (or loss) for such period: (i)
interest expense, plus (ii) income tax expense, plus (iii) depreciation and amortization, plus (iv)
non-cash extraordinary or unusual losses, plus (v) with respect to any Permitted Acquisition after
the Closing Date, costs, fees, charges, or expenses consisting of out-of-pocket expenses owed by
Parent or any of its Subsidiaries to any Person for services performed by such Person in connection
with such Permitted Acquisition incurred within 30 days of the consummation of such Permitted
Acquisition, (i) up to an aggregate amount for such Permitted Acquisition not to exceed the
greater of (1) $1,000,000 and (2) 10% of the Purchase Price of such Permitted Acquisition, plus
(vi) losses resulting from litigation settlements, plus (vii) non-cash exchange, translation, or
performance losses relating to any hedging transactions or foreign currency fluctuations, plus
(viii) non-cash impairment and non-cash charges related to the issuance of stock and options, plus
(ix) one time restructuring charges in connection with Permitted Restructuring Transaction in
amounts approved by Agent in writing; minus
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
6
(c) without duplication, the sum of the following amounts, to the extent such amounts were
included in determining such consolidated net earnings (or loss) for such period: (i) extraordinary
or unusual gains (including any gains from litigation settlements), plus (ii) interest income, plus
(iii) exchange, translation or performance gains relating to any hedging transactions or foreign
currency fluctuations.
Eligible Accounts
means, without duplication, (i) the Eligible [***] Accounts, (ii)
the Eligible Alcatel [***] Accounts, (iii) the Eligible [***] Accounts, (iv) Eligible [***]
Accounts, (v) Eligible [***] Accounts, (vi) Eligible [***] Accounts, (vii) Eligible [***] Accounts,
(viii) Eligible [***] Accounts, and (ix) those Accounts created by Borrower in the ordinary course
of its business, that arise out of its sale of goods or rendition of services, that comply with
each of the representations and warranties respecting Eligible Accounts made in the Loan Documents,
and that are not excluded as ineligible by virtue of one or more of the excluding criteria set
forth below; provided, however, that such criteria may be revised from time to time by Agent in
Agents Permitted Discretion to address the results of any audit performed by Agent from time to
time after the Closing Date. In determining the amount to be included, Eligible Accounts shall be
calculated net of customer deposits and unapplied cash. Eligible Accounts shall not include the
following:
(a) Accounts that the Account Debtor has failed to pay within 90 days of original invoice date
or Accounts with selling terms of more than 60 days,
(b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts
owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above,
(c) Accounts with respect to which the Account Debtor is an Affiliate of Borrower or an
employee or agent of Borrower or any Affiliate of Borrower,
(d) Accounts arising in a transaction wherein goods are placed on consignment or are sold
pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other
terms by reason of which the payment by the Account Debtor may be conditional,
(e) Accounts that are not payable in Dollars,
(f) Accounts with respect to which the Account Debtor either (i) does not maintain its chief
executive office or its registered office in the United States, Canada, the United Kingdom, or such
other juridiction(s) permitted by Agent in its Permitted Discretion, or (ii) is not organized or
incorporated under the laws of the United States, Canada, the United Kingdom, or such other
jurisdiction(s) permitted by Agent in its Permitted Discretion, or any state, province,
municipality, or other political subdivision thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other political subdivision
thereof, or of any department, agency, public corporation, or other instrumentality thereof,
unless, in each such case, (y) the Account is supported by an irrevocable letter of credit
satisfactory to Agent (as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Agent and is directly drawable by Agent, or (z) the Account is covered by credit
insurance in form, substance, and amount, and by an insurer, satisfactory to Agent,
(g) Accounts with respect to which the Account Debtor is either (i) the United States or any
department, agency, or instrumentality of the United States (exclusive, however, of Accounts with
respect to which Borrower has complied, to the reasonable satisfaction of Agent, with the
Assignment of Claims Act, 31 USC § 3727), or (ii) any state or other political subdivision of the
United States,
(h) Accounts with respect to which the Account Debtor is a creditor of Borrower, has or has
asserted a right of setoff, or has disputed its obligation to pay all or any portion of the
Account, to the extent of such claim, right of setoff, or dispute,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
7
(i) Accounts with respect to an Account Debtor whose total obligations owing to Borrower
exceed 10% (or 20% with respect to [***]) of all Eligible Accounts (such percentage, as applied to
a particular Account Debtor, being subject to reduction by Agent in its Permitted Discretion if the
creditworthiness of such Account Debtor deteriorates), to the extent of the obligations owing by
such Account Debtor in excess of such percentage; provided, however, that, in each case, the amount
of Eligible Accounts that are excluded because they exceed the foregoing percentage shall be
determined by Agent based on all of the otherwise Eligible Accounts prior to giving effect to any
eliminations based upon the foregoing concentration limit,
(j) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding,
is not Solvent, has gone out of business, or as to which Borrower has received notice of an
imminent Insolvency Proceeding or a material impairment of the financial condition of such Account
Debtor,
(k) Accounts with respect to which the Account Debtor is located in a state or jurisdiction
(e.g., New Jersey, Minnesota, and West Virginia) that requires, as a condition to access to the
courts of such jurisdiction, that a creditor qualify to transact business, file a business
activities report or other report or form, or take one or more other actions, unless Borrower has
so qualified, filed such reports or forms, or taken such actions (and, in each case, paid any
required fees or other charges), except to the extent that Borrower may qualify subsequently as a
foreign entity authorized to transact business in such state or jurisdiction and gain access to
such courts, without incurring any cost or penalty viewed by Agent to be significant in amount, and
such later qualification cures any access to such courts to enforce payment of such Account,
(l) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be
doubtful by reason of the Account Debtors financial condition,
(m) Accounts that are not subject to a valid and perfected first priority Agents Lien,
(n) Accounts with respect to which (i) the goods giving rise to such Account have not been
shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not
been performed and billed to the Account Debtor, or
(o) Accounts that represent the right to receive progress payments or other advance billings
that are due prior to the completion of performance by Borrower of the subject contract for goods
or services.
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of the definition of Eligible Accounts; (ii) [***] has not failed to
pay within the earlier of [***] days of original invoice date or 60 days after the due date; and
(iii) do not contain selling terms of more than [***] days.
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of the definition of Eligible Accounts; (ii) [***] has not failed to
pay within the earlier of [***] days of original invoice date or 60 days after the due date; and
(iii) do not contain selling terms of more than [***] days.
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of the definition of Eligible Accounts; (ii) [***] has not failed to
pay within the earlier of [***] days of original invoice date or 60 days after the due date; and
(iii) do not contain selling terms of more than [***] days.
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of
the definition of Eligible Accounts; (ii) [***] has not failed to pay within the earlier of
[***] days of original invoice date or 60 days after the due date; and (iii) do not contain selling
terms of more than [***] days.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
8
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of the definition of Eligible Accounts; (ii) [***] has not failed to
pay within the earlier of [***] days of original invoice date or 60 days after the due date; and
(iii) do not contain selling terms of more than [***] days.
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of the definition of Eligible Accounts; (ii) [***] has not failed to
pay within the earlier of [***] days of original invoice date or 60 days after the due date; and
(iii) do not contain selling terms of more than [***] days.
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of the definition of Eligible Accounts; (ii) [***] has not failed to
pay within the earlier of [***] days of original invoice date or 60 days after the due date; and
(iii) do not contain selling terms of more than [***] days.
Eligible Transferee
means (a) a commercial bank organized under the laws of the
United States, or any state thereof, and having total assets in excess of $250,000,000, (b) a
commercial bank organized under the laws of any other country which is a member of the Organization
for Economic Cooperation and Development or a political subdivision of any such country and which
has total assets in excess of $250,000,000, provided that such bank is acting through a branch or
agency located in the United States, (c) a finance company, insurance company, or other financial
institution or fund that is engaged in making, purchasing, or otherwise investing in commercial
loans in the ordinary course of its business and having (together with its Affiliates) total assets
in excess of $250,000,000, (d) any Affiliate (other than individuals) of a pre-existing Lender, (e)
so long as no Event of Default has occurred and is continuing, any other Person approved by Agent
and Borrower (such approval by Borrower not to be unreasonably withheld, conditioned or delayed),
and (f) during the continuation of an Event of Default, any other Person approved by Agent.
Eligible [***] Accounts
means Accounts created by Borrower owing from [***] to
Borrower that (i) would otherwise constitute Eligible Accounts but for the exclusionary criteria
set forth in parts (a) or (f) of the definition of Eligible Accounts; (ii) do not exceed $2,000,000
in the aggregate; (iii) [***] has not failed to pay within the earlier of [***] days of original
invoice date or 60 days after the due date; (iv) do not contain selling terms of more than [***]
days; and (v) are supported by an irrevocable letter of credit satisfactory to Agent (as to form,
substance, and issuer or domestic confirming bank) that has been delivered to Agent.
Environmental Action
means any written complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative proceeding,
judgment, letter, or other written communication from any Governmental Authority, or any third
party involving violations of Environmental Laws or releases of Hazardous Materials (a) from any
assets, properties, or businesses of Parent, any Subsidiary of Parent, or any of their predecessors
in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which
received Hazardous Materials generated by any Parent, any Subsidiary of Parent, or any of their
predecessors in interest.
Environmental Law
means any applicable federal, state, provincial, foreign or local
statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and
enforceable written policy, or rule of common law now or hereafter in effect and in each case as
amended, or any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, in each case, to the extent binding on Parent or
its Subsidiaries, relating to the environment, the effect of the environment on employee health, or
Hazardous Materials, in each case as amended from time to time.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
9
Environmental Liabilities
means all liabilities, monetary obligations, losses,
damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel,
experts, or consultants, and costs of investigation and feasibility studies), fines, penalties,
sanctions, and interest incurred as a result of any claim or demand, or Remedial Action required,
by any Governmental Authority or any third party, and which relate to any Environmental Action.
Environmental Lien
means any Lien in favor of any Governmental Authority for
Environmental Liabilities.
Equipment
means equipment (as that term is defined in the Code).
ERISA
means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute thereto.
ERISA Affiliate
means (a) any Person subject to ERISA whose employees are treated as
employed by the same employer as the employees of Parent or its Subsidiaries under IRC Section
414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the
same employer as the employees of Parent or its Subsidiaries under IRC Section 414(c), (c) solely
for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA
that is a member of an affiliated service group of which Parent or any of its Subsidiaries is a
member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any Person subject to ERISA that is a party to an arrangement with Parent or any of its
Subsidiaries and whose employees are aggregated with the employees of Parent or its Subsidiaries
under IRC Section 414(o).
Event of Default
has the meaning specified therefor in
Section 8
of the
Agreement.
Excess Availability
means, as of any date of determination, the amount equal to
Availability
minus
the aggregate amount, if any, of all trade payables of Parent and its
Subsidiaries aged in excess of historical levels with respect thereto and all book overdrafts of
Parent and its Subsidiaries in excess of historical practices with respect thereto, in each case as
determined by Agent in its Permitted Discretion.
Exchange Act
means the Securities Exchange Act of 1934, as in effect from time to
time.
Excluded Accounts
means (i) the collateral deposit accounts of Parent at US Bank
National Association for Parents corporate credit cards issued by US Bank National Association, so
long as the balance of such deposit account at no time exceeds $125,000, and (ii) the collateral
deposit account for the Borrower maintained with Barclays Bank PLC which supports a government
import bond issued by Barclays Bank PLC, so long as the balance of such deposit account at no time
exceeds $250,000.
Existing Letters of Credit
means those letters of credit described on
Schedule
E-1
to the Agreement.
Fee Letter
means that certain fee letter, dated as of even date with the Agreement,
between Borrower and Agent, in form and substance reasonably satisfactory to Agent.
Federal Funds Rate
means, for any period, a fluctuating interest rate per annum
equal to, for each day during such period, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the quotations for
such day on such transactions received by Agent from three Federal funds brokers of recognized
standing selected by it.
Fixed Charges
means, with respect to any fiscal quarter and with respect to Parent
and its Subsidiaries determined on a consolidated basis in accordance with GAAP, the sum, without
duplication, of (a)
Interest Expense accrued during such period, (b) principal payments in respect of Indebtedness
that are required to be paid during such period, and (c) all federal, state, and local income taxes
accrued during such period.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
10
Fixed Charge Coverage Ratio
means, with respect to Parent and its Subsidiaries on a
consolidated basis measured quarterly as of the last day of each quarter for the most recently
ended 12 month period, the ratio of (i) EBITDA for such period minus Capital Expenditures made (to
the extent not already incurred in a prior period) or incurred during such period, to (ii) Fixed
Charges for such period.
Foreign Lender
means any Lender or Participant that is not a United States person
within the meaning of IRC section
7701(a)(30).
Foreign Security Documents
means, collectively, the documents set forth on
Schedule F-1
together with the documents, agreements, or instruments executed or delivered
in connection therewith, and Foreign Security Document means any one of them.
Funding Date
means the date on which a Borrowing occurs.
Funding Losses
has the meaning specified therefor in
Section 2.12(b)(ii)
of
the Agreement.
GAAP
means in respect of the Parent generally accepted accounting principles as in
effect from time to time in the United States, consistently applied;
provided
,
however
, that all calculations relative to liabilities shall be made without giving effect
to Statement of Financial Accounting Standards No. 159, and, in respect of the Borrower, generally
accepted accounting principles as in effect from time to time in United Kingdom, consistently
applied.
Governing Documents
means, with respect to any Person, the certificate or articles
of incorporation, by-laws, or other organizational documents of such Person.
Governmental Authority
means any federal, state, local, or other governmental or
administrative body, instrumentality, board, department, or agency or any court, tribunal,
administrative hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.
Guarantors
means (a) each Subsidiary of Parent that is a guarantor on the Closing
Date, (b) Parent, and (c) each other Person that becomes a guarantor after the Closing Date
pursuant to
Section 5.11
of the Agreement, and
Guarantor
means any one of them.
Guaranty
means one or more general continuing guaranties, dated as of even date with
the Agreement, executed and delivered by one or more Guarantors in favor of Agent, for the benefit
of the Lender Group and the Bank Product Providers, in form and substance reasonably satisfactory
to Agent.
Hazardous Materials
means (a) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable laws or regulations as hazardous substances, hazardous
materials, hazardous wastes, toxic substances, or any other formulation intended to define,
list, or classify substances by reason of deleterious properties such as ignitability, corrosivity,
reactivity, carcinogenicity, reproductive toxicity, or EP toxicity, (b) oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids,
produced waters, and other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any
radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil
or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per
million.
Hedge Agreement
means a swap agreement as that term is defined in Section
101(53B)(A) of the Bankruptcy Code.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
11
Hedge Obligations
means any and all obligations or liabilities, whether absolute or
contingent, due or to become due, now existing or hereafter arising, of Borrower arising under,
owing pursuant to, or existing in respect of Hedge Agreements entered into with one or more of the
Bank Product Providers.
Hedge Provider
means Wells Fargo or any of its Affiliates.
Holdout Lender
has the meaning specified therefor in
Section 14.2(a)
of the
Agreement.
Inactive Subsidiaries
means, collectively, [***], and Inactive Subsidiary means
any one of them.
Indebtedness
as to any Person means (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations in respect of letters of credit, bankers
acceptances, or other financial products, (c) all obligations of such Person as a lessee under
Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such
Person, irrespective of whether such obligation or liability is assumed, (e) all obligations of
such Person to pay the deferred purchase price of assets (other than trade payables incurred in the
ordinary course of business and repayable in accordance with customary trade practices), (f) all
obligations of such Person owing under Hedge Agreements (which amount shall be calculated based on
the amount that would be payable by such Person if the Hedge Agreement were terminated on the date
of determination), (g) any Prohibited Preferred Stock of such Person, and (h) any obligation of
such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed,
endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that
constitutes Indebtedness under any of clauses (a) through (g) above. For purposes of this
definition, (i) the amount of any Indebtedness represented by a guaranty or other similar
instrument shall be the lesser of the principal amount of the obligations guaranteed and still
outstanding and the maximum amount for which the guaranteeing Person may be liable pursuant to the
terms of the instrument embodying such Indebtedness, and (ii) the amount of any Indebtedness
described in clause (d) above shall be the lower of the amount of the obligation and the fair
market value of the assets of such Person securing such obligation.
Indemnified Liabilities
has the meaning specified therefor in
Section 10.3
of the Agreement.
Indemnified Person
has the meaning specified therefor in
Section 10.3
of the
Agreement.
Insolvency Proceeding
means any proceeding commenced by or against any Person under
any provision of the Bankruptcy Code, Insolvency Act of 1986 of England and Wales, the Enterprise
Act 2002 of England and Wales and the Companies Acts 1985 and 2006 of England and Wales or under
any other state or federal bankruptcy or insolvency law or any equivalent laws in any other
jurisdiction, assignments for the benefit of creditors, formal or informal moratoria, compositions,
liquidations, administrations, extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief and including, in the case of any Person
incorporated in England and Wales, any corporate action, legal proceedings or other procedure or
step is taken (including the making of an application, the presentation of a petition, the filing
or service of a notice or the passing of a resolution) in relation to:
(a) the suspension of payments, a moratorium or any indebtedness, winding-up, dissolution,
administration or reorganization (by way of voluntary arrangement scheme of arrangement or
otherwise) of such Person other than a solvent liquidation or reorganization of such Person;
(b) a composition, assignment or arrangement with any creditor of such Person; or
(c) the appointment of a liquidator, supervisor, receiver, administrator, administrative
receiver, compulsory manager, trustee or other similar officer in respect of such Person or any of
its assets.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
12
Intercompany Advances
means loans or advances or the repayment of loans or advances
from Parent or one of its Subsidiaries to Parent or one of its Subsidiaries, and includes the
repayment of intercompany payables owing on the Closing Date.
Intercompany Subordination Agreement
means an intercompany subordination agreement,
dated as of even date with the Agreement, executed and delivered by Parent, each of its
Subsidiaries, and Agent, the form and substance of which is reasonably satisfactory to Agent.
Interest Expense
means, for any period, the aggregate of the interest expense of
Parent for such period, determined on a consolidated basis in accordance with GAAP.
Interest Period
means, with respect to each LIBOR Rate Loan, a period commencing on
the date of the making of such LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the
conversion of a Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2, or 3 months thereafter;
provided
,
however
, that (a) interest shall accrue at the applicable rate based upon
the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day
on which any Interest Period expires, (b) any Interest Period that would end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless such Business Day falls
in another calendar month, in which case such Interest Period shall end on the next preceding
Business Day, (c) with respect to an Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period), the Interest Period shall end on the last Business Day
of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began,
as applicable, and (d) Borrower may not elect an Interest Period which will end after the Maturity
Date.
Inventory
means inventory (as that term is defined in the Code).
Investment
means, with respect to any Person, any investment by such Person in any
other Person (including Affiliates) in the form of loans, guarantees, advances, capital
contributions (excluding (a) commission, travel, and similar advances to officers and employees of
such Person made in the ordinary course of business, and (b)
bona fide
Accounts arising in the
ordinary course of business), or acquisitions of Indebtedness, Stock, or all or substantially all
of the assets of such other Person (or of any division or business line of such other Person), and
any other items that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
IRC
means the Internal Revenue Code of 1986, as in effect from time to time.
Issuing Lender
means WFCF or any other Lender that, at the request of Borrower and
with the consent of Agent, agrees, in such Lenders sole discretion, to become an Issuing Lender
for the purpose of issuing Letters of Credit or Reimbursement Undertakings pursuant to
Section
2.11
of the Agreement and the Issuing Lender shall be a Lender.
Lender
has the meaning set forth in the preamble to the Agreement, shall include the
Issuing Lender and the Swing Lender, and shall also include any other Person made a party to the
Agreement pursuant to the provisions of
Section 13.1
of the Agreement and
Lenders
means each of the Lenders or any one or more of them.
Lender Group
means each of the Lenders (including the Issuing Lender and the Swing
Lender) and Agent, or any one or more of them.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
13
Lender Group Expenses
means all (a) reasonable costs or expenses (including taxes,
and insurance premiums) required to be paid by Parent or its Subsidiaries under any of the Loan
Documents that are paid, advanced, or incurred by the Lender Group, (b) reasonable out-of-pocket
fees or charges paid or incurred by Agent in connection with the Lender Groups transactions with
Parent or its Subsidiaries under any of the
Loan Documents, including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien, litigation, and UCC
searches and including searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal (including periodic
collateral appraisals or business valuations to the extent of the fees and charges (and up to the
amount of any limitation) contained in the Agreement or the Fee Letter), real estate surveys, real
estate title policies and endorsements, and environmental audits, (c) Agents customary fees and
charges (as adjusted from time to time) with respect to the disbursement of funds (or the receipt
of funds) to or for the account of Borrower (whether by wire transfer or otherwise), together with
any out-of-pocket costs and expenses incurred in connection therewith, (d) reasonable out-of-pocket
charges paid or incurred by Agent resulting from the dishonor of checks payable by or to any Loan
Party, (e) reasonable out-of-pocket costs and expenses paid or incurred by the Lender Group to
correct any default or enforce any provision of the Loan Documents, or during the continuance of an
Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated, (f) reasonable out-of-pocket audit fees and expenses
(including travel, meals, and lodging) of Agent related to any inspections or audits to the extent
of the fees and charges (and up to the amount of any limitation) contained in the Agreement or the
Fee Letter, (g) reasonable out-of-pocket costs and expenses of third party claims or any other suit
paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection
with the transactions contemplated by the Loan Documents or the Lender Groups relationship with
Parent or any of its Subsidiaries, (h) Agents reasonable costs and expenses (including reasonable
attorneys fees) incurred in advising, structuring, drafting, reviewing, administering (including
travel, meals, and lodging), syndicating, or amending the Loan Documents, (i) Agents and each
Lenders reasonable costs and expenses (including reasonable attorneys, accountants, consultants,
and other advisors fees and expenses) incurred in terminating, enforcing (including attorneys,
accountants, consultants, and other advisors fees and expenses incurred in connection with a
workout, a restructuring, or an Insolvency Proceeding concerning Parent or any of its
Subsidiaries or in exercising rights or remedies under the Loan Documents), or defending the Loan
Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the
Collateral, and (j) usage charges, charges, fees, costs and expenses for amendments, renewals,
extensions, transfers, or drawings from time to time imposed by the Underlying Issuer or incurred
by the Issuing Lender in respect of Letters of Credit and out-of-pocket charges, fees, costs and
expenses paid or incurred by the Underlying Issuer or Issuing Lender in connection with the
issuance, amendment, renewal, extension, or transfer of, or drawing under, any Letter of Credit or
any demand for payment thereunder.
Lender Group Representatives
has the meaning specified therefor in
Section
17.9
of the Agreement.
Lender-Related Person
means, with respect to any Lender, such Lender, together with
such Lenders Affiliates, officers, directors, employees, attorneys, and agents.
Letter of Credit
means a letter of credit (as that term is defined in the Code)
issued by Issuing Lender or a letter of credit (as that term is defined in the Code) issued by
Underlying Issuer, as the context requires.
Letter of Credit Collateralization
means either (a) providing cash collateral
(pursuant to documentation reasonably satisfactory to Agent, including provisions that specify that
the Letter of Credit fee and all usage charges set forth in the Agreement will continue to accrue
while the Letters of Credit are outstanding) to be held by Agent for the benefit of those Lenders
with a Revolver Commitment in an amount equal to 105% of Dollar denominated Letters of Credit and
115% of foreign currency denominated Letters of Credit included within the then existing Letter of
Credit Usage, (b) delivering to Agent documentation executed by all beneficiaries under the Letters
of Credit, in form and substance reasonably satisfactory to Agent and the Issuing Lender,
terminating all of such beneficiaries rights under the Letters of Credit, or (c) providing Agent
with a standby letter of credit, in form and substance reasonably satisfactory to Agent, from a
commercial bank acceptable to Agent (in its sole discretion) in an amount equal to 105% of Dollar
denominated Letters of Credit and 115% of foreign currency denominated Letters of Credit included
within the
then existing Letter of Credit Usage (it being understood that the Letter of Credit fee and
all usage charges set forth in the Agreement will continue to accrue while the Letters of Credit
are outstanding and that any such fees that accrue must be an amount that can be drawn under any
such standby letter of credit).
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
14
Letter of Credit Disbursement
means a payment made by Issuing Lender or Underlying
Issuer pursuant to a Letter of Credit.
Letter of Credit Usage
means, as of any date of determination, the aggregate undrawn
amount of all outstanding Letters of Credit.
LIBOR Deadline
has the meaning specified therefor in
Section 2.12(b)(i)
of
the Agreement.
LIBOR Notice
means a written notice in the form of
Exhibit L-1
.
LIBOR Option
has the meaning specified therefor in
Section 2.12(a)
of the
Agreement.
LIBOR Rate
means the greater of the rate per annum rate appearing on Bloomberg
L.P.s (the
Service
) Page BBAM1/(Official BBA USD Dollar Libor Fixings) (or on any
successor or substitute page of such Service, or any successor to or substitute for such Service) 2
Business Days prior to the commencement of the requested Interest Period, for a term and in an
amount comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether
as an initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a conversion of a
Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance with the Agreement, which
determination shall be conclusive in the absence of manifest error.
LIBOR Rate Loan
means each portion of an Advance that bears interest at a rate
determined by reference to the LIBOR Rate.
LIBOR Rate Margin
means 2.50 percentage points.
Lien
means any mortgage, deed of trust, pledge, hypothecation, assignment, charge,
deposit arrangement, encumbrance, easement, lien (statutory or other), security interest, or other
security arrangement and any other preference, priority, or preferential arrangement of any kind or
nature whatsoever, including any conditional sale contract or other title retention agreement, the
interest of a lessor under a Capital Lease and any synthetic or other financing lease having
substantially the same economic effect as any of the foregoing.
Liquidity
means, the sum of Excess Availability and Qualified Cash. For purposes of
this definition, Agent will test Liquidity at any time in its discretion during the term of this
Agreement.
Loan Account
has the meaning specified therefor in
Section 2.9
of the
Agreement.
Loan Documents
means the Agreement, any Borrowing Base Certificate, the Controlled
Account Agreements, the Control Agreements, the Copyright Security Agreement, the Fee Letter, the
Guaranty, the Intercompany Subordination Agreement, the Letters of Credit, the Patent Security
Agreement, the Security Agreement, the Trademark Security Agreement, the Foreign Security
Documents, any note or notes executed by Borrower in connection with the Agreement and payable to
any member of the Lender Group, any letter of credit application or letter of credit agreement
entered into by Borrower in connection with the Agreement, and any other instrument or agreement
entered into, now or in the future, by Parent or any of its Subsidiaries and any member of the
Lender Group in connection with the Agreement.
Loan Party
means Borrower or any Guarantor.
Margin Stock
as defined in Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
15
Material Adverse Change
means (a) a material adverse change in the business,
operations, results of operations, assets, liabilities or financial condition of Parent and its
Subsidiaries, taken as a whole, (b) a material impairment of Parents and its Subsidiaries ability,
taken as a whole, to perform their obligations under the Loan Documents to which they are parties
or of the Lender Groups ability to enforce the Obligations or realize upon the Collateral, or (c)
a material impairment of the enforceability or priority of Agents Liens with respect to the
Collateral as a result of an action or failure to act on the part of Parent or its Subsidiaries.
Material Contract
means, with respect to any Person, each contract or agreement to
which such Person or any of its Subsidiaries is a party that would be required to be disclosed in
the Parents filings with the US Securities and Exchange Commission under applicable securities
laws.
Maturity Date
has the meaning specified therefor in
Section 3.3
of the
Agreement.
Maximum Revolver Amount
means the sum of the Revolver Commitments set forth on
Schedule C-1
, as such Revolver Commitments may be reduced pursuant to
Section
2.4(c)
of the Agreement.
Moodys
has the meaning specified therefor in the definition of Cash Equivalents.
Obligations
means (a) all loans (including the Advances (inclusive of Protective
Advances and Swing Loans)), debts, principal, interest (including any interest that accrues after
the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole
or in part as a claim in any such Insolvency Proceeding), reimbursement or indemnification
obligations with respect to Reimbursement Undertakings or with respect to Letters of Credit
(irrespective of whether contingent), premiums, liabilities (including all amounts charged to the
Loan Account pursuant to the Agreement), obligations (including indemnification obligations), fees
(including the fees provided for in the Fee Letter), Lender Group Expenses (including any fees or
expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether
allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties,
and all covenants and duties of any other kind and description owing by any Loan Party pursuant to
or evidenced by the Agreement or any of the other Loan Documents and irrespective of whether for
the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all interest not paid when due and all other expenses
or other amounts that Borrower is required to pay or reimburse by the Loan Documents or by law or
otherwise in connection with the Loan Documents, (b) all debts, liabilities, or obligations
(including reimbursement obligations, irrespective of whether contingent) owing by Borrower or any
other Loan Party to an Underlying Issuer now or hereafter arising from or in respect of an
Underlying Letters of Credit, and (c) all Bank Product Obligations. Any reference in the Agreement
or in the Loan Documents to the Obligations shall include all or any portion thereof and any
extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any
Insolvency Proceeding.
Oclaro China
means Oclaro Technology (Shenzhen) (FFTZ) Co. Ltd., a company organized
under the laws of The Peoples Republic of China.
[***]
Oclaro Israel
means Oclaro Israel Ltd (formerly known as Xtellus Ltd.), a company
organized under the laws of Israel.
Oclaro Korea
means Oclaro Korea, Inc., a company organized under the laws of Korea.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
16
Oclaro Korea Mortgage
means, collectively, those two (2) certain Kun-mortgages that
were entered into to secure the debts of Oclaro Korea, with one Kun-mortgage established for the
first floor #102, Panam-dong, 239-2, Dong-gu, Daejeon-si in favor of Hana Bank with the maximum
secured amount of KRW
802,750,000 on July 14, 2008, and one Kun-mortgage established for the first floor #101,
Panam-dong, 239-2, Dong-gu, Daejeon-si in favor of Hana Bank with the maximum secured amount of KRW
260,000,000 and $130,000 on July 14, 2008; provided that these Kun-mortgages constitute a factory
mortgage established under the Factory Mortgage Act, which provides for the mortgage with a
security interest with respect to the land and buildings constituting the factory, as well as all
of the machinery, equipment and other assets located in the factory over which the mortgage has
been established.
Oclaro Switzerland
means Oclaro (Switzerland) AG, a company organized under the laws
of Switzerland.
OFAC
means The Office of Foreign Assets Control of the U.S. Department of the
Treasury.
Originating Lender
has the meaning specified therefor in
Section 13.1(e)
of
the Agreement.
Overadvance
has the meaning specified therefor in
Section 2.5
of the
Agreement.
Parent
has the meaning specified therefor in the preamble to the Agreement.
Participant
has the meaning specified therefor in
Section 13.1(e)
of the
Agreement.
Patent Security Agreement
has the meaning specified therefor in the Security
Agreement.
Patriot Act
has the meaning specified therefor in
Section 4.18
of the
Agreement.
Payoff Date
means the first date on which all of the Obligations are paid in full
and the Revolver Commitments of the Lenders are terminated.
Permitted Acquisition
means any Acquisition so long as:
(a) no Default or Event of Default shall have occurred and be continuing or would result from
the consummation of the proposed Acquisition and the proposed Acquisition is consensual,
(b) no Indebtedness will be incurred, assumed, or would exist with respect to Parent or its
Subsidiaries as a result of such Acquisition, other than Permitted Indebtedness and no Liens will
be incurred, assumed, or would exist with respect to the assets of Parent or its Subsidiaries as a
result or such Acquisition other than Permitted Liens,
(c) Borrower has provided Agent with their due diligence package relative to the proposed
Acquisition, including forecasted balance sheets, profit and loss statements, and cash flow
statements of the Person or assets to be acquired, all prepared on a basis consistent with such
Persons (or assets) historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions for the 1 year period following the date of the proposed
Acquisition, on a quarter by quarter basis), in form and substance (including as to scope and
underlying assumptions) reasonably satisfactory to Agent,
(d) Borrower shall have (i) Liquidity in an amount equal to or greater than [***] and (ii)
Excess Availability in an amount equal to or greater than [***], in each case immediately after
giving effect to the consummation of the proposed Acquisition,
(e) Borrower has provided Agent with written notice of the proposed Acquisition at least 15
Business Days prior to the anticipated closing date of the proposed Acquisition and, not later than
5 Business Days prior to the anticipated closing date of the proposed Acquisition, copies of the
then current drafts of acquisition agreement and other material documents relative to the proposed
Acquisition,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
17
(f) the assets being acquired (other than a de minimis amount of assets in relation to
Parents and its Subsidiaries total assets), or the Person whose Stock is being acquired, are
useful in or engaged in, as applicable, the business of Parent and its Subsidiaries or a business
reasonably related thereto,
(g) the subject assets or Stock, as applicable, are being acquired directly by Borrower or one
of its Subsidiaries that is a Loan Party, and, in connection therewith, such Borrower or the
applicable Loan Party shall comply with
Section 5.11
and
5.12
, of the Agreement
and, in the case of an acquisition of Stock, Borrower or the applicable Loan Party shall have
demonstrated to Agent that the new Loan Parties have received consideration sufficient to make the
joinder documents binding and enforceable against such new Loan Parties, and
(h) the purchase consideration payable in respect of all Permitted Acquisitions (including the
proposed Acquisition and including any Acquired Indebtedness and deferred payment obligations)
shall not exceed, together with the purchase consideration payable in respect of all Investments
permitted under clause (p) of the definition of Permitted Investments, [***] in the aggregate;
provided
, however, that the purchase consideration payable in respect of any single
Acquisition or series of related Acquisitions shall not exceed [***] in the aggregate.
Notwithstanding anything contained herein to the contrary, in no event will assets acquired
pursuant to a Permitted Acquisition constitute assets eligible for inclusion in the Borrowing Base
prior to completion of a field examination and other due diligence acceptable to Agent in its
Permitted Discretion (which field examination may be conducted prior to the closing of such
Permitted Acquisition).
Permitted Discretion
means a determination made in the exercise of reasonable (from
the perspective of a secured lender) business judgment.
Permitted Dispositions
means:
(a) sales of Inventory to buyers in the ordinary course of business,
(b) the use or transfer of money or Cash Equivalents in a manner that is not prohibited by the
terms of the Agreement or the other Loan Documents,
(c) the licensing, on a non-exclusive basis, of patents, trademarks, copyrights, and other
intellectual property rights in the ordinary course of business,
(d) the granting of Permitted Liens,
(e) the sale or discount, in each case without recourse, of Accounts arising in the ordinary
course of business, but only in connection with the compromise or collection thereof,
(f) any involuntary loss, damage or destruction of property,
(g) any involuntary condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, or confiscation or requisition of use of property,
(h) the leasing or subleasing of assets (which, in the case of a UK Loan Party, are subject to
a floating charge created under a UK Collateral Document) of Parent or its Subsidiaries in the
ordinary course of business,
(i) the sale or issuance of Stock (other than Prohibited Preferred Stock) of Parent,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
18
(j) the lapse of registered patents, trademarks and other intellectual property of Parent and
its Subsidiaries to the extent not economically desirable in the conduct of their business and so
long as such lapse is not materially adverse to the interests of the Lenders,
(k) the making of a Restricted Junior Payment that is expressly permitted to be made pursuant
to the Agreement,
(l) the making of a Permitted Investment,
(m) the transfer of assets by a Loan Party or a Subsidiary of Parent that is not a Loan Party
to a Loan Party,
(n) [***]
(o) [***]
(p) [***]
(q) dispositions of assets (which in the case of a UK Loan Party, are subject to a floating
charge created under a UK Collateral Document) acquired by Parent and its Subsidiaries pursuant to
a Permitted Acquisition consummated within 12 months of the date of the proposed Disposition (the
Subject Permitted Acquisition
) so long as (i) the consideration received for the assets
to be so disposed is at least equal to the fair market value thereof, (ii) the assets to be so
disposed are not necessary or economically desirable in connection with the business of Parent and
its Subsidiaries, and (iii) the assets to be so disposed are readily identifiable as assets
acquired pursuant to the Subject Permitted Acquisition,
(r) dispositions of assets (which, in the case of a UK Loan Party, are subject to a floating
charge created under a UK Collateral Document) (other than Accounts, intellectual property,
licenses, Stock of Subsidiaries of Parent, or Material Contracts) not otherwise permitted in
clauses (a)
through (q) above so long as made at fair market value and the aggregate fair
market value of all assets disposed of in all such dispositions since the Closing Date (including
the proposed disposition) would not exceed $2,000,000 (or its equivalent in any other currency),
(s) [***]
(t) [***]
(u) [***]
Permitted Indebtedness
means:
(a) Indebtedness evidenced by the Agreement or the other Loan Documents, as well as
Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit,
(b) Indebtedness set forth on
Schedule 4.19
and any Refinancing Indebtedness in
respect of such Indebtedness,
(c) Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of such
Indebtedness,
(d) endorsement of instruments or other payment items for deposit,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
19
(e) Indebtedness consisting of (i) unsecured guarantees incurred in the ordinary course of
business with respect to surety and appeal bonds, performance bonds, bid bonds, appeal bonds,
completion guarantee and similar obligations; (ii) unsecured guarantees arising with respect to
customary indemnification obligations to purchasers in connection with Permitted Dispositions; and
(iii) unsecured guarantees with respect to Indebtedness of Parent or one of its Subsidiaries, to
the extent that the Person that is obligated under such guaranty could have incurred such
underlying Indebtedness,
(f) Indebtedness incurred in the ordinary course of business under performance, surety,
statutory, and appeal bonds,
(g) Indebtedness owed to any Person providing property, casualty, liability, or other
insurance to Parent or any of its Subsidiaries, so long as the amount of such Indebtedness is not
in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of,
such insurance for the year in which such Indebtedness is incurred and such Indebtedness is
outstanding only during such year,
(h) the incurrence by Parent or its Subsidiaries of Indebtedness under Hedge Agreements that
are incurred for the bona fide purpose of hedging the interest rate, commodity, or foreign currency
risks associated with Parents and its Subsidiaries operations and not for speculative purposes,
(i) Indebtedness incurred in respect of credit cards, credit card processing services, debit
cards, stored value cards, purchase cards (including so-called procurement cards or P-cards),
or Cash Management Services, in each case, incurred in the ordinary course of business,
(j) Indebtedness composing Permitted Investments,
(k) Indebtedness evidenced by Permitted Intercompany Advances,
(l) [***]
(m) Indebtedness in connection with the Oclaro Korea Mortgage.
(n) unsecured Indebtedness owing to sellers of assets or Stock to a Loan Party that is
incurred by the applicable Loan Party in connection with the consummation of one or more Permitted
Acquisitions so long as (i) the aggregate principal amount for all such unsecured Indebtedness does
not exceed $5,000,000 (or its equivalent in any other currency) at any one time outstanding, (ii)
is subordinated to the Obligations on terms and conditions reasonably acceptable to Agent, and
(iii) is otherwise on terms and conditions (including all economic terms and the absence of
covenants) reasonably acceptable to Agent,
(o) contingent liabilities in respect of any indemnification obligation, adjustment of
purchase price, non-compete, or similar obligation of Parent or the applicable Loan Party incurred
in connection with the consummation of one or more Permitted Acquisitions,
(p) Acquired Indebtedness in an amount not to exceed $5,000,000 (or its equivalent in any
other currency) outstanding at any one time, and
(q) other unsecured Indebtedness of the Parent and its Subsidiaries which is subordinated to
the Obligations on terms and conditions (including all economic and subordination terms and the
absence of covenants) acceptable to Lenders and does not exceed in the aggregate $5,000,000 (or its
equivalent in any other currency) at any time outstanding, and any Refinancing Indebtedness in
respect of such Indebtedness.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
20
Permitted Intercompany Advance
means Intercompany Advances:
(a) made by any of Parents Subsidiaries that is not a Loan Party to any of Parents other
Subsidiaries that is not a Loan Party;
(b) made by Parent or any of Parents Subsidiaries to a Loan Party so long as they are the
subject of the Intercompany Subordination Agreement;
(c) made by any of Parents Subsidiaries that is a Loan Party to any of Parents other
Subsidiaries that is not a Loan Party, so long as (i) no Default or Event of Default has occurred
and is continuing or would result therefrom, and (ii) Borrower has (x) Liquidity in an amount equal
to or greater than $30,000,000 and (y) Excess Availability in an amount equal to or greater than
$15,000,000, in each case both before and after giving effect to any such Intercompany Advance; and
(d) made by any of Parents Subsidiaries that is a Loan Party to any of Parents other
Subsidiaries that is not a Loan Party which Intercompany Advance is not permitted under clause
(c)(ii) above so long as the following conditions are satisfied:
(i) made by any of Parents Subsidiaries that is a Loan Party to Oclaro China, so long as (i)
no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii)
all such Intercompany Advances do not exceed [***] per month (subject to annual increases requested
by Borrower and acceptable to Agent, which increases must be based upon historic revenue growth
since the Closing Date), provided, that no such Intercompany Advances may be made following Oclaro
Chinas receipt of cash proceeds from the Oclaro China Sale and Leaseback, until such cash proceeds
have been fully utilized to fund the ongoing business of Oclaro China;
(ii) made by any of Parents Subsidiaries that is a Loan Party to Oclaro Switzerland, so long
as (i) no Default or Event of Default has occurred and is continuing or would result therefrom, and
(ii) all such Intercompany Advances do not exceed [***] in any calendar month;
(iii) made by any of Parents Subsidiaries that is a Loan Party to Oclaro Thailand, so long as
(i) no Default or Event of Default has occurred and is continuing or would result therefrom, and
(ii) all such Intercompany Advances do not exceed [***] in any calendar month;
(iv) made by any of Parents Subsidiaries that is a Loan Party to Avanex China, so long as (i)
no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii)
all such Intercompany Advances do not exceed [***] in any calendar month;
(v) made by any of Parents Subsidiaries that is a Loan Party to Oclaro Israel or Oclaro
Korea, so long as (i) no Default or Event of Default has occurred and is continuing or would result
therefrom, and (ii) all such Intercompany Advances do not exceed [***] in any calendar month.
(vi) made by any of Parents Subsidiaries that is a Loan Party to Avanex France OIF SA, so
long as (i) no Default or Event of Default has occurred and is continuing or would result
therefrom, and (ii) all such Intercompany Advances do not exceed [***] during the term of this
Agreement;
(vii) made by any of Parents Subsidiaries that is a Loan Party to any of Parents other
Subsidiaries that is not a Loan Party (other than Oclaro China, Oclaro Switzerland, Oclaro
Thailand, Avanex China, Oclaro Israel, Oclaro Korea and Avanex France OIF SA), so long as (i) no
Default or Event of Default has occurred and is continuing or would result therefrom, and (ii) all
such Intercompany Advances do not exceed $100,000 in any calendar month;
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
21
(e) payments made by any Loan Party to the Lender Group in respect of obligations under this
Agreement or the Loan Documents, to the extent that the same are construed as advances for the
benefit of one or more of the other Loan Parties and so long as they are subject to the
Intercompany Subordination Agreement.
Permitted Intercompany Transactions
means (a) each of the transactions set forth on
Schedule P-2
that are materially consistent with the past practices of Parents and its
Subsidiaries business operations as in effect on the Closing Date and disclosed to Agent on or
before the Closing Date, (b) transactions by and between Loan Parties that are materially
consistent with the past practices of Loan Parties business operations as in effect on the Closing
Date and disclosed to Agent on or before the Closing Date, and (c) transactions between Parent or
its Subsidiaries, on the one hand, and any Affiliate of Parent or its Subsidiaries, on the other
hand, so long as such transactions (i) are upon fair and reasonable terms, (ii) are fully disclosed
to Agent if they involve one or more payments by Parent or any of Subsidiary of Parent in excess of
$500,000 (or its equivalent in any other currency) for any single transaction or series of
transactions, and (iii) are no less favorable to Parent or its Subsidiaries, as applicable, than
would be obtainable in an arms length transaction with a non-Affiliate.
Permitted Investments
means:
(a) Investments in cash and Cash Equivalents,
(b) Investments in negotiable instruments deposited or to be deposited for collection in the
ordinary course of business,
(c) advances made in connection with purchases of goods or services in the ordinary course of
business,
(d) Investments received in settlement of amounts due to Parent or any of its Subsidiaries
effected in the ordinary course of business or owing to Parent or any of its Subsidiaries as a
result of Insolvency Proceedings involving an Account Debtor or upon the foreclosure or enforcement
of any Lien in favor of Parent or its Subsidiaries,
(e) Investments owned by Parent or any of its Subsidiaries on the Closing Date and set forth
on
Schedule P-1
,
(f) guarantees permitted under the definition of Permitted Indebtedness,
(g) Permitted Intercompany Advances,
(h) Stock or other securities acquired in connection with the satisfaction or enforcement of
Indebtedness or claims due or owing to Parent or its Subsidiaries (in bankruptcy of customers or
suppliers or otherwise outside the ordinary course of business) or as security for any such
Indebtedness or claims,
(i) deposits of cash made in the ordinary course of business to secure performance of
operating leases,
(j) non-cash loans to employees, officers, and directors of Parent or any of its Subsidiaries
for the purpose of purchasing Stock in Parent so long as the proceeds of such loans are used in
their entirety to purchase such stock in Parent,
(k) Investments resulting from entering into Bank Product Agreements,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
22
(l) so long as no Default or Event of Default has occurred and is continuing, the transfer of
wafers and die banks from Borrower to Oclaro China in the ordinary course of Parents and its
Subsidiaries business as in effect on the Closing Date,
(m) contributions by Borrower to Oclaro China consisting of Equipment to be used by Oclaro
China in the ordinary course of business so long as (i) no Default or Event of Default has occurred
and is continuing or would result therefrom, (ii) all such contributions do not exceed [***] in
the aggregate in any calendar year, and (iii) Agent is given prior written notice by Parent of any
single contribution in excess of [***],
(n) Permitted Acquisitions,
(o) Investments held by a Person acquired in a Permitted Acquisition to the extent that such
Investments were not made in contemplation of or in connection with such Permitted Acquisition and
were in existence on the date of such Permitted Acquisition, and
(p) so long as (i) no Event of Default has occurred and is continuing or would result
therefrom, and (ii) Borrower has (x) Liquidity in an amount equal to or greater than $30,000,000
and (y) Excess Availability in an amount equal to or greater than $15,000,000, in each case both
before and after giving effect to any such Investment, any other Investments (other than
Acquisitions) in an aggregate amount not to exceed, together with all purchase consideration
payable in respect of all Permitted Acquisitions (including all Acquired Indebtedness and deferred
payment obligations), [***] during the term of the Agreement.
Permitted Liens
means
(a) Liens granted to, or for the benefit of, Agent to secure the Obligations,
(b) Liens for unpaid taxes, assessments, or other governmental charges or levies that either
(i) are not yet delinquent, or (ii) do not have priority over Agents Liens and the underlying
taxes, assessments, or charges or levies are the subject of Permitted Protests,
(c) judgment Liens arising solely as a result of the existence of judgments, orders, or awards
that do not constitute an Event of Default under
Section 8.3
of the Agreement,
(d) Liens set forth on
Schedule P-3
;
provided
,
however
, that to
qualify as a Permitted Lien, any such Lien described on
Schedule P-3
shall only secure the
Indebtedness that it secures on the Closing Date and any Refinancing Indebtedness in respect
thereof,
(e) the interests of lessors under operating leases and non-exclusive licensors under license
agreements,
(f) purchase money Liens or the interests of lessors under Capital Leases to the extent that
such Liens or interests secure Permitted Purchase Money Indebtedness and so long as (i) such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, and (ii) such Lien only
secures the Indebtedness that was incurred to acquire the asset purchased or acquired or any
Refinancing Indebtedness in respect thereof,
(g) Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not
in connection with the borrowing of money, and which Liens either (i) are for sums not yet
delinquent, or (ii) are the subject of Permitted Protests,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
23
(h) Liens on amounts deposited to secure Parents and its Subsidiaries obligations in
connection with workers compensation or other unemployment insurance,
(i) Liens on amounts deposited to secure Parents and its Subsidiaries obligations in
connection with the making or entering into of bids, tenders, or leases in the ordinary course of
business and not in connection with the borrowing of money,
(j) Liens on amounts deposited to secure Parents and its Subsidiaries reimbursement
obligations with respect to surety or appeal bonds obtained in the ordinary course of business,
(k) with respect to any Real Property, easements, rights of way, and zoning restrictions that
do not materially interfere with or impair the use or operation thereof,
(l) non-exclusive licenses of patents, trademarks, copyrights, and other intellectual property
rights in the ordinary course of business,
(m) Liens that are replacements of Permitted Liens to the extent that the original
Indebtedness is the subject of permitted Refinancing Indebtedness and so long as the replacement
Liens only encumber those assets that secured the original Indebtedness,
(n) rights of setoff or bankers liens upon deposits of cash in favor of banks or other
depository institutions, solely to the extent incurred in connection with the maintenance of such
deposit accounts in the ordinary course of business,
(o) Liens granted in the ordinary course of business on the unearned portion of insurance
premiums securing the financing of insurance premiums to the extent the financing is permitted
under the definition of Permitted Indebtedness,
(p) Liens in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods,
(q) Liens solely on any cash earnest money deposits made by Parent or any of its Subsidiaries
in connection with any letter of intent or purchase agreement with respect to a Permitted
Acquisition,
(r) Liens assumed by Parent or its Subsidiaries in connection with a Permitted Acquisition
that secure Acquired Indebtedness, and
(s) Liens securing the Oclaro Korea Mortgage.
Permitted Liquidation
means the liquidation, winding up, or dissolution of any
Subsidiary of Parent that is not a Loan Party, Oclaro China, or Oclaro Switzerland so long as (i)
Parent provides Agent with not less than 10 days prior written notice of such liquidation, winding
up, or dissolution, (ii) no Default or Event of Default has occurred and is continuing or would
result therefrom, and (iii) on or before the consummation of any such liquidation, winding up, or
dissolution, Parent delivers to Agent updated schedules to the Loan Documents reflecting such
liquidation, winding up, or dissolution, provided, that in no event may any schedule be updated in
a manner that would reflect or evidence a Default or an Event of Default.
Permitted Merger
means (a) the merger or consolidation of any Subsidiary of Parent
with and into any Subsidiary of Parent which is a Loan Party so long as a Loan Party is the
surviving entity and if Borrower is involved, Borrower is the surviving entity, (b) the merger or
consolidation of any Subsidiary of Parent that is not a Loan Party with any other Subsidiary of
Parent that is not a Loan Party, provided that, in any of the forgoing cases, (i) Parent provides
Agent with not less than 10 days prior written notice of such merger or
consolidation, (ii) no Default or Event of Default has occurred and is continuing or would
result therefrom, (iii) Agents Liens on the Collateral pledged by any Loan Party under the Loan
Documents to which it is a party are not adversely affected, and (iv) on or before the consummation
of any such merger or consolidation, Parent delivers to Agent updated schedules to the Loan
Documents reflecting such merger or consolidation, provided, that in no event may any schedule be
updated in a manner that would reflect or evidence a Default or an Event of Default.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
24
Permitted Preferred Stock
means and refers to any Preferred Stock issued by Parent
(and not by one or more of its Subsidiaries) that is not Prohibited Preferred Stock.
Permitted Protest
means the right of Parent or any of its Subsidiaries to protest
any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or
taxes that are the subject of a United States federal tax lien), or rental payment, provided that
(a) a reserve with respect to such obligation is established on Parents or its Subsidiaries books
and records in such amount as is required under GAAP, (b) any such protest is instituted promptly
and prosecuted diligently by Parent or its Subsidiary, as applicable, in good faith, and (c) Agent
is satisfied that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of Agents Liens.
Permitted Purchase Money Indebtedness
means, as of any date of determination,
Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount
outstanding at any one time not in excess of $5,000,000 (or its equivalent in any other currency).
Permitted Restructuring Transaction
means a Permitted Merger or a Permitted
Liquidation.
Person
means natural persons, corporations, limited liability companies, limited
partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land
trusts, business trusts, or other organizations, irrespective of whether they are legal entities,
and governments and agencies and political subdivisions thereof.
Preferred Stock
means, as applied to the Stock of any Person, the Stock of any class
or classes (however designated) that is preferred with respect to the payment of dividends, or as
to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Stock of any other class of such Person.
Prohibited Preferred Stock
means any Preferred Stock that by its terms is
mandatorily redeemable or subject to any other payment obligation (including any obligation to pay
dividends, other than dividends of shares of Preferred Stock of the same class and series payable
in kind or dividends of shares of common stock) on or before a date that is less than 1 year after
the Maturity Date, or, on or before the date that is less than 1 year after the Maturity Date, is
redeemable at the option of the holder thereof for cash or assets or securities (other than
distributions in kind of shares of Preferred Stock of the same class and series or of shares of
common stock).
Projections
means Parents forecasted (a) balance sheets, (b) profit and loss
statements, and (c) cash flow statements, all prepared on a basis consistent with Parents
historical financial statements, together with appropriate supporting details and a statement of
underlying assumptions.
Pro Rata Share
means, as of any date of determination:
(a) with respect to a Lenders obligation to make Advances and right to receive payments of
principal, interest, fees, costs, and expenses with respect thereto, (i) prior to the Revolver
Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such
Lenders Revolver Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and (ii)
from and after the time that the Revolver Commitments have been terminated or reduced to zero, the
percentage obtained by
dividing (y) the outstanding principal amount of such Lenders Advances by (z) the outstanding
principal amount of all Advances,
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
25
(b) with respect to a Lenders obligation to participate in Letters of Credit and
Reimbursement Undertakings, to reimburse the Issuing Lender, and right to receive payments of fees
with respect thereto, (i) prior to the Revolver Commitments being terminated or reduced to zero,
the percentage obtained by dividing (y) such Lenders Revolver Commitment, by (z) the aggregate
Revolver Commitments of all Lenders, and (ii) from and after the time that the Revolver Commitments
have been terminated or reduced to zero, the percentage obtained by dividing (y) the outstanding
principal amount of such Lenders Advances by (z) the outstanding principal amount of all Advances;
provided
,
however
, that if all of the Advances have been repaid in full and Letters
of Credit remain outstanding, Pro Rata Share under this clause shall be determined based upon
subclause (i) of this clause as if the Revolver Commitments had not been terminated or reduced to
zero and based upon the Revolver Commitments as they existed immediately prior to their termination
or reduction to zero, and
(c) with respect to all other matters as to a particular Lender (including the indemnification
obligations arising under
Section 15.7
of the Agreement), (i) prior to the Revolver
Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such
Lenders Revolver Commitment, by (z) the aggregate amount of Revolver Commitments of all Lenders,
and (ii) from and after the time that the Revolver Commitments have been terminated or reduced to
zero, the percentage obtained by dividing (y) the outstanding principal amount of such Lenders
Advances, by (z) the outstanding principal amount of all Advances;
provided
,
however
, that if all of the Advances have been repaid in full and Letters of Credit remain
outstanding, Pro Rata Share under this clause shall be determined based upon subclause (i) of this
clause as if the Revolver Commitments had not been terminated or reduced to zero and based upon the
Revolver Commitments as they existed immediately prior to their termination or reduction to zero.
Protective Advances
has the meaning specified therefor in
Section 2.3(d)(i)
of the Agreement.
Purchase Money Indebtedness
means Indebtedness (other than the Obligations, but
including Capitalized Lease Obligations), incurred at the time of, or within 20 days after, the
acquisition of any fixed assets for the purpose of financing all or any part of the acquisition
cost thereof.
Purchase Price
means, with respect to any Acquisition, an amount equal to the
aggregate consideration, whether cash, property or securities (including the fair market value of
any Stock of Parent issued in connection with such Acquisition and including the maximum amount of
Earn-Outs), paid or delivered by Parent or one of its Subsidiaries in connection with such
Acquisition (whether paid at the closing thereof or payable thereafter and whether fixed or
contingent), but excluding therefrom (a) any cash of the seller and its Affiliates used to fund any
portion of such consideration and (b) any cash or Cash Equivalents acquired in connection with such
Acquisition.
Qualified Cash
means, as of any date of determination, the amount of unrestricted
cash and Cash Equivalents of Parent and its Subsidiaries that is in Deposit Accounts or in
Securities Accounts, or any combination thereof, and which such Deposit Account or Securities
Account is the subject of a Control Agreement and is maintained by a branch office of the bank or
securities intermediary located within the United States, United Kingdom or Canada.
Qualifying Lender
has the meaning specified therefor in Section 16(k).
Real Property
means any estates or interests in real property now owned or hereafter
acquired by Parent or its Subsidiaries and the improvements thereto.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
26
Receiver
means a receiver or receiver and manager or administrative receiver of the
whole or part of the Charged Property.
Record
means information that is inscribed on a tangible medium or that is stored in
an electronic or other medium and is retrievable in perceivable form.
Refinancing Indebtedness
means refinancings, renewals, or extensions of Indebtedness
so long as:
(a) such refinancings, renewals, or extensions do not result in an increase in the principal
amount of the Indebtedness so refinanced, renewed, or extended, other than by the amount of
premiums paid thereon and the fees and expenses incurred in connection therewith and by the amount
of unfunded commitments with respect thereto,
(b) such refinancings, renewals, or extensions do not result in a shortening of the average
weighted maturity (measured as of the refinancing, renewal, or extension) of the Indebtedness so
refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are
or could reasonably be expected to be materially adverse to the interests of the Lenders,
(c) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of
payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension
must include subordination terms and conditions that are at least as favorable to the Lender Group
as those that were applicable to the refinanced, renewed, or extended Indebtedness, and
(d) the Indebtedness that is refinanced, renewed, or extended is not recourse to any Person
that is liable on account of the Obligations other than those Persons which were obligated with
respect to the Indebtedness that was refinanced, renewed, or extended.
Reimbursement Undertaking
has the meaning specified therefor in
Section
2.11(a)
of the Agreement.
Related Fund
means, with respect to any Lender that is an investment fund, any other
investment fund that invests in commercial loans and that is managed or advised by the same
investment advisor as such Lender or by an Affiliate of such investment advisor.
Remedial Action
means all actions taken to (a) clean up, remove, remediate, contain,
treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or
outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials
so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor
or outdoor environment, (c) restore or reclaim natural resources or the environment, (d) perform
any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or
(e) conduct any other actions with respect to Hazardous Materials required by Environmental Laws.
Replacement Lender
has the meaning specified therefor in
Section 2.13(b)
of
the Agreement.
Report
has the meaning specified therefor in
Section 15.17
of the Agreement.
Required Lenders
means, at any time, Lenders whose aggregate Pro Rata Shares
(calculated under clause (c) of the definition of Pro Rata Shares) exceed 50%;
provided
,
however
, that at any time there are 2 or more Lenders, Required Lenders must include at
least 2 Lenders.
Restricted Junior Payment
means to (a) declare or pay any dividend or make any other
payment or distribution on account of Stock issued by Parent (including any payment in connection
with any merger or consolidation involving Parent) or to the direct or indirect holders of Stock
issued by Borrower in their
capacity as such (other than dividends or distributions payable in Stock (other than
Prohibited Preferred Stock) issued by Parent, or (b) purchase, redeem, or otherwise acquire or
retire for value (including in connection with any merger or consolidation involving Parent) any
Stock issued by Parent.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
27
Revolver Commitment
means, with respect to each Lender, its Revolver Commitment,
and, with respect to all Lenders, their Revolver Commitments, in each case as such Dollar amounts
are set forth beside such Lenders name under the applicable heading on
Schedule C-1
or in
the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as
such amounts may be reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of
Section 13.1
of the Agreement.
Revolver Usage
means, as of any date of determination, the sum of (a) the amount of
outstanding Advances,
plus
(b) the amount of the Letter of Credit Usage.
Sanctioned Entity
means (a) a country or a government of a country, (b) an agency of
the government of a country, (c) an organization directly or indirectly controlled by a country or
its government, (d) a Person resident in or determined to be resident in a country, in each case,
that is subject to a country sanctions program administered and enforced by OFAC.
Sanctioned Person
means a person named on the list of Specially Designated Nationals
maintained by OFAC.
San Donato Accounts
means the Deposit Accounts of the San Donato branch of Oclaro
(North America), Inc. [***].
S&P
has the meaning specified therefor in the definition of Cash Equivalents.
SEC
means the United States Securities and Exchange Commission and any successor
thereto.
Secured Parties means the Lenders Group, any Bank Product Providers, any Hedge Provider, any
Receiver.
Securities Account
means a securities account (as that term is defined in the Code).
Securities Act
means the Securities Act of 1933, as amended from time to time, and
any successor statute.
Security Agreement
means one or more security agreements, dated as of even date with
the Agreement, in form and substance reasonably satisfactory to Agent, executed and delivered by
any of Borrower and Guarantors to Agent.
Settlement
has the meaning specified therefor in
Section 2.3(e)(i)
of the
Agreement.
Settlement Date
has the meaning specified therefor in
Section 2.3(e)(i)
of
the Agreement.
Solvent
means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Persons assets is greater than all of such Persons debts.
Stock
means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting,
including common stock, preferred stock, or any other equity security (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act);
provided
, that the convertible Indebtedness of Parent under
clause (l) of the definition of Permitted Indebtedness shall not be deemed Stock of Parent
until it is converted into such Stock according to its terms.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
28
Subsidiary
of a Person means a corporation, partnership, limited liability company,
or other entity in which that Person directly or indirectly owns or controls the shares of Stock
having ordinary voting power to elect a majority of the board of directors (or appoint other
comparable managers) of such corporation, partnership, limited liability company, or other entity.
Swing Lender
means WFCF or any other Lender that, at the request of Borrower and
with the consent of Agent agrees, in such Lenders sole discretion, to become the Swing Lender
under
Section 2.3(b)
of the Agreement.
Swing Loan
has the meaning specified therefor in
Section 2.3(b)
of the
Agreement.
Taxes
means any taxes, levies, imposts, duties, fees, assessments or other charges
of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments and all interest, penalties or
similar liabilities with respect thereto;
provided
,
however
, that Taxes shall
exclude (i) any tax imposed on the net income or net profits of any Lender or any Participant
(including any branch profits taxes), in each case imposed by the jurisdiction (or by any political
subdivision or taxing authority thereof) in which such Lender or such Participant is organized or
the jurisdiction (or by any political subdivision or taxing authority thereof) in which such
Lenders or such Participants principal office is located in each case as a result of a present or
former connection between such Lender or such Participant and the jurisdiction or taxing authority
imposing the tax (other than any such connection arising solely from such Lender or such
Participant having executed, delivered or performed its obligations or received payment under, or
enforced its rights or remedies under the Agreement or any other Loan Document); (ii) taxes
resulting from a Lenders or a Participants failure to comply with the requirements of
Section
16(c)
or
(d)
of the Agreement, and (iii) any United States federal withholding taxes
that would be imposed on amounts payable to a Foreign Lender based upon the applicable withholding
rate in effect at the time such Foreign Lender becomes a party to the Agreement (or designates a
new lending office),
except
that Taxes shall include (A) any amount that such Foreign
Lender (or its assignor, if any) was previously entitled to receive pursuant to
Section
16(a)
of the Agreement, if any, with respect to such withholding tax at the time such Foreign
Lender becomes a party to the Agreement (or designates a new lending office), and (B) additional
United States federal withholding taxes that may be imposed after the time such Foreign Lender
becomes a party to the Agreement (or designates a new lending office), as a result of a change in
law, rule, regulation, order or other decision with respect to any of the foregoing by any
Governmental Authority.
Tax Lender
has the meaning specified therefor in
Section 14.2(a)
of the
Agreement.
Trademark Security Agreement
has the meaning specified therefor in the Security
Agreement.
Treaty
has the meaning specified therefor in Section 16(j).
Treaty Lender
has the meaning specified therefor in Section 16(j).
Treaty State
has the meaning specified therefor in Section 16(j).
Triggering Event
means, as of any date of determination, that (a) an Event of
Default has occurred and is continuing, or (b) Liquidity is less than $15,000,000, or (iii) Excess
Availability in an amount less than $7,500,000.
Triggering Period
means, the period commencing upon the occurrence of a Triggering
Event and ending on the day on which Agent has waived the occurrence of the Trigger Event.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
29
UK Collateral Documents
means each of:
(a) the debenture dated 2 August 2006 entered into between (1) Bookham Technology plc (2)
Bookham Nominees Limited and (3) Wells Fargo Foothill, Inc.;
(b) the debenture dated 21 July 2010 entered into between (1) Oclaro Innovations LLP and (2)
Wells Fargo Capital Finance, Inc.; and
(c) the debenture dated on or about the date of this Agreement entered into between (1) the
Borrower (2) Bookham Nominees Limited (3) the Parent (4) Oclaro (North America) Inc. and (5) the
Agent
UK Loan Party
means each of the Borrower, Bookham Nominees Limited (a company
registered in England & Wales with registration number 05865912) and Oclaro Innovations LLP (a
limited liability partnership registered in England & Wales with registration number OC356079).
UK Transaction Security
means the Liens created or expressed to be created in favor
of the Agent pursuant to the UK Collateral Documents.
Underlying Issuer
means Wells Fargo or one of its Affiliates.
Underlying Letter of Credit
means a Letter of Credit that has been issued by an
Underlying Issuer.
United States
means the United States of America.
Voidable Transfer
has the meaning specified therefor in
Section 17.8
of the
Agreement.
Wells Fargo
means Wells Fargo Bank, National Association, a national banking
association.
WFCF
means Wells Fargo Capital Finance, Inc., a California corporation.
Confidential treatment is being requested for portions of this document.
This copy of the document filed as an exhibit omits the confidential information
subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document
has been filed separately with the Securities and Exchange Commission.
30
Exhibit 10.13
SECURITY AGREEMENT (DOMESTIC)
This
SECURITY AGREEMENT (DOMESTIC)
(this
Agreement
), dated as of July 26, 2011,
among the Persons listed on the signature pages hereof as
Grantors
and those additional
entities that hereafter become parties hereto by executing the form of Joinder attached hereto as
Annex 1
(each, a
Grantor
and collectively, the
Grantors
), and
WELLS
FARGO CAPITAL FINANCE, INC.
, a California corporation (
WFCF
), in its capacity as agent
for the Lender Group and the Bank Product Providers (in such capacity, together with its successors
and assigns in such capacity,
Agent
).
W I T N E S S E T H
:
WHEREAS
, Agent and certain lenders party thereto, on the one hand, and Oclaro, Inc., a
Delaware corporation, as parent (
Parent
), and Oclaro Technology Limited, a company
incorporated under the laws of England and Wales, as borrower (
Borrower
) together with
certain of its subsidiaries, also as borrowers, on the other hand, are parties to that certain
Credit Agreement, dated as of August 2, 2006 (as amended, supplemented, or otherwise modified from
time to time prior to the Closing Date, the
Original Credit Agreement
);
WHEREAS
, in order to secure the obligations under the Original Credit Agreement, Parent,
Borrower and certain of Parents subsidiaries entered into that certain Security Agreement, dated
as of August 2, 2006 (as amended, supplemented, or otherwise modified from time to time prior to
the Closing Date, the
Original Security Agreement
)
WHEREAS
, Parent, Borrower, Agent, the lenders party thereto, as
Lenders
(such
Lenders, together with their respective successors and assigns in such capacity, each,
individually, a
Lender
and, collectively, the
Lenders
), have entered into that
certain Amended and Restated Credit Agreement of even date herewith (as amended, restated,
supplemented, or otherwise modified from time to time, the
Credit Agreement
), pursuant to
which Agent and the Lender Group have agreed to make certain financial accommodations available to
Borrower from time to time pursuant to the terms and conditions thereof; and
WHEREAS,
in order to induce the Lender Group to enter into the Credit Agreement and the other
Loan Documents, to induce the Bank Product Providers to enter into the Bank Product Agreements, and
to induce the Lender Group and the Bank Product Providers to make financial accommodations to
Borrower as provided for in the Credit Agreement, the other Loan Documents and the Bank Product
Agreements, Grantors have agreed to grant or continue the grant of, as applicable, a security
interest in and to the Collateral in order to secure the prompt and complete payment, observance
and performance of the Secured Obligations.
NOW, THEREFORE,
for and in consideration of the recitals made above and other good and
valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1.
Defined Terms
. All initially capitalized terms used herein (including in the
preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the
Credit Agreement (including Schedule 1.1 thereto). Any terms (whether capitalized or lower case)
used in this Agreement that are defined in the Code shall be construed and defined as set forth in
the Code unless otherwise defined herein or in the Credit Agreement;
provided
,
however
, that to the extent that the Code is used to define any term used herein and if
such term is defined differently in different Articles of the Code, the definition of such term
contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in
this Agreement, as used in this Agreement, the following terms shall have the following meanings:
(a)
Account
means an account (as that term is defined in Article 9 of the Code).
(b)
Account Debtor
means an account debtor (as that term is defined in the Code).
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(c)
Agent
has the meaning specified therefor in the preamble to this Agreement.
(d)
Agents Lien
has the meaning specified therefor in the Credit Agreement.
(e)
Agreement
has the meaning specified therefor in the preamble to this Agreement.
(f)
Bank Product Obligations
has the meaning specified therefor in the Credit
Agreement.
(g)
Bank Product Provider
has the meaning specified therefor in the Credit
Agreement.
(h)
Books
means books and records (including each Grantors Records indicating,
summarizing, or evidencing such Grantors assets (including the Collateral) or liabilities, each
Grantors Records relating to such Grantors business operations or financial condition, and each
Grantors goods or General Intangibles related to such information).
(i)
Borrower
has the meaning specified therefor in the recitals to this Agreement.
(j)
Cash Equivalents
has the meaning specified therefor in the Credit Agreement.
(k)
Chattel Paper
means chattel paper (as that term is defined in the Code), and
includes tangible chattel paper and electronic chattel paper.
(l)
Code
means the California Uniform Commercial Code, as in effect from time to
time;
provided
,
however
, that in the event that, by reason of mandatory provisions
of law, any or all of the attachment, perfection, priority, or remedies with respect to Agents
Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of California, the term
Code
shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority, or remedies.
(m)
Collateral
has the meaning specified therefor in
Section 2
.
(n)
Collections
has the meaning specified therefor in the Credit Agreement.
(o)
Commercial Tort Claims
means commercial tort claims (as that term is defined in
the Code), and includes those commercial tort claims listed on
Schedule 1
.
(p)
Controlled Account
has the meaning specified therefor in
Section 6(k)
.
(q)
Controlled Account Agreements
means those certain cash management agreements, in
form and substance reasonably satisfactory to Agent, each of which is executed and delivered by a
Grantor, Agent, and one of the Controlled Account Banks.
(r)
Controlled Account Bank
has the meaning specified therefor in
Section
6(k)
.
(s)
Copyrights
means any and all rights in any works of authorship, including (i)
copyrights and moral rights, (ii) copyright registrations and recordings thereof and all
applications in connection therewith including those listed on
Schedule 2
, (iii) income,
license fees, royalties, damages, and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in connection therewith and
damages and payments for past, present, or future infringements thereof, (iv) the right to sue for
past, present, and future infringements thereof, and (v) all of each Grantors rights
corresponding thereto throughout the world.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
2
(t)
Copyright Security Agreement
means each Copyright Security Agreement executed
and delivered by Grantors, or any of them, and Agent, in substantially the form of
Exhibit
A
.
(u)
Credit Agreement
has the meaning specified therefor in the recitals to this
Agreement.
(v)
Deposit Account
means a deposit account (as that term is defined in the Code).
(w)
Equipment
means equipment (as that term is defined in the Code).
(x)
Event of Default
has the meaning specified therefor in the Credit Agreement.
(y)
Fixtures
means fixtures (as that term is defined in the Code).
(z)
General Intangibles
means general intangibles (as that term is defined in the
Code), and includes payment intangibles, contract rights, rights to payment, rights under Hedge
Agreements (including the right to receive payment on account of the termination (voluntarily or
involuntarily) of any such Hedge Agreements), rights arising under common law, statutes, or
regulations, choses or things in action, goodwill, Intellectual Property, Intellectual Property
Licenses, purchase orders, customer lists, monies due or recoverable from pension funds, route
lists, rights to payment and other rights under any royalty or licensing agreements, including
Intellectual Property Licenses, infringement claims, pension plan refunds, pension plan refund
claims, insurance premium rebates, tax refunds, and tax refund claims, interests in a partnership
or limited liability company which do not constitute a security under Article 8 of the Code, and
any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper,
Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and oil, gas, or other
minerals before extraction.
(aa)
Grantor
and
Grantors
have the respective meanings specified therefor
in the preamble to this Agreement.
(bb)
Guaranty
has the meaning specified therefor in the Credit Agreement.
(cc)
Insolvency Proceeding
has the meaning specified therefor in the Credit
Agreement.
(dd)
Intellectual Property
means any and all Patents, Copyrights, Trademarks, trade
secrets, know-how, inventions (whether or not patentable), algorithms, software programs (including
source code and object code), processes, product designs, industrial designs, blueprints, drawings,
data, customer lists, URLs and domain names, specifications, documentations, reports, catalogs,
literature, and any other forms of technology or proprietary information of any kind, including all
rights therein and all applications for registration or registrations thereof.
(ee)
Intellectual Property Licenses
means, with respect to any Person (the
Specified Party
), (i) any licenses or other similar rights provided to the Specified
Party in or with respect to Intellectual Property owned or controlled by any other Person, and (ii)
any licenses or other similar rights provided to any other Person in or with respect to
Intellectual Property owned or controlled by the Specified Party, in each case, including (A) any
software license agreements (other than license agreements for commercially available off-the-shelf
software that is generally available to the public which have been licensed to a Grantor pursuant
to end-user licenses), (B) the license agreements listed on
Schedule 3
, and (C) the right
to use any of the licenses or other similar rights described in this definition in connection with
the enforcement of the Lender Groups rights under the Loan Documents.
(ff)
Inventory
means inventory (as that term is defined in the Code).
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
3
(gg)
Investment Related Property
means (i) any and all investment property (as that
term is defined in the Code), and (ii) any and all of the following (regardless of whether
classified as investment property under the Code): all Pledged Interests, Pledged Operating
Agreements, and Pledged Partnership Agreements.
(hh)
Joinder
means each Joinder to this Agreement executed and delivered by Agent
and each of the other parties listed on the signature pages thereto, in substantially the form of
Annex 1
.
(ii)
Lender Group
has the meaning specified therefor in the Credit Agreement.
(jj)
Lender
and
Lenders
have the respective meanings specified therefor in
the recitals to this Agreement.
(kk)
Loan Document
has the meaning specified therefor in the Credit Agreement.
(ll)
Negotiable Collateral
means letters of credit, letter-of-credit rights,
instruments, promissory notes, drafts and documents (as each such term is defined in the Code).
(mm)
Obligations
has the meaning specified therefor in the Credit Agreement.
(nn)
Parent
has the meaning specified therefor in the recitals to this Agreement.
(oo)
Patents
means patents and patent applications, including (i) the patents and
patent applications listed on
Schedule 4
, (ii) all continuations, divisionals,
continuations-in-part, re-examinations, reissues, and renewals thereof and improvements thereon,
(iii) all income, royalties, damages and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in connection therewith and
damages and payments for past, present, or future infringements thereof, (iv) the right to sue for
past, present, and future infringements thereof, and (v) all of each Grantors rights corresponding
thereto throughout the world.
(pp)
Patent Security Agreement
means each Patent Security Agreement executed and
delivered by Grantors, or any of them, and Agent, in substantially the form of
Exhibit B
.
(qq)
Permitted Liens
has the meaning specified therefor in the Credit Agreement.
(rr)
Person
has the meaning specified therefor in the Credit Agreement.
(ss)
Pledged Companies
means each Person listed on
Schedule 6
as a Pledged
Company, together with each other Person, all or a portion of whose Stock is acquired or otherwise
owned by a Grantor after the Closing Date.
(tt)
Pledged Interests
means all of each Grantors right, title and interest in and
to all of the Stock, to the extent such Stock constitutes Collateral, now owned or hereafter
acquired by such Grantor, regardless of class or designation, including in each of the Pledged
Companies, and all substitutions therefor and replacements thereof, all proceeds thereof and all
rights relating thereto, also including any certificates representing the Stock, the right to
receive any certificates representing any of the Stock, all warrants, options, share appreciation
rights and other rights, contractual or otherwise, in respect thereof and the right to receive all
dividends, distributions of income, profits, surplus, or other compensation by way of income or
liquidating distributions, in cash or in kind, and all cash, instruments, and other property from
time to time received, receivable, or otherwise distributed in respect of or in addition to, in
substitution of, on account of, or in exchange for any or all of the foregoing.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
4
(uu)
Pledged Interests Addendum
means a Pledged Interests Addendum substantially in
the form of Exhibit C.
(vv)
Pledged Note
has the meaning set forth in Section 5(i).
(ww)
Pledged Operating Agreements
means all of each Grantors rights, powers, and
remedies under the limited liability company operating agreements of each of the Pledged Companies
that are limited liability companies.
(xx)
Pledged Partnership Agreements
means all of each Grantors rights, powers, and
remedies under the partnership agreements of each of the Pledged Companies that are partnerships.
(yy)
Proceeds
has the meaning specified therefor in Section 2.
(zz)
PTO
means the United States Patent and Trademark Office.
(aaa)
Real Property
means any estates or interests in real property now owned or
hereafter acquired by any Grantor or any Subsidiary of any Grantor and the improvements thereto.
(bbb)
Records
means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable form.
(ccc)
Rescission
has the meaning specified therefor in
Section 6(k)
.
(ddd)
Secured Obligations
means each and all of the following: (a) all of the
present and future obligations of each of the Grantors arising from, or owing under or pursuant to,
this Agreement, the Credit Agreement, or any of the other Loan Documents (including any Guaranty),
(b) all Bank Product Obligations, and (c) all other Obligations of Borrower (including, in the case
of each of clauses (a), (b) and (c), reasonable attorneys fees and expenses and any interest, fees,
or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed
or allowable in whole or in part as a claim in any Insolvency Proceeding).
(eee)
Securities Account
means a securities account (as that term is defined in the
Code).
(fff)
Security Interest
has the meaning specified therefor in Section 2.
(ggg)
Stock
has the meaning specified therefor in the Credit Agreement.
(hhh)
Supporting Obligations
means supporting obligations (as such term is defined
in the Code), and includes letters of credit and guaranties issued in support of Accounts, Chattel
Paper, documents, General Intangibles, instruments or Investment Related Property.
(iii)
Trademarks
means any and all trademarks, trade names, registered trademarks,
trademark applications, service marks, registered service marks and service mark applications,
including (i) the trade names, registered trademarks, trademark applications, registered service
marks and service mark applications listed on
Schedule 5
, (ii) all renewals thereof, (iii)
all income, royalties, damages and payments now and hereafter due or payable under and with respect
thereto, including payments under all licenses entered into in connection therewith and damages and
payments for past or future infringements or dilutions thereof, (iv) the right to sue for past,
present and future infringements and dilutions thereof, (v) the goodwill of each Grantors business
symbolized by the foregoing or connected therewith, and (vi) all of each Grantors rights
corresponding thereto throughout the world.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
5
(jjj)
Trademark Security Agreement
means each Trademark Security Agreement executed
and delivered by Grantors, or any of them, and Agent, in substantially the form of
Exhibit
D
.
(kkk)
Triggering Event
means, as of any date of determination, that an Event of
Default has occurred as of such date.
(lll)
URL
means uniform resource locator, an internet web address.
(mmm) [***]
(nnn) [***] means an irrevocable commercial letter of credit reflecting Borrower as a
beneficiary issued at the request of [***] as support for accounts with respect to purchases of
product by [***] from Borrower.
2.
Grant of Security
. Each Grantor hereby unconditionally grants, assigns, and
pledges to Agent, for the benefit of each member of the Lender Group and each of the Bank Product
Providers, to secure the Secured Obligations, a continuing security interest (hereinafter referred
to as the
Security Interest
) in all of such Grantors right, title, and interest in and
to the following, whether now owned or hereafter acquired or arising and wherever located (the
Collateral
):
(a) all of such Grantors Accounts;
(b) all of such Grantors Books;
(c) all of such Grantors Chattel Paper;
(d) all of such Grantors Deposit Accounts;
(e) all of such Grantors Equipment and Fixtures;
(f) all of such Grantors General Intangibles;
(g) all of such Grantors Inventory;
(h) all of such Grantors Investment Related Property;
(i) all of such Grantors Negotiable Collateral;
(j) all of such Grantors Supporting Obligations;
(k) all of such Grantors Commercial Tort Claims;
(l) all of such Grantors money, Cash Equivalents, or other assets of such Grantor that now or
hereafter come into the possession, custody, or control of Agent (or its agent or designee) or any
other member of the Lender Group; and
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
6
(m) all of the proceeds (as such term is defined in the Code) and products, whether tangible
or intangible, of any of the foregoing, including proceeds of insurance or Commercial Tort Claims
covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel
Paper, Deposit Accounts, Equipment, Fixtures, General Intangibles, Inventory, Investment Related
Property, Negotiable Collateral, Supporting Obligations, money, or other tangible or intangible
property resulting from the sale, lease, license, exchange, collection, or other disposition of any
of the foregoing, the proceeds of any award in condemnation with respect to any of the foregoing,
any rebates or refunds, whether for taxes or otherwise, and
all proceeds of any such proceeds, or any portion thereof or interest therein, and the
proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether
insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or
guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing
(the
Proceeds
). Without limiting the generality of the foregoing, the term Proceeds
includes whatever is receivable or received when Investment Related Property or proceeds are sold,
exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Agent
from time to time with respect to any of the Investment Related Property. Notwithstanding the
foregoing the term Collateral shall not include (i) any rights or interest in any contract, lease,
permit, license, charter or license agreement covering personal property of a Grantor if under the
terms of such contract lease, permit, license, charter or license agreement, or applicable law with
respect thereto, the valid grant of a security interest or lien therein to Agent is prohibited as a
matter of law or under the terms of such contract (including where the violation of any such
prohibition would result in the termination of the applicable contract), lease, permit, license,
charter or license agreement and such prohibition has not been or is not waived or the consent of
the other party to such contract, lease, permit license, charter or license agreement has not been
or is not otherwise obtained; provided, that, the foregoing exclusion shall in no way be construed
(a) to apply if any described prohibition is unenforceable under Section 9-406, 9-407, or 9-408 of
the Code or other applicable law, or (b) so as to limit, impair or otherwise affect Agents
continuing security interests in and liens upon any rights or interests of a Grantor in or to
monies due or to become due under any described contract, lease permit, license, charter or license
agreement (including any Accounts), or (c) to limit, impair, or otherwise affect Agents continuing
security interests in and liens upon any rights or interest of a Grantor in and to any proceeds
from the sale, license, lease, or other dispositions of any such contract, lease, permit, license,
charter, license agreement, (ii) voting Stock of any CFC, solely to the extent that (x) such Stock
represents more than 65% of the outstanding voting Stock of any such CFC that is a first tier
Subsidiary of Parent or other Loan Party or 0% of the outstanding voting Stock of any Subsidiary of
such first tier Subsidiary of Parent or other Loan Party, and (y) pledging or hypothecating more
than the foregoing amount of the total outstanding voting Stock of such CFC would result in adverse
tax consequences or the costs to the Grantors of providing such pledge or perfecting the security
interests created thereby are unreasonably excessive (as determined by Agent in consultation with
Borrower) in relation to the benefits of Agent and the Lenders of the security or guarantee
afforded thereby (which pledge, if reasonably requested by Agent, shall be governed by the laws of
the jurisdiction of such Subsidiary), or (iii) any United States intent-to-use trademark
applications to the extent that, and solely during the period in which, the grant of a security
interest therein would impair the validity or enforceability of such intent-to-use trademark
applications under applicable federal law, provided that upon submission and acceptance by the PTO
of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision),
such intent-to-use trademark application shall be considered Collateral.
3.
Security for Secured Obligations
. The Security Interest created hereby secures the
payment and performance of the Secured Obligations, whether now existing or arising hereafter.
Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to
Agent, the Lender Group, the Bank Product Providers or any of them, but for the fact that they are
unenforceable or not allowable (in whole or in part) as a claim in an Insolvency Proceeding
involving any Grantor due to the existence of such Insolvency Proceeding.
4.
Grantors Remain Liable
.
(a) Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain
liable under the contracts and agreements included in the Collateral, including the Pledged
Operating Agreements and the Pledged Partnership Agreements, to perform all of the duties and
obligations thereunder to the same extent as if this Agreement had not been executed, (b) the
exercise by Agent or any other member of the Lender Group of any of the rights hereunder shall not
release any Grantor from any of its duties or obligations under such contracts and agreements
included in the Collateral, and (c) none of the members of the Lender Group shall
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
7
have any
obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall any of the members of the Lender Group be
obligated to perform any of the obligations or duties of any Grantors thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder. Until an Event of Default
shall occur and be continuing, except as otherwise provided in this Agreement, the Credit
Agreement, or any other Loan Document, Grantors shall have the right to possession and enjoyment of
the Collateral for the purpose of conducting the ordinary course of their respective businesses,
subject to and upon the terms hereof and of the Credit Agreement and the other Loan Documents.
Without limiting the generality of the foregoing, it is the intention of the parties hereto that
record and beneficial ownership of the Pledged Interests, including all voting, consensual,
dividend, and distribution rights, shall remain in the applicable Grantor until (i) the occurrence
and continuance of an Event of Default and (ii) Agent has notified the applicable Grantor of
Agents election to exercise such rights with respect to the Pledged Interests pursuant to
Section 15
.
(b) Grantors shall be entitled to receive and retain any and all dividends and/or
distributions paid in respect of the Stock of the Pledged Companies;
provided
, however,
that, except as permitted under the Credit Agreement, any and all:
(i) dividends and distributions paid or payable other than in cash in respect of, and any and
all additional shares or instruments or other property received, receivable, or otherwise
distributed in respect of, or in exchange for the Stock of the Pledged Companies;
(ii) dividends and distributions paid or payable in cash in respect of any Stock of the
Pledged Companies in connection with a partial or total liquidation or dissolution, merger,
consolidation of any Pledged Company, or any exchange of stock, conveyance of assets, or similar
corporate reorganization;
(iii) cash paid with respect to, payable, or otherwise distributed on redemption of, or in
exchange for, any Stock of the Pledged Companies, and
(iv) after the occurrence and during the continuance of an Event of Default and receipt of
notice from Agent of the intent to exercise rights under this clause (iv), all dividends and
distributions in respect of any Stock of the Pledged Companies (including cash dividends other than
those described in subparagraphs (ii) and (iii) above),
shall be forthwith delivered to Agent to hold as Collateral and shall, if received by Grantors, be
received in trust for the benefit of Agent, for the ratable benefit of the Lender Group and the
Bank Product Provider, be segregated from the other property or funds of Grantors, and be forthwith
delivered to Agent as Collateral in the same form as so received (with any necessary endorsement),
and, if deemed necessary by Agent, Grantors shall take such actions, including the actions
described in
Section 8
, as Agent may require.
5.
Representations and Warranties
. Each Grantor hereby represents and warrants to
Agent, for the benefit of the Lender Group and the Bank Product Providers, which representations
and warranties shall be true, correct, and complete, in all material respects (except that such
materiality qualifier shall not be applicable to any representations and warranties that already
are qualified or modified by materiality in the text thereof), as of the Closing Date, and shall be
true, correct, and complete, in all material respects (except that such materiality qualifier shall
not be applicable to any representations and warranties that already are qualified or modified by
materiality in the text thereof), as of the date of the making of each Advance (or other extension
of credit) made thereafter, as though made on and as of the date of such Advance (or other
extension of credit) (except to the extent that such representations and warranties relate solely
to an earlier date, in which case such representations and warranties shall be true, correct and
complete in all material respects as of such earlier date) and such representations and warranties
shall survive the execution and delivery of this Agreement:
(a) The exact legal name of each of the Grantors is set forth on the signature pages of this
Agreement or a written notice provided to Agent pursuant to
Section 6.5
of the Credit
Agreement.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
8
(b)
Schedule 7
sets forth all Real Property owned by any of the Grantors as of the
Closing Date.
(c) As of the Closing Date: (i)
Schedule 2
provides a complete and correct list of all
registered Copyrights owned by any Grantor, all applications for registration of Copyrights owned
by any Grantor, and all other Copyrights owned by any Grantor and material to the conduct of the
business of any Grantor; (ii)
Schedule 3
provides a complete and correct list of all
Intellectual Property Licenses entered into by any Grantor pursuant to which (A) any Grantor has
provided any license or other rights in Intellectual Property owned or controlled by such Grantor
to any other Person or (B) any Person has granted to any Grantor any license or other rights in
Intellectual Property owned or controlled by such Person that is material to the business of such
Grantor, including any Intellectual Property that is incorporated in any Inventory, software, or
other product marketed, sold, licensed, or distributed by such Grantor; (iii)
Schedule 4
provides a complete and correct list of all Patents owned by any Grantor and all applications for
Patents owned by any Grantor; and (iv)
Schedule 5
provides a complete and correct list of
all registered Trademarks owned by any Grantor, all applications for registration of Trademarks
owned by any Grantor, and all other Trademarks owned by any Grantor and material to the conduct of
the business of any Grantor.
(d) (i) (A) to each Grantors knowledge, such Grantor owns exclusively or holds licenses in
all Intellectual Property that is necessary to the conduct of its business, and (B) all employees
and contractors of each Grantor who were involved in the creation or development of any
Intellectual Property for such Grantor that is necessary to the business of such Grantor have
signed agreements containing assignment of Intellectual Property rights to such Grantor and
obligations of confidentiality;
(ii) to each Grantors knowledge, no Person has infringed or misappropriated or is currently
infringing or misappropriating any Intellectual Property rights owned by such Grantor, in each
case, that either individually or in the aggregate could reasonably be expected to result in a
Material Adverse Change;
(iii) except as set forth on
Schedule 9
, (A) to each Grantors knowledge, (1) such
Grantor has never infringed or misappropriated and is not currently infringing or misappropriating
any Intellectual Property rights of any Person, and (2) no product manufactured, used, distributed,
licensed, or sold by or service provided by such Grantor has ever infringed or misappropriated or
is currently infringing or misappropriating any Intellectual Property rights of any Person, in each
case, except where such infringement either individually or in the aggregate could not reasonably
be expected to result in a Material Adverse Change, and (B) there are no pending, or to any
Grantors knowledge, threatened infringement or misappropriation claims or proceedings pending
against any Grantor, and no Grantor has received any notice or other communication of any actual or
alleged infringement or misappropriation of any Intellectual Property rights of any Person except
where such infringement claims, proceedings, or notices either individually or in the aggregate
could not reasonably be expected to result in a Material Adverse Change;
(iv) to each Grantors knowledge after reasonable inquiry, all registered Copyrights,
registered Trademarks, and issued Patents that are owned by such Grantor and necessary in to the
conduct of its business are valid, subsisting and enforceable and in compliance with all legal
requirements, filings, and payments and other actions that are required to maintain such
Intellectual Property in full force and effect, and
(v) each Grantor has taken reasonable steps to maintain the confidentiality of and otherwise
protect and enforce its rights in all trade secrets owned by such Grantor that are necessary in the
business of such Grantor.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
9
(e) This Agreement creates a valid security interest in the Collateral of each Grantor, to the
extent a security interest therein can be created under the Code, securing the payment of the
Secured Obligations. Except to the extent a security interest in the Collateral cannot be
perfected by the filing of a
financing statement under the Code, all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly taken or will have been taken upon the
filing of financing statements listing each applicable Grantor, as a debtor, and Agent, as secured
party, in the jurisdictions listed next to such Grantors name on
Schedule 8
. Upon the
making of such filings, Agent shall have a first priority perfected security interest in the
Collateral of each Grantor (subject to Permitted Liens) to the extent such security interest can be
perfected by the filing of a financing statement. Upon filing of the Copyright Security Agreement
with the United States Copyright Office, filing of the Patent Security Agreement and the Trademark
Security Agreement with the PTO, and the filing of appropriate financing statements in the
jurisdictions listed on
Schedule 8
, all action necessary or desirable to protect and
perfect the Security Interest in and to on each Grantors Patents, Trademarks, or Copyrights has
been taken and such perfected Security Interest is enforceable as such as against any and all
creditors of and purchasers from any Grantor. All action by any Grantor necessary to protect and
perfect such security interest on each item of Collateral has been duly taken.
(f) (i) Except for the Security Interest created hereby, each Grantor is and will at all times
be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other
than Permitted Liens, of the Pledged Interests indicated on
Schedule 6
as being owned by
such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the Closing
Date; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and
nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued
and outstanding Stock of the Pledged Companies of such Grantor identified on
Schedule 6
as
supplemented or modified by any Pledged Interests Addendum or any Joinder to this Agreement; (iii)
such Grantor has the right and requisite authority to pledge, the Investment Related Property, to
the extent constituting Collateral, pledged by such Grantor to Agent as provided herein; (iv) all
actions necessary or desirable to perfect and establish the first priority of (subject to Permitted
Liens), or otherwise protect, Agents Liens in the Investment Related Property, to the extent
constituting Collateral, and the proceeds thereof, have been duly taken, upon (A) the execution and
delivery of this Agreement; (B) the taking of possession by Agent (or its agent or designee) of any
certificates representing the Pledged Interests, together with undated powers (or other documents
of transfer acceptable to Agent) endorsed in blank by the applicable Grantor; (C) the filing of
financing statements in the applicable jurisdiction set forth on
Schedule 8
for such
Grantor with respect to the Pledged Interests of such Grantor that are not represented by
certificates, and (D) with respect to any Securities Accounts, the delivery of Control Agreements
with respect thereto; and (v) each Grantor has delivered to and deposited with Agent all
certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged
Interests are represented by certificates, and undated powers (or other documents of transfer
acceptable to Agent) endorsed in blank with respect to such certificates. None of the Pledged
Interests owned or held by such Grantor has been issued or transferred in violation of any
securities registration, securities disclosure, or similar laws of any jurisdiction to which such
issuance or transfer may be subject.
(g) No consent, approval, authorization, or other order or other action by, and no notice to
or filing with, any Governmental Authority or any other Person is required (i) for the grant of a
Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the
execution, delivery, or performance of this Agreement by such Grantor. No consent, approval,
authorization, or other order or other action by, and no notice to or filing with, any Governmental
Authority is required for the exercise by Agent of the voting or other rights provided for in this
Agreement with respect to the Investment Related Property or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in connection with such
disposition of Investment Related Property by laws affecting the offering and sale of securities
generally. No consent, approval, authorization, or other order or action by, and no notice to, any
Person is required for the exercise by Agent of the voting or other rights provided for in this
Agreement with respect to the Investment Related Property or the remedies in respect of the
Collateral pursuant to this Agreement. No Intellectual Property License of any Grantor that is
necessary to the conduct of such Grantors business requires any consent of any other Person in
order for such Grantor to grant the security interest granted hereunder in such Grantors right,
title or interest in or to such Intellectual Property License.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
10
(h) As to all limited liability company or partnership interests, issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents and warrants
that the Pledged Interests issued pursuant to such agreement (A) are not dealt in or traded on
securities exchanges or in securities markets, (B) do not constitute investment company securities,
and (C) are not held by such Grantor in a securities account. In addition, none of the Pledged
Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of
the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership
Agreement, provide that such Pledged Interests are securities governed by Article 8 of the Uniform
Commercial Code as in effect in any relevant jurisdiction.
(i) There is no default, breach, violation or event of acceleration existing under any
promissory note (as defined in the Code) constituting Collateral and pledged hereunder (each a
Pledged Note
) and no event has occurred or circumstance exists which, with the passage of
time or the giving of notice, or both, would constitute a default, breach, violation or event of
acceleration under any Pledged Note. No Grantor that is an obligee under a Pledged Note has waived
any default, breach, violation or event of acceleration under such Pledged Note.
(j) Each Grantor shall have made all payments, filings and recordations necessary to protect
and maintain its interest in such Grantors Intellectual Property Rights in the United States or
any other jurisdiction that are material to the conduct of such Grantors business, including (i)
making all necessary registration, maintenance, and renewal fee payment and (ii) filing all
necessary documents, including all applications for registration of Copyrights, Patents and
Trademarks that are material to the conduct of such Grantors business.
(k) Each Grantor has and enforces a policy requiring all employees, consultants and
contractors to execute appropriate assignment agreements, pursuant to which each such employee,
consultant or contractor assigns to such Grantor all of its rights, including all Intellectual
Property Rights, in and to all ideas, inventions, processes, works of authorship and other work
products that relate to such Grantors business and that were conceived, created, authored or
developed during the term of such employees, consultants or contractors employment or engagement
by such Grantor. Other than as set forth in Schedules 2, 3, 4 and 5, no past or present employee or
contractor of any Grantor has any ownership interest, license, permission or other right in or to
any Intellectual Property Rights that are material to the conduct of any such Grantors business,
except that solely to the extent necessary for the conduct of their work for or on behalf of any
Grantor, (i) employees of each Grantor may have permission to use Intellectual Property Rights and
(ii) contractors may have permission to use or license rights in the Intellectual Property.
(l) (k) No claim has been made and is continuing or threatened that the use by any Grantor of
any Intellectual Property Rights that are material to the conduct of its business is invalid or
unenforceable or that the use by such Grantor of any such Intellectual Property Rights does or may
violate the rights of any Person. To the best of each Grantors knowledge, there is currently no
infringement or unauthorized use of any item of Intellectual Property Rights contained on Schedules
2, 3, 4 or 5.
6.
Covenants
. Each Grantor, jointly and severally, covenants and agrees with Agent
that from and after the date of this Agreement and until the date of termination of this Agreement
in accordance with
Section 22
:
(a)
Possession of Collateral
. In the event that any Collateral, including Proceeds,
is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel
Paper, in each case, to the extent constituting Collateral and having an aggregate value or face
amount of $250,000 or more for all such Negotiable Collateral, Investment Related Property, or
Chattel Paper, the Grantors shall promptly (and in any event within two (2) Business Days after
receipt thereof), notify Agent thereof, and if and to the extent that perfection or priority of
Agents Security Interest is dependent on or enhanced by possession, the applicable Grantor,
promptly (and in any event within two (2) Business Days) after request by Agent, shall execute such
other documents and instruments as shall be requested by Agent or, if applicable, endorse and
deliver physical
possession of such Negotiable Collateral, Investment Related Property, or Chattel Paper to
Agent, together with such undated powers (or other relevant document of transfer acceptable to
Agent) endorsed in blank as shall be requested by Agent, and shall do such other acts or things
deemed necessary or desirable by Agent to protect Agents Security Interest therein;
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
11
(b)
Chattel Paper
.
(i) Promptly (and in any event within two (2) Business Days) after request by Agent, each
Grantor shall take all steps reasonably necessary to grant Agent control of all electronic Chattel
Paper in accordance with the Code and all transferable records as that term is defined in Section
16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures
in Global and National Commerce Act as in effect in any relevant jurisdiction, to the extent that
the aggregate value or face amount of such electronic Chattel Paper equals or exceeds $250,000;
(ii) If any Grantor retains possession of any Chattel Paper or instruments to the extent
constituting Collateral (which retention of possession shall be subject to the extent permitted
hereby and by the Credit Agreement), promptly upon the request of Agent, such Chattel Paper and
instruments shall be marked with the following legend: This writing and the obligations evidenced
or secured hereby are subject to the Security Interest of Wells Fargo Capital Finance, Inc., as
Agent for the benefit of the Lender Group and the Bank Product Providers;
(c)
Control Agreements
.
(i) Except to the extent otherwise excused by the Credit Agreement, each Grantor shall obtain
an authenticated Control Agreement (which may include a Controlled Account Agreement), from each
bank maintaining a Deposit Account for such Grantor;
(ii) Except to the extent otherwise excused by the Credit Agreement, each Grantor shall obtain
an authenticated Control Agreement, from each issuer of uncertificated securities, securities
intermediary, or commodities intermediary issuing or holding any financial assets or commodities to
or for any Grantor to the extent included in the Collateral;
(iii) Except to the extent otherwise excused by the Credit Agreement, each Grantor shall
obtain an authenticated Control Agreement with respect to all of such Grantors investment
property;
(d)
Letter-of-Credit Rights
. If the Grantors (or any of them) are or become the
beneficiary of any one letter of credit, other than a [***] L/C, having a face amount or value of
$100,000 or more, or one or more letters of credit, other than a [***] L/C, having a face amount or
value of $200,00 or more in the aggregate, then the applicable Grantor or Grantors shall promptly
(and in any event within two (2) Business Days after becoming a beneficiary), notify Agent thereof
and, promptly (and in any event within two (2) Business Days) after request by Agent, enter into a
tri-party agreement with Agent and the issuer or confirming bank with respect to letter-of-credit
rights assigning such letter-of-credit rights to Agent and directing all payments thereunder to
Agents Account, all in form and substance satisfactory to Agent;
provided
, however, that
solely with respect to [***] L/Cs, so long as no Event of Default has occurred and is continuing,
Grantors shall not be required to enter into the above referenced tri-party agreement;
(e)
Commercial Tort Claims
. If the Grantors (or any of them) obtain Commercial Tort
Claims having a value, or involving an asserted claim, in the amount of $250,000 or more in the
aggregate for all Commercial Tort Claims, then the applicable Grantor or Grantors shall promptly
(and in any event within two (2) Business Days of obtaining such Commercial Tort Claim), notify
Agent upon incurring or otherwise obtaining such Commercial Tort Claims and, promptly (and in any
event within two (2) Business Days) after request by Agent, amend
Schedule 1
to describe
such Commercial Tort Claims in a manner that reasonably
identifies such Commercial Tort Claims and which is otherwise reasonably satisfactory to
Agent, and hereby authorizes the filing of additional financing statements or amendments to
existing financing statements describing such Commercial Tort Claims, and agrees to do such other
acts or things deemed necessary or desirable by Agent to give Agent a first priority, perfected
security interest in any such Commercial Tort Claim;
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
12
(f)
Government Contracts
. Other than any Account or Chattel Paper the value of which
does not at any one time exceed $100,000 or Accounts and Chattel paper the aggregate value of which
does not at any one time exceed $250,000, if any Account or Chattel Paper arises out of a contract
or contracts with the United States of America or any department, agency, or instrumentality
thereof, Grantors shall promptly (and in any event within two (2) Business Days of the creation
thereof) notify Agent thereof and, promptly (and in any event within two (2) Business Days) after
request by Agent, execute any instruments or take any steps reasonably required by Agent in order
that all moneys due or to become due under such contract or contracts shall be assigned to Agent,
for the benefit of the Lender Group and the Bank Product Providers, and shall provide written
notice thereof under the Assignment of Claims Act or other applicable law;
(g)
Intellectual Property
.
(i) Upon the request of Agent, in order to facilitate filings with the United States Patent
and Trademark Office or any similar office or agency in any jurisdiction and the United States
Copyright Office or any similar office or agency in any jurisdiction, each Grantor shall execute
and deliver to Agent one or more Copyright Security Agreements, Trademark Security Agreements, or
Patent Security Agreements to further evidence Agents Lien on such Grantors Patents, Trademarks,
or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby;
(ii) Each Grantor shall have the duty, with respect to Intellectual Property that is necessary
in the conduct of such Grantors business, to protect and diligently enforce and defend at such
Grantors expense its Intellectual Property, to the extent commercially reasonable to do so as
determined in its reasonable business judgment, including (A) to diligently enforce and defend,
including promptly suing for infringement, misappropriation, or dilution and to recover any and all
damages for such infringement, misappropriation, or dilution, and filing for opposition,
interference, and cancellation against conflicting Intellectual Property rights of any Person, (B)
to prosecute diligently any trademark application or service mark application that is part of the
Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C)
to prosecute diligently any patent application that is part of the Patents pending as of the date
hereof or hereafter until the termination of this Agreement, (D) to take all reasonable and
necessary action to preserve and maintain all of such Grantors Trademarks, Patents, Copyrights,
Intellectual Property Licenses, and its rights therein, including paying all maintenance fees and
filing of applications for renewal, affidavits of use, and affidavits of noncontestability, and (E)
to require all employees, consultants, and contractors of each Grantor who were involved in the
creation or development of such Intellectual Property to sign agreements containing assignment of
Intellectual Property rights and obligations of confidentiality. Each Grantor further agrees not
to abandon any Intellectual Property or Intellectual Property License that is necessary in the
conduct of such Grantors business. Each Grantor hereby agrees to take the steps described in this
Section 6(g)(ii)
with respect to all new or acquired Intellectual Property which is
included in the Collateral, to the extent commercially reasonable to do so, to which it or any of
its Subsidiaries is now or later becomes entitled that is necessary in the conduct of such
Grantors business;
(iii) Grantors acknowledge and agree that the Lender Group shall have no duties with respect
to any Intellectual Property or Intellectual Property Licenses of any Grantor. Without limiting
the generality of this
Section 6(g)(iii)
, Grantors acknowledge and agree that no member of
the Lender Group shall be under any obligation to take any steps necessary to preserve rights in
the Collateral consisting of Intellectual Property or Intellectual Property Licenses against any
other Person, but any member of the Lender Group may do so at its option from and after the
occurrence and during the continuance of an Event of Default, and all expenses incurred in
connection therewith (including reasonable fees and expenses of attorneys and other
professionals) in accordance with the Credit Agreement, shall be for the sole account of
Borrower and shall be chargeable to the Loan Account;
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
13
(iv) Grantors shall have no duty to register with the U.S. Copyright Office any unregistered
copyrights (whether in existence on the Closing Date or thereafter acquired, arising, or developed)
unless (i) Borrower provides Agent with written notice of the applicable Grantor intent to register
such copyrights not less than 30 days prior to the date of the proposed registration, and (ii)
prior to such registration, the applicable Grantor execute and deliver to Agent an Copyright
Security Agreement, or such other documentation as Agent deems necessary in order to perfect and
continue perfected Agents Liens on such copyrights following such registration;
(v) On each date on which a Compliance Certificate is delivered by Borrower pursuant to
Section 5.1
of the Credit Agreement, each Grantor shall provide Agent with a written report
of all new Patents or Trademarks that are registered or the subject of pending applications for
registrations, and of all Intellectual Property Licenses that are material to the conduct of such
Grantors business, in each case, which were acquired, registered, or for which applications for
registration were filed by any Grantor during the prior period and any statement of use or
amendment to allege use with respect to intent-to-use trademark applications. In the case of such
registrations or applications therefor, which were acquired by any Grantor, each such Grantor shall
file the necessary documents with the appropriate Governmental Authority identifying the applicable
Grantor as the owner (or as a co-owner thereof, if such is the case) of such Intellectual Property.
In each of the foregoing cases, the applicable Grantor shall promptly cause to be prepared,
executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to
identify such Patent and Trademark registrations and applications therefor (with the exception of
Trademark applications filed on an intent-to-use basis for which no statement of use or amendment
to allege use has been filed) and Intellectual Property Licenses as being subject to the security
interests created thereunder;
(vi) Anything to the contrary in this Agreement notwithstanding, in no event shall any
Grantor, either itself or through any agent, employee, licensee, or designee, file an application
for the registration of any Copyright with the United States Copyright Office or any similar office
or agency in another country without giving Agent written notice thereof at least three (3)
Business Days prior to such filing and complying with
Section 6(g)(i)
. Upon receipt from
the United States Copyright Office of notice of registration of any Copyright, each Grantor shall
promptly (but in no event later than three (3) Business Days following such receipt) notify (but
without duplication of any notice required by
Section 6(g)(vii)
Agent of such registration
by delivering, or causing to be delivered, to Agent, documentation sufficient for Agent to perfect
Agents Liens on such Copyright. If any Grantor acquires from any Person any Copyright registered
with the United States Copyright Office or an application to register any Copyright with the United
States Copyright Office, such Grantor shall promptly (but in no event later than three (3) Business
Days following such acquisition) notify Agent of such acquisition and deliver, or cause to be
delivered, to Agent, documentation sufficient for Agent to perfect Agents Liens on such Copyright.
In the case of such Copyright registrations or applications therefor which were acquired by any
Grantor, each such Grantor shall promptly (but in no event later than three (3) Business Days
following such acquisition) file the necessary documents with the appropriate Governmental
Authority identifying the applicable Grantor as the owner (or as a co-owner thereof, if such is the
case) of such Copyrights; and
(vii) Each Grantor shall take, to the extent commercially reasonable, steps to maintain the
confidentiality of, and otherwise protect and enforce its rights in, the Intellectual Property that
is necessary in the conduct of such Grantors business, including, as applicable (A) protecting the
secrecy and confidentiality of its confidential information and trade secrets by having and
enforcing a policy requiring all current employees, consultants, licensees, vendors and contractors
with access to such information to execute appropriate confidentiality agreements; (B) taking
actions reasonably necessary to ensure that no trade secret falls into the public domain; and (C)
protecting the secrecy and confidentiality of the source code of all software programs and
applications of which it is the owner or licensee by having and enforcing a policy
requiring any licensees (or sublicensees) of such source code to enter into license agreements
with commercially reasonable use and non-disclosure restrictions.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
14
(viii) Each Grantor agrees to take all necessary steps, including making all necessary
payments and filings in connection with registration, maintenance, and renewal of each Grantors
Patents and Trademarks that are material to the conduct of each Grantors business.
(h)
Investment Related Property
.
(i) If any Grantor shall acquire, obtain, receive or become entitled to receive any Pledged
Interests after the Closing Date, it shall promptly (and in any event within two (2) Business Days
of acquiring or obtaining such Collateral) deliver to Agent a duly executed Pledged Interests
Addendum identifying such Pledged Interests;
(ii) Upon the occurrence and during the continuance of an Event of Default, following the
request of Agent, all sums of money and property paid or distributed in respect of the Investment
Related Property constituting Collateral that are received by any Grantor shall be held by the
Grantors in trust for the benefit of Agent segregated from such Grantors other property, and such
Grantor shall deliver it forthwith to Agent in the exact form received;
(iii) Each Grantor shall promptly deliver to Agent a copy of each material notice or other
material communication received by it in respect of any Pledged Interests;
(iv) No Grantor shall make or consent to any amendment or other modification or waiver with
respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or
enter into any agreement or permit to exist any restriction with respect to any Pledged Interests
if the same is prohibited pursuant to the Loan Documents;
(v) Each Grantor agrees that it will cooperate with Agent in obtaining all necessary approvals
and making all necessary filings under federal, state, local, or foreign law to effect the
perfection of the Security Interest on the Investment Related Property which is Collateral or to
effect any sale or transfer thereof;
(vi) As to all limited liability company or partnership interests, issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, each Grantor hereby covenants that the
Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded
on securities exchanges or in securities markets, (B) do not and will not constitute investment
company securities, and (C) are not and will not be held by such Grantor in a securities account.
In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any
other agreements governing any of the Pledged Interests issued under any Pledged Operating
Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged Interests
are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant
jurisdiction.
(i)
Real Property; Fixtures
. Each Grantor covenants and agrees that upon the
acquisition of any fee interest in Real Property having a value in excess of $500,000, it will,
subject to
Section 5.11
and
Section 5.12
of the Credit Agreement, promptly (and in
any event within two (2) Business Days of acquisition) notify Agent of the acquisition of such Real
Property and will grant to Agent, for the benefit of the Lender Group and the Bank Product
Providers, a first priority Mortgage on each fee interest in Real Property now or hereafter owned
by such Grantor and shall deliver such other documentation and opinions, in form and substance
satisfactory to Agent, in connection with the grant of such Mortgage as Agent shall request in its
Permitted Discretion, including title insurance policies, financing statements, fixture filings and
environmental audits and such Grantor shall pay all recording costs, intangible taxes and other
fees and costs (including reasonable attorneys fees and expenses) incurred in connection therewith.
Each Grantor acknowledges and
agrees that, to the extent permitted by applicable law, all of the Collateral shall remain
personal property regardless of the manner of its attachment or affixation to real property;
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
15
(j)
Transfers and Other Liens
. Grantors shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the
Collateral, except as expressly permitted by the Credit Agreement, or (ii) create or permit to
exist any Lien upon or with respect to any of the Collateral of any Grantor, except for Permitted
Liens. The inclusion of Proceeds in the Collateral shall not be deemed to constitute Agents
consent to any sale or other disposition of any of the Collateral except as expressly permitted in
this Agreement or the other Loan Documents;
(k)
Controlled Accounts
.
(i) Each Grantor who maintains any cash balances shall (A) establish and maintain cash
management services of a type and on terms reasonably satisfactory to Agent at one or more of the
banks set forth on
Schedule 6(k)
(each a
Controlled Account Bank
), and shall take
reasonable steps to ensure that all of its and its Subsidiaries Account Debtors forward payment of
the amounts owed by them directly to such Controlled Account Bank, and (B) deposit or cause to be
deposited promptly, and in any event no later than the first Business Day after the date of receipt
thereof, all of their Collections (including those sent directly by their Account Debtors to a
Grantor) into a bank account of such Grantor (each, a
Controlled Account
) at one of the
Controlled Account Banks.
(ii) Each Grantor who maintains any cash balances shall establish and maintain Controlled
Account Agreements with Agent and the applicable Controlled Account Bank, in form and substance
reasonably acceptable to Agent. Each such Controlled Account Agreement shall provide, among other
things, that (A) the Controlled Account Bank will comply with any instructions originated by Agent
directing the disposition of the funds in such Controlled Account without further consent by the
applicable Grantor, (B) the Controlled Account Bank waives, subordinates, or agrees not to exercise
any rights of setoff or recoupment or any other claim against the applicable Controlled Account
other than for payment of its service fees and other charges directly related to the administration
of such Controlled Account and for returned checks or other items of payment, and (C) (1) with
respect to Controlled Accounts of Borrower, commencing on the date 14 days after the Closing Date,
the Controlled Account Bank will forward by daily sweep all amounts in the applicable Controlled
Account to the Agents Account and (2) with respect to Controlled Accounts of any non-Borrower
Grantor, upon the instruction of Agent (an
Activation Instruction
), the Controlled
Account Bank will forward by daily sweep all amounts in the applicable Controlled Account to the
agents Account. Agent agrees not to issue an Activation Instruction with respect to such
Controlled Accounts unless a Triggering Event has occurred at the time such Activation Instruction
is issued. Agent agrees to use commercially reasonable efforts to rescind an Activation
Instruction (the
Rescission
) if: (x) the Triggering Event upon which such Activation
Instruction was issued has been waived in writing in accordance with the terms of the Credit
Agreement, and (y) no additional Triggering Event has occurred and is continuing prior to the date
of the Rescission or is reasonably expected to occur on or immediately after the date of the
Rescission.
(iii) So long as no Default or Event of Default has occurred and is continuing, Borrower may
amend
Schedule 6(k)
to add or replace a Controlled Account Bank or Controlled Account;
provided
,
however
, that (A) such prospective Controlled Account Bank shall be
reasonably satisfactory to Agent, and (B) prior to the time of the opening of such Controlled
Account, the applicable Grantor and such prospective Controlled Account Bank shall have executed
and delivered to Agent a Controlled Account Agreement. Each Grantor shall close any of its
Controlled Accounts (and establish replacement Controlled Account accounts in accordance with the
foregoing sentence) as promptly as practicable and in any event within forty-five (45) days of
notice from Agent that the operating performance, funds transfer, or availability procedures or
performance of the Controlled Account Bank with respect to Controlled Account Accounts or Agents
liability under any Controlled Account Agreement with such Controlled Account Bank is no longer
acceptable in Agents reasonable judgment.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
16
7.
Relation to Other Security Documents
. The provisions of this Agreement shall be
read and construed with the other Loan Documents referred to below in the manner so indicated.
(a)
Credit Agreement
. In the event of any conflict between any provision in this
Agreement and a provision in the Credit Agreement, such provision of the Credit Agreement shall
control.
(b)
Patent, Trademark, Copyright Security Agreements
. The provisions of the Copyright
Security Agreements, Trademark Security Agreements, and Patent Security Agreements are supplemental
to the provisions of this Agreement, and nothing contained in the Copyright Security Agreements,
Trademark Security Agreements, or the Patent Security Agreements shall limit any of the rights or
remedies of Agent hereunder. In the event of any conflict between any provision in this Agreement
and a provision in a Copyright Security Agreement, Trademark Security Agreement or Patent Security
Agreement, such provision of this Agreement shall control.
8.
Further Assurances
.
(a) Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly
execute and deliver all further instruments and documents, and take all further action, that Agent
may reasonably request, in order to perfect and protect the Security Interest granted hereby, to
create, perfect or protect the Security Interest purported to be granted hereby or to enable Agent
to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.
(b) Each Grantor authorizes the filing by Agent of financing or continuation statements, or
amendments thereto, and such Grantor will execute and deliver to Agent such other instruments or
notices, as Agent may reasonably request, in order to perfect and preserve the Security Interest
granted or purported to be granted hereby.
(c) Each Grantor authorizes Agent at any time and from time to time to file, transmit, or
communicate, as applicable, financing statements and amendments (i) describing the Collateral as
all personal property of debtor or all assets of debtor or words of similar effect, (ii)
describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that
contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing
office acceptance. Each Grantor also hereby ratifies any and all financing statements or
amendments previously filed by Agent in any jurisdiction.
(d) Each Grantor acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement filed in connection with
this Agreement without the prior written consent of Agent, subject to such Grantors rights under
Section 9-509(d)(2) of the Code.
9.
Agents Right to Perform Contracts, Exercise Rights, etc
. Upon the occurrence and
during the continuance of an Event of Default, Agent (or its designee) (a) may proceed to perform
any and all of the obligations of any Grantor contained in any contract, lease, or other agreement
constituting Collateral and exercise any and all rights of any Grantor therein contained as fully
as such Grantor itself could, (b) shall have the right to use any Grantors rights under
Intellectual Property Licenses constituting Collateral in connection with the enforcement of
Agents rights hereunder, including the right to prepare for sale and sell any and all Inventory
and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses,
and (c) shall have the right to request that any Stock that is pledged hereunder be registered in
the name of Agent or any of its nominees.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
17
10.
Agent Appointed Attorney-in-Fact
. Each Grantor hereby irrevocably appoints Agent
its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of
such Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under
the Credit Agreement, to
take any action and to execute any instrument which Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including:
(a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and
receipts for moneys due and to become due under or in connection with the Accounts or any other
Collateral of such Grantor;
(b) to receive and open all mail addressed to such Grantor and to notify postal authorities to
change the address for the delivery of mail to such Grantor to that of Agent;
(c) to receive, indorse, and collect any drafts or other instruments, documents, Negotiable
Collateral or Chattel Paper;
(d) to file any claims or take any action or institute any proceedings which Agent may deem
necessary or desirable for the collection of any of the Collateral of such Grantor or otherwise to
enforce the rights of Agent with respect to any of the Collateral;
(e) to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any Person obligated to such Grantor in respect of any Account of such Grantor;
(f) to use any Intellectual Property or Intellectual Property Licenses of such Grantor, in
each case constituting Collateral, including but not limited to any labels, Patents, Trademarks,
trade names, URLs, domain names, industrial designs, Copyrights, or advertising matter, in
preparing for sale, advertising for sale, or selling Inventory or other Collateral and to collect
any amounts due under Accounts, contracts or Negotiable Collateral of such Grantor; and
(g) Agent, on behalf of the Lender Group or the Bank Product Providers, shall have the right,
but shall not be obligated, to bring suit in its own name to enforce the Intellectual Property and
Intellectual Property Licenses and, if Agent shall commence any such suit, the appropriate Grantor
shall, at the request of Agent, do any and all lawful acts and execute any and all proper documents
reasonably required by Agent in aid of such enforcement.
To the extent permitted by law, each Grantor hereby ratifies all that such attorney-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable until this Agreement is terminated.
11.
Agent May Perform
. If any Grantor fails to perform any agreement contained
herein, Agent may itself perform, or cause performance of, such agreement, and the reasonable
expenses of Agent incurred in connection therewith shall be payable, jointly and severally, by
Grantors.
12.
Agents Duties
. The powers conferred on Agent hereunder are solely to protect
Agents interest in the Collateral, for the benefit of the Lender Group and the Bank Product
Providers, and shall not impose any duty upon Agent to exercise any such powers. Except for the
safe custody of any Collateral in its actual possession and the accounting for moneys actually
received by it hereunder, Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights pertaining to any
Collateral. Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its actual possession if such Collateral is accorded treatment
substantially equal to that which Agent accords its own property.
13.
Collection of Accounts, General Intangibles and Negotiable Collateral
. At any
time upon the occurrence and during the continuance of an Event of Default, Agent or Agents
designee may (a) notify Account Debtors of any Grantor that the Accounts, General Intangibles,
Chattel Paper or Negotiable Collateral of such Grantor have been assigned to Agent, for the benefit
of the Lender Group and the Bank Product
Providers, or that Agent has a security interest therein, and (b) collect the Accounts,
General Intangibles and Negotiable Collateral of any Grantor directly, and any collection costs and
expenses shall constitute part of such Grantors Secured Obligations under the Loan Documents.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
18
14.
Disposition of Pledged Interests by Agent
. None of the Pledged Interests existing
as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the
date of acquisition thereof will be, registered or qualified under the various federal or state
securities laws of the United States and disposition thereof after an Event of Default may be
restricted to one or more private (instead of public) sales in view of the lack of such
registration. Each Grantor understands that in connection with such disposition, Agent may
approach only a restricted number of potential purchasers and further understands that a sale under
such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests
were registered and qualified pursuant to federal and state securities laws and sold on the open
market. Each Grantor, therefore, agrees that: (a) if Agent shall, pursuant to the terms of this
Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale,
Agent shall have the right to rely upon the advice and opinion of any nationally recognized
brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do
so shall not be considered in determining the commercial reasonableness of such action) as to the
best manner in which to offer the Pledged Interest or any portion thereof for sale and as to the
best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be
conclusive evidence that Agent has handled the disposition in a commercially reasonable manner.
15.
Voting and Other Rights in Respect of Pledged Interests
.
(a) Upon the occurrence and during the continuation of an Event of Default, (i) Agent may, at
its option, and with two (2) Business Days prior written notice to any Grantor, and in addition to
all rights and remedies available to Agent under any other agreement, at law, in equity, or
otherwise, exercise all voting rights, or any other ownership or consensual rights (including any
dividend or distribution rights) in respect of the Pledged Interests owned by such Grantor, but
under no circumstances is Agent obligated by the terms of this Agreement to exercise such rights,
and (ii) if Agent duly exercises its right to vote any of such Pledged Interests, each Grantor
hereby appoints Agent, such Grantors true and lawful attorney-in-fact and IRREVOCABLE PROXY to
vote such Pledged Interests in any manner Agent deems advisable for or against all matters
submitted or which may be submitted to a vote of shareholders, partners or members, as the case may
be. The power-of-attorney and proxy granted hereby is coupled with an interest and shall be
irrevocable.
(b) For so long as any Grantor shall have the right to vote the Pledged Interests owned by it,
such Grantor covenants and agrees that it will not, without the prior written consent of Agent,
vote or take any consensual action with respect to such Pledged Interests which would materially
adversely affect the rights of Agent, the other members of the Lender Group, or the Bank Product
Providers, or the value of the Pledged Interests.
16.
Remedies
. Upon the occurrence and during the continuance of an Event of Default:
(a) Agent may, and, at the instruction of the Required Lenders, shall exercise in respect of
the Collateral, in addition to other rights and remedies provided for herein, in the other Loan
Documents, or otherwise available to it, all the rights and remedies of a secured party on default
under the Code or any other applicable law. Without limiting the generality of the foregoing, each
Grantor expressly agrees that, in any such event, Agent without demand of performance or other
demand, advertisement or notice of any kind (except a notice specified below of time and place of
public or private sale) to or upon any Grantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code
or any other applicable law), may take immediate possession of all or any portion of the Collateral
and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and
upon request of Agent forthwith, assemble all or part of the Collateral as directed by Agent and
make it available to Agent at one or more locations where such Grantor regularly maintains
Inventory, and (ii) without
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
19
notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Agents offices or elsewhere, for cash, on credit, and upon such
other terms as Agent may deem commercially reasonable. Each Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten (10) days notice to the applicable Grantor of
the time and place of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification and specifically such notice shall constitute a reasonable
authenticated notification of disposition within the meaning of Section 9-611 of the Code. Agent
shall not be obligated to make any sale of Collateral regardless of notice of sale having been
given. Agent may adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at the time and place
to which it was so adjourned. Each Grantor agrees that the internet shall constitute a place for
purposes of Section 9-610(b) of the Code. Each Grantor agrees that any sale of Collateral to a
licensor pursuant to the terms of a license agreement between such licensor and a Grantor is
sufficient to constitute a commercially reasonable sale (including as to method, terms, manner, and
time) within the meaning of Section 9-610 of the Code.
(b) Agent is hereby granted a non-exclusive license or other right to use, without liability
for royalties or any other charge, each Grantors Intellectual Property to the extent constituting
Collateral, including but not limited to, any labels, Patents, Trademarks, trade names, URLs,
domain names, industrial designs, Copyrights, and advertising matter, whether owned by any Grantor
or with respect to which any Grantor has rights under license, sublicense, or other agreements
(including any Intellectual Property License), as it pertains to the Collateral, in preparing for
sale, advertising for sale and selling any Collateral, and each Grantors rights under all licenses
and all franchise agreements shall inure to the benefit of Agent.
(c) Agent may, in addition to other rights and remedies provided for herein, in the other Loan
Documents, or otherwise available to it under applicable law and without the requirement of notice
to or upon any Grantor or any other Person (which notice is hereby expressly waived to the maximum
extent permitted by the Code or any other applicable law), (i) with respect to any Grantors
Deposit Accounts in which Agents Liens are perfected by control under Section 9-104 of the Code,
instruct the bank maintaining such Deposit Account for the applicable Grantor to pay the balance of
such Deposit Account to or for the benefit of Agent, and (ii) with respect to any Grantors
Securities Accounts in which Agents Liens are perfected by control under Section 9-106 of the
Code, instruct the securities intermediary maintaining such Securities Account for the applicable
Grantor to (A) transfer any cash in such Securities Account to or for the benefit of Agent, or (B)
liquidate any financial assets in such Securities Account that are customarily sold on a recognized
market and transfer the cash proceeds thereof to or for the benefit of Agent.
(d) Any cash held by Agent as Collateral and all cash proceeds received by Agent in respect of
any sale of, collection from, or other realization upon all or any part of the Collateral shall be
applied against the Secured Obligations in the order set forth in the Credit Agreement. In the
event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in
full, each Grantor shall remain jointly and severally liable for any such deficiency.
(e) Each Grantor hereby acknowledges that the Secured Obligations arise out of a commercial
transaction, and agrees that if an Event of Default shall occur and be continuing Agent shall have
the right to an immediate writ of possession without notice of a hearing. Agent shall have the
right to the appointment of a receiver for the properties and assets of each Grantor, and each
Grantor hereby consents to such rights and such appointment and hereby waives any objection such
Grantor may have thereto or the right to have a bond or other security posted by Agent.
17.
Remedies Cumulative
. Each right, power, and remedy of Agent, any other member of
the Lender Group, or any Bank Product Provider as provided for in this Agreement, the other Loan
Documents or any Bank Product Agreement now or hereafter existing at law or in equity or by statute
or otherwise shall be cumulative and concurrent and shall be in addition to every other right,
power, or remedy provided for in this Agreement, the other Loan Documents and the Bank Product
Agreements or now or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by Agent, any other member of the Lender Group, or any Bank
Product Provider, of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by Agent, such other member of
the Lender Group or such Bank Product Provider of any or all such other rights, powers, or
remedies.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
20
18.
Marshaling
. Agent shall not be required to marshal any present or future
collateral security (including but not limited to the Collateral) for, or other assurances of
payment of, the Secured Obligations or any of them or to resort to such collateral security or
other assurances of payment in any particular order, and all of its rights and remedies hereunder
and in respect of such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights and remedies, however existing or arising. To the extent that it
lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling
of collateral which might cause delay in or impede the enforcement of Agents rights and remedies
under this Agreement or under any other instrument creating or evidencing any of the Secured
Obligations or under which any of the Secured Obligations is outstanding or by which any of the
Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.
19.
Indemnity and Expenses
.
(a) Each Grantor agrees to indemnify Agent and the other members of the Lender Group from and
against all claims, lawsuits and liabilities (including reasonable attorneys fees) growing out of
or resulting from this Agreement (including enforcement of this Agreement) or any other Loan
Document to which such Grantor is a party, except claims, losses or liabilities resulting from the
gross negligence or willful misconduct of the party seeking indemnification as determined by a
final non-appealable order of a court of competent jurisdiction. This provision shall survive the
termination of this Agreement and the Credit Agreement and the repayment of the Secured
Obligations.
(b) Grantors, jointly and severally, shall, upon demand, pay to Agent (or Agent, may charge to
the Loan Account) all the Lender Group Expenses which Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an
Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in
accordance with this Agreement and the other Loan Documents, (iii) the exercise or enforcement of
any of the rights of Agent hereunder or (iv) the failure by any Grantor to perform or observe any
of the provisions hereof.
20.
Merger, Amendments; Etc
. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
AGREEMENTS BETWEEN THE PARTIES. No waiver of any provision of this Agreement, and no consent to
any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No amendment of any provision of
this Agreement shall be effective unless the same shall be in writing and signed by Agent and each
Grantor to which such amendment applies.
21.
Addresses for Notices
. All notices and other communications provided for
hereunder shall be given in the form and manner and delivered to Agent at its address specified in
the Credit Agreement, and to any of the Grantors at their respective addresses specified in the
Credit Agreement or Guaranty, as applicable, or, as to any party, at such other address as shall be
designated by such party in a written notice to the other party.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
21
22.
Continuing Security Interest: Assignments under Credit Agreement
. This Agreement
shall create a continuing security interest in the Collateral and shall (a) remain in full force
and effect until the Obligations have been paid in full in accordance with the provisions of the
Credit Agreement and the Commitments have expired or have been terminated, (b) be binding upon each
Grantor, and their respective successors and assigns, and (c) inure to the benefit of, and be
enforceable by, Agent, and its successors,
transferees and assigns. Without limiting the generality of the foregoing clause (c), any
Lender may, in accordance with the provisions of the Credit Agreement, assign or otherwise transfer
all or any portion of its rights and obligations under the Credit Agreement to any other Person,
and such other Person shall thereupon become vested with all the benefits in respect thereof
granted to such Lender herein or otherwise. Upon payment in full of the Secured Obligations in
accordance with the provisions of the Credit Agreement and the expiration or termination of the
Commitments, the Security Interest granted hereby shall terminate and all rights to the Collateral
shall revert to Grantors or any other Person entitled thereto. At such time, Agent will authorize
the filing of appropriate termination statements to terminate such Security Interests. No transfer
or renewal, extension, assignment, or termination of this Agreement or of the Credit Agreement, any
other Loan Document, or any other instrument or document executed and delivered by any Grantor to
Agent nor any additional Advances or other loans made by any Lender to Borrower, nor the taking of
further security, nor the retaking or re-delivery of the Collateral to Grantors, or any of them, by
Agent, nor any other act of the Lender Group or the Bank Product Providers, or any of them, shall
release any Grantor from any obligation, except a release or discharge executed in writing by Agent
in accordance with the provisions of the Credit Agreement. Agent shall not by any act, delay,
omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless
such waiver is in writing and signed by Agent and then only to the extent therein set forth. A
waiver by Agent of any right or remedy on any occasion shall not be construed as a bar to the
exercise of any such right or remedy which Agent would otherwise have had on any other occasion.
23.
Governing Law
.
(a) THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF,
AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, FEDERAL COURTS, LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH
ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND EACH GRANTOR WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS
SECTION 23(b)
.
(c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
24.
New Subsidiaries
. Pursuant to
Section 5.11
of the Credit Agreement,
certain Subsidiaries (whether by acquisition or creation) of any Grantor are required to enter into
this Agreement by executing and delivering in favor of Agent a Joinder to this Agreement in
substantially the form of
Annex 1
. Upon the execution and delivery of
Annex 1
by
any such new Subsidiary, such Subsidiary shall become a Grantor
hereunder with the same force and effect as if originally named as a Grantor herein. The
execution and delivery of any instrument adding an additional Grantor as a party to this Agreement
shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor
hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor
hereunder.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
22
25.
Agent
. Each reference herein to any right granted to, benefit conferred upon or
power exercisable by the Agent shall be a reference to Agent, for the benefit of each member of
the Lender Group and each of the Bank Product Providers.
26.
Miscellaneous
.
(a) This Agreement is a Loan Document. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement
by telefacsimile or other electronic method of transmission shall be equally as effective as
delivery of an original executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of transmission also
shall deliver an original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document
mutatis mutandis
.
(b) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective
to the extent of such prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of such provision in any
other jurisdiction. Each provision of this Agreement shall be severable from every other provision
of this Agreement for the purpose of determining the legal enforceability of any specific
provision.
(c) Headings and numbers have been set forth herein for convenience only. Unless the contrary
is compelled by the context, everything contained in each Section applies equally to this entire
Agreement.
(d) Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against
any member of the Lender Group or any Grantor, whether under any rule of construction or otherwise.
This Agreement has been reviewed by all parties and shall be construed and interpreted according
to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of
all parties hereto.
(e) The pronouns used herein shall include, when appropriate, either gender and both singular
and plural, and the grammatical construction of sentences shall conform thereto.
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
23
(f) Unless the context of this Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. Section, subsection, clause, schedule, and exhibit
references herein are to this Agreement unless otherwise specified. Any reference in this
Agreement to any agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders,
and supplements set forth herein). The words asset and property shall be construed to have the
same meaning and effect and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts, and contract rights. Any reference herein to the
satisfaction, repayment, or payment in full of the Secured Obligations shall mean the repayment in
full in cash or immediately available funds (or, (a) in the case of contingent
reimbursement obligations with respect to Letters of Credit, providing Letter of Credit
Collateralization, and (b) in the case of obligations with respect to Bank Products (other than
Hedge Obligations), providing Bank Product Collateralization) of all of the Secured Obligations
(including the payment of any termination amount then applicable (or which would or could become
applicable as a result of the repayment of the other Secured Obligations) under Hedge Agreements
provided by Hedge Providers) other than (i) unasserted contingent indemnification Secured
Obligations, (ii) any Bank Product Obligations (other than Hedge Obligations) that, at such time,
are allowed by the applicable Bank Product Provider to remain outstanding without being required to
be repaid or cash collateralized, and (iii) any Hedge Obligations that, at such time, are allowed
by the applicable Hedge Provider to remain outstanding without being required to be repaid. Any
reference herein to any Person shall be construed to include such Persons successors and assigns.
Any requirement of a writing contained herein shall be satisfied by the transmission of a Record.
(g) All of the annexes, schedules and exhibits attached to this Agreement shall be deemed
incorporated herein by reference.
[signature pages follow]
Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
24
IN WITNESS WHEREOF, the undersigned parties hereto have caused this Agreement to be executed
and delivered as of the day and year first above written.
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GRANTORS:
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OCLARO, INC.
a Delaware corporation
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By:
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Name:
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Title:
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OCLARO TECHNOLOGY, INC.
a Delaware corporation
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By:
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Name:
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Title:
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OCLARO (NEW JERSEY), INC.
a Delaware corporation
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By:
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Name:
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Title:
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OCLARO PHOTONICS, INC.
a Delaware corporation
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By:
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Name:
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Title:
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[SIGNATURE PAGE TO SECURITY AGREEMENT]
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OCLARO (NORTH AMERICA), INC.
a Delaware corporation
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By:
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Name:
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Title:
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MINTERA CORPORATION
a Delaware corporation
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By:
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Name:
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Title:
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AGENT: WELLS FARGO CAPITAL FINANCE, INC.
, a
California corporation
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By:
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Name:
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Title:
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Confidential treatment is being requested for portions of this document. This copy of the document
filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
26
ANNEX 1 TO SECURITY AGREEMENT
FORM OF JOINDER
Joinder No.
_____
(this
Joinder
), dated as of
, to the Security
Agreement, dated as of July 26, 2011(as amended, restated, supplemented, or otherwise modified from
time to time, the
Security Agreement
), by and among each of the parties listed on the
signature pages thereto and those additional entities that thereafter become parties thereto
(collectively, jointly and severally,
Grantors
and each, individually, a
Grantor
) and
WELLS FARGO CAPITAL FINANCE, INC.
, a California corporation
(
WFCF
), in its capacity as agent for the Lender Group and the Bank Product Providers (in
such capacity, together with its successors and assigns in such capacity,
Agent
).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, initially capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Security Agreement or, if not defined therein, in the
Credit Agreement; and
WHEREAS, Grantors have entered into the Security Agreement in order to induce the Lender Group
to make certain financial accommodations to Borrower; and
WHEREAS, pursuant to
Section 5.11
of the Credit Agreement and
Section 24
of
the Security Agreement, certain Subsidiaries of the Loan Parties, must execute and deliver certain
Loan Documents, including the Security Agreement, and the joinder to the Security Agreement by the
undersigned new Grantor or Grantors (collectively, the
New Grantors
) may be accomplished
by the execution of this Joinder in favor of Agent, for the benefit of the Lender Group and the
Bank Product Providers; and
WHEREAS, each New Grantor (a) is [an Affiliate] [a Subsidiary] of Borrower and, as such, will
benefit by virtue of the financial accommodations extended to Borrower by the Lender Group or the
Bank Product Providers and (b) by becoming a Loan Party will benefit from certain rights granted to
the Loan Parties pursuant to the terms of the Loan Documents and the Bank Product Agreements;
NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, each New Grantor
hereby agrees as follows:
1. In accordance with
Section 24
of the Security Agreement, each New Grantor, by its
signature below, becomes a Grantor under the Security Agreement with the same force and effect as
if originally named therein as a Grantor and each New Grantor hereby (a) agrees to all of the
terms and provisions of the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a Grantor
thereunder are true and correct in all material respects (except that such materiality qualifier
shall not be applicable to any representations and warranties that are already qualified or
modified by materiality in the text thereof) on and as of the date hereof. In furtherance of the
foregoing, each New Grantor does
[SIGNATURE PAGE TO SECURITY AGREEMENT]
hereby unconditionally grant, assign, and pledge to Agent, for the benefit of the Lender Group and the Bank Product Providers, to secure the Secured Obligations,
a continuing security interest in and to all of such New Grantors right, title and interest in and
to the Collateral.
Schedule 1
, Commercial Tort Claims,
Schedule 2
, Copyrights,
Schedule 3
, Intellectual Property Licenses,
Schedule 4
, Patents,
Schedule
5
, Trademarks,
Schedule 6,
Pledged Companies,
Schedule 6(k)
, Controlled
Account Banks,
Schedule 7
, Owned Real Property,
Schedule 8
, List of Uniform
Commercial Code Filing Jurisdictions, and
Schedule 9
, Intellectual Property
Infringement/Misappropriation attached hereto supplement Schedule 1, Schedule 2, Schedule 3,
Schedule 4, Schedule 5, Schedule 6, Schedule 6(k), Schedule 7, Schedule 8, and Schedule 9,
respectively, to the Security Agreement and shall be deemed a part thereof for all purposes of the
Security Agreement. Each reference to a Grantor in the Security Agreement shall be deemed to
include each New Grantor. The Security Agreement is incorporated herein by reference. Each New
Grantor authorizes Agent at any time and from time to time to file, transmit, or communicate, as
applicable, financing statements and amendments thereto (i) describing the Collateral as all
personal property of debtor or all assets of debtor or words of similar effect, (ii) describing
the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any
information required by part 5 of Article 9 of the Code for the sufficiency or filing office
acceptance. Each New Grantor also hereby ratifies any and all financing statements or amendments
previously filed by Agent in any jurisdiction in connection with the Loan Documents.
2. Each New Grantor represents and warrants to Agent, the Lender Group and the Bank Product
Providers that this Joinder has been duly executed and delivered by such New Grantor and
constitutes its legal, valid, and binding obligation, enforceable against it in accordance with its
terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium, or other similar laws affecting creditors rights generally and
general principles of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
3. This Joinder is a Loan Document. This Joinder may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Joinder. Delivery of an executed counterpart of this Joinder by
telefacsimile or other electronic method of transmission shall be equally as effective as delivery
of an original executed counterpart of this Joinder. Any party delivering an executed counterpart
of this Joinder by telefacsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Joinder but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of this Joinder.
4. The Security Agreement, as supplemented hereby, shall remain in full force and effect.
5. THE VALIDITY OF THIS JOINDER, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND
THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
6. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS JOINDER
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENTS
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND EACH NEW GRANTOR WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 6.
7. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH NEW GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS JOINDER OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH NEW
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS JOINDER MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Joinder to the Security Agreement to
be executed and delivered as of the day and year first above written.
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NEW GRANTORS:
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[NAME OF NEW GRANTOR]
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By:
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Name:
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Title:
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[NAME OF NEW GRANTOR]
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By:
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Name:
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Title:
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AGENT:
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WELLS FARGO CAPITAL FINANCE,
INC.
, a California corporation
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By:
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Name:
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Title:
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[SIGNATURE PAGE TO JOINDER NO. ___ TO SECURITY AGREEMENT]
EXHIBIT A
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this
Copyright Security Agreement
) is made this
_____
day of
_____, 20
_____, by and among Grantors listed on the signature pages hereof
(collectively, jointly and severally,
Grantors
and each individually
Grantor
),
and
WELLS FARGO CAPITAL FINANCE, INC.
, a California corporation(
WFCF
), in its capacity as
agent for the Lender Group and the Bank Product Providers (in such capacity, together with its
successors and assigns in such capacity,
Agent
).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, the members of the Lender Group are willing to make the financial accommodations to
Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that
Grantors shall have executed and delivered to Agent, for the benefit of the Lender Group and the
Bank Product Providers, that certain Security Agreement (Domestic), dated as of July 26, 2011, 2011
(including all annexes, exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the
Security Agreement
); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to
Agent, for the benefit of the Lender Group and the Bank Product Providers, this Copyright Security
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Grantors hereby agree as follows:
1.
DEFINED TERMS
. All initially capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement or, if not defined therein, in the
Credit Agreement.
2.
GRANT OF SECURITY INTEREST IN COPYRIGHT COLLATERAL
. Each Grantor hereby
unconditionally grants, assigns, and pledges to Agent, for the benefit each member of the Lender
Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing
security interest (referred to in this Copyright Security Agreement as the
Security
Interest
) in all of such Grantors right, title and interest in and to the following, whether
now owned or hereafter acquired or arising and subject to any exclusions set forth in the Security
Agreement (collectively, the
Copyright Collateral
):
(a) all of such Grantors Copyrights and Copyright Intellectual Property Licenses to which it
is a party including those referred to on
Schedule I
;
(b) all renewals or extensions of the foregoing; and
(c) all products and proceeds of the foregoing, including any claim by such Grantor against
third parties for past, present or future infringement of any Copyright or any Copyright
exclusively licensed under any Intellectual Property License, including the right to receive
damages, or the right to receive license fees, royalties, and other compensation under any
Copyright Intellectual Property License.
3.
SECURITY FOR SECURED OBLIGATIONS
. This Copyright Security Agreement and the
Security Interest created hereby secures the payment and performance of the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of the foregoing, this
Copyright Security Agreement secures the payment of all amounts which constitute part of the
Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lender Group, the
Bank Product Providers or any of them, whether or not they are unenforceable or not allowable due
to the existence of an Insolvency Proceeding involving any Grantor.
4.
SECURITY AGREEMENT
. The Security Interest granted pursuant to this Copyright
Security Agreement is granted in conjunction with the security interests granted to Agent, for the
benefit of the Lender Group and the Bank Product Providers, pursuant to the Security Agreement.
Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to
the Security Interest in the Copyright Collateral made and granted hereby are more fully set forth
in the Security Agreement, the terms and provisions of which are incorporated by reference herein
as if fully set forth herein. To the extent there is any inconsistency between this Copyright
Security Agreement and the Security Agreement, the Security Agreement shall control.
5.
AUTHORIZATION TO SUPPLEMENT
. Grantors shall give Agent prior written notice of no
less than three (3) Business Days before filing any additional application for registration of any
copyright and prompt notice in writing of any additional copyright registrations granted therefor
after the date hereof. Without limiting Grantors obligations under this Section, Grantors hereby
authorize Agent unilaterally to modify this Copyright Security Agreement by amending
Schedule
I
to include any future United States registered copyrights or applications therefor which
constitute Collateral of each Grantor. Notwithstanding the foregoing, no failure to so modify this
Copyright Security Agreement or amend
Schedule I
shall in any way affect, invalidate or
detract from Agents continuing security interest in all Collateral, whether or not listed on
Schedule I
.
6.
COUNTERPARTS
. This Copyright Security Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Copyright Security Agreement. Delivery of an executed counterpart
of this Copyright Security Agreement by telefacsimile or other electronic method of transmission
shall be equally as effective as delivery of an original executed counterpart of this Copyright
Security Agreement. Any party delivering an executed counterpart of this Copyright Security
Agreement by telefacsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Copyright Security Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Copyright Security Agreement.
7.
CONSTRUCTION
. This Copyright Security Agreement is a Loan Document. Unless the
context of this Copyright Security Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Copyright Security Agreement refer to this Copyright
Security Agreement as a whole and not to any particular provision of this Copyright Security
Agreement. Section, subsection, clause, schedule, and exhibit references herein are to this
Copyright Security Agreement unless otherwise specified. Any reference in this Copyright Security
Agreement to any agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto
2
and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set
forth herein). The words asset and property shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts, and contract rights. Any reference herein to the satisfaction, repayment, or
payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately
available funds (or, (a) in the case of contingent reimbursement obligations with respect to
Letters of Credit, providing Letter of Credit Collateralization, and (b) in the case of obligations
with respect to Bank Products (other than Hedge Obligations), providing Bank Product
Collateralization) of all of the Secured Obligations (including the payment of any termination
amount then applicable (or which would or could become applicable as a result of the repayment of
the other Secured Obligations) under Hedge Agreements provided by Hedge Providers) other than (i)
unasserted contingent indemnification Secured Obligations, (ii) any Bank Product Obligations (other
than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to
remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge
Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding
without being required to be repaid. Any reference herein to any Person shall be construed to
include such Persons successors and permitted assigns. Any requirement of a writing contained
herein shall be satisfied by the transmission of a Record.
8. THE VALIDITY OF THIS COPYRIGHT SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
9. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS COPYRIGHT
SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND
EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT
IN ACCORDANCE WITH THIS
SECTION 9
.
10. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS COPYRIGHT SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[SIGNATURE PAGE FOLLOWS]
3
IN WITNESS WHEREOF, the parties hereto have caused this Copyright Security Agreement to be
executed and delivered as of the day and year first above written.
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GRANTORS:
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By:
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Name:
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Title:
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AGENT:
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ACCEPTED AND ACKNOWLEDGED BY:
WELLS FARGO CAPITAL FINANCE, INC.
,
a California corporation
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By:
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Name:
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Title:
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EXHIBIT B
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this
Patent Security Agreement
) is made this
_____
day
of
, 20
_____, by and among the Grantors listed on the signature pages hereof (collectively,
jointly and severally,
Grantors
and each individually
Grantor
), and
WELLS FARGO
CAPITAL FINANCE, INC.
, a California corporation (
WFCF
), in its capacity as agent for the
Lender Group and the Bank Product Providers (in such capacity, together with its successors and
assigns in such capacity,
Agent
).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, the members of Lender Group are willing to make the financial accommodations to
Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that
the Grantors shall have executed and delivered to Agent, for the benefit of the Lender Group and
the Bank Product Providers, that certain Security Agreement (Domestic), dated as of July 26, 2011
(including all annexes, exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the
Security Agreement
); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to
Agent, for the benefit of the Lender Group and the Bank Product Providers, this Patent Security
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor hereby agrees as follows:
1.
DEFINED TERMS
. All initially capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement or, if not defined therein, in the
Credit Agreement.
2.
GRANT OF SECURITY INTEREST IN PATENT COLLATERAL
. Each Grantor hereby
unconditionally grants, assigns, and pledges to Agent, for the benefit each member of the Lender
Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing
security interest (referred to in this Patent Security Agreement as the
Security
Interest
) in all of such Grantors right, title and interest in and to the following, whether
now owned or hereafter acquired or arising and subject to any exclusions set forth in the Security
Agreement (collectively, the
Patent Collateral
):
(a) all of its Patents and Patent Intellectual Property Licenses to which it is a party
including those referred to on
Schedule I
;
(b) all divisionals, continuations, continuations-in-part, reissues, reexaminations, or
extensions of the foregoing; and
2
(c) all products and proceeds of the foregoing, including any claim by such Grantor against
third parties for past, present or future infringement of any Patent or any Patent exclusively
licensed under any Intellectual Property License, including the right to receive damages, or right
to receive license fees, royalties, and other compensation under any Patent Intellectual Property
License.
3.
SECURITY FOR SECURED OBLIGATIONS
. This Patent Security Agreement and the Security
Interest created hereby secures the payment and performance of the Secured Obligations, whether now
existing or arising hereafter. Without limiting the generality of the foregoing, this Patent
Security Agreement secures the payment of all amounts which constitute part of the Secured
Obligations and would be owed by Grantors, or any of them, to Agent, the Lender Group, the Bank
Product Providers or any of them, whether or not they are unenforceable or not allowable due to the
existence of an Insolvency Proceeding involving any Grantor.
4.
SECURITY AGREEMENT
. The Security Interest granted pursuant to this Patent Security
Agreement is granted in conjunction with the security interests granted to Agent, for the benefit
of the Lender Group and the Bank Product Providers, pursuant to the Security Agreement. Each
Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the
Security Interest in the Patent Collateral made and granted hereby are more fully set forth in the
Security Agreement, the terms and provisions of which are incorporated by reference herein as if
fully set forth herein. To the extent there is any inconsistency between this Patent Security
Agreement and the Security Agreement, the Security Agreement shall control.
5.
AUTHORIZATION TO SUPPLEMENT
. If any Grantor shall obtain rights to any new patent
application or issued patent or become entitled to the benefit of any patent application or patent
for any divisional, continuation, continuation-in-part, reissue, or reexamination of any existing
patent or patent application, the provisions of this Patent Security Agreement shall automatically
apply thereto. Grantors shall give prompt notice in writing to Agent with respect to any such new
patent rights. Without limiting Grantors obligations under this Section, Grantors hereby
authorize Agent unilaterally to modify this Patent Security Agreement by amending
Schedule
I
to include any such new patent rights which constitute Collateral of each Grantor.
Notwithstanding the foregoing, no failure to so modify this Patent Security Agreement or amend
Schedule I
shall in any way affect, invalidate or detract from Agents continuing security
interest in all Collateral, whether or not listed on
Schedule I
.
6.
COUNTERPARTS
. This Patent Security Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Patent Security Agreement. Delivery of an executed counterpart of
this Patent Security Agreement by telefacsimile or other electronic method of transmission shall be
equally as effective as delivery of an original executed counterpart of this Patent Security
Agreement. Any party delivering an executed counterpart of this Patent Security Agreement by
telefacsimile or other electronic method of transmission also shall deliver an original executed
counterpart of this Patent Security Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of this Patent
Security Agreement.
7.
CONSTRUCTION
. This Patent Security Agreement is a Loan Document. Unless the
context of this Patent Security Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Patent Security Agreement refer to this Patent Security
Agreement as a whole and not to any particular provision of this Patent Security Agreement.
Section, subsection, clause, schedule, and exhibit references herein are to this Patent Security
Agreement unless otherwise specified. Any reference in this Patent Security Agreement to any
agreement, instrument, or document shall include all alterations, amendments,
3
changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).
The words
asset
and
property
shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts, and contract rights. Any reference herein to the satisfaction, repayment, or
payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately
available funds (or, (a) in the case of contingent reimbursement obligations with respect to
Letters of Credit, providing Letter of Credit Collateralization, and (b) in the case of obligations
with respect to Bank Products (other than Hedge Obligations), providing Bank Product
Collateralization) of all of the Secured Obligations (including the payment of any termination
amount then applicable (or which would or could become applicable as a result of the repayment of
the other Secured Obligations) under Hedge Agreements provided by Hedge Providers) other than (i)
unasserted contingent indemnification Secured Obligations, (ii) any Bank Product Obligations (other
than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to
remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge
Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding
without being required to be repaid. Any reference herein to any Person shall be construed to
include such Persons successors and permitted assigns. Any requirement of a writing contained
herein shall be satisfied by the transmission of a Record.
8. THE VALIDITY OF THIS PATENT SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
9. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PATENT
SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND
EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT
IN ACCORDANCE WITH THIS
SECTION 9
.
10. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS PATENT SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, the parties hereto have caused this Patent Security Agreement to be
executed and delivered as of the day and year first above written.
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GRANTORS:
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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AGENT:
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ACCEPTED AND ACKNOWLEDGED BY
:
WELLS FARGO CAPITAL FINANCE, INC.
,
a California corporation
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By:
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Name:
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Title:
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[SIGNATURE PAGE TO PATENT SECURITY AGREEMENT]
EXHIBIT C
PLEDGED INTERESTS ADDENDUM
This
Pledged Interests Addendum, dated as of
_____, 20
_____
(this
Pledged Interests
Addendum
), is delivered pursuant to Section 6 of the Security Agreement referred to below.
The undersigned hereby agrees that this Pledged Interests Addendum may be attached to that certain
Security Agreement (Domestic), dated as of July 26, 2011, (as amended, restated, supplemented, or
otherwise modified from time to time, the
Security Agreement
), made by the undersigned,
together with the other Grantors named therein, to
WELLS FARGO CAPITAL FINANCE, INC.
, a California
corporation, as Agent. Initially capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Security Agreement or, if not defined therein, in the Credit
Agreement. The undersigned hereby agrees that the additional interests listed on
Schedule
I
shall be and become part of the Pledged Interests pledged by the undersigned to Agent in the
Security Agreement and any pledged company set forth on
Schedule I
shall be and become a
Pledged Company under the Security Agreement, each with the same force and effect as if
originally named therein.
This Pledged interests Addendum is a Loan Document. Delivery of an executed counterpart of
this Pledged Interests Addendum by telefacsimile or other electronic method of transmission shall
be equally as effective as delivery of an original executed counterpart of this Pledged Interests
Addendum. If the undersigned delivers an executed counterpart of this Pledged Interests Addendum
by telefacsimile or other electronic method of transmission, the undersigned shall also deliver an
original executed counterpart of this Pledged Interests Addendum but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Pledged Interests Addendum.
The undersigned hereby certifies that the representations and warranties set forth in Section
5 of the Security Agreement of the undersigned are true and correct as to the Pledged Interests
listed herein on and as of the date hereof.
THE VALIDITY OF THIS PLEDGED INTERESTS ADDENDUM, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGED
INTERESTS ADDENDUM SHALL BE TRIED AND LITIGATED ONLY IN THE STATE, AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED,
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT,
AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR
WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
PARAGRAPH.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
PLEDGED INTERESTS ADDENDUM OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT
AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS PLEDGED
INTERESTS ADDENDUM MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[SIGNATURE PAGE FOLLOWS]
2
IN WITNESS WHEREOF, the undersigned has caused this Pledged Interests Addendum to be executed
and delivered as of the day and year first above written.
EXHIBIT D
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this
Trademark Security Agreement
) is made this
_____
day of
, 20_____, by and among Grantors listed on the signature pages hereof
(collectively, jointly and severally,
Grantors
and each individually
Grantor
),
and
WELLS FARGO CAPITAL FINANCE, INC.
, a California corporation (
WFCF
), in its capacity
as agent for the Lender Group and the Bank Product Providers (in such capacity, together with its
successors and assigns in such capacity,
Agent
).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, the members of the Lender Group are willing to make the financial accommodations to
Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that
Grantors shall have executed and delivered to Agent, for the benefit of Lender Group and the Bank
Product Providers, that certain Security Agreement (Domestic), dated as of July 26, 2011 (including
all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or
otherwise modified, the
Security Agreement
); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to
Agent, for the benefit of Lender Group and the Bank Product Providers, this Trademark Security
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor hereby agrees as follows:
1.
DEFINED TERMS
. All initially capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement or, if not defined therein, in the
Credit Agreement.
2.
GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL
. Each Grantor hereby
unconditionally grants, assigns, and pledges to Agent, for the benefit each member of the Lender
Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing
security interest (referred to in this Trademark Security Agreement as the
Security
Interest
) in all of such Grantors right, title and interest in and to the following, whether
now owned or hereafter acquired or arising and subject to any exclusions set forth in the Security
Agreement (collectively, the
Trademark Collateral
):
(a) all of its Trademarks and Trademark Intellectual Property Licenses to which it is a party
including those referred to on Schedule I;
(b) all goodwill of the business connected with the use of, and symbolized by, each Trademark
and each Trademark Intellectual Property License; and
(c) all products and proceeds (as that term is defined in the Code) of the foregoing,
including any claim by such Grantor against third parties for past, present or future (i)
infringement or dilution of any Trademark or any Trademarks exclusively licensed under any
Intellectual Property License, including right to receive any damages, (ii) injury to the goodwill
associated with any Trademark, or (iii) right to receive license fees, royalties, and other
compensation under any Trademark Intellectual Property License.
3.
SECURITY FOR SECURED OBLIGATIONS
. This Trademark Security Agreement and the
Security Interest created hereby secures the payment and performance of the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of the foregoing, this
Trademark Security Agreement secures the payment of all amounts which constitute part of the
Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lender Group, the
Bank Product Providers or any of them, whether or not they are unenforceable or not allowable due
to the existence of an Insolvency Proceeding involving any Grantor.
4.
SECURITY AGREEMENT
. The Security Interest granted pursuant to this Trademark
Security Agreement is granted in conjunction with the security interests granted to Agent, for the
benefit of the Lender Group and the Bank Product Providers, pursuant to the Security Agreement.
Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to
the Security Interest in the Trademark Collateral made and granted hereby are more fully set forth
in the Security Agreement, the terms and provisions of which are incorporated by reference herein
as if fully set forth herein. To the extent there is any inconsistency between this Trademark
Security Agreement and the Security Agreement, the Security Agreement shall control.
5.
AUTHORIZATION TO SUPPLEMENT
. If any Grantor shall obtain rights to any new
trademarks, the provisions of this Trademark Security Agreement shall automatically apply thereto.
Grantors shall give prompt notice in writing to Agent with respect to any such new trademarks or
renewal or extension of any trademark registration. Without limiting Grantors obligations under
this Section, Grantors hereby authorize Agent unilaterally to modify this Trademark Security
Agreement by amending
Schedule I
to include any such new trademark rights which constitute
Collateral of each Grantor. Notwithstanding the foregoing, no failure to so modify this Trademark
Security Agreement or amend
Schedule I
shall in any way affect, invalidate or detract from
Agents continuing security interest in all Collateral, whether or not listed on
Schedule
I
.
6.
COUNTERPARTS
. This Trademark Security Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Trademark Security Agreement. Delivery of an executed counterpart
of this Trademark Security Agreement by telefacsimile or other electronic method of transmission
shall be equally as effective as delivery of an original executed counterpart of this Trademark
Security Agreement. Any party delivering an executed counterpart of this Trademark Security
Agreement by telefacsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Trademark Security Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Trademark Security Agreement.
7.
CONSTRUCTION
. This Copyright Security Agreement is a Loan Document. Unless the
context of this Trademark Security Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Trademark Security Agreement refer to this Trademark
Security Agreement as a whole and not to any particular provision of this Trademark Security
Agreement. Section, subsection, clause, schedule, and exhibit references herein are to this
Agreement unless otherwise specified. Any reference in this Trademark Security Agreement to any
agreement, instrument, or document shall include all
2
alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set
forth herein). The words asset and property shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts, and contract rights. Any reference herein to the satisfaction, repayment, or
payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately
available funds (or, (a) in the case of contingent reimbursement obligations with respect to
Letters of Credit, providing Letter of Credit Collateralization, and (b) in the case of obligations
with respect to Bank Products (other than Hedge Obligations), providing Bank Product
Collateralization) of all of the Secured Obligations (including the payment of any termination
amount then applicable (or which would or could become applicable as a result of the repayment of
the other Secured Obligations) under Hedge Agreements provided by Hedge Providers) other than (i)
unasserted contingent indemnification Secured Obligations, (ii) any Bank Product Obligations (other
than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to
remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge
Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding
without being required to be repaid. Any reference herein to any Person shall be construed to
include such Persons successors and permitted assigns. Any requirement of a writing contained
herein shall be satisfied by the transmission of a Record.
8.
THE VALIDITY OF THIS TRADEMARK SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
9.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS TRADEMARK
SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND
EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT
IN ACCORDANCE WITH THIS
SECTION 9
.
10.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS TRADEMARK SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
3
11.
Amendment and Restatement of Original Security Agreement
. This Agreement
constitutes an amendment and restatement of the Original Security Agreement effective from and
after the Closing Date. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby are not intended by the parties to be, and shall not constitute, a
novation or an accord and satisfaction of the
Obligations or any other obligations owing to Agent or the Lenders under the Original Security
Agreement, Original Credit Agreement or any other loan document executed in connection therewith.
Each of the parties hereto hereby acknowledges and agrees that the grant of the security interests
in the Collateral pursuant to this Agreement and in any other Loan Document (unless explicitly
agreed to by Agent in writing) is not intended to, nor shall it be construed, as constituting a
release of any prior security interests granted by any Loan Party under the Original Security
Agreement or otherwise in favor of Agent for the benefit of itself, the Lenders, Issuing Lender,
Underlying Issuer and the Bank Product Providers in or to any Collateral or any other Property of
such Loan Party, but is intended to constitute a restatement and reconfirmation of the prior
security interests granted by the Loan Parties in favor of Agent for the benefit of itself, the
Lenders, Issuing Lender, Underlying Issuer and the Bank Product Providers in and to the Collateral
and a grant of a new security interest in any Collateral that is not included in the prior security
grants by the Loan Parties and in favor of Agent for the benefit of itself, the Lenders, Issuing
Lender, Underlying Issuer and the Bank Product Providers to the extent such grant was not included
in the prior security grants.
.
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, the parties hereto have caused this Trademark Security Agreement to be
executed and delivered as of the day and year first above written.
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GRANTORS:
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By:
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Name:
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Title:
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AGENT:
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ACCEPTED AND ACKNOWLEDGED BY
:
WELLS FARGO CAPITAL FINANCE, INC.
,
a California corporation
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By:
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Name:
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Title:
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Exhibit 10.14
SECURITY AGREEMENT (FOREIGN)
This
SECURITY AGREEMENT (FOREIGN)
(this
Agreement
), dated as of July 26, 2011,
among the Persons listed on the signature pages hereof as
Grantors
and those additional
entities that hereafter become parties hereto by executing the form of Joinder attached hereto as
Annex 1
(each, a
Grantor
and collectively, the
Grantors
), and
WELLS
FARGO CAPITAL FINANCE, INC.
, a California corporation (
WFCF
), in its capacity as agent
for the Lender Group and the Bank Product Providers (in such capacity, together with its successors
and assigns in such capacity,
Agent
).
W I T N E S S E T H
:
WHEREAS
, Agent and certain lenders party thereto, on the one hand, and Oclaro, Inc., a
Delaware corporation, as parent (
Parent
), and Oclaro Technology Limited, a company
incorporated under the laws of England and Wales, as borrower (
Borrower
) together with
certain of its subsidiaries, also as borrowers, on the other hand, are parties to that certain
Credit Agreement, dated as of August 2, 2006 (as amended, supplemented, or otherwise modified from
time to time prior to the Closing Date, the
Original Credit Agreement
);
WHEREAS
, in order to secure the obligations under the Original Credit Agreement, Parent,
Borrower and certain of Parents subsidiaries entered into that certain Security Agreement, dated
as of August 2, 2006 (as amended, supplemented, or otherwise modified from time to time prior to
the Closing Date, the
Original Security Agreement
)
WHEREAS
, Parent, Borrower, Agent, the lenders party thereto, as
Lenders
(such
Lenders, together with their respective successors and assigns in such capacity, each,
individually, a
Lender
and, collectively, the
Lenders
), have entered into that
certain Amended and Restated Credit Agreement of even date herewith (as amended, restated,
supplemented, or otherwise modified from time to time, the
Credit Agreement
), pursuant to
which Agent and the Lender Group have agreed to make certain financial accommodations available to
Borrower from time to time pursuant to the terms and conditions thereof; and
WHEREAS,
in order to induce the Lender Group to enter into the Credit Agreement and the other
Loan Documents, to induce the Bank Product Providers to enter into the Bank Product Agreements, and
to induce the Lender Group and the Bank Product Providers to make financial accommodations to
Borrower as provided for in the Credit Agreement, the other Loan Documents and the Bank Product
Agreements, Grantors have agreed to grant or continue the grant of, as applicable, a security
interest in and to the Collateral in order to secure the prompt and complete payment, observance
and performance of the Secured Obligations.
NOW, THEREFORE,
for and in consideration of the recitals made above and other good and
valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1.
Defined Terms
. All initially capitalized terms used herein (including in the
preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the
Credit Agreement (including Schedule 1.1 thereto). Any terms (whether capitalized or lower case)
used in this Agreement that are defined in the Code shall be construed and defined as set forth in
the Code unless otherwise defined herein or in the Credit Agreement;
provided
,
however
, that to the extent that the Code is used to define any term used herein and if
such term is defined differently in different Articles of the Code, the definition of such term
contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in
this Agreement, as used in this Agreement, the following terms shall have the following meanings:
(a)
Account
means an account (as that term is defined in Article 9 of the Code).
(b)
Account Debtor
means an account debtor (as that term is defined in the Code).
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(c)
Agent
has the meaning specified therefor in the preamble to this Agreement.
(d)
Agents Lien
has the meaning specified therefor in the Credit Agreement.
(e)
Agreement
has the meaning specified therefor in the preamble to this Agreement.
(f)
Bank Product Obligations
has the meaning specified therefor in the Credit
Agreement.
(g)
Bank Product Provider
has the meaning specified therefor in the Credit
Agreement.
(h)
Books
means books and records (including each Grantors Records indicating,
summarizing, or evidencing such Grantors assets (including the Collateral) or liabilities, each
Grantors Records relating to such Grantors business operations or financial condition, and each
Grantors goods or General Intangibles related to such information).
(i)
Borrower
has the meaning specified therefor in the recitals to this Agreement.
(j)
Cash Equivalents
has the meaning specified therefor in the Credit Agreement.
(k)
Chattel Paper
means chattel paper (as that term is defined in the Code), and
includes tangible chattel paper and electronic chattel paper.
(l)
Code
means the California Uniform Commercial Code, as in effect from time to
time;
provided
,
however
, that in the event that, by reason of mandatory provisions
of law, any or all of the attachment, perfection, priority, or remedies with respect to Agents
Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of California, the term
Code
shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority, or remedies.
(m)
Collateral
has the meaning specified therefor in
Section 2
.
(n)
Collections
has the meaning specified therefor in the Credit Agreement.
(o)
Commercial Tort Claims
means commercial tort claims (as that term is defined in
the Code), and includes those commercial tort claims listed on
Schedule 1
.
(p)
Controlled Account
has the meaning specified therefor in
Section 6(k)
.
(q)
Controlled Account Agreements
means those certain cash management agreements, in
form and substance reasonably satisfactory to Agent, each of which is executed and delivered by a
Grantor, Agent, and one of the Controlled Account Banks.
(r)
Controlled Account Bank
has the meaning specified therefor in
Section
6(k)
.
(s)
Copyrights
means any and all rights in any works of authorship, including (i)
copyrights and moral rights, (ii) copyright registrations and recordings thereof and all
applications in connection therewith including those listed on
Schedule 2
, (iii) income,
license fees, royalties, damages, and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in connection therewith and
damages and payments for past, present, or future infringements thereof, (iv) the right to sue for
past, present, and future infringements thereof, and (v) all of each Grantors rights
corresponding thereto throughout the world.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(t)
Copyright Security Agreement
means each Copyright Security Agreement executed
and delivered by Grantors, or any of them, and Agent, in substantially the form of
Exhibit
A
.
(u)
Credit Agreement
has the meaning specified therefor in the recitals to this
Agreement.
(v)
Deposit Account
means a deposit account (as that term is defined in the Code).
(w)
Equipment
means equipment (as that term is defined in the Code).
(x)
Event of Default
has the meaning specified therefor in the Credit Agreement.
(y)
Fixtures
means fixtures (as that term is defined in the Code).
(z)
General Intangibles
means general intangibles (as that term is defined in the
Code), and includes payment intangibles, contract rights, rights to payment, rights under Hedge
Agreements (including the right to receive payment on account of the termination (voluntarily or
involuntarily) of any such Hedge Agreements), rights arising under common law, statutes, or
regulations, choses or things in action, goodwill, Intellectual Property, Intellectual Property
Licenses, purchase orders, customer lists, monies due or recoverable from pension funds, route
lists, rights to payment and other rights under any royalty or licensing agreements, including
Intellectual Property Licenses, infringement claims, pension plan refunds, pension plan refund
claims, insurance premium rebates, tax refunds, and tax refund claims, interests in a partnership
or limited liability company which do not constitute a security under Article 8 of the Code, and
any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper,
Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and oil, gas, or other
minerals before extraction.
(aa)
Grantor
and
Grantors
have the respective meanings specified therefor
in the preamble to this Agreement.
(bb)
Guaranty
has the meaning specified therefor in the Credit Agreement.
(cc)
Insolvency Proceeding
has the meaning specified therefor in the Credit
Agreement.
(dd)
Intellectual Property
means any and all Patents, Copyrights, Trademarks, trade
secrets, know-how, inventions (whether or not patentable), algorithms, software programs (including
source code and object code), processes, product designs, industrial designs, blueprints, drawings,
data, customer lists, URLs and domain names, specifications, documentations, reports, catalogs,
literature, and any other forms of technology or proprietary information of any kind, including all
rights therein and all applications for registration or registrations thereof.
(ee)
Intellectual Property Licenses
means, with respect to any Person (the
Specified Party
), (i) any licenses or other similar rights provided to the Specified
Party in or with respect to Intellectual Property owned or controlled by any other Person, and (ii)
any licenses or other similar rights provided to any other Person in or with respect to
Intellectual Property owned or controlled by the Specified Party, in each case, including (A) any
software license agreements (other than license agreements for commercially available off-the-shelf
software that is generally available to the public which have been licensed to a Grantor pursuant
to end-user licenses), (B) the license agreements listed on
Schedule 3
, and (C) the right
to use any of the licenses or other similar rights described in this definition in connection with
the enforcement of the Lender Groups rights under the Loan Documents.
(ff)
Inventory
means inventory (as that term is defined in the Code).
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(gg)
Investment Related Property
means (i) any and all investment property (as that
term is defined in the Code), and (ii) any and all of the following (regardless of whether
classified as investment property under the Code): all Pledged Interests, Pledged Operating
Agreements, and Pledged Partnership Agreements.
(hh)
Joinder
means each Joinder to this Agreement executed and delivered by Agent
and each of the other parties listed on the signature pages thereto, in substantially the form of
Annex 1
.
(ii)
Lender Group
has the meaning specified therefor in the Credit Agreement.
(jj)
Lender
and
Lenders
have the respective meanings specified therefor in
the recitals to this Agreement.
(kk)
Loan Document
has the meaning specified therefor in the Credit Agreement.
(ll)
Negotiable Collateral
means letters of credit, letter-of-credit rights,
instruments, promissory notes, drafts and documents (as each such term is defined in the Code).
(mm)
Obligations
has the meaning specified therefor in the Credit Agreement.
(nn)
Parent
has the meaning specified therefor in the recitals to this Agreement.
(oo)
Patents
means patents and patent applications, including (i) the patents and
patent applications listed on
Schedule 4
, (ii) all continuations, divisionals,
continuations-in-part, re-examinations, reissues, and renewals thereof and improvements thereon,
(iii) all income, royalties, damages and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in connection therewith and
damages and payments for past, present, or future infringements thereof, (iv) the right to sue for
past, present, and future infringements thereof, and (v) all of each Grantors rights corresponding
thereto throughout the world.
(pp)
Patent Security Agreement
means each Patent Security Agreement executed and
delivered by Grantors, or any of them, and Agent, in substantially the form of
Exhibit B
.
(qq)
Permitted Liens
has the meaning specified therefor in the Credit Agreement.
(rr)
Person
has the meaning specified therefor in the Credit Agreement.
(ss)
Pledged Companies
means each Person listed on
Schedule 6
as a Pledged
Company, together with each other Person, all or a portion of whose Stock is acquired or otherwise
owned by a Grantor after the Closing Date.
(tt)
Pledged Interests
means all of each Grantors right, title and interest in and
to all of the Stock, to the extent such Stock constitutes Collateral, now owned or hereafter
acquired by such Grantor, regardless of class or designation, including in each of the Pledged
Companies, and all substitutions therefor and replacements thereof, all proceeds thereof and all
rights relating thereto, also including any certificates representing the Stock, the right to
receive any certificates representing any of the Stock, all warrants, options, share appreciation
rights and other rights, contractual or otherwise, in respect thereof and the right to receive all
dividends, distributions of income, profits, surplus, or other compensation by way of income or
liquidating distributions, in cash or in kind, and all cash, instruments, and other property from
time to time received, receivable, or otherwise distributed in respect of or in addition to, in
substitution of, on account of, or in exchange for any or all of the foregoing.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(uu)
Pledged Interests Addendum
means a Pledged Interests Addendum substantially in
the form of Exhibit C.
(vv)
Pledged Note
has the meaning set forth in Section 5(i).
(ww)
Pledged Operating Agreements
means all of each Grantors rights, powers, and
remedies under the limited liability company operating agreements of each of the Pledged Companies
that are limited liability companies.
(xx)
Pledged Partnership Agreements
means all of each Grantors rights, powers, and
remedies under the partnership agreements of each of the Pledged Companies that are partnerships.
(yy)
Proceeds
has the meaning specified therefor in
Section 2
.
(zz)
PTO
means the United States Patent and Trademark Office.
(aaa)
Real Property
means any estates or interests in real property now owned or
hereafter acquired by any Grantor or any Subsidiary of any Grantor and the improvements thereto.
(bbb)
Records
means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable form.
(ccc)
Rescission
has the meaning specified therefor in
Section 6(k)
.
(ddd)
Secured Obligations
means each and all of the following: (a) all of the
present and future obligations of each of the Grantors arising from, or owing under or pursuant to,
this Agreement, the Credit Agreement, or any of the other Loan Documents (including any Guaranty),
(b) all Bank Product Obligations, and (c) all other Obligations of Borrower (including, in the case
of each of clauses (a), (b) and (c), reasonable attorneys fees and expenses and any interest, fees,
or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed
or allowable in whole or in part as a claim in any Insolvency Proceeding).
(eee)
Securities Account
means a securities account (as that term is defined in the
Code).
(fff)
Security Interest
has the meaning specified therefor in Section 2.
(ggg)
Stock
has the meaning specified therefor in the Credit Agreement.
(hhh)
Supporting Obligations
means supporting obligations (as such term is defined
in the Code), and includes letters of credit and guaranties issued in support of Accounts, Chattel
Paper, documents, General Intangibles, instruments or Investment Related Property.
(iii)
Trademarks
means any and all trademarks, trade names, registered trademarks,
trademark applications, service marks, registered service marks and service mark applications,
including (i) the trade names, registered trademarks, trademark applications, registered service
marks and service mark applications listed on
Schedule 5
, (ii) all renewals thereof, (iii)
all income, royalties, damages and payments now and hereafter due or payable under and with respect
thereto, including payments under all licenses entered into in connection therewith and damages and
payments for past or future infringements or dilutions thereof, (iv) the right to sue for past,
present and future infringements and dilutions thereof, (v) the goodwill of each Grantors business
symbolized by the foregoing or connected therewith, and (vi) all of each Grantors rights
corresponding thereto throughout the world.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(jjj)
Trademark Security Agreement
means each Trademark Security Agreement executed
and delivered by Grantors, or any of them, and Agent, in substantially the form of
Exhibit
D
.
(kkk)
Triggering Event
means, as of any date of determination, that an Event of
Default has occurred as of such date.
(lll)
URL
means uniform resource locator, an internet web address.
(mmm) [***]
(nnn) [***] means an irrevocable commercial letter of credit reflecting Borrower as a
beneficiary issued at the request of [***] as support for accounts with respect to purchases of
product by [***] from Borrower.
2.
Grant of Security
. Each Grantor hereby unconditionally grants, assigns, and
pledges to Agent, for the benefit of each member of the Lender Group and each of the Bank Product
Providers, to secure the Secured Obligations, a continuing security interest (hereinafter referred
to as the
Security Interest
) in all of such Grantors right, title, and interest in and
to the following, whether now owned or hereafter acquired or arising and wherever located (the
Collateral
):
(a) all of such Grantors Accounts;
(b) all of such Grantors Books;
(c) all of such Grantors Chattel Paper;
(d) all of such Grantors Deposit Accounts;
(e) all of such Grantors Equipment and Fixtures;
(f) all of such Grantors General Intangibles;
(g) all of such Grantors Inventory;
(h) all of such Grantors Investment Related Property;
(i) all of such Grantors Negotiable Collateral;
(j) all of such Grantors Supporting Obligations;
(k) all of such Grantors Commercial Tort Claims;
(l) all of such Grantors money, Cash Equivalents, or other assets of such Grantor that now or
hereafter come into the possession, custody, or control of Agent (or its agent or designee) or any
other member of the Lender Group; and
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(m) all of the proceeds (as such term is defined in the Code) and products, whether tangible
or intangible, of any of the foregoing, including proceeds of insurance or Commercial Tort Claims
covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel
Paper, Deposit Accounts, Equipment, Fixtures, General Intangibles, Inventory, Investment Related
Property, Negotiable Collateral, Supporting Obligations, money, or other tangible or intangible
property resulting from the sale, lease, license, exchange, collection, or other disposition of any
of the foregoing, the proceeds of any award in
condemnation with respect to any of the foregoing, any rebates or refunds, whether for taxes
or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein,
and the proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above,
whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty,
or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the
foregoing (the
Proceeds
). Without limiting the generality of the foregoing, the term
Proceeds includes whatever is receivable or received when Investment Related Property or proceeds
are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Agent
from time to time with respect to any of the Investment Related Property. Notwithstanding the
foregoing the term Collateral shall not include (i) any rights or interest in any contract, lease,
permit, license, charter or license agreement covering personal property of a Grantor if under the
terms of such contract lease, permit, license, charter or license agreement, or applicable law with
respect thereto, the valid grant of a security interest or lien therein to Agent is prohibited as a
matter of law or under the terms of such contract (including where the violation of any such
prohibition would result in the termination of the applicable contract), lease, permit, license,
charter or license agreement and such prohibition has not been or is not waived or the consent of
the other party to such contract, lease, permit license, charter or license agreement has not been
or is not otherwise obtained; provided, that, the foregoing exclusion shall in no way be construed
(a) to apply if any described prohibition is unenforceable under Section 9-406, 9-407, or 9-408 of
the Code or other applicable law, or (b) so as to limit, impair or otherwise affect Agents
continuing security interests in and liens upon any rights or interests of a Grantor in or to
monies due or to become due under any described contract, lease permit, license, charter or license
agreement (including any Accounts), or (c) to limit, impair, or otherwise affect Agents continuing
security interests in and liens upon any rights or interest of a Grantor in and to any proceeds
from the sale, license, lease, or other dispositions of any such contract, lease, permit, license,
charter, license agreement, (ii) voting Stock of any CFC, solely to the extent that (x) such Stock
represents more than 65% of the outstanding voting Stock of any such CFC that is a first tier
Subsidiary of Parent or other Loan Party or 0% of the outstanding voting Stock of any Subsidiary of
such first tier Subsidiary of Parent or other Loan Party, and (y) pledging or hypothecating more
than the foregoing amount of the total outstanding voting Stock of such CFC would result in adverse
tax consequences or the costs to the Grantors of providing such pledge or perfecting the security
interests created thereby are unreasonably excessive (as determined by Agent in consultation with
Borrower) in relation to the benefits of Agent and the Lenders of the security or guarantee
afforded thereby (which pledge, if reasonably requested by Agent, shall be governed by the laws of
the jurisdiction of such Subsidiary), or (iii) any United States intent-to-use trademark
applications to the extent that, and solely during the period in which, the grant of a security
interest therein would impair the validity or enforceability of such intent-to-use trademark
applications under applicable federal law, provided that upon submission and acceptance by the PTO
of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision),
such intent-to-use trademark application shall be considered Collateral.
3.
Security for Secured Obligations
. The Security Interest created hereby secures the
payment and performance of the Secured Obligations, whether now existing or arising hereafter.
Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to
Agent, the Lender Group, the Bank Product Providers or any of them, but for the fact that they are
unenforceable or not allowable (in whole or in part) as a claim in an Insolvency Proceeding
involving any Grantor due to the existence of such Insolvency Proceeding.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
4.
Grantors Remain Liable
.
(a) Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain
liable under the contracts and agreements included in the Collateral, including the Pledged
Operating Agreements and the Pledged Partnership Agreements, to perform all of the duties and
obligations thereunder to the same extent as if this Agreement had not been executed, (b) the
exercise by Agent or any other member of the Lender Group of any of the rights hereunder shall not
release any Grantor from any of its duties or
obligations under such contracts and agreements included in the Collateral, and (c) none of
the members of the Lender Group shall have any obligation or liability under such contracts and
agreements included in the Collateral by reason of this Agreement, nor shall any of the members of
the Lender Group be obligated to perform any of the obligations or duties of any Grantors
thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.
Until an Event of Default shall occur and be continuing, except as otherwise provided in this
Agreement, the Credit Agreement, or any other Loan Document, Grantors shall have the right to
possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of
their respective businesses, subject to and upon the terms hereof and of the Credit Agreement and
the other Loan Documents. Without limiting the generality of the foregoing, it is the intention of
the parties hereto that record and beneficial ownership of the Pledged Interests, including all
voting, consensual, dividend, and distribution rights, shall remain in the applicable Grantor until
(i) the occurrence and continuance of an Event of Default and (ii) Agent has notified the
applicable Grantor of Agents election to exercise such rights with respect to the Pledged
Interests pursuant to
Section 15
.
(b) Grantors shall be entitled to receive and retain any and all dividends and/or
distributions paid in respect of the Stock of the Pledged Companies;
provided
, however,
that, except as permitted under the Credit Agreement, any and all:
(i) dividends and distributions paid or payable other than in cash in respect of, and any and
all additional shares or instruments or other property received, receivable, or otherwise
distributed in respect of, or in exchange for the Stock of the Pledged Companies;
(ii) dividends and distributions paid or payable in cash in respect of any Stock of the
Pledged Companies in connection with a partial or total liquidation or dissolution, merger,
consolidation of any Pledged Company, or any exchange of stock, conveyance of assets, or similar
corporate reorganization;
(iii) cash paid with respect to, payable, or otherwise distributed on redemption of, or in
exchange for, any Stock of the Pledged Companies, and
(iv) after the occurrence and during the continuance of an Event of Default and receipt of
notice from Agent of the intent to exercise rights under this clause (iv), all dividends and
distributions in respect of any Stock of the Pledged Companies (including cash dividends other than
those described in subparagraphs (ii) and (iii) above),
shall be forthwith delivered to Agent to hold as Collateral and shall, if received by Grantors, be
received in trust for the benefit of Agent, for the ratable benefit of the Lender Group and the
Bank Product Provider, be segregated from the other property or funds of Grantors, and be forthwith
delivered to Agent as Collateral in the same form as so received (with any necessary endorsement),
and, if deemed necessary by Agent, Grantors shall take such actions, including the actions
described in
Section 8
, as Agent may require.
5.
Representations and Warranties
. Each Grantor hereby represents and warrants to
Agent, for the benefit of the Lender Group and the Bank Product Providers, which representations
and warranties shall be true, correct, and complete, in all material respects (except that such
materiality qualifier shall not be applicable to any representations and warranties that already
are qualified or modified by materiality in the text thereof), as of the Closing Date, and shall be
true, correct, and complete, in all material respects (except that such materiality qualifier shall
not be applicable to any representations and warranties that already are qualified or modified by
materiality in the text thereof), as of the date of the making of each Advance (or other extension
of credit) made thereafter, as though made on and as of the date of such Advance (or other
extension of credit) (except to the extent that such representations and warranties relate solely
to an earlier date, in which case such representations and warranties shall be true, correct and
complete in all material respects as of such earlier date) and such representations and warranties
shall survive the execution and delivery of this Agreement:
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(a) The exact legal name of each of the Grantors is set forth on the signature pages of this
Agreement or a written notice provided to Agent pursuant to
Section 6.5
of the Credit
Agreement.
(b)
Schedule 7
sets forth all Real Property owned by any of the Grantors as of the
Closing Date.
(c) As of the Closing Date: (i)
Schedule 2
provides a complete and correct list of all
registered Copyrights owned by any Grantor, all applications for registration of Copyrights owned
by any Grantor, and all other Copyrights owned by any Grantor and material to the conduct of the
business of any Grantor; (ii)
Schedule 3
provides a complete and correct list of all
Intellectual Property Licenses entered into by any Grantor pursuant to which (A) any Grantor has
provided any license or other rights in Intellectual Property owned or controlled by such Grantor
to any other Person or (B) any Person has granted to any Grantor any license or other rights in
Intellectual Property owned or controlled by such Person that is material to the business of such
Grantor, including any Intellectual Property that is incorporated in any Inventory, software, or
other product marketed, sold, licensed, or distributed by such Grantor; (iii)
Schedule 4
provides a complete and correct list of all Patents owned by any Grantor and all applications for
Patents owned by any Grantor; and (iv)
Schedule 5
provides a complete and correct list of
all registered Trademarks owned by any Grantor, all applications for registration of Trademarks
owned by any Grantor, and all other Trademarks owned by any Grantor and material to the conduct of
the business of any Grantor.
(d) (i) (A) to each Grantors knowledge, such Grantor owns exclusively or holds licenses in
all Intellectual Property that is necessary to the conduct of its business, and (B) all employees
and contractors of each Grantor who were involved in the creation or development of any
Intellectual Property for such Grantor that is necessary to the business of such Grantor have
signed agreements containing assignment of Intellectual Property rights to such Grantor and
obligations of confidentiality;
(ii) to each Grantors knowledge, no Person has infringed or misappropriated or is currently
infringing or misappropriating any Intellectual Property rights owned by such Grantor, in each
case, that either individually or in the aggregate could reasonably be expected to result in a
Material Adverse Change;
(iii) except as set forth on
Schedule 9
, (A) to each Grantors knowledge, (1) such
Grantor has never infringed or misappropriated and is not currently infringing or misappropriating
any Intellectual Property rights of any Person, and (2) no product manufactured, used, distributed,
licensed, or sold by or service provided by such Grantor has ever infringed or misappropriated or
is currently infringing or misappropriating any Intellectual Property rights of any Person, in each
case, except where such infringement either individually or in the aggregate could not reasonably
be expected to result in a Material Adverse Change, and (B) there are no pending, or to any
Grantors knowledge, threatened infringement or misappropriation claims or proceedings pending
against any Grantor, and no Grantor has received any notice or other communication of any actual or
alleged infringement or misappropriation of any Intellectual Property rights of any Person except
where such infringement claims, proceedings, or notices either individually or in the aggregate
could not reasonably be expected to result in a Material Adverse Change;
(iv) to each Grantors knowledge after reasonable inquiry, all registered Copyrights,
registered Trademarks, and issued Patents that are owned by such Grantor and necessary in to the
conduct of its business are valid, subsisting and enforceable and in compliance with all legal
requirements, filings, and payments and other actions that are required to maintain such
Intellectual Property in full force and effect, and
(v) each Grantor has taken reasonable steps to maintain the confidentiality of and otherwise
protect and enforce its rights in all trade secrets owned by such Grantor that are necessary in the
business of such Grantor.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(e) This Agreement creates a valid security interest in the Collateral of each Grantor, to the
extent a security interest therein can be created under the Code, securing the payment of the
Secured Obligations. Except to the extent a security interest in the Collateral cannot be
perfected by the filing of a financing statement under the Code, all filings and other actions
necessary or desirable to perfect and protect such security interest have been duly taken or will
have been taken upon the filing of financing statements listing each applicable Grantor, as a
debtor, and Agent, as secured party, in the jurisdictions listed next to such Grantors name on
Schedule 8
. Upon the making of such filings, Agent shall have a first priority perfected
security interest in the Collateral of each Grantor (subject to Permitted Liens) to the extent such
security interest can be perfected by the filing of a financing statement. Upon filing of the
Copyright Security Agreement with the United States Copyright Office, filing of the Patent Security
Agreement and the Trademark Security Agreement with the PTO, and the filing of appropriate
financing statements in the jurisdictions listed on
Schedule 8
, all action necessary or
desirable to protect and perfect the Security Interest in and to on each Grantors Patents,
Trademarks, or Copyrights has been taken and such perfected Security Interest is enforceable as
such as against any and all creditors of and purchasers from any Grantor. All action by any
Grantor necessary to protect and perfect such security interest on each item of Collateral has been
duly taken.
(f) (i) Except for the Security Interest created hereby, each Grantor is and will at all times
be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other
than Permitted Liens, of the Pledged Interests indicated on
Schedule 6
as being owned by
such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the Closing
Date; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and
nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued
and outstanding Stock of the Pledged Companies of such Grantor identified on
Schedule 6
as
supplemented or modified by any Pledged Interests Addendum or any Joinder to this Agreement; (iii)
such Grantor has the right and requisite authority to pledge, the Investment Related Property, to
the extent constituting Collateral, pledged by such Grantor to Agent as provided herein; (iv) all
actions necessary or desirable to perfect and establish the first priority of (subject to Permitted
Liens), or otherwise protect, Agents Liens in the Investment Related Property, to the extent
constituting Collateral, and the proceeds thereof, have been duly taken, upon (A) the execution and
delivery of this Agreement; (B) the taking of possession by Agent (or its agent or designee) of any
certificates representing the Pledged Interests, together with undated powers (or other documents
of transfer acceptable to Agent) endorsed in blank by the applicable Grantor; (C) the filing of
financing statements in the applicable jurisdiction set forth on
Schedule 8
for such
Grantor with respect to the Pledged Interests of such Grantor that are not represented by
certificates, and (D) with respect to any Securities Accounts, the delivery of Control Agreements
with respect thereto; and (v) each Grantor has delivered to and deposited with Agent all
certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged
Interests are represented by certificates, and undated powers (or other documents of transfer
acceptable to Agent) endorsed in blank with respect to such certificates. None of the Pledged
Interests owned or held by such Grantor has been issued or transferred in violation of any
securities registration, securities disclosure, or similar laws of any jurisdiction to which such
issuance or transfer may be subject.
(g) No consent, approval, authorization, or other order or other action by, and no notice to
or filing with, any Governmental Authority or any other Person is required (i) for the grant of a
Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the
execution, delivery, or performance of this Agreement by such Grantor. No consent, approval,
authorization, or other order or other action by, and no notice to or filing with, any Governmental
Authority is required for the exercise by Agent of the voting or other rights provided for in this
Agreement with respect to the Investment Related Property or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in connection with such
disposition of Investment Related Property by laws affecting the offering and sale of securities
generally. No consent, approval, authorization, or other order or action by, and no notice to, any
Person is required for the exercise by Agent of the voting or other rights provided for in this
Agreement with respect to the Investment Related Property or the remedies in respect of the
Collateral pursuant to this Agreement. No Intellectual
Property License of any Grantor that is necessary to the conduct of such Grantors business
requires any consent of any other Person in order for such Grantor to grant the security interest
granted hereunder in such Grantors right, title or interest in or to such Intellectual Property
License.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(h) As to all limited liability company or partnership interests, issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents and warrants
that the Pledged Interests issued pursuant to such agreement (A) are not dealt in or traded on
securities exchanges or in securities markets, (B) do not constitute investment company securities,
and (C) are not held by such Grantor in a securities account. In addition, none of the Pledged
Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of
the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership
Agreement, provide that such Pledged Interests are securities governed by Article 8 of the Uniform
Commercial Code as in effect in any relevant jurisdiction.
(i) There is no default, breach, violation or event of acceleration existing under any
promissory note (as defined in the Code) constituting Collateral and pledged hereunder (each a
Pledged Note
) and no event has occurred or circumstance exists which, with the passage of
time or the giving of notice, or both, would constitute a default, breach, violation or event of
acceleration under any Pledged Note. No Grantor that is an obligee under a Pledged Note has waived
any default, breach, violation or event of acceleration under such Pledged Note.
(j) Each Grantor shall have made all payments, filings and recordations necessary to protect
and maintain its interest in such Grantors Intellectual Property Rights in the United States or
any other jurisdiction that are material to the conduct of such Grantors business, including (i)
making all necessary registration, maintenance, and renewal fee payment and (ii) filing all
necessary documents, including all applications for registration of Copyrights, Patents and
Trademarks that are material to the conduct of such Grantors business.
(k) Each Grantor has and enforces a policy requiring all employees, consultants and
contractors to execute appropriate assignment agreements, pursuant to which each such employee,
consultant or contractor assigns to such Grantor all of its rights, including all Intellectual
Property Rights, in and to all ideas, inventions, processes, works of authorship and other work
products that relate to such Grantors business and that were conceived, created, authored or
developed during the term of such employees, consultants or contractors employment or engagement
by such Grantor. Other than as set forth in Schedules 2, 3, 4 and 5, no past or present employee or
contractor of any Grantor has any ownership interest, license, permission or other right in or to
any Intellectual Property Rights that are material to the conduct of any such Grantors business,
except that solely to the extent necessary for the conduct of their work for or on behalf of any
Grantor, (i) employees of each Grantor may have permission to use Intellectual Property Rights and
(ii) contractors may have permission to use or license rights in the Intellectual Property.
(l) (k) No claim has been made and is continuing or threatened that the use by any Grantor of
any Intellectual Property Rights that are material to the conduct of its business is invalid or
unenforceable or that the use by such Grantor of any such Intellectual Property Rights does or may
violate the rights of any Person. To the best of each Grantors knowledge, there is currently no
infringement or unauthorized use of any item of Intellectual Property Rights contained on Schedules
2, 3, 4 or 5.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
6.
Covenants
. Each Grantor, jointly and severally, covenants and agrees with Agent
that from and after the date of this Agreement and until the date of termination of this Agreement
in accordance with
Section 22
:
(a)
Possession of Collateral
. In the event that any Collateral, including Proceeds,
is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel
Paper, in each case, to the extent constituting Collateral and having an aggregate value or face
amount of $250,000 or more for all
such Negotiable Collateral, Investment Related Property, or Chattel Paper, the Grantors shall
promptly (and in any event within two (2) Business Days after receipt thereof), notify Agent
thereof, and if and to the extent that perfection or priority of Agents Security Interest is
dependent on or enhanced by possession, the applicable Grantor, promptly (and in any event within
two (2) Business Days) after request by Agent, shall execute such other documents and instruments
as shall be requested by Agent or, if applicable, endorse and deliver physical possession of such
Negotiable Collateral, Investment Related Property, or Chattel Paper to Agent, together with such
undated powers (or other relevant document of transfer acceptable to Agent) endorsed in blank as
shall be requested by Agent, and shall do such other acts or things deemed necessary or desirable
by Agent to protect Agents Security Interest therein;
(b)
Chattel Paper
.
(i) Promptly (and in any event within two (2) Business Days) after request by Agent, each
Grantor shall take all steps reasonably necessary to grant Agent control of all electronic Chattel
Paper in accordance with the Code and all transferable records as that term is defined in Section
16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures
in Global and National Commerce Act as in effect in any relevant jurisdiction, to the extent that
the aggregate value or face amount of such electronic Chattel Paper equals or exceeds $250,000;
(ii) If any Grantor retains possession of any Chattel Paper or instruments to the extent
constituting Collateral (which retention of possession shall be subject to the extent permitted
hereby and by the Credit Agreement), promptly upon the request of Agent, such Chattel Paper and
instruments shall be marked with the following legend: This writing and the obligations evidenced
or secured hereby are subject to the Security Interest of Wells Fargo Capital Finance, Inc., as
Agent for the benefit of the Lender Group and the Bank Product Providers;
(c)
Control Agreements
.
(i) Except to the extent otherwise excused by the Credit Agreement, each Grantor shall obtain
an authenticated Control Agreement (which may include a Controlled Account Agreement), from each
bank maintaining a Deposit Account for such Grantor;
(ii) Except to the extent otherwise excused by the Credit Agreement, each Grantor shall obtain
an authenticated Control Agreement, from each issuer of uncertificated securities, securities
intermediary, or commodities intermediary issuing or holding any financial assets or commodities to
or for any Grantor to the extent included in the Collateral;
(iii) Except to the extent otherwise excused by the Credit Agreement, each Grantor shall
obtain an authenticated Control Agreement with respect to all of such Grantors investment
property;
(d)
Letter-of-Credit Rights
. If the Grantors (or any of them) are or become the
beneficiary of any one letter of credit, other than a [***] L/C, having a face amount or value of
$100,000 or more, or one or more letters of credit, other than a [***] L/C, having a face amount or
value of $200,00 or more in the aggregate, then the applicable Grantor or Grantors shall promptly
(and in any event within two (2) Business Days after becoming a beneficiary), notify Agent thereof
and, promptly (and in any event within two (2) Business Days) after request by Agent, enter into a
tri-party agreement with Agent and the issuer or confirming bank with respect to letter-of-credit
rights assigning such letter-of-credit rights to Agent and directing all payments thereunder to
Agents Account, all in form and substance satisfactory to Agent;
provided
, however, that
solely with respect to [***] L/Cs, so long as no Event of Default has occurred and is continuing,
Grantors shall not be required to enter into the above referenced tri-party agreement;
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(e)
Commercial Tort Claims
. If the Grantors (or any of them) obtain Commercial Tort
Claims having a value, or involving an asserted claim, in the amount of $250,000 or more in the
aggregate for all Commercial Tort Claims, then the applicable Grantor or Grantors shall promptly
(and in any event within two (2) Business Days of obtaining such Commercial Tort Claim), notify
Agent upon incurring or otherwise obtaining such Commercial Tort Claims and, promptly (and in any
event within two (2) Business Days) after request by Agent, amend
Schedule 1
to describe
such Commercial Tort Claims in a manner that reasonably identifies such Commercial Tort Claims and
which is otherwise reasonably satisfactory to Agent, and hereby authorizes the filing of additional
financing statements or amendments to existing financing statements describing such Commercial Tort
Claims, and agrees to do such other acts or things deemed necessary or desirable by Agent to give
Agent a first priority, perfected security interest in any such Commercial Tort Claim;
(f)
Government Contracts
. Other than any Account or Chattel Paper the value of which
does not at any one time exceed $100,000 or Accounts and Chattel paper the aggregate value of which
does not at any one time exceed $250,000, if any Account or Chattel Paper arises out of a contract
or contracts with the United States of America or any department, agency, or instrumentality
thereof, Grantors shall promptly (and in any event within two (2) Business Days of the creation
thereof) notify Agent thereof and, promptly (and in any event within two (2) Business Days) after
request by Agent, execute any instruments or take any steps reasonably required by Agent in order
that all moneys due or to become due under such contract or contracts shall be assigned to Agent,
for the benefit of the Lender Group and the Bank Product Providers, and shall provide written
notice thereof under the Assignment of Claims Act or other applicable law;
(g)
Intellectual Property
.
(i) Upon the request of Agent, in order to facilitate filings with the United States Patent
and Trademark Office or any similar office or agency in any jurisdiction and the United States
Copyright Office or any similar office or agency in any jurisdiction, each Grantor shall execute
and deliver to Agent one or more Copyright Security Agreements, Trademark Security Agreements, or
Patent Security Agreements to further evidence Agents Lien on such Grantors Patents, Trademarks,
or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby;
(ii) Each Grantor shall have the duty, with respect to Intellectual Property that is necessary
in the conduct of such Grantors business, to protect and diligently enforce and defend at such
Grantors expense its Intellectual Property, to the extent commercially reasonable to do so as
determined in its reasonable business judgment, including (A) to diligently enforce and defend,
including promptly suing for infringement, misappropriation, or dilution and to recover any and all
damages for such infringement, misappropriation, or dilution, and filing for opposition,
interference, and cancellation against conflicting Intellectual Property rights of any Person, (B)
to prosecute diligently any trademark application or service mark application that is part of the
Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C)
to prosecute diligently any patent application that is part of the Patents pending as of the date
hereof or hereafter until the termination of this Agreement, (D) to take all reasonable and
necessary action to preserve and maintain all of such Grantors Trademarks, Patents, Copyrights,
Intellectual Property Licenses, and its rights therein, including paying all maintenance fees and
filing of applications for renewal, affidavits of use, and affidavits of noncontestability, and (E)
to require all employees, consultants, and contractors of each Grantor who were involved in the
creation or development of such Intellectual Property to sign agreements containing assignment of
Intellectual Property rights and obligations of confidentiality. Each Grantor further agrees not
to abandon any Intellectual Property or Intellectual Property License that is necessary in the
conduct of such Grantors business. Each Grantor hereby agrees to take the steps described in this
Section 6(g)(ii)
with respect to all new or acquired Intellectual Property which is
included in the Collateral, to the extent commercially reasonable to do so, to which it or any of
its Subsidiaries is now or later becomes entitled that is necessary in the conduct of such
Grantors business;
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(iii) Grantors acknowledge and agree that the Lender Group shall have no duties with respect
to any Intellectual Property or Intellectual Property Licenses of any Grantor. Without limiting
the generality of this
Section 6(g)(iii)
, Grantors acknowledge and agree that no member of
the Lender Group shall be under any obligation to take any steps necessary to preserve rights in
the Collateral consisting of Intellectual Property or Intellectual Property Licenses against any
other Person, but any member of the Lender Group may do so at its option from and after the
occurrence and during the continuance of an Event of Default, and all expenses incurred in
connection therewith (including reasonable fees and expenses of attorneys and other professionals)
in accordance with the Credit Agreement, shall be for the sole account of Borrower and shall be
chargeable to the Loan Account;
(iv) Grantors shall have no duty to register with the U.S. Copyright Office any unregistered
copyrights (whether in existence on the Closing Date or thereafter acquired, arising, or developed)
unless (i) Borrower provides Agent with written notice of the applicable Grantor intent to register
such copyrights not less than 30 days prior to the date of the proposed registration, and (ii)
prior to such registration, the applicable Grantor execute and deliver to Agent an Copyright
Security Agreement, or such other documentation as Agent deems necessary in order to perfect and
continue perfected Agents Liens on such copyrights following such registration;
(v) On each date on which a Compliance Certificate is delivered by Borrower pursuant to
Section 5.1
of the Credit Agreement, each Grantor shall provide Agent with a written report
of all new Patents or Trademarks that are registered or the subject of pending applications for
registrations, and of all Intellectual Property Licenses that are material to the conduct of such
Grantors business, in each case, which were acquired, registered, or for which applications for
registration were filed by any Grantor during the prior period and any statement of use or
amendment to allege use with respect to intent-to-use trademark applications. In the case of such
registrations or applications therefor, which were acquired by any Grantor, each such Grantor shall
file the necessary documents with the appropriate Governmental Authority identifying the applicable
Grantor as the owner (or as a co-owner thereof, if such is the case) of such Intellectual Property.
In each of the foregoing cases, the applicable Grantor shall promptly cause to be prepared,
executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to
identify such Patent and Trademark registrations and applications therefor (with the exception of
Trademark applications filed on an intent-to-use basis for which no statement of use or amendment
to allege use has been filed) and Intellectual Property Licenses as being subject to the security
interests created thereunder;
(vi) Anything to the contrary in this Agreement notwithstanding, in no event shall any
Grantor, either itself or through any agent, employee, licensee, or designee, file an application
for the registration of any Copyright with the United States Copyright Office or any similar office
or agency in another country without giving Agent written notice thereof at least three (3)
Business Days prior to such filing and complying with
Section 6(g)(i)
. Upon receipt from
the United States Copyright Office of notice of registration of any Copyright, each Grantor shall
promptly (but in no event later than three (3) Business Days following such receipt) notify (but
without duplication of any notice required by
Section 6(g)(vii)
Agent of such registration
by delivering, or causing to be delivered, to Agent, documentation sufficient for Agent to perfect
Agents Liens on such Copyright. If any Grantor acquires from any Person any Copyright registered
with the United States Copyright Office or an application to register any Copyright with the United
States Copyright Office, such Grantor shall promptly (but in no event later than three (3) Business
Days following such acquisition) notify Agent of such acquisition and deliver, or cause to be
delivered, to Agent, documentation sufficient for Agent to perfect Agents Liens on such Copyright.
In the case of such Copyright registrations or applications therefor which were acquired by any
Grantor, each such Grantor shall promptly (but in no event later than three (3) Business Days
following such acquisition) file the necessary documents with the appropriate Governmental
Authority identifying the applicable Grantor as the owner (or as a co-owner thereof, if such is the
case) of such Copyrights; and
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(vii) Each Grantor shall take, to the extent commercially reasonable, steps to maintain the
confidentiality of, and otherwise protect and enforce its rights in, the Intellectual Property that
is necessary in the conduct of such Grantors business, including, as applicable (A) protecting the
secrecy and confidentiality of its confidential information and trade secrets by having and
enforcing a policy requiring all current employees, consultants, licensees, vendors and contractors
with access to such information to execute appropriate confidentiality agreements; (B) taking
actions reasonably necessary to ensure that no trade secret falls into the public domain; and (C)
protecting the secrecy and confidentiality of the source code of all software programs and
applications of which it is the owner or licensee by having and enforcing a policy requiring any
licensees (or sublicensees) of such source code to enter into license agreements with commercially
reasonable use and non-disclosure restrictions.
(viii) Each Grantor agrees to take all necessary steps, including making all necessary
payments and filings in connection with registration, maintenance, and renewal of each Grantors
Patents and Trademarks that are material to the conduct of each Grantors business.
(h)
Investment Related Property
.
(i) If any Grantor shall acquire, obtain, receive or become entitled to receive any Pledged
Interests after the Closing Date, it shall promptly (and in any event within two (2) Business Days
of acquiring or obtaining such Collateral) deliver to Agent a duly executed Pledged Interests
Addendum identifying such Pledged Interests;
(ii) Upon the occurrence and during the continuance of an Event of Default, following the
request of Agent, all sums of money and property paid or distributed in respect of the Investment
Related Property constituting Collateral that are received by any Grantor shall be held by the
Grantors in trust for the benefit of Agent segregated from such Grantors other property, and such
Grantor shall deliver it forthwith to Agent in the exact form received;
(iii) Each Grantor shall promptly deliver to Agent a copy of each material notice or other
material communication received by it in respect of any Pledged Interests;
(iv) No Grantor shall make or consent to any amendment or other modification or waiver with
respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or
enter into any agreement or permit to exist any restriction with respect to any Pledged Interests
if the same is prohibited pursuant to the Loan Documents;
(v) Each Grantor agrees that it will cooperate with Agent in obtaining all necessary approvals
and making all necessary filings under federal, state, local, or foreign law to effect the
perfection of the Security Interest on the Investment Related Property which is Collateral or to
effect any sale or transfer thereof;
(vi) As to all limited liability company or partnership interests, issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, each Grantor hereby covenants that the
Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded
on securities exchanges or in securities markets, (B) do not and will not constitute investment
company securities, and (C) are not and will not be held by such Grantor in a securities account.
In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any
other agreements governing any of the Pledged Interests issued under any Pledged Operating
Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged Interests
are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant
jurisdiction.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(i)
Real Property; Fixtures
. Each Grantor covenants and agrees that upon the
acquisition of any fee interest in Real Property having a value in excess of $500,000, it will,
subject to
Section 5.11
and
Section 5.12
of the Credit Agreement, promptly (and in
any event within two (2) Business Days of acquisition) notify Agent of the acquisition of such Real
Property and will grant to Agent, for the benefit of the Lender Group and the Bank Product
Providers, a first priority Mortgage on each fee interest in Real Property now or hereafter owned
by such Grantor and shall deliver such other documentation and opinions, in form and substance
satisfactory to Agent, in connection with the grant of such Mortgage as Agent shall request in its
Permitted Discretion, including title insurance policies, financing statements, fixture filings and
environmental audits and such Grantor shall pay all recording costs, intangible taxes and other
fees and costs (including reasonable attorneys fees and expenses) incurred in connection therewith.
Each Grantor acknowledges and agrees that, to the extent permitted by applicable law, all of the
Collateral shall remain personal property regardless of the manner of its attachment or affixation
to real property;
(j)
Transfers and Other Liens
. Grantors shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the
Collateral, except as expressly permitted by the Credit Agreement, or (ii) create or permit to
exist any Lien upon or with respect to any of the Collateral of any Grantor, except for Permitted
Liens. The inclusion of Proceeds in the Collateral shall not be deemed to constitute Agents
consent to any sale or other disposition of any of the Collateral except as expressly permitted in
this Agreement or the other Loan Documents;
(k)
Controlled Accounts
.
(i) Each Grantor who maintains any cash balances shall (A) establish and maintain cash
management services of a type and on terms reasonably satisfactory to Agent at one or more of the
banks set forth on
Schedule 6(k)
(each a
Controlled Account Bank
), and shall take
reasonable steps to ensure that all of its and its Subsidiaries Account Debtors forward payment of
the amounts owed by them directly to such Controlled Account Bank, and (B) deposit or cause to be
deposited promptly, and in any event no later than the first Business Day after the date of receipt
thereof, all of their Collections (including those sent directly by their Account Debtors to a
Grantor) into a bank account of such Grantor (each, a
Controlled Account
) at one of the
Controlled Account Banks.
(ii) Each Grantor who maintains any cash balances shall establish and maintain Controlled
Account Agreements with Agent and the applicable Controlled Account Bank, in form and substance
reasonably acceptable to Agent. Each such Controlled Account Agreement shall provide, among other
things, that (A) the Controlled Account Bank will comply with any instructions originated by Agent
directing the disposition of the funds in such Controlled Account without further consent by the
applicable Grantor, (B) the Controlled Account Bank waives, subordinates, or agrees not to exercise
any rights of setoff or recoupment or any other claim against the applicable Controlled Account
other than for payment of its service fees and other charges directly related to the administration
of such Controlled Account and for returned checks or other items of payment, and (C) (1) with
respect to Controlled Accounts of Borrower, commencing on the date 14 days after the Closing Date,
the Controlled Account Bank will forward by daily sweep all amounts in the applicable Controlled
Account to the Agents Account and (2) with respect to Controlled Accounts of any non-Borrower
Grantor, upon the instruction of Agent (an
Activation Instruction
), the Controlled
Account Bank will forward by daily sweep all amounts in the applicable Controlled Account to the
agents Account. Agent agrees not to issue an Activation Instruction with respect to such
Controlled Accounts unless a Triggering Event has occurred at the time such Activation Instruction
is issued. Agent agrees to use commercially reasonable efforts to rescind an Activation
Instruction (the
Rescission
) if: (x) the Triggering Event upon which such Activation
Instruction was issued has been waived in writing in accordance with the terms of the Credit
Agreement, and (y) no additional Triggering Event has occurred and is continuing prior to the date
of the Rescission or is reasonably expected to occur on or immediately after the date of the
Rescission.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(iii) So long as no Default or Event of Default has occurred and is continuing, Borrower may
amend
Schedule 6(k)
to add or replace a Controlled Account Bank or Controlled Account;
provided
,
however
, that (A) such prospective Controlled Account Bank shall be
reasonably satisfactory to Agent, and (B) prior to the time of the opening of such Controlled
Account, the applicable Grantor and such prospective Controlled Account Bank shall have executed
and delivered to Agent a Controlled Account Agreement. Each Grantor shall close any of its
Controlled Accounts (and establish replacement Controlled Account accounts in accordance with the
foregoing sentence) as promptly as practicable and in any event within forty-five (45) days of
notice from Agent that the operating performance, funds transfer, or availability procedures or
performance of the Controlled Account Bank with respect to Controlled Account Accounts or Agents
liability under any Controlled Account Agreement with such Controlled Account Bank is no longer
acceptable in Agents reasonable judgment.
7.
Relation to Other Security Documents
. The provisions of this Agreement shall be
read and construed with the other Loan Documents referred to below in the manner so indicated.
(a)
Credit Agreement
. In the event of any conflict between any provision in this
Agreement and a provision in the Credit Agreement, such provision of the Credit Agreement shall
control.
(b)
Patent, Trademark, Copyright Security Agreements
. The provisions of the Copyright
Security Agreements, Trademark Security Agreements, and Patent Security Agreements are supplemental
to the provisions of this Agreement, and nothing contained in the Copyright Security Agreements,
Trademark Security Agreements, or the Patent Security Agreements shall limit any of the rights or
remedies of Agent hereunder. In the event of any conflict between any provision in this Agreement
and a provision in a Copyright Security Agreement, Trademark Security Agreement or Patent Security
Agreement, such provision of this Agreement shall control.
8.
Further Assurances
.
(a) Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly
execute and deliver all further instruments and documents, and take all further action, that Agent
may reasonably request, in order to perfect and protect the Security Interest granted hereby, to
create, perfect or protect the Security Interest purported to be granted hereby or to enable Agent
to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.
(b) Each Grantor authorizes the filing by Agent of financing or continuation statements, or
amendments thereto, and such Grantor will execute and deliver to Agent such other instruments or
notices, as Agent may reasonably request, in order to perfect and preserve the Security Interest
granted or purported to be granted hereby.
(c) Each Grantor authorizes Agent at any time and from time to time to file, transmit, or
communicate, as applicable, financing statements and amendments (i) describing the Collateral as
all personal property of debtor or all assets of debtor or words of similar effect, (ii)
describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that
contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing
office acceptance. Each Grantor also hereby ratifies any and all financing statements or
amendments previously filed by Agent in any jurisdiction.
(d) Each Grantor acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement filed in connection with
this Agreement without the prior written consent of Agent, subject to such Grantors rights under
Section 9-509(d)(2) of the Code.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
9.
Agents Right to Perform Contracts, Exercise Rights, etc
. Upon the occurrence and
during the continuance of an Event of Default, Agent (or its designee) (a) may proceed to perform
any and all of the obligations of any Grantor contained in any contract, lease, or other agreement
constituting Collateral and exercise any and all rights of any Grantor therein contained as fully
as such Grantor itself could, (b) shall have the right to use any Grantors rights under
Intellectual Property Licenses constituting Collateral in connection with the enforcement of
Agents rights hereunder, including the right to prepare for sale and sell any and all Inventory
and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses,
and (c) shall have the right to request that any Stock that is pledged hereunder be registered in
the name of Agent or any of its nominees.
10.
Agent Appointed Attorney-in-Fact
. Each Grantor hereby irrevocably appoints Agent
its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of
such Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under
the Credit Agreement, to take any action and to execute any instrument which Agent may reasonably
deem necessary or advisable to accomplish the purposes of this Agreement, including:
(a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and
receipts for moneys due and to become due under or in connection with the Accounts or any other
Collateral of such Grantor;
(b) to receive and open all mail addressed to such Grantor and to notify postal authorities to
change the address for the delivery of mail to such Grantor to that of Agent;
(c) to receive, indorse, and collect any drafts or other instruments, documents, Negotiable
Collateral or Chattel Paper;
(d) to file any claims or take any action or institute any proceedings which Agent may deem
necessary or desirable for the collection of any of the Collateral of such Grantor or otherwise to
enforce the rights of Agent with respect to any of the Collateral;
(e) to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any Person obligated to such Grantor in respect of any Account of such Grantor;
(f) to use any Intellectual Property or Intellectual Property Licenses of such Grantor, in
each case constituting Collateral, including but not limited to any labels, Patents, Trademarks,
trade names, URLs, domain names, industrial designs, Copyrights, or advertising matter, in
preparing for sale, advertising for sale, or selling Inventory or other Collateral and to collect
any amounts due under Accounts, contracts or Negotiable Collateral of such Grantor; and
(g) Agent, on behalf of the Lender Group or the Bank Product Providers, shall have the right,
but shall not be obligated, to bring suit in its own name to enforce the Intellectual Property and
Intellectual Property Licenses and, if Agent shall commence any such suit, the appropriate Grantor
shall, at the request of Agent, do any and all lawful acts and execute any and all proper documents
reasonably required by Agent in aid of such enforcement.
To the extent permitted by law, each Grantor hereby ratifies all that such attorney-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable until this Agreement is terminated.
11.
Agent May Perform
. If any Grantor fails to perform any agreement contained
herein, Agent may itself perform, or cause performance of, such agreement, and the reasonable
expenses of Agent incurred in connection therewith shall be payable, jointly and severally, by
Grantors.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
12.
Agents Duties
. The powers conferred on Agent hereunder are solely to protect
Agents interest in the Collateral, for the benefit of the Lender Group and the Bank Product
Providers, and shall not impose any duty upon Agent to exercise any such powers. Except for the
safe custody of any Collateral in its actual possession and the accounting for moneys actually
received by it hereunder, Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights pertaining to any
Collateral. Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its actual possession if such Collateral is accorded treatment
substantially equal to that which Agent accords its own property.
13.
Collection of Accounts, General Intangibles and Negotiable Collateral
. At any
time upon the occurrence and during the continuance of an Event of Default, Agent or Agents
designee may (a) notify Account Debtors of any Grantor that the Accounts, General Intangibles,
Chattel Paper or Negotiable Collateral of such Grantor have been assigned to Agent, for the benefit
of the Lender Group and the Bank Product Providers, or that Agent has a security interest therein,
and (b) collect the Accounts, General Intangibles and Negotiable Collateral of any Grantor
directly, and any collection costs and expenses shall constitute part of such Grantors Secured
Obligations under the Loan Documents.
14.
Disposition of Pledged Interests by Agent
. None of the Pledged Interests existing
as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the
date of acquisition thereof will be, registered or qualified under the various federal or state
securities laws of the United States and disposition thereof after an Event of Default may be
restricted to one or more private (instead of public) sales in view of the lack of such
registration. Each Grantor understands that in connection with such disposition, Agent may
approach only a restricted number of potential purchasers and further understands that a sale under
such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests
were registered and qualified pursuant to federal and state securities laws and sold on the open
market. Each Grantor, therefore, agrees that: (a) if Agent shall, pursuant to the terms of this
Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale,
Agent shall have the right to rely upon the advice and opinion of any nationally recognized
brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do
so shall not be considered in determining the commercial reasonableness of such action) as to the
best manner in which to offer the Pledged Interest or any portion thereof for sale and as to the
best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be
conclusive evidence that Agent has handled the disposition in a commercially reasonable manner.
15.
Voting and Other Rights in Respect of Pledged Interests
.
(a) Upon the occurrence and during the continuation of an Event of Default, (i) Agent may, at
its option, and with two (2) Business Days prior written notice to any Grantor, and in addition to
all rights and remedies available to Agent under any other agreement, at law, in equity, or
otherwise, exercise all voting rights, or any other ownership or consensual rights (including any
dividend or distribution rights) in respect of the Pledged Interests owned by such Grantor, but
under no circumstances is Agent obligated by the terms of this Agreement to exercise such rights,
and (ii) if Agent duly exercises its right to vote any of such Pledged Interests, each Grantor
hereby appoints Agent, such Grantors true and lawful attorney-in-fact and IRREVOCABLE PROXY to
vote such Pledged Interests in any manner Agent deems advisable for or against all matters
submitted or which may be submitted to a vote of shareholders, partners or members, as the case may
be. The power-of-attorney and proxy granted hereby is coupled with an interest and shall be
irrevocable.
(b) For so long as any Grantor shall have the right to vote the Pledged Interests owned by it,
such Grantor covenants and agrees that it will not, without the prior written consent of Agent,
vote or take any consensual action with respect to such Pledged Interests which would materially
adversely affect the rights of Agent, the other members of the Lender Group, or the Bank Product
Providers, or the value of the Pledged Interests.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
16.
Remedies
. Upon the occurrence and during the continuance of an Event of Default:
(a) Agent may, and, at the instruction of the Required Lenders, shall exercise in respect of
the Collateral, in addition to other rights and remedies provided for herein, in the other Loan
Documents, or otherwise available to it, all the rights and remedies of a secured party on default
under the Code or any other applicable law. Without limiting the generality of the foregoing, each
Grantor expressly agrees that, in any such event, Agent without demand of performance or other
demand, advertisement or notice of any kind (except a notice specified below of time and place of
public or private sale) to or upon any Grantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code
or any other applicable law), may take immediate possession of all or any portion of the Collateral
and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and
upon request of Agent forthwith, assemble all or part of the Collateral as directed by Agent and
make it available to Agent at one or more locations where such Grantor regularly maintains
Inventory, and (ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Agents offices or elsewhere,
for cash, on credit, and upon such other terms as Agent may deem commercially reasonable. Each
Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days
notice to the applicable Grantor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification and specifically such
notice shall constitute a reasonable authenticated notification of disposition within the meaning
of Section 9-611 of the Code. Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. Each Grantor agrees
that the internet shall constitute a place for purposes of Section 9-610(b) of the Code. Each
Grantor agrees that any sale of Collateral to a licensor pursuant to the terms of a license
agreement between such licensor and a Grantor is sufficient to constitute a commercially reasonable
sale (including as to method, terms, manner, and time) within the meaning of Section 9-610 of the
Code.
(b) Agent is hereby granted a non-exclusive license or other right to use, without liability
for royalties or any other charge, each Grantors Intellectual Property to the extent constituting
Collateral, including but not limited to, any labels, Patents, Trademarks, trade names, URLs,
domain names, industrial designs, Copyrights, and advertising matter, whether owned by any Grantor
or with respect to which any Grantor has rights under license, sublicense, or other agreements
(including any Intellectual Property License), as it pertains to the Collateral, in preparing for
sale, advertising for sale and selling any Collateral, and each Grantors rights under all licenses
and all franchise agreements shall inure to the benefit of Agent.
(c) Agent may, in addition to other rights and remedies provided for herein, in the other Loan
Documents, or otherwise available to it under applicable law and without the requirement of notice
to or upon any Grantor or any other Person (which notice is hereby expressly waived to the maximum
extent permitted by the Code or any other applicable law), (i) with respect to any Grantors
Deposit Accounts in which Agents Liens are perfected by control under Section 9-104 of the Code,
instruct the bank maintaining such Deposit Account for the applicable Grantor to pay the balance of
such Deposit Account to or for the benefit of Agent, and (ii) with respect to any Grantors
Securities Accounts in which Agents Liens are perfected by control under Section 9-106 of the
Code, instruct the securities intermediary maintaining such Securities Account for the applicable
Grantor to (A) transfer any cash in such Securities Account to or for the benefit of Agent, or (B)
liquidate any financial assets in such Securities Account that are customarily sold on a recognized
market and transfer the cash proceeds thereof to or for the benefit of Agent.
(d) Any cash held by Agent as Collateral and all cash proceeds received by Agent in respect of
any sale of, collection from, or other realization upon all or any part of the Collateral shall be
applied against the Secured Obligations in the order set forth in the Credit Agreement. In the
event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in
full, each Grantor shall remain jointly and severally liable for any such deficiency.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(e) Each Grantor hereby acknowledges that the Secured Obligations arise out of a commercial
transaction, and agrees that if an Event of Default shall occur and be continuing Agent shall have
the right to an immediate writ of possession without notice of a hearing. Agent shall have the
right to the appointment of a receiver for the properties and assets of each Grantor, and each
Grantor hereby consents to such rights and such appointment and hereby waives any objection such
Grantor may have thereto or the right to have a bond or other security posted by Agent.
17.
Remedies Cumulative
. Each right, power, and remedy of Agent, any other member of
the Lender Group, or any Bank Product Provider as provided for in this Agreement, the other Loan
Documents or any Bank Product Agreement now or hereafter existing at law or in equity or by statute
or otherwise shall be cumulative and concurrent and shall be in addition to every other right,
power, or remedy provided for in this Agreement, the other Loan Documents and the Bank Product
Agreements or now or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by Agent, any other member of the Lender Group, or any Bank
Product Provider, of any one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by Agent, such other member of the Lender Group or such Bank Product
Provider of any or all such other rights, powers, or remedies.
18.
Marshaling
. Agent shall not be required to marshal any present or future
collateral security (including but not limited to the Collateral) for, or other assurances of
payment of, the Secured Obligations or any of them or to resort to such collateral security or
other assurances of payment in any particular order, and all of its rights and remedies hereunder
and in respect of such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights and remedies, however existing or arising. To the extent that it
lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling
of collateral which might cause delay in or impede the enforcement of Agents rights and remedies
under this Agreement or under any other instrument creating or evidencing any of the Secured
Obligations or under which any of the Secured Obligations is outstanding or by which any of the
Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.
19.
Indemnity and Expenses
.
(a) Each Grantor agrees to indemnify Agent and the other members of the Lender Group from and
against all claims, lawsuits and liabilities (including reasonable attorneys fees) growing out of
or resulting from this Agreement (including enforcement of this Agreement) or any other Loan
Document to which such Grantor is a party, except claims, losses or liabilities resulting from the
gross negligence or willful misconduct of the party seeking indemnification as determined by a
final non-appealable order of a court of competent jurisdiction. This provision shall survive the
termination of this Agreement and the Credit Agreement and the repayment of the Secured
Obligations.
(b) Grantors, jointly and severally, shall, upon demand, pay to Agent (or Agent, may charge to
the Loan Account) all the Lender Group Expenses which Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an
Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in
accordance with this Agreement and the other Loan Documents, (iii) the exercise or enforcement of
any of the rights of Agent hereunder or (iv) the failure by any Grantor to perform or observe any
of the provisions hereof.
20.
Merger, Amendments; Etc
. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
AGREEMENTS BETWEEN THE PARTIES. No waiver of any provision of this Agreement, and no consent to
any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by Agent, and then
such waiver or consent shall be effective only in the specific instance and for the specific
purpose for which given. No amendment of any provision of this Agreement shall be effective unless
the same shall be in writing and signed by Agent and each Grantor to which such amendment applies.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
21.
Addresses for Notices
. All notices and other communications provided for
hereunder shall be given in the form and manner and delivered to Agent at its address specified in
the Credit Agreement, and to any of the Grantors at their respective addresses specified in the
Credit Agreement or Guaranty, as applicable, or, as to any party, at such other address as shall be
designated by such party in a written notice to the other party.
22.
Continuing Security Interest: Assignments under Credit Agreement
. This Agreement
shall create a continuing security interest in the Collateral and shall (a) remain in full force
and effect until the Obligations have been paid in full in accordance with the provisions of the
Credit Agreement and the Commitments have expired or have been terminated, (b) be binding upon each
Grantor, and their respective successors and assigns, and (c) inure to the benefit of, and be
enforceable by, Agent, and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any Lender may, in accordance with the provisions of the
Credit Agreement, assign or otherwise transfer all or any portion of its rights and obligations
under the Credit Agreement to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to such Lender herein or otherwise. Upon payment
in full of the Secured Obligations in accordance with the provisions of the Credit Agreement and
the expiration or termination of the Commitments, the Security Interest granted hereby shall
terminate and all rights to the Collateral shall revert to Grantors or any other Person entitled
thereto. At such time, Agent will authorize the filing of appropriate termination statements to
terminate such Security Interests. No transfer or renewal, extension, assignment, or termination
of this Agreement or of the Credit Agreement, any other Loan Document, or any other instrument or
document executed and delivered by any Grantor to Agent nor any additional Advances or other loans
made by any Lender to Borrower, nor the taking of further security, nor the retaking or re-delivery
of the Collateral to Grantors, or any of them, by Agent, nor any other act of the Lender Group or
the Bank Product Providers, or any of them, shall release any Grantor from any obligation, except a
release or discharge executed in writing by Agent in accordance with the provisions of the Credit
Agreement. Agent shall not by any act, delay, omission or otherwise, be deemed to have waived any
of its rights or remedies hereunder, unless such waiver is in writing and signed by Agent and then
only to the extent therein set forth. A waiver by Agent of any right or remedy on any occasion
shall not be construed as a bar to the exercise of any such right or remedy which Agent would
otherwise have had on any other occasion.
23.
Governing Law
.
(a) THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF,
AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, FEDERAL COURTS, LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH
ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND EACH GRANTOR WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF
FORUM
NON
CONVENIENS
OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS
SECTION 23(b)
.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
24.
New Subsidiaries
. Pursuant to
Section 5.11
of the Credit Agreement,
certain Subsidiaries (whether by acquisition or creation) of any Grantor are required to enter into
this Agreement by executing and delivering in favor of Agent a Joinder to this Agreement in
substantially the form of
Annex 1
. Upon the execution and delivery of
Annex 1
by
any such new Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force and
effect as if originally named as a Grantor herein. The execution and delivery of any instrument
adding an additional Grantor as a party to this Agreement shall not require the consent of any
Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Grantor hereunder.
25.
Agent
. Each reference herein to any right granted to, benefit conferred upon or
power exercisable by the Agent shall be a reference to Agent, for the benefit of each member of
the Lender Group and each of the Bank Product Providers.
26.
Miscellaneous
.
(a) This Agreement is a Loan Document. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement
by telefacsimile or other electronic method of transmission shall be equally as effective as
delivery of an original executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of transmission also
shall deliver an original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document
mutatis mutandis
.
(b) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective
to the extent of such prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of such provision in any
other jurisdiction. Each provision of this Agreement shall be severable from every other provision
of this Agreement for the purpose of determining the legal enforceability of any specific
provision.
(c) Headings and numbers have been set forth herein for convenience only. Unless the contrary
is compelled by the context, everything contained in each Section applies equally to this entire
Agreement.
(d) Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against
any member of the Lender Group or any Grantor, whether under any rule of construction or otherwise.
This Agreement has been reviewed by all parties and shall be construed and interpreted according
to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of
all parties hereto.
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
(e) The pronouns used herein shall include, when appropriate, either gender and both singular
and plural, and the grammatical construction of sentences shall conform thereto.
(f) Unless the context of this Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. Section, subsection, clause, schedule, and exhibit
references herein are to this Agreement unless otherwise specified. Any reference in this
Agreement to any agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders,
and supplements set forth herein). The words asset and property shall be construed to have the
same meaning and effect and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts, and contract rights. Any reference herein to the
satisfaction, repayment, or payment in full of the Secured Obligations shall mean the repayment in
full in cash or immediately available funds (or, (a) in the case of contingent reimbursement
obligations with respect to Letters of Credit, providing Letter of Credit Collateralization, and
(b) in the case of obligations with respect to Bank Products (other than Hedge Obligations),
providing Bank Product Collateralization) of all of the Secured Obligations (including the payment
of any termination amount then applicable (or which would or could become applicable as a result of
the repayment of the other Secured Obligations) under Hedge Agreements provided by Hedge Providers)
other than (i) unasserted contingent indemnification Secured Obligations, (ii) any Bank Product
Obligations (other than Hedge Obligations) that, at such time, are allowed by the applicable Bank
Product Provider to remain outstanding without being required to be repaid or cash collateralized,
and (iii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Provider to
remain outstanding without being required to be repaid. Any reference herein to any Person shall
be construed to include such Persons successors and assigns. Any requirement of a writing
contained herein shall be satisfied by the transmission of a Record.
(g) All of the annexes, schedules and exhibits attached to this Agreement shall be deemed
incorporated herein by reference.
[signature pages follow]
IN WITNESS WHEREOF, the undersigned parties hereto have caused this Agreement to be executed
and delivered as of the day and year first above written.
GRANTORS:
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OCLARO TECHNOLOGY LIMITED,
a limited liability company incorporated under the laws of England and
Wales, as Borrower
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By:
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Name:
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Title:
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Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
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BOOKHAM INTERNATIONAL LTD.,
a company organized under the laws of the Cayman Islands
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By:
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Name:
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Title:
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BOOKHAM NOMINEES LIMITED,
a company incorporated under the laws of England and Wales
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By:
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Name:
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Title:
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OCLARO (CANADA) INC.,
a federally incorporated Canadian corporation
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By:
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Name:
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Title:
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OCLARO INNOVATIONS LLP,
a limited liability partnership organized under the laws of England and
Wales
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By:
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Name:
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Title:
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AGENT:
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WELLS FARGO CAPITAL FINANCE,
INC.
,
a California corporation
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By:
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Name:
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Title:
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Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
ANNEX 1 TO SECURITY AGREEMENT
FORM OF JOINDER
Joinder No.
_____
(this
Joinder
), dated as of
, to the Security
Agreement, dated as of July 26, 2011(as amended, restated, supplemented, or otherwise modified from
time to time, the
Security Agreement
), by and among each of the parties listed on the
signature pages thereto and those additional entities that thereafter become parties thereto
(collectively, jointly and severally,
Grantors
and each, individually, a
Grantor
) and
WELLS FARGO CAPITAL FINANCE, INC.
, a California corporation
(
WFCF
), in its capacity as agent for the Lender Group and the Bank Product Providers (in
such capacity, together with its successors and assigns in such capacity,
Agent
).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, initially capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Security Agreement or, if not defined therein, in the
Credit Agreement; and
WHEREAS, Grantors have entered into the Security Agreement in order to induce the Lender Group
to make certain financial accommodations to Borrower; and
WHEREAS, pursuant to
Section 5.11
of the Credit Agreement and
Section 24
of
the Security Agreement, certain Subsidiaries of the Loan Parties, must execute and deliver certain
Loan Documents, including the Security Agreement, and the joinder to the Security Agreement by the
undersigned new Grantor or Grantors (collectively, the
New Grantors
) may be accomplished
by the execution of this Joinder in favor of Agent, for the benefit of the Lender Group and the
Bank Product Providers; and
WHEREAS, each New Grantor (a) is [an Affiliate] [a Subsidiary] of Borrower and, as such, will
benefit by virtue of the financial accommodations extended to Borrower by the Lender Group or the
Bank Product Providers and (b) by becoming a Loan Party will benefit from certain rights granted to
the Loan Parties pursuant to the terms of the Loan Documents and the Bank Product Agreements;
NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, each New Grantor
hereby agrees as follows:
1. In accordance with
Section 24
of the Security Agreement, each New Grantor, by its
signature below, becomes a Grantor under the Security Agreement with the same force and effect as
if originally named therein as a Grantor and each New Grantor hereby (a) agrees to all of the
terms and provisions of the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a Grantor
thereunder are true and correct in all material respects (except that such materiality qualifier
shall not be applicable to any representations and warranties that are already qualified or
modified by materiality in the text thereof) on and as of the date hereof. In furtherance of the
foregoing, each New Grantor does
Confidential treatment is being requested for portions of this document. This copy of the
document filed as an exhibit omits the confidential information subject to the confidentiality request.
Omissions are designated by the symbol [***]. A complete version of this document has been filed
separately with the Securities and Exchange Commission.
hereby
unconditionally grant, assign, and pledge to Agent, for the benefit of the Lender Group and the Bank Product Providers, to secure the Secured Obligations,
a continuing security interest in and to all of such New Grantors right, title and interest in and
to the Collateral.
Schedule 1
, Commercial Tort Claims,
Schedule 2
, Copyrights,
Schedule 3
, Intellectual Property Licenses,
Schedule 4
, Patents,
Schedule
5
, Trademarks,
Schedule 6,
Pledged Companies,
Schedule 6(k)
, Controlled
Account Banks,
Schedule 7
, Owned Real Property,
Schedule 8
, List of Uniform
Commercial Code Filing Jurisdictions, and
Schedule 9
, Intellectual Property
Infringement/Misappropriation attached hereto supplement Schedule 1, Schedule 2, Schedule 3,
Schedule 4, Schedule 5, Schedule 6, Schedule 6(k), Schedule 7, Schedule 8, and Schedule 9,
respectively, to the Security Agreement and shall be deemed a part thereof for all purposes of the
Security Agreement. Each reference to a Grantor in the Security Agreement shall be deemed to
include each New Grantor. The Security Agreement is incorporated herein by reference. Each New
Grantor authorizes Agent at any time and from time to time to file, transmit, or communicate, as
applicable, financing statements and amendments thereto (i) describing the Collateral as all
personal property of debtor or all assets of debtor or words of similar effect, (ii) describing
the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any
information required by part 5 of Article 9 of the Code for the sufficiency or filing office
acceptance. Each New Grantor also hereby ratifies any and all financing statements or amendments
previously filed by Agent in any jurisdiction in connection with the Loan Documents.
2. Each New Grantor represents and warrants to Agent, the Lender Group and the Bank Product
Providers that this Joinder has been duly executed and delivered by such New Grantor and
constitutes its legal, valid, and binding obligation, enforceable against it in accordance with its
terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium, or other similar laws affecting creditors rights generally and
general principles of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
3. This Joinder is a Loan Document. This Joinder may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Joinder. Delivery of an executed counterpart of this Joinder by
telefacsimile or other electronic method of transmission shall be equally as effective as delivery
of an original executed counterpart of this Joinder. Any party delivering an executed counterpart
of this Joinder by telefacsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Joinder but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of this Joinder.
4. The Security Agreement, as supplemented hereby, shall remain in full force and effect.
5. THE VALIDITY OF THIS JOINDER, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND
THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
6. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS JOINDER
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENTS
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND EACH NEW GRANTOR WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 6.
7. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH NEW GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS JOINDER OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH NEW
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS JOINDER MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Joinder to the Security Agreement to
be executed and delivered as of the day and year first above written.
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NEW GRANTORS:
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[NAME OF NEW GRANTOR]
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By:
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Name:
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Title:
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[NAME OF NEW GRANTOR]
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By:
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Name:
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Title:
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AGENT:
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WELLS FARGO CAPITAL
FINANCE, INC.
,
a California corporation
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By:
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Name:
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Title:
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[SIGNATURE PAGE TO JOINDER NO.___ TO SECURITY AGREEMENT]
EXHIBIT A
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this
Copyright Security Agreement
) is made this
_____
day of
, 20_________, by and among Grantors listed on the signature pages hereof
(collectively, jointly and severally,
Grantors
and each individually
Grantor
),
and
WELLS FARGO CAPITAL FINANCE, INC.
, a California corporation(
WFCF
), in its capacity as
agent for the Lender Group and the Bank Product Providers (in such capacity, together with its
successors and assigns in such capacity,
Agent
).
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, the members of the Lender Group are willing to make the financial accommodations to
Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that
Grantors shall have executed and delivered to Agent, for the benefit of the Lender Group and the
Bank Product Providers, that certain Security Agreement (Foreign), dated as of July 26, 2011, 2011
(including all annexes, exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the
Security Agreement
); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to
Agent, for the benefit of the Lender Group and the Bank Product Providers, this Copyright Security
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Grantors hereby agree as follows:
1.
DEFINED TERMS
. All initially capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement or, if not defined therein, in the
Credit Agreement.
2.
GRANT OF SECURITY INTEREST IN COPYRIGHT COLLATERAL
. Each Grantor hereby
unconditionally grants, assigns, and pledges to Agent, for the benefit each member of the Lender
Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing
security interest (referred to in this Copyright Security Agreement as the
Security
Interest
) in all of such Grantors right, title and interest in and to the following, whether
now owned or hereafter acquired or arising and subject to any exclusions set forth in the Security
Agreement (collectively, the
Copyright Collateral
):
(a) all of such Grantors Copyrights and Copyright Intellectual Property Licenses to which it
is a party including those referred to on
Schedule I
;
(b) all renewals or extensions of the foregoing; and
(c) all products and proceeds of the foregoing, including any claim by such Grantor against
third parties for past, present or future infringement of any Copyright or any Copyright
exclusively licensed under any Intellectual Property License, including the right to receive
damages, or the right to receive license fees, royalties, and other compensation under any
Copyright Intellectual Property License.
3.
SECURITY FOR SECURED OBLIGATIONS
. This Copyright Security Agreement and the
Security Interest created hereby secures the payment and performance of the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of the foregoing, this
Copyright Security Agreement secures the payment of all amounts which constitute part of the
Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lender Group, the
Bank Product Providers or any of them, whether or not they are unenforceable or not allowable due
to the existence of an Insolvency Proceeding involving any Grantor.
4.
SECURITY AGREEMENT
. The Security Interest granted pursuant to this Copyright
Security Agreement is granted in conjunction with the security interests granted to Agent, for the
benefit of the Lender Group and the Bank Product Providers, pursuant to the Security Agreement.
Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to
the Security Interest in the Copyright Collateral made and granted hereby are more fully set forth
in the Security Agreement, the terms and provisions of which are incorporated by reference herein
as if fully set forth herein. To the extent there is any inconsistency between this Copyright
Security Agreement and the Security Agreement, the Security Agreement shall control.
5.
AUTHORIZATION TO SUPPLEMENT
. Grantors shall give Agent prior written notice of no
less than three (3) Business Days before filing any additional application for registration of any
copyright and prompt notice in writing of any additional copyright registrations granted therefor
after the date hereof. Without limiting Grantors obligations under this Section, Grantors hereby
authorize Agent unilaterally to modify this Copyright Security Agreement by amending
Schedule
I
to include any future United States registered copyrights or applications therefor which
constitute Collateral of each Grantor. Notwithstanding the foregoing, no failure to so modify this
Copyright Security Agreement or amend
Schedule I
shall in any way affect, invalidate or
detract from Agents continuing security interest in all Collateral, whether or not listed on
Schedule I
.
6.
COUNTERPARTS
. This Copyright Security Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Copyright Security Agreement. Delivery of an executed counterpart
of this Copyright Security Agreement by telefacsimile or other electronic method of transmission
shall be equally as effective as delivery of an original executed counterpart of this Copyright
Security Agreement. Any party delivering an executed counterpart of this Copyright Security
Agreement by telefacsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Copyright Security Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Copyright Security Agreement.
7.
CONSTRUCTION
. This Copyright Security Agreement is a Loan Document. Unless the
context of this Copyright Security Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Copyright Security Agreement refer to this Copyright
Security Agreement as a whole and not to any particular provision of this Copyright Security
Agreement. Section, subsection, clause, schedule, and exhibit references herein are to this
Copyright Security Agreement unless otherwise specified. Any reference in this Copyright Security
Agreement to any agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto
2
and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set
forth herein). The words asset and property shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts, and contract rights. Any reference herein to the satisfaction, repayment, or
payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately
available funds (or, (a) in the case of contingent reimbursement obligations with respect to
Letters of Credit, providing Letter of Credit Collateralization, and (b) in the case of obligations
with respect to Bank Products (other than Hedge Obligations), providing Bank Product
Collateralization) of all of the Secured Obligations (including the payment of any termination
amount then applicable (or which would or could become applicable as a result of the repayment of
the other Secured Obligations) under Hedge Agreements provided by Hedge Providers) other than (i)
unasserted contingent indemnification Secured Obligations, (ii) any Bank Product Obligations (other
than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to
remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge
Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding
without being required to be repaid. Any reference herein to any Person shall be construed to
include such Persons successors and permitted assigns. Any requirement of a writing contained
herein shall be satisfied by the transmission of a Record.
8. THE VALIDITY OF THIS COPYRIGHT SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
9. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS COPYRIGHT
SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND
EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF
FORUM
NON
CONVENIENS
OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT
IN ACCORDANCE WITH THIS
SECTION 9
.
10. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS COPYRIGHT SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[SIGNATURE PAGE FOLLOWS]
3
IN WITNESS WHEREOF, the parties hereto have caused this Copyright Security Agreement to be
executed and delivered as of the day and year first above written.
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GRANTORS:
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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AGENT:
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ACCEPTED AND ACKNOWLEDGED BY:
WELLS FARGO CAPITAL FINANCE, INC.
,
a California corporation
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By:
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Name:
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Title:
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EXHIBIT B
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this
Patent Security Agreement
) is made this
_____
day
of
, 20__________, by and among the Grantors listed on the signature pages hereof (collectively,
jointly and severally,
Grantors
and each individually
Grantor
), and
WELLS FARGO
CAPITAL FINANCE, INC.
, a California corporation (
WFCF
), in its capacity as agent for the
Lender Group and the Bank Product Providers (in such capacity, together with its successors and
assigns in such capacity,
Agent
).
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, the members of Lender Group are willing to make the financial accommodations to
Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that
the Grantors shall have executed and delivered to Agent, for the benefit of the Lender Group and
the Bank Product Providers, that certain Security Agreement (Foreign), dated as of July 26, 2011
(including all annexes, exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the
Security Agreement
); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to
Agent, for the benefit of the Lender Group and the Bank Product Providers, this Patent Security
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor hereby agrees as follows:
1.
DEFINED TERMS
. All initially capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement or, if not defined therein, in the
Credit Agreement.
2.
GRANT OF SECURITY INTEREST IN PATENT COLLATERAL
. Each Grantor hereby
unconditionally grants, assigns, and pledges to Agent, for the benefit each member of the Lender
Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing
security interest (referred to in this Patent Security Agreement as the
Security
Interest
) in all of such Grantors right, title and interest in and to the following, whether
now owned or hereafter acquired or arising and subject to any exclusions set forth in the Security
Agreement (collectively, the
Patent Collateral
):
(a) all of its Patents and Patent Intellectual Property Licenses to which it is a party
including those referred to on
Schedule I
;
(b) all divisionals, continuations, continuations-in-part, reissues, reexaminations, or
extensions of the foregoing; and
2
(c) all products and proceeds of the foregoing, including any claim by such Grantor against
third parties for past, present or future infringement of any Patent or any Patent exclusively
licensed under any Intellectual Property License, including the right to receive damages, or right
to receive license fees, royalties, and other compensation under any Patent Intellectual Property
License.
3.
SECURITY FOR SECURED OBLIGATIONS
. This Patent Security Agreement and the Security
Interest created hereby secures the payment and performance of the Secured Obligations, whether now
existing or arising hereafter. Without limiting the generality of the foregoing, this Patent
Security Agreement secures the payment of all amounts which constitute part of the Secured
Obligations and would be owed by Grantors, or any of them, to Agent, the Lender Group, the Bank
Product Providers or any of them, whether or not they are unenforceable or not allowable due to the
existence of an Insolvency Proceeding involving any Grantor.
4.
SECURITY AGREEMENT
. The Security Interest granted pursuant to this Patent Security
Agreement is granted in conjunction with the security interests granted to Agent, for the benefit
of the Lender Group and the Bank Product Providers, pursuant to the Security Agreement. Each
Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the
Security Interest in the Patent Collateral made and granted hereby are more fully set forth in the
Security Agreement, the terms and provisions of which are incorporated by reference herein as if
fully set forth herein. To the extent there is any inconsistency between this Patent Security
Agreement and the Security Agreement, the Security Agreement shall control.
5.
AUTHORIZATION TO SUPPLEMENT
. If any Grantor shall obtain rights to any new patent
application or issued patent or become entitled to the benefit of any patent application or patent
for any divisional, continuation, continuation-in-part, reissue, or reexamination of any existing
patent or patent application, the provisions of this Patent Security Agreement shall automatically
apply thereto. Grantors shall give prompt notice in writing to Agent with respect to any such new
patent rights. Without limiting Grantors obligations under this Section, Grantors hereby
authorize Agent unilaterally to modify this Patent Security Agreement by amending
Schedule
I
to include any such new patent rights which constitute Collateral of each Grantor.
Notwithstanding the foregoing, no failure to so modify this Patent Security Agreement or amend
Schedule I
shall in any way affect, invalidate or detract from Agents continuing security
interest in all Collateral, whether or not listed on
Schedule I
.
6.
COUNTERPARTS
. This Patent Security Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Patent Security Agreement. Delivery of an executed counterpart of
this Patent Security Agreement by telefacsimile or other electronic method of transmission shall be
equally as effective as delivery of an original executed counterpart of this Patent Security
Agreement. Any party delivering an executed counterpart of this Patent Security Agreement by
telefacsimile or other electronic method of transmission also shall deliver an original executed
counterpart of this Patent Security Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of this Patent
Security Agreement.
7.
CONSTRUCTION
. This Patent Security Agreement is a Loan Document. Unless the
context of this Patent Security Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Patent Security Agreement refer to this Patent Security
Agreement as a whole and not to any particular provision of this Patent Security Agreement.
Section, subsection, clause, schedule, and exhibit references herein are to this Patent Security
Agreement unless otherwise specified. Any reference in this Patent Security Agreement to any
agreement, instrument, or document shall include all alterations, amendments,
3
changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).
The words
asset
and
property
shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts, and contract rights. Any reference herein to the satisfaction, repayment, or
payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately
available funds (or, (a) in the case of contingent reimbursement obligations with respect to
Letters of Credit, providing Letter of Credit Collateralization, and (b) in the case of obligations
with respect to Bank Products (other than Hedge Obligations), providing Bank Product
Collateralization) of all of the Secured Obligations (including the payment of any termination
amount then applicable (or which would or could become applicable as a result of the repayment of
the other Secured Obligations) under Hedge Agreements provided by Hedge Providers) other than (i)
unasserted contingent indemnification Secured Obligations, (ii) any Bank Product Obligations (other
than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to
remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge
Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding
without being required to be repaid. Any reference herein to any Person shall be construed to
include such Persons successors and permitted assigns. Any requirement of a writing contained
herein shall be satisfied by the transmission of a Record.
8. THE VALIDITY OF THIS PATENT SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
9. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PATENT
SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND
EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF
FORUM
NON
CONVENIENS
OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT
IN ACCORDANCE WITH THIS
SECTION 9
.
10. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS PATENT SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, the parties hereto have caused this Patent Security Agreement to be
executed and delivered as of the day and year first above written.
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GRANTORS:
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By:
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Name:
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Title:
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AGENT:
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ACCEPTED AND ACKNOWLEDGED BY
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WELLS FARGO CAPITAL FINANCE, INC.
,
a California corporation
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By:
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[SIGNATURE PAGE TO PATENT SECURITY AGREEMENT]
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EXHIBIT C
PLEDGED INTERESTS ADDENDUM
This Pledged Interests Addendum, dated as of
_____, 20_____
(this
Pledged Interests
Addendum
), is delivered pursuant to Section 6 of the Security Agreement referred to below.
The undersigned hereby agrees that this Pledged Interests Addendum may be attached to that certain
Security Agreement (Foreign), dated as of July 26, 2011, (as amended, restated, supplemented, or
otherwise modified from time to time, the
Security Agreement
), made by the undersigned,
together with the other Grantors named therein, to
WELLS FARGO CAPITAL FINANCE, INC.
, a California
corporation, as Agent. Initially capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Security Agreement or, if not defined therein, in the Credit
Agreement. The undersigned hereby agrees that the additional interests listed on
Schedule
I
shall be and become part of the Pledged Interests pledged by the undersigned to Agent in the
Security Agreement and any pledged company set forth on
Schedule I
shall be and become a
Pledged Company under the Security Agreement, each with the same force and effect as if
originally named therein.
This Pledged interests Addendum is a Loan Document. Delivery of an executed counterpart of
this Pledged Interests Addendum by telefacsimile or other electronic method of transmission shall
be equally as effective as delivery of an original executed counterpart of this Pledged Interests
Addendum. If the undersigned delivers an executed counterpart of this Pledged Interests Addendum
by telefacsimile or other electronic method of transmission, the undersigned shall also deliver an
original executed counterpart of this Pledged Interests Addendum but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Pledged Interests Addendum.
The undersigned hereby certifies that the representations and warranties set forth in Section
5 of the Security Agreement of the undersigned are true and correct as to the Pledged Interests
listed herein on and as of the date hereof.
THE VALIDITY OF THIS PLEDGED INTERESTS ADDENDUM, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGED
INTERESTS ADDENDUM SHALL BE TRIED AND LITIGATED ONLY IN THE STATE, AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED,
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT,
AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR
WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
PARAGRAPH.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
PLEDGED INTERESTS ADDENDUM OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT
AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS PLEDGED
INTERESTS ADDENDUM MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned has caused this Pledged Interests Addendum to be executed
and delivered as of the day and year first above written.
2
EXHIBIT D
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this
Trademark Security Agreement
) is made this
_____
day of
, 20_____, by and among Grantors listed on the signature pages hereof
(collectively, jointly and severally,
Grantors
and each individually
Grantor
),
and
WELLS FARGO CAPITAL FINANCE, INC.
, a California corporation (
WFCF
), in its capacity
as agent for the Lender Group and the Bank Product Providers (in such capacity, together with its
successors and assigns in such capacity,
Agent
).
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as of July 26,
2011 (as amended, restated, supplemented, or otherwise modified from time to time, the
Credit
Agreement
) by and among Oclaro, Inc., a Delaware corporation (Parent), and Oclaro Technology
Limited, a company incorporated under the laws of England and Wales, as borrower
(
Borrower
), the lenders party thereto as
Lenders
(such Lenders, together with
their respective successors and assigns in such capacity, each, individually, a
Lender
and, collectively, the
Lenders
), and Agent, the Lender Group has agreed to make certain
financial accommodations available to Borrower from time to time pursuant to the terms and
conditions thereof; and
WHEREAS, the members of the Lender Group are willing to make the financial accommodations to
Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that
Grantors shall have executed and delivered to Agent, for the benefit of Lender Group and the Bank
Product Providers, that certain Security Agreement (Foreign), dated as of July 26, 2011 (including
all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or
otherwise modified, the
Security Agreement
); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to
Agent, for the benefit of Lender Group and the Bank Product Providers, this Trademark Security
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor hereby agrees as follows:
1.
DEFINED TERMS
. All initially capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement or, if not defined therein, in the
Credit Agreement.
2.
GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL
. Each Grantor hereby
unconditionally grants, assigns, and pledges to Agent, for the benefit each member of the Lender
Group and each of the Bank Product Providers, to secure the Secured Obligations, a continuing
security interest (referred to in this Trademark Security Agreement as the
Security
Interest
) in all of such Grantors right, title and interest in and to the following, whether
now owned or hereafter acquired or arising and subject to any exclusions set forth in the Security
Agreement (collectively, the
Trademark Collateral
):
(a) all of its Trademarks and Trademark Intellectual Property Licenses to which it is a party
including those referred to on Schedule I;
(b) all goodwill of the business connected with the use of, and symbolized by, each Trademark
and each Trademark Intellectual Property License; and
(c) all products and proceeds (as that term is defined in the Code) of the foregoing,
including any claim by such Grantor against third parties for past, present or future (i)
infringement or dilution of any Trademark or any Trademarks exclusively licensed under any
Intellectual Property License, including right to receive any damages, (ii) injury to the goodwill
associated with any Trademark, or (iii) right to receive license fees, royalties, and other
compensation under any Trademark Intellectual Property License.
3.
SECURITY FOR SECURED OBLIGATIONS
. This Trademark Security Agreement and the
Security Interest created hereby secures the payment and performance of the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of the foregoing, this
Trademark Security Agreement secures the payment of all amounts which constitute part of the
Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lender Group, the
Bank Product Providers or any of them, whether or not they are unenforceable or not allowable due
to the existence of an Insolvency Proceeding involving any Grantor.
4.
SECURITY AGREEMENT
. The Security Interest granted pursuant to this Trademark
Security Agreement is granted in conjunction with the security interests granted to Agent, for the
benefit of the Lender Group and the Bank Product Providers, pursuant to the Security Agreement.
Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to
the Security Interest in the Trademark Collateral made and granted hereby are more fully set forth
in the Security Agreement, the terms and provisions of which are incorporated by reference herein
as if fully set forth herein. To the extent there is any inconsistency between this Trademark
Security Agreement and the Security Agreement, the Security Agreement shall control.
5.
AUTHORIZATION TO SUPPLEMENT
. If any Grantor shall obtain rights to any new
trademarks, the provisions of this Trademark Security Agreement shall automatically apply thereto.
Grantors shall give prompt notice in writing to Agent with respect to any such new trademarks or
renewal or extension of any trademark registration. Without limiting Grantors obligations under
this Section, Grantors hereby authorize Agent unilaterally to modify this Trademark Security
Agreement by amending
Schedule I
to include any such new trademark rights which constitute
Collateral of each Grantor. Notwithstanding the foregoing, no failure to so modify this Trademark
Security Agreement or amend
Schedule I
shall in any way affect, invalidate or detract from
Agents continuing security interest in all Collateral, whether or not listed on
Schedule
I
.
6.
COUNTERPARTS
. This Trademark Security Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Trademark Security Agreement. Delivery of an executed counterpart
of this Trademark Security Agreement by telefacsimile or other electronic method of transmission
shall be equally as effective as delivery of an original executed counterpart of this Trademark
Security Agreement. Any party delivering an executed counterpart of this Trademark Security
Agreement by telefacsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Trademark Security Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Trademark Security Agreement.
7.
CONSTRUCTION
. This Copyright Security Agreement is a Loan Document. Unless the
context of this Trademark Security Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms includes and
including are not limiting, and the term or has, except where otherwise indicated, the
inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby,
hereunder, and similar terms in this Trademark Security Agreement refer to this Trademark
Security Agreement as a whole and not to any particular provision of this Trademark Security
Agreement. Section, subsection, clause, schedule, and exhibit references herein are to this
Agreement unless otherwise specified. Any reference in this Trademark Security Agreement to any
agreement, instrument, or document shall include all
2
alterations,
amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set
forth herein). The words asset and property shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts, and contract rights. Any reference herein to the satisfaction, repayment, or
payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately
available funds (or, (a) in the case of contingent reimbursement obligations with respect to
Letters of Credit, providing Letter of Credit Collateralization, and (b) in the case of obligations
with respect to Bank Products (other than Hedge Obligations), providing Bank Product
Collateralization) of all of the Secured Obligations (including the payment of any termination
amount then applicable (or which would or could become applicable as a result of the repayment of
the other Secured Obligations) under Hedge Agreements provided by Hedge Providers) other than (i)
unasserted contingent indemnification Secured Obligations, (ii) any Bank Product Obligations (other
than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to
remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge
Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding
without being required to be repaid. Any reference herein to any Person shall be construed to
include such Persons successors and permitted assigns. Any requirement of a writing contained
herein shall be satisfied by the transmission of a Record.
8.
THE VALIDITY OF THIS TRADEMARK SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
9.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS TRADEMARK
SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA;
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. AGENT AND
EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF
FORUM
NON
CONVENIENS
OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT
IN ACCORDANCE WITH THIS
SECTION 9
.
10.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND EACH
GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS TRADEMARK SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
3
11.
Amendment and Restatement of Original Security Agreement
. This Agreement
constitutes an amendment and restatement of the Original Security Agreement effective from and
after the Closing Date. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby are not intended by the parties to be, and shall not constitute, a
novation or an accord and satisfaction of the
Obligations or any other obligations owing to Agent or the Lenders under the Original Security
Agreement, Original Credit Agreement or any other loan document executed in connection therewith.
Each of the parties hereto hereby acknowledges and agrees that the grant of the security interests
in the Collateral pursuant to this Agreement and in any other Loan Document (unless explicitly
agreed to by Agent in writing) is not intended to, nor shall it be construed, as constituting a
release of any prior security interests granted by any Loan Party under the Original Security
Agreement or otherwise in favor of Agent for the benefit of itself, the Lenders, Issuing Lender,
Underlying Issuer and the Bank Product Providers in or to any Collateral or any other Property of
such Loan Party, but is intended to constitute a restatement and reconfirmation of the prior
security interests granted by the Loan Parties in favor of Agent for the benefit of itself, the
Lenders, Issuing Lender, Underlying Issuer and the Bank Product Providers in and to the Collateral
and a grant of a new security interest in any Collateral that is not included in the prior security
grants by the Loan Parties and in favor of Agent for the benefit of itself, the Lenders, Issuing
Lender, Underlying Issuer and the Bank Product Providers to the extent such grant was not included
in the prior security grants.
.
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, the parties hereto have caused this Trademark Security Agreement to be
executed and delivered as of the day and year first above written.
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GRANTORS:
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By:
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Name:
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Title:
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AGENT:
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ACCEPTED AND ACKNOWLEDGED BY
:
WELLS FARGO CAPITAL FINANCE, INC.
,
a California corporation
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By:
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Name:
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Title:
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5
Exhibit 10.25
OCLARO, INC.
Incentive Stock Option Agreement
Granted Under Amended and Restated 2004 Stock Incentive Plan
1.
Grant of Option
.
This agreement evidences the grant by Oclaro, Inc., a Delaware corporation (the Company), as
of the date of grant (the Grant Date), to the individual listed on the attached Notice of Grant
(the Participant), of an option to purchase, in whole or in part, on the terms provided herein
and in the Companys Amended and Restated 2004 Stock Incentive Plan (the Plan), the number of
shares (the Shares) of common stock, $0.01 par value per share, of the Company (Common Stock)
at the price per share set forth in the Notice of Grant. Unless earlier terminated, this option
shall expire at 5:00 p.m., Pacific time, on the tenth anniversary of the Grant Date (the Final
Exercise Date).
It is intended that the option evidenced by this agreement shall be an incentive stock option
as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the Code). Except as otherwise indicated by the context, the term
Participant, as used in this option, shall be deemed to include any person who acquires the right
to exercise this option validly under its terms.
2.
Vesting Schedule
.
(a) This option will become exercisable (vest) as to 25% of the original number of Shares on
the first anniversary of the Grant Date and as to an additional 2.083% of the original number of
Shares at the end of each successive month period following the first anniversary of the Grant Date
until the fourth anniversary of the Grant Date.
(b) The right of exercise shall be cumulative so that to the extent the option is not
exercised in any period to the maximum extent permissible it shall continue to be exercisable, in
whole or in part, with respect to all Shares for which it is vested until the earlier of the Final
Exercise Date or the termination of this option under Section 3 hereof or the Plan.
3.
Exercise of Option
.
(a)
Form of Exercise
. Each election to exercise this option shall be in writing,
signed by the Participant, and received by the Company at its principal office, accompanied by this
agreement, and payment in full in the manner provided in the Plan. The Participant may purchase
less than the number of shares covered hereby, provided that no partial exercise of this option may
be for any fractional share or for fewer than ten whole shares.
(b)
Continuous Relationship with the Company Required
. Except as otherwise provided
in this Section 3, this option may not be exercised unless the Participant, at the time he or she
exercises this option, is, and has been at all times since the Grant Date, an employee or
officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company, as
defined in Section 424(e) or (f) of the Code, and any other business venture (including, without
limitation, joint venture or limited liability company) in which the Company has a controlling
interest (an Eligible Participant).
(c)
Termination of Relationship with the Company
.
(1) If the Participant ceases to be an Eligible Participant for any reason, then, except as
provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three
months after such cessation (but in no event after the Final Exercise Date),
provided
that
this option shall be exercisable only to the extent that the Participant was entitled
to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the
Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality
provisions of any employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this option shall
terminate immediately upon written notice to the Participant from the Company describing such
violation.
(2) The Plan and this option shall not form any part of any contract for services or contract
of employment between the Company or any past or present subsidiary and neither the Plan nor this
agreement shall confer any legal or equitable rights (other than those constituting this option) on
the Participant against the Company or any past or present subsidiary, directly or indirectly, or
give rise to any cause of action in law or in equity against the Company or any past or present
subsidiary;
(3) In no circumstances shall the Participant on ceasing to hold the consultancy, office or
employment by virtue of which he is or may be eligible to participate in the Plan be entitled to
any compensation for any loss of any right or benefit or prospective right or benefit under the
Plan or this option which he might otherwise have enjoyed (including, without limitation, the lapse
of this options or part thereof by reason of his ceasing to hold a consultancy position, office or
ceasing to be employed by the Company or any past or present subsidiary) whether such compensation
is claimed by way of damages for wrongful dismissal or other lawful or unlawful breach of contract
or by way of compensation for loss of office or otherwise.
(d)
Exercise Period Upon Death or Disability
. If the Participant dies or becomes
disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date
while he or she is an Eligible Participant and the Company has not terminated such relationship for
cause as specified in paragraph (e) below, this option shall be exercisable, within the period of
one year following the date of death or disability of the Participant, by the Participant (or in
the case of death by an authorized transferee),
provided
that
this option shall be
exercisable only to the extent that this option was exercisable by the Participant on the date of
his or her death or disability, and further provided that this option shall not be exercisable
after the Final Exercise Date.
(e)
Discharge for Cause
. If the Participant, prior to the Final Exercise Date, is
discharged by the Company for Cause, the right to exercise this option shall terminate
immediately upon the effective date of such discharge. For the purpose of this cause shall
mean any (i) willful failure by the Participant, which failure is not cured within 30 days of
written notice to the Participant from the Company, to perform his or her material responsibilities
to the Company or (ii) willful misconduct by the Participant which materially and adversely affects
the business reputation of the Company. The Participant shall be considered to have been
discharged for cause if the Company determines in good faith, within 30 days after the
Participants resignation, that discharge for Cause was warranted.
2
4.
Tax Matters
.
(a)
Withholding
. No Shares will be issued pursuant to the exercise of this option
unless and until the Participant pays to the Company, or makes provision satisfactory to the
Company for payment of, any income tax, federal, state or local withholding taxes agreed to be or
required by law to be withheld in respect of this option.
(b)
Disqualifying Disposition
. If the Participant disposes of Shares acquired upon
exercise of this option within two years from the Grant Date or one year after such Shares were
acquired pursuant to exercise of this option, the Participant shall notify the Company in writing
of such disposition.
5.
Nontransferability of Option
.
This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the
Participant, either voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the lifetime of the Participant, this option shall be exercisable only by
the Participant.
6.
Data Protection
.
The Participant agrees to the receipt, holding, and processing of information in connection
with the grant, vesting, exercise, taxation and general administration of the Plan and this option
by the Company or any subsidiary of the Company and any of their advisers or agents and to the
transmission of such information outside of the European Economic Area for this purpose.
7.
Provisions of the Plan
.
This option is subject to the provisions of the Plan, a copy of which is furnished to the
Participant with this option.
3
OCLARO, INC.
Nonstatutory Stock Option Agreement
Granted Under Amended and Restated 2004 Stock Incentive Plan
1.
Grant of Option
.
This agreement evidences the grant by Oclaro, Inc., a Delaware corporation (the Company), as
of the date of grant (the Grant Date) to the individual listed on the attached Notice of Grant
(the Participant), of an option to purchase, in whole or in part, on the terms provided herein
and in the Companys Amended and Restated 2004 Stock Incentive Plan (the Plan), the number of
shares (the Shares) of common stock, $0.01 par value per share, of the Company (Common Stock)
at the price per share set forth in the Notice of Grant. Unless earlier terminated, this option
shall expire at 5:00 p.m., Pacific time, on the tenth anniversary of the Grant Date (the Final
Exercise Date).
It is intended that the option evidenced by this agreement shall not be an incentive stock
option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the Code). Except as otherwise indicated by the context, the
term Participant, as used in this option, shall be deemed to include any person who acquires the
right to exercise this option validly under its terms.
2.
Vesting Schedule
.
(a) This option will become exercisable (vest) as to 25% of the original number of Shares on
the first anniversary of the Grant Date and as to an additional 2.083% of the original number of
Shares at the end of each successive month period following the first anniversary of the Grant Date
until the fourth anniversary of the Grant Date.
(b) The right of exercise shall be cumulative so that to the extent the option is not
exercised in any period to the maximum extent permissible it shall continue to be exercisable, in
whole or in part, with respect to all Shares for which it is vested until the earlier of the Final
Exercise Date or the termination of this option under Section 3 hereof or the Plan.
3.
Exercise of Option
.
(a)
Form of Exercise
. Each election to exercise this option shall be in writing,
signed by the Participant, and received by the Company at its principal office, accompanied by this
agreement, and payment in full in the manner provided in the Plan. The Participant may purchase
less than the number of shares covered hereby, provided that no partial exercise of this option may
be for any fractional share or for fewer than ten whole shares.
1
(b)
Continuous Relationship with the Company Required
. Except as otherwise provided in
this Section 3, this option may not be exercised unless the Participant, at the time he or she
exercises this option, is, and has been at all times since the Grant Date, an employee or officer
of, or consultant or advisor to, the Company or any parent or subsidiary of the Company, as defined
in Section 424(e) or (f) of the Code, and any other business venture (including, without
limitation, joint venture or limited liability company) in which the Company has a controlling
interest (an Eligible Participant).
(c)
Termination of Relationship with the Company
.
(1) If the Participant ceases to be an Eligible Participant for any reason, then, except as
provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three
months after such cessation (but in no event after the Final Exercise Date),
provided
that
this option shall be exercisable only to the extent that the Participant was entitled
to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the
Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality
provisions of any employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this option shall
terminate immediately upon written notice to the Participant from the Company describing such
violation.
(2) The Plan and this option shall not form any part of any contract for services or contract
of employment between the Company or any past or present subsidiary and neither the Plan nor this
agreement shall confer any legal or equitable rights (other than those constituting this option) on
the Participant against the Company or any past or present subsidiary, directly or indirectly, or
give rise to any cause of action in law or in equity against the Company or any past or present
subsidiary.
(3) In no circumstances shall the Participant on ceasing to hold the consultancy, office or
employment by virtue of which he is or may be eligible to participate in the Plan be entitled to
any compensation for any loss of any right or benefit or prospective right or benefit under the
Plan or this option which he might otherwise have enjoyed (including, without limitation, the lapse
of this options or part thereof by reason of his ceasing to hold a consultancy position, office or
ceasing to be employed by the Company or any past or present subsidiary) whether such compensation
is claimed by way of damages for wrongful dismissal or other lawful or unlawful breach of contract
or by way of compensation for loss of office or otherwise.
(d)
Exercise Period Upon Death or Disability
. If the Participant dies or becomes
disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date
while he or she is an Eligible Participant and the Company has not terminated such relationship for
cause as specified in paragraph (e) below, this option shall be exercisable, within the period of
one year following the date of death or disability of the Participant, by the Participant (or in
the case of death by an authorized transferee),
provided
that
this option shall be
exercisable only to the extent that this option was exercisable by the Participant on the date of
his or her death or disability, and further provided that this option shall not be exercisable
after the Final Exercise Date.
2
(e)
Discharge for Cause
. If the Participant, prior to the Final Exercise Date, is
discharged by the Company for cause (as defined below), the right to exercise this option shall
terminate immediately upon the effective date of such discharge. Cause shall mean willful
misconduct by the Participant or willful failure by the Participant to perform his or her
responsibilities to the Company (including, without limitation, breach by the Participant of any
provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar
agreement between the Participant and the Company), as determined by the Company, which
determination shall be conclusive. The Participant shall be considered to have been discharged for
Cause if the Company determines, within 30 days after the Participants resignation, that
discharge for cause was warranted.
4.
Withholding
.
No Shares will be issued pursuant to the exercise of this option unless and until the
Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any
federal, state, local, cantonal or other withholding taxes required by law to be withheld in
respect of this option.
5.
Nontransferability of Option
.
This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the
Participant, either voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the lifetime of the Participant, this option shall be exercisable only by
the Participant.
6.
Provisions of the Plan
.
This option is subject to the provisions of the Plan, a copy of which is furnished to the
Participant with this option.
3
Oclaro, Inc.
Restricted Stock Unit Agreement
Granted Under the Amended and Restated 2004 Stock Incentive Plan
This RESTRICTED STOCK UNIT AGREEMENT (
Agreement
) is made
DATE OF GRANT
, between
Oclaro, Inc., a Delaware corporation (the
Company
), and
NAME OF EMPLOYEE
(
Participant
).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as
follows:
1.
Definitions
. Capitalized terms used herein but not otherwise defined in Section 12
below shall have the meanings set forth in the Avanexs 1998 Stock Plan (the
Plan
).
2.
Issuance of Shares
. In consideration of services rendered by Participant to the
Company or an affiliate thereto and subject to (i) consummation of the transactions contemplated in
that certain Agreement of Merger among Oclaro, Inc., Rio Acquisition Corp., Xtellus Inc. and Alta
Berkeley LLP, dated December 16, 2009 (the
Merger Agreement
) and (ii) the terms and
conditions set forth in this Agreement and in the Plan, the Company shall issue to Participant
#
of RSU
shares (the
Shares
) of common stock, $0.01 par value, of the Company (
Common
Stock
). The Company shall issue the Shares as of the date of consummation of the transactions
contemplated in the Merger Agreement (such date, the
Grant Date
). Participant
acknowledges and agrees that the Shares shall be subject to the forfeiture provisions set forth in
Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this
Agreement.
3.
Vesting
.
(a) If (i) Participant remains continuously employed with the Company or an affiliate thereto
through the last day of the fiscal quarter of the Company after the first anniversary of the Grant
Date (the
Vesting Date
) and (ii) the
(b) .
(c) If Participant ceases to be continuously employed by the Company or an affiliate thereto
prior to the Vesting Date for any reason (including, without limitation, by reason of the Companys
(or applicable affiliates) termination of Participants employment with our without Cause), all of
the Shares shall automatically be forfeited to the Company as of Participants termination date.
(d) Notwithstanding anything to the contrary herein, if (i) a Change in Control occurs after
the Grant Date and prior to the Vesting Date and (ii) after the Change in Control and prior to the
Vesting Date, (A) the Company (or an affiliate thereto) terminates Participants employment for any
reason other than by reason of a termination for Cause or (B) Participant terminates his or her
employment with the Company (or applicable affiliate) for Good Reason, then all of the Shares shall
vest as of Participants termination date. For purposes of this Section 3(d), the term Company
shall include any successor thereto in connection with a Change in Control.
- 1 -
4.
Restrictions on Transfer
.
(a) Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of,
by operation of law or otherwise (collectively
transfer
) any Shares, or any interest
therein, until such Shares have vested.
(b) The Company shall not be required (i) to transfer on its books any of the Shares which
have been transferred in violation of any of the provisions set forth in this Agreement or (ii) to
treat as owner of such Shares or to pay dividends to any transferee to whom such Shares have been
transferred in violation of any of the provisions of this Agreement.
5.
Escrow
. Participant shall, upon the execution of this Agreement, execute Joint
Escrow Instructions in the form attached to this Agreement as
Exhibit A
. The Joint Escrow
Instructions shall be delivered to the Corporate Secretary of the Company, as escrow agent
thereunder. Participant shall deliver to such escrow agent a stock assignment duly endorsed in
blank, in the form attached to this Agreement as
Exhibit B
, and hereby instructs the
Company to deliver to such escrow agent, on behalf of Participant, the certificate(s) evidencing
the Shares issued hereunder. Such materials shall be held by such escrow agent pursuant to the
terms of such Joint Escrow Instructions.
6.
Restrictive Legends
. All Shares subject to this Agreement shall be subject to the
following restriction, in addition to any other restrictions that may be required under federal or
state securities laws:
The shares of stock represented by this certificate are subject to
forfeiture provisions and restrictions on transfer set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of these shares (or his predecessor in interest),
and such Agreement is available for inspection without charge at the
office of the Secretary of the corporation.
7.
Provisions of the Plan
. This Agreement is subject to the provisions of the Plan, a
copy of which is furnished to Participant with this Agreement.
8.
Withholding Taxes; No Section 83(b) Election
. Regardless of any action the Company
or Participants employer (the
Employer
) takes with respect to any or all income tax,
social insurance, payroll tax, or other Tax-Related withholding (
Tax-Related Items
),
Participant acknowledges that the ultimate liability for all Tax-Related items legally due by
Participant is and remains Participants responsibility and that the Company and/or the Employer
(i) make no representations or undertakings regarding the treatment of any Tax-Related Items in
connection with any aspect of the grant, including the grant or vesting, the subsequent sale of
Shares and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant
or any aspect of the Shares to reduce or eliminate Participants liability for Tax-Related Items or
to achieve any particular tax result. Further, if Participant becomes subject to tax in more than
one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding
event, as applicable, Participant acknowledges that the Company and/or the Employer may be required
to withhold or account for Tax-Related Items in more than one jurisdiction.
- 2 -
Participant shall pay or make adequate arrangements satisfactory to the Company and/or the
Employer to satisfy all withholding obligations of the Company and/or the Employer, if any. In
this regard, Participant authorizes the Company and/or the Employer to withhold all applicable
Tax-Related Items legally payable by Participant from Participants compensation paid to
Participant by the Company and/or the Employer or from proceeds of the sale of Shares.
Alternatively, or in addition, if permissible under local law, the Company may (i) sell or arrange
for the sale of Shares that Participant acquires to meet the withholding obligation for Tax-Related
Items and/or (ii) withhold Shares to satisfy the withholding obligation for Tax-Related Items,
provided that the Company only withholds the amount of Shares necessary to satisfy the minimum
withholding amount. Finally, Participant shall pay to the Company or the Employer any amount of
Tax-Related Items that the Company or the Employer may be required to withhold as a result of
Participants participation in the Plan or Participants purchase of Shares that cannot be
satisfied by the means previously described.
Participant has reviewed with Participants own tax advisors the federal, state, local and
other tax consequences of this investment and the transactions contemplated by this Agreement.
Participant is relying solely on such advisors and not on any statements or representations of the
Company or any of its agents. Participant understands that Participant (and not the Company) shall
be responsible for Participants own tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
PARTICIPANT AGREES NOT TO FILE AN ELECTION UNDER SECTION 83(B) OF THE CODE WITH RESPECT TO THE
ISSUANCE OF THE SHARES.
9.
Nature of Grant
. In accepting the grant, Participant acknowledges that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it
may be modified, amended, suspended or terminated by the Company at any time, unless otherwise
provided in the Plan and this Agreement;
(b) the grant of the Shares is voluntary and occasional and does not create any contractual or
other right to receive future grants of Shares, or benefits in lieu of Shares, even if Shares have
been granted repeatedly in the past;
(c) all decisions with respect to future grants, if any, will be at the sole discretion of the
Company;
(d) Participants participation in the Plan shall not create a right to further employment
with the Employer and shall not interfere with the ability of the Employer to terminate
Participants employment relationship at any time with or without cause;
(e) Participant is voluntarily participating in the Plan;
(f) the Shares are an extraordinary item that do not constitute compensation of any kind for
services of any kind rendered to the Company or the Employer, and which is outside the scope of
Participants employment contract, if any;
- 3 -
(g) the Shares are not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculating any severance, resignation, termination, redundancy, end
of service payments, bonuses, long service awards, pension or retirement benefits or similar
payments;
(h) in the event that Participant is not an employee of the Company, the Shares grant will not
be interpreted to form an employment contract or relationship with the Company; and furthermore,
the Shares grant will not be interpreted to form an employment contract with the Employer or any
subsidiary or affiliate of the Company;
(i) the future value of the underlying Shares is unknown and cannot be predicted with
certainty;
(j) the value of the Shares may increase or decrease in value;
(k) in consideration of the grant of the Shares, no claim or entitlement to compensation or
damages shall arise from termination or diminution in value of the Shares resulting from
termination of Participants employment with the Company or the Employer (for any reason
whatsoever) and Participant irrevocably releases the Company and the Employer from any such claim
that may arise; if, not withstanding the foregoing, any such claim is found by a court of competent
jurisdiction to have arisen, then, by signing this Agreement, Participant shall be deemed
irrevocably to have waived Participants entitlement to pursue such claim; and
(l) in the event of termination of Participants employment prior to the Vesting Date, for
purposes of Section 3 hereof Participants termination date shall be deemed to occur on the date
that Participant is no longer actively employed and shall not be extended by any notice period
mandated under the local law (
e.g.,
active employment would not include a period of garden leave
or similar period pursuant to local law).
10.
Data Privacy
.
Participant hereby explicitly and unambiguously consents to the
collection, use and transfer, in electronic or other form, of Participants personal data as
described in this document by and among, as applicable, the Employer, the Company and its
subsidiaries and affiliates for the exclusive purpose of implementing, administering and managing
Participants participation in the Plan.
Participant understands that the Company and the Employer may hold certain personal
information about Participant, including, but not limited to, Participants name, home address and
telephone number, date of birth, social insurance number or other identification number, salary,
nationality, job title, any Shares or directorships held in the Company, details of all options or
any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in
Participants favor, for the exclusive purpose of implementing, administering and managing the Plan
(
Data
).
- 4 -
Participant understands that the recipients of the Data may be located in the United States or
elsewhere, and that the recipients country (
e.g.
, the United States) may have different data
privacy laws and protections than Participants country. Participant understands that Participant
may request a list with the names and addresses of any potential recipients of the Data by
contacting Participants local human resources representative. Participant authorizes the
Company and any other possible recipients which may assist the Company (presently or in the
future) with implementing, administering and managing the Plan to receive, possess, use, retain and
transfer the Data, in electronic or other form, for the sole purpose of implementing, administering
and managing Participants participation in the Plan. Participant understands that Data will be
held only as long as is necessary to implement, administer and manage Participants participation
in the Plan. Participant understands that Participant may, at any time, view the Data, request
additional information about the storage processing of the Data, require any necessary amendments
to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in
writing Participants local human resources representative. Participant understands, however, that
refusing or withdrawing Participants consent may affect Participants ability to participate in
the Plan. For more information on the consequences of Participants refusal to consent or
withdrawal of consent, Participant understands that Participant may contact Participants local
human resources representative.
11.
Miscellaneous
.
(a)
No Rights to Employment
. Participant acknowledges and agrees that the vesting of
the Shares pursuant to Section 3 hereof is earned only by satisfaction of the vesting conditions
and continuing service as an employee at the will of the Company (not through the act of being
hired or being granted the Shares hereunder). Participant further acknowledges and agrees that the
transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an
express or implied promise of continued engagement as an employee for the vesting period, for any
period, or at all.
(b)
Severability
. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
and each other provision of this Agreement shall be severable and enforceable to the extent
permitted by law.
(c)
Waiver
. Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board.
(d)
Binding Effect
. This Agreement shall be binding upon and inure to the benefit of
the Company and Participant and their respective heirs, executors, administrators, legal
representatives, successors and assigns, subject to the restrictions on transfer set forth in
Section 4 of this Agreement.
(e)
Notice
. Each notice relating to this Agreement shall be in writing and delivered
in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each
notice shall be deemed to have been given on the date it is received. Each notice to the Company
shall be addressed to it at its office at 2584 Junction Avenue, San Jose, CA 95134 (Attention:
Corporate Secretary). Each notice to Participant shall be addressed to Participant at
Participants last known address.
(f)
Pronouns
. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural, and vice versa.
- 5 -
(g)
Entire Agreement
. This Agreement and the Plan constitute the entire agreement
between the parties, and supersede all prior agreements and understandings, relating to the subject
matter of this Agreement.
(h)
Amendment
. This Agreement may be amended or modified only by a written instrument
executed by both the Company and Participant.
(i)
Governing Law
. This Agreement shall be construed, interpreted and enforced in
accordance with the internal laws of the State of Delaware without regard to any applicable
conflicts of laws. The parties to this Agreement agree that any suit, action or proceeding arising
out of, or with respect to, this Agreement or any judgment entered by any court in respect thereof
may be brought only in the courts located in Santa Clara County, in the State of California or the
federal district courts located within Santa Clara County, State of California, and the parties to
this Agreement accept the exclusive jurisdiction of those courts for the purpose of any suit,
action or proceeding.
(j)
Interpretation
. The interpretation and construction of any terms or conditions of
the Plan, or of this Agreement or other matters related to the Plan by the Compensation Committee
of the Board shall be final and conclusive.
(k)
Participants Acknowledgments
. Participant acknowledges that he or she: (i) has
read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of
this Agreement by legal counsel of Participants own choice or has voluntarily declined to seek
such counsel; (iii) understands the terms and consequences of this Agreement; and (iv) is fully
aware of the legal and binding effect of this Agreement.
(l)
Delivery of Certificates
. Subject to Section 4 hereof, Participant may request
that the Company deliver the Shares in certificated form with respect to any Shares that have
ceased to be subject to forfeiture pursuant to Section 3.
(m)
No Deferral
. Notwithstanding anything herein to the contrary, neither the Company
nor Participant may defer the delivery of the Shares.
(n)
Electronic Delivery
. The Company may, in its sole discretion, decide to deliver
any documents related to the Shares and participation in the Plan or future Shares that may be
granted under the Plan by electronic means or to request Participants consent to participate in
the Plan by electronic means. Participant hereby consents to receive such documents by electronic
delivery and, if requested, to agree to participate in the Plan through an on-line or electronic
system established and maintained by the Company or another third party designated by the Company.
(o)
Section 409A
. The Shares are intended to be exempt from Section 409A of the Code
pursuant to Treasury Regulation section 1.409A-1(b)(6) and this Agreement shall be interpreted
consistent with this intent.
- 6 -
12.
Definitions
. For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
(a)
Cause
means: (i) Participants continued failure to substantially perform his or
her reasonable assigned duties as an employee of the Company; or (ii) Participants engagement in
illegal conduct or gross misconduct.
(b)
Change in Control
means an event or occurrence set forth in any one or more of
subsections (i) through (iv) below (including an event or occurrence that constitutes a Change in
Control under one of such subsections but is specifically exempted from another such subsection):
(i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
Exchange Act
)) (any
such individual, entity or group, a
Person
) of beneficial ownership of any capital stock
of the Company if, after such acquisition, such Person beneficially owns (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) fifty percent (50%) or more of either (x) the
then-outstanding shares of common stock of the Company (the
Outstanding Company Common
Stock
) or (y) the combined voting power of the then-outstanding securities of the Company
entitled to vote generally in the election of directors (the
Outstanding Company Voting
Securities
);
provided, however
, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control: (a) any acquisition directly from the
Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for common stock or voting securities of the
Company, unless the Person exercising, converting or exchanging such security acquired such
security directly from the Company or an underwriter or agent of the Company), (b) any acquisition
by the Company, (c) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (c) any acquisition by
any corporation pursuant to a transaction which complies with clauses (a) and (b) of subsection
12(b)(iii) below; or
(ii) such time as the Continuing Directors (as defined below) do not constitute a majority of
the Board (or, if applicable, the Board of Directors of a successor corporation to the Company),
where the term
Continuing Director
means at any date a member of the Board (a) who was a
member of the Board on the date of the execution of this Agreement or (b) who was nominated or
elected subsequent to such date by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the Board was recommended
or endorsed by at least a majority of the directors who were Continuing Directors at the time of
such nomination or election;
provided, however
, that there shall be excluded from this clause (b)
any individual whose initial assumption of office occurred as a result of an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the Board; or
- 7 -
(iii) the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company in one or a series of transactions (a
Business
Combination
), unless, immediately following such Business Combination, each of the following
two conditions is satisfied: (a) all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than fifty percent (50%) of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled to vote generally
in the election of directors, respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a corporation which as a result of
such transaction owns the Company or substantially all of the Companys assets either directly or
through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as
the
Acquiring Corporation
) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, respectively; and (b) no Person (excluding any employee
benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, thirty percent (30%) or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of
the then-outstanding securities of such corporation entitled to vote generally in the election of
directors (except to the extent that such ownership existed prior to the Business Combination); or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of
the Company.
(c)
Change in Control Date
means the date upon on which a Change in Control occurs.
Notwithstanding anything to the contrary herein, if (i) a Change in Control occurs, (ii)
Participants employment with the Company is terminated prior to the date on which the Change in
Control occurs, and (iii) it is reasonably demonstrated by Participant that such termination of
employment (A) was at the request of a third party who has taken steps reasonably calculated to
effect a Change in Control or (B) otherwise arose in connection with or in anticipation of a Change
in Control, then for all purposes of this Agreement the Change in Control Date shall mean the
date immediately prior to the date of such termination of employment.
(d)
GAAP
means generally accepted accounting principles in the United States set
forth in the opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board, that are applicable to the circumstances of the date of determination,
consistently applied.
(e)
Good Reason
means the occurrence, without Participants written consent, of any
of the events or circumstances set forth in clauses (i) through (iv) below:
(i) a material diminution in Participants authority, duties or responsibilities as in effect
immediately prior to the earliest to occur of (a) the Change in Control Date, (b) the date of the
execution by the Company of the definitive written agreement or instrument providing for the Change
in Control or (c) the date of the adoption by the Board of a resolution providing for a Change in
Control (with the earliest to occur of such dates referred to herein as the
Measurement
Date
);
- 8 -
(ii) a material diminution in Participants base compensation as in effect on the Measurement
Date or as the same may be increased from time to time thereafter;
(iii) a change by the Company in the location at which Participant performs Participants
principal duties for the Company to a new location that is both (a) outside a radius of 35 miles
from Participants principal residence immediately prior to the Measurement Date and (b) more than
20 miles further from the location at which Participant performed Participants principal duties
for the Company immediately prior to the Measurement Date; or
(iv) any other action or inaction that constitutes a material breach by the Company of this
Agreement.
(f)
Net Product Revenues
means the portion of the gross revenues recognized by
Oclaro, Inc. (Parent) (on a consolidated basis and in accordance with GAAP and Parents revenue
recognition policies in effect from time to time that are consistent with GAAP) during period from
January 3, 2010 through January 1, 2011 that are attributable to the sale or license of the
Specified Company Products (provided, that the calculation of any such revenues attributable to
Specified Company Products, on the one hand, and any other product or products of the Parent or any
of its Affiliates, on the other hand, shall be appropriately apportioned by Parent between such
Specified Company Products, on the one hand, and such other product or products, on the other hand,
and only that portion attributable to the Specified Company Products shall be included for purposes
of the Net Product Revenues), less applicable discounts, freight, insurance and other shipping
costs, an allowance for product returns (established in accordance with GAAP) and an allowance for
doubtful accounts (established in accordance with GAAP).
(g)
Specified Company Products
means (i) the Companys products described on Annex
II to Exhibit A of the Merger Agreement, including any derivatives or enhancements thereof; and
(ii) Parents 2x1 100 Ghs WSS product if (and only if) (and only with respect to sales occurring
after): (a) the labor hours required to manufacture such product become less than or equal to the
number of labor hours currently required to manufacture the Companys 2x1 product, as reasonably
determined by Parent; and (b) such product is of a quality equal to or better than the Companys
current 2x1 product, as reasonably determined by Parent.
- 9 -
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
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OCLARO, INC.
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HOLDER:
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Employees Name
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Address:
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- 10 -
EXHIBIT A
Oclaro, Inc.
Joint Escrow Instructions
___, 2009
Corporate Secretary
Oclaro, Inc.
2584 Junction Avenue
San Jose, CA 95134
As Escrow Agent for Oclaro, Inc., a Delaware corporation, and its successors in interest under
the Restricted Stock Agreement (the Agreement) of even date herewith, to which a copy of these
Joint Escrow Instructions is attached (the Company), and the undersigned person (Holder), you
are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of
the Agreement in accordance with the following instructions:
1.
Appointment
. Holder irrevocably authorizes the Company to deposit with you any
certificates evidencing Shares (as defined in the Agreement) to be held by you hereunder and any
additions and substitutions to said Shares. For purposes of these Joint Escrow Instructions,
Shares shall be deemed to include any additional or substitute property. Holder does hereby
irrevocably constitute and appoint you as his attorney-in-fact and agent for the term of this
escrow to execute with respect to such Shares all documents necessary or appropriate to make such
Shares negotiable and to complete any transaction herein contemplated. Subject to the provisions
of this Section 1 and the terms of the Agreement, Holder shall exercise all rights and privileges
of a stockholder of the Company while the Shares are held by you.
2.
Forfeiture of Shares
. Upon any forfeiture of Shares to the Company pursuant to the
terms of the Agreement, you are directed (i) to date the stock assignment form or forms necessary
for the transfer of the Shares, (ii) to fill in on such form or forms the number of Shares being
transferred, and (iii) to deliver same, together with the certificate or certificates evidencing
the Shares to be transferred, to the Company.
3.
Sale of Shares upon Vesting
. Upon vesting of any Shares pursuant to the terms of
the Agreement, you are directed (i) to date the stock assignment form or forms necessary for the
transfer of such number of vested Shares as may be required to be sold to satisfy the Companys
minimum statutory withholding obligations as further described in Section 8 of the Agreement, (ii)
to fill in on such form or forms the number of Shares being sold, and (iii) to deliver same,
together with the certificate or certificates evidencing the Shares to be sold, to the Company.
- 11 -
4.
Withdrawal
. The Holder shall have the right to withdraw from this escrow any
Shares which have vested pursuant to the terms of the Agreement.
5.
Duties of Escrow Agent
.
(a) Your duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
(b) 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 of Holder while acting in good faith and in the
exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of
your own attorneys shall be conclusive evidence of such good faith.
(c) You are hereby expressly authorized to disregard any and all warnings given by any of the
parties hereto or by any other person or entity, 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. If you are uncertain of any actions to be taken or instructions to be followed, you may
refuse to act in the absence of an order, judgment or decrees of a court. In case you obey or
comply with any such order, judgment or decree of any court, you shall not be liable to any of the
parties hereto or to any other person or entity, 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.
(d) You shall not be liable in any respect on account of the identity, authority 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.
(e) 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 and may rely upon
the advice of such counsel.
(f) Your rights and responsibilities as Escrow Agent hereunder shall terminate if (i) you
cease to be Corporate Secretary of the Company or (ii) you resign by written notice to each party.
In the event of a termination under clause (i), your successor as Corporate Secretary shall become
Escrow Agent hereunder; in the event of a termination under clause (ii), the Company shall appoint
a successor Escrow Agent hereunder.
(g) 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.
- 12 -
(h) It is understood and agreed that if you believe a dispute has arisen 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 dispute 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.
(i) These Joint Escrow Instructions set forth your sole duties with respect to any and all
matters pertinent hereto and no implied duties or obligations shall be read into these Joint Escrow
Instructions against you.
(j) The Company shall indemnify you and hold you harmless against any and all damages, losses,
liabilities, costs, and expenses, including attorneys fees and disbursements, (including without
limitation the fees of counsel retained pursuant to Section 5(e) above, for anything done or
omitted to be done by you as Escrow Agent in connection with this Agreement or the performance of
your duties hereunder, except such as shall result from your gross negligence or willful
misconduct.
6.
Notice
. 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.
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COMPANY:
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Notices to the Company shall be sent to the address set forth in the salutation hereto, Attn: Corporate Secretary.
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HOLDER:
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Notices to Holder shall be sent to the address set forth below Holders signature below.
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ESCROW AGENT:
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Notices to the Escrow Agent shall be sent to the address set forth in the salutation hereto.
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7.
Miscellaneous
.
(a) By signing these Joint Escrow Instructions, you become a party hereto only for the purpose
of said Joint Escrow Instructions, and you do not become a party to the Agreement.
(b) This instrument shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
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Very truly yours,
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OCLARO, INC.
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HOLDER:
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Employees Name
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Address:
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Date Signed:
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ESCROW AGENT:
- 14 -
EXHIBIT B
(STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE)
FOR VALUE RECEIVED, I hereby sell, assign and transfer unto
(
)
shares of Common Stock, $0.01 par value per share, of Oclaro, Inc. (the Corporation) standing in
my name on the books of the Corporation represented by Certificate(s) Number
herewith,
and do hereby irrevocably constitute and appoint
attorney to transfer the
said stock on the books of the Corporation with full power of substitution in the premises.
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Dated:
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IN PRESENCE OF
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Employees Name
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NOTICE: The signature(s) to this assignment must correspond with the name as written upon the
face of the certificate, in every particular, without alteration, enlargement, or any change
whatever and must be guaranteed by a commercial bank, trust company or member firm of the Stock
Exchange.
- 15 -
Oclaro, Inc.
Restricted Stock Award Agreement
Granted Under the Amended and Restated 2004 Stock Incentive Plan
This RESTRICTED STOCK AWARD AGREEMENT (
Agreement
) is made
DATE OF GRANT
, between
Oclaro, Inc., a Delaware corporation (the
Company
), and
NAME OF EMPLOYEE
(
Participant
).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as
follows:
1.
Definitions
. Capitalized terms used herein but not otherwise defined in Section 12
below shall have the meanings set forth in the Amended and Restated 2004 Stock Incentive Plan (the
Plan
).
2.
Issuance of Shares
. In consideration of services rendered to the Company by the
Participant, the Company shall issue to the Participant, subject to the terms and conditions set
forth in this Agreement and in the Companys Amended and Restated 2004 Stock Incentive Plan (the
Plan),
# of RSA
shares (the
Shares
) of common stock, $0.01 par value, of the Company
(
Common Stock
). The Participant agrees that the Shares shall be subject to the
forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set
forth in Section 5 of this Agreement.
3.
Vesting
(a) Shares will be considered vested, if, (i) Participant remains continuously employed with
the Company or an affiliate thereto, and (ii) Audit Committee certifies that performance has been
met. 50% of the shares (upon certification 30% immediately and 70% in 12 months) will vest upon the
company reaching 35% gross margin for the December 2011 quarter as certified by the audit
committee.
(b) If Section 3(a)(i) and Section 3(a)(ii) have been met the employee will vest in 50% of the
grant total (30% of the 50% immediately, and the remaining 70% of the 50% in 12 months) if the
company reaches 35% gross margin for the December 2011 quarter as certified by the audit committee
(c) If Section 3(a)(i) and Section 3(a)(ii) have been met the employee will vest in 100% of
the grant total (30% immediately, and the remaining 70% in 12 months) if the company reaches 36%
gross margin for the December 2011 quarter as certified by the audit committee.
(d) If Participant ceases to be continuously employed by the Company or an affiliate thereto
prior to the Vesting Date for any reason (including, without limitation, by reason of the Companys
(or applicable affiliates) termination of Participants employment with or without Cause), all of
the Shares shall automatically be forfeited to the Company as of Participants termination date.
- 1 -
(e) Notwithstanding anything to the contrary herein, if (i) a Change in Control occurs after
the Grant Date and prior to the Vesting Date and (ii) after the Change in Control and prior to the
Vesting Date, (A) the Company (or an affiliate thereto) terminates Participants employment for any
reason other than by reason of a termination for Cause or (B) Participant terminates his or her
employment with the Company (or applicable affiliate) for Good Reason, then all of the Shares shall
vest as of Participants termination date. For purposes of this Section 3(d), the term Company
shall include any successor thereto in connection with a Change of Control.
4.
Automatic Sale Upon Vesting
.
(a) Upon any vesting of Shares pursuant to Section 2 hereof, the Company shall sell, or
arrange for the sale of, or withhold, such number of Shares no longer subject to forfeiture under
Section 2 as is sufficient to satisfy the Companys minimum statutory withholding obligations with
respect to the income recognized by the Participant upon the lapse of the forfeiture provisions
(based on minimum statutory withholding rates for all tax purposes that are applicable to such
income).
(b) The Participant hereby appoints the General Counsel or other designated individuals of the
Company as his/her attorney in fact to sell the Participants Shares in accordance with Section 3.
The Participant agrees to execute and deliver such documents, instruments and certificates as may
reasonably be required in connection with the sale or withholding of the Shares pursuant to this
Section 3
(c) The Participant represents to the Company, that as of the date hereof, he/she is not aware
of any material non-public information about the Company or the Common Stock. The Participant and
the Company have structured this Agreement to constitute a binding contract relating to the sale
of Common Stock pursuant to this Section 3, consistent with the affirmative defense liability under
Section 10(b) of the Securities Exchange Act of 1934 under Rule 10b5-1(c) promulgated under such
Act.
5.
Restrictions on Transfer
.
(a) Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of,
by operation of law or otherwise (collectively
transfer
) any Shares, or any interest
therein, until such Shares have vested.
(b) The Company shall not be required (i) to transfer on its books any of the Shares which
have been transferred in violation of any of the provisions set forth in this Agreement or (ii) to
treat as owner of such Shares or to pay dividends to any transferee to whom such Shares have been
transferred in violation of any of the provisions of this Agreement.
6.
Escrow
. Participant shall, upon the execution of this Agreement, execute Joint
Escrow Instructions in the form attached to this Agreement as
Exhibit A
. The Joint Escrow
Instructions shall be delivered to the Corporate Secretary of the Company, as escrow agent
thereunder. Participant shall deliver to such escrow agent a stock assignment duly endorsed in
blank, in the form attached to this Agreement as
Exhibit B
, and hereby instructs the
Company to
deliver to such escrow agent, on behalf of Participant, the certificate(s) evidencing the
Shares issued hereunder. Such materials shall be held by such escrow agent pursuant to the terms
of such Joint Escrow Instructions.
- 2 -
7.
Restrictive Legends
. All Shares subject to this Agreement shall be subject to the
following restriction, in addition to any other restrictions that may be required under federal or
state securities laws:
The shares of stock represented by this certificate are subject to
forfeiture provisions and restrictions on transfer set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of these shares (or his predecessor in interest),
and such Agreement is available for inspection without charge at the
office of the Secretary of the corporation.
8.
Provisions of the Plan
. This Agreement is subject to the provisions of the Plan, a
copy of which is furnished to Participant with this Agreement.
9.
Withholding Taxes; No Section 83(b) Election
. Regardless of any action the Company
or Participants employer (the
Employer
) takes with respect to any or all income tax,
social insurance, payroll tax, or other Tax-Related withholding (
Tax-Related Items
),
Participant acknowledges that the ultimate liability for all Tax-Related items legally due by
Participant is and remains Participants responsibility and that the Company and/or the Employer
(i) make no representations or undertakings regarding the treatment of any Tax-Related Items in
connection with any aspect of the grant, including the grant or vesting, the subsequent sale of
Shares and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant
or any aspect of the Shares to reduce or eliminate Participants liability for Tax-Related Items or
to achieve any particular tax result. Further, if Participant becomes subject to tax in more than
one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding
event, as applicable, Participant acknowledges that the Company and/or the Employer may be required
to withhold or account for Tax-Related Items in more than one jurisdiction.
Participant shall pay or make adequate arrangements satisfactory to the Company and/or the
Employer to satisfy all withholding obligations of the Company and/or the Employer, if any. In
this regard, Participant authorizes the Company and/or the Employer to withhold all applicable
Tax-Related Items legally payable by Participant from Participants compensation paid to
Participant by the Company and/or the Employer or from proceeds of the sale of Shares.
Alternatively, or in addition, if permissible under local law, the Company may (i) sell or arrange
for the sale of Shares that Participant acquires to meet the withholding obligation for Tax-Related
Items and/or (ii) withhold Shares to satisfy the withholding obligation for Tax-Related Items,
provided that the Company only withholds the amount of Shares necessary to satisfy the minimum
withholding amount. Finally, Participant shall pay to the Company or the Employer any amount of
Tax-Related Items that the Company or the Employer may be required to withhold as a result of
Participants participation in the Plan or Participants purchase of Shares that cannot be
satisfied by the means previously described.
- 3 -
Participant has reviewed with Participants own tax advisors the federal, state, local and
other tax consequences of this investment and the transactions contemplated by this Agreement.
Participant is relying solely on such advisors and not on any statements or representations of the
Company or any of its agents. Participant understands that Participant (and not the Company) shall
be responsible for Participants own tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
PARTICIPANT AGREES NOT TO FILE AN ELECTION UNDER SECTION 83(B) OF THE CODE WITH RESPECT TO THE
ISSUANCE OF THE SHARES.
10.
Nature of Grant
. In accepting the grant, Participant acknowledges that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it
may be modified, amended, suspended or terminated by the Company at any time, unless otherwise
provided in the Plan and this Agreement;
(b) the grant of the Shares is voluntary and occasional and does not create any contractual or
other right to receive future grants of Shares, or benefits in lieu of Shares, even if Shares have
been granted repeatedly in the past;
(c) all decisions with respect to future grants, if any, will be at the sole discretion of the
Company;
(d) Participants participation in the Plan shall not create a right to further employment
with the Employer and shall not interfere with the ability of the Employer to terminate
Participants employment relationship at any time with or without cause;
(e) Participant is voluntarily participating in the Plan;
(f) the Shares are an extraordinary item that do not constitute compensation of any kind for
services of any kind rendered to the Company or the Employer, and which is outside the scope of
Participants employment contract, if any;
(g) the Shares are not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculating any severance, resignation, termination, redundancy, end
of service payments, bonuses, long service awards, pension or retirement benefits or similar
payments;
(h) in the event that Participant is not an employee of the Company, the Shares grant will not
be interpreted to form an employment contract or relationship with the Company; and furthermore,
the Shares grant will not be interpreted to form an employment contract with the Employer or any
subsidiary or affiliate of the Company;
(i) the future value of the underlying Shares is unknown and cannot be predicted with
certainty;
(j) the value of the Shares may increase or decrease in value;
- 4 -
(k) in consideration of the grant of the Shares, no claim or entitlement to compensation or
damages shall arise from termination or diminution in value of the Shares resulting from
termination of Participants employment with the Company or the Employer (for any reason
whatsoever) and Participant irrevocably releases the Company and the Employer from any such claim
that may arise; if, not withstanding the foregoing, any such claim is found by a court of competent
jurisdiction to have arisen, then, by signing this Agreement, Participant shall be deemed
irrevocably to have waived Participants entitlement to pursue such claim; and
(l) in the event of termination of Participants employment prior to the Vesting Date, for
purposes of Section 3 hereof Participants termination date shall be deemed to occur on the date
that Participant is no longer actively employed and shall not be extended by any notice period
mandated under the local law (
e.g.,
active employment would not include a period of garden leave
or similar period pursuant to local law).
11.
Data Privacy
.
Participant hereby explicitly and unambiguously consents to the
collection, use and transfer, in electronic or other form, of Participants personal data as
described in this document by and among, as applicable, the Employer, the Company and its
subsidiaries and affiliates for the exclusive purpose of implementing, administering and managing
Participants participation in the Plan.
Participant understands that the Company and the Employer may hold certain personal
information about Participant, including, but not limited to, Participants name, home address and
telephone number, date of birth, social insurance number or other identification number, salary,
nationality, job title, any Shares or directorships held in the Company, details of all options or
any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in
Participants favor, for the exclusive purpose of implementing, administering and managing the Plan
(
Data
).
Participant understands that the recipients of the Data may be located in the United States or
elsewhere, and that the recipients country (
e.g.
, the United States) may have different data
privacy laws and protections than Participants country. Participant understands that Participant
may request a list with the names and addresses of any potential recipients of the Data by
contacting Participants local human resources representative. Participant authorizes the Company
and any other possible recipients which may assist the Company (presently or in the future) with
implementing, administering and managing the Plan to receive, possess, use, retain and transfer the
Data, in electronic or other form, for the sole purpose of implementing, administering and managing
Participants participation in the Plan. Participant understands that Data will be held only as
long as is necessary to implement, administer and manage Participants participation in the Plan.
Participant understands that Participant may, at any time, view the Data, request additional
information about the storage processing of the Data, require any necessary amendments to Data or
refuse or withdraw the consents herein, in any case without cost, by contacting in writing
Participants local human resources representative. Participant understands, however, that
refusing or withdrawing Participants consent may affect Participants ability to participate in
the Plan. For more information on the consequences of Participants refusal to consent or
withdrawal of consent, Participant understands that Participant may contact Participants local
human resources representative.
- 5 -
12.
Miscellaneous
.
(a)
No Rights to Employment
. Participant acknowledges and agrees that the vesting of
the Shares pursuant to Section 3 hereof is earned only by satisfaction of the vesting conditions
and continuing service as an employee at the will of the Company (not through the act of being
hired or being granted the Shares hereunder). Participant further acknowledges and agrees that the
transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an
express or implied promise of continued engagement as an employee for the vesting period, for any
period, or at all.
(b)
Severability
. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
and each other provision of this Agreement shall be severable and enforceable to the extent
permitted by law.
(c)
Waiver
. Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board.
(d)
Binding Effect
. This Agreement shall be binding upon and inure to the benefit of
the Company and Participant and their respective heirs, executors, administrators, legal
representatives, successors and assigns, subject to the restrictions on transfer set forth in
Section 4 of this Agreement.
(e)
Notice
. Each notice relating to this Agreement shall be in writing and delivered
in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each
notice shall be deemed to have been given on the date it is received. Each notice to the Company
shall be addressed to it at its office at 2584 Junction Avenue, San Jose, CA 95134 (Attention:
Corporate Secretary). Each notice to Participant shall be addressed to Participant at
Participants last known address.
(f)
Pronouns
. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural, and vice versa.
(g)
Entire Agreement
. This Agreement and the Plan constitute the entire agreement
between the parties, and supersede all prior agreements and understandings, relating to the subject
matter of this Agreement.
(h)
Amendment
. This Agreement may be amended or modified only by a written instrument
executed by both the Company and Participant.
(i)
Governing Law
. This Agreement shall be construed, interpreted and enforced in
accordance with the internal laws of the State of Delaware without regard to any applicable
conflicts of laws. The parties to this Agreement agree that any suit, action or proceeding arising
out of, or with respect to, this Agreement or any judgment entered by any court in respect thereof
may be brought only in the courts located in Santa Clara County, in the State of California or the
federal district courts located within Santa Clara County, State of
California, and the parties to this Agreement accept the exclusive jurisdiction of those
courts for the purpose of any suit, action or proceeding.
- 6 -
(j)
Interpretation
. The interpretation and construction of any terms or conditions of
the Plan, or of this Agreement or other matters related to the Plan by the Compensation Committee
of the Board shall be final and conclusive.
(k)
Participants Acknowledgments
. Participant acknowledges that he or she: (i) has
read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of
this Agreement by legal counsel of Participants own choice or has voluntarily declined to seek
such counsel; (iii) understands the terms and consequences of this Agreement; and (iv) is fully
aware of the legal and binding effect of this Agreement.
(l)
Delivery of Certificates
. Subject to Section 4 hereof, Participant may request
that the Company deliver the Shares in certificated form with respect to any Shares that have
ceased to be subject to forfeiture pursuant to Section 3.
(m)
No Deferral
. Notwithstanding anything herein to the contrary, neither the Company
nor Participant may defer the delivery of the Shares.
(n)
Electronic Delivery
. The Company may, in its sole discretion, decide to deliver
any documents related to the Shares and participation in the Plan or future Shares that may be
granted under the Plan by electronic means or to request Participants consent to participate in
the Plan by electronic means. Participant hereby consents to receive such documents by electronic
delivery and, if requested, to agree to participate in the Plan through an on-line or electronic
system established and maintained by the Company or another third party designated by the Company.
(o)
Section 409A
. The Shares are intended to be exempt from Section 409A of the Code
pursuant to Treasury Regulation section 1.409A-1(b)(6) and this Agreement shall be interpreted
consistent with this intent.
13.
Definitions
. For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
(a)
Cause
means: (i) Participants continued failure to substantially perform his or
her reasonable assigned duties as an employee of the Company; or (ii) Participants engagement in
illegal conduct or gross misconduct.
- 7 -
(b)
Change in Control
means an event or occurrence set forth in any one or more of
subsections (i) through (iv) below (including an event or occurrence that constitutes a Change in
Control under one of such subsections but is specifically exempted from another such subsection):
(i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
Exchange Act
)) (any
such individual, entity or group, a
Person
) of beneficial ownership of any capital stock
of the Company if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) fifty percent (50%) or
more of either (x) the then-outstanding shares of common stock of the Company (the
Outstanding
Company Common Stock
) or (y) the combined voting power of the then-outstanding securities of
the Company entitled to vote generally in the election of directors (the
Outstanding Company
Voting Securities
);
provided, however
, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control: (a) any acquisition directly from the
Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for common stock or voting securities of the
Company, unless the Person exercising, converting or exchanging such security acquired such
security directly from the Company or an underwriter or agent of the Company), (b) any acquisition
by the Company, (c) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (c) any acquisition by
any corporation pursuant to a transaction which complies with clauses (a) and (b) of subsection
12(b)(iii) below; or
(ii) such time as the Continuing Directors (as defined below) do not constitute a majority of
the Board (or, if applicable, the Board of Directors of a successor corporation to the Company),
where the term
Continuing Director
means at any date a member of the Board (a) who was a
member of the Board on the date of the execution of this Agreement or (b) who was nominated or
elected subsequent to such date by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the Board was recommended
or endorsed by at least a majority of the directors who were Continuing Directors at the time of
such nomination or election;
provided, however
, that there shall be excluded from this clause (b)
any individual whose initial assumption of office occurred as a result of an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the Board; or
(iii) the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company in one or a series of transactions (a
Business
Combination
), unless, immediately following such Business Combination, each of the following
two conditions is satisfied: (a) all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own, directly or indirectly,
more than fifty percent (50%) of the then-outstanding shares of common stock and the combined
voting power of the then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such Business Combination
(which shall include, without limitation, a corporation which as a result of such transaction owns
the Company or substantially all of the Companys assets either directly or through one or more
subsidiaries) (such resulting or acquiring corporation is referred to herein as the
Acquiring
Corporation
) in substantially the same proportions as their ownership, immediately prior to
such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, respectively; and (b) no Person (excluding any employee benefit plan (or related trust)
maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly
or indirectly, thirty percent (30%) or more of the then outstanding shares of common stock of the
Acquiring Corporation, or of the combined
voting power of the then-outstanding securities of such corporation entitled to vote generally
in the election of directors (except to the extent that such ownership existed prior to the
Business Combination); or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of
the Company.
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(c)
Change in Control Date
means the date upon on which a Change in Control occurs.
Notwithstanding anything to the contrary herein, if (i) a Change in Control occurs, (ii)
Participants employment with the Company is terminated prior to the date on which the Change in
Control occurs, and (iii) it is reasonably demonstrated by Participant that such termination of
employment (A) was at the request of a third party who has taken steps reasonably calculated to
effect a Change in Control or (B) otherwise arose in connection with or in anticipation of a Change
in Control, then for all purposes of this Agreement the Change in Control Date shall mean the
date immediately prior to the date of such termination of employment.
(d)
GAAP
means generally accepted accounting principles in the United States set
forth in the opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board, that are applicable to the circumstances of the date of determination,
consistently applied.
(e)
Good Reason
means the occurrence, without Participants written consent, of any
of the events or circumstances set forth in clauses (i) through (iv) below:
(i) a material diminution in Participants authority, duties or responsibilities as in effect
immediately prior to the earliest to occur of (a) the Change in Control Date, (b) the date of the
execution by the Company of the definitive written agreement or instrument providing for the Change
in Control or (c) the date of the adoption by the Board of a resolution providing for a Change in
Control (with the earliest to occur of such dates referred to herein as the
Measurement
Date
);
(ii) a material diminution in Participants base compensation as in effect on the Measurement
Date or as the same may be increased from time to time thereafter;
(iii) a change by the Company in the location at which Participant performs Participants
principal duties for the Company to a new location that is both (a) outside a radius of 35 miles
from Participants principal residence immediately prior to the Measurement Date and (b) more than
20 miles further from the location at which Participant performed Participants principal duties
for the Company immediately prior to the Measurement Date; or
(iv) any other action or inaction that constitutes a material breach by the Company of this
Agreement.
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(f)
Net Product Revenues
means the portion of the gross revenues recognized by
Oclaro, Inc. (Parent) (on a consolidated basis and in accordance with GAAP and Parents revenue
recognition policies in effect from time to time that are consistent with GAAP)
during period from January 3, 2010 through January 1, 2011 that are attributable to the sale
or license of the Specified Company Products (provided, that the calculation of any such revenues
attributable to Specified Company Products, on the one hand, and any other product or products of
the Parent or any of its Affiliates, on the other hand, shall be appropriately apportioned by
Parent between such Specified Company Products, on the one hand, and such other product or
products, on the other hand, and only that portion attributable to the Specified Company Products
shall be included for purposes of the Net Product Revenues), less applicable discounts, freight,
insurance and other shipping costs, an allowance for product returns (established in accordance
with GAAP) and an allowance for doubtful accounts (established in accordance with GAAP).
(g)
Specified Company Products
means (i) the Companys products described on Annex
II to Exhibit A of the Merger Agreement, including any derivatives or enhancements thereof; and
(ii) Parents 2x1 100 Ghs WSS product if (and only if) (and only with respect to sales occurring
after): (a) the labor hours required to manufacture such product become less than or equal to the
number of labor hours currently required to manufacture the Companys 2x1 product, as reasonably
determined by Parent; and (b) such product is of a quality equal to or better than the Companys
current 2x1 product, as reasonably determined by Parent.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
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OCLARO, INC.
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HOLDER:
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Employees Name
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Address:
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EXHIBIT A
Oclaro, Inc.
Joint Escrow Instructions
_____, 2009
Corporate Secretary
Oclaro, Inc.
2584 Junction Avenue
San Jose, CA 95134
As Escrow Agent for Oclaro, Inc., a Delaware corporation, and its successors in interest under
the Restricted Stock Agreement (the Agreement) of even date herewith, to which a copy of these
Joint Escrow Instructions is attached (the Company), and the undersigned person (Holder), you
are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of
the Agreement in accordance with the following instructions:
1.
Appointment
. Holder irrevocably authorizes the Company to deposit with you any
certificates evidencing Shares (as defined in the Agreement) to be held by you hereunder and any
additions and substitutions to said Shares. For purposes of these Joint Escrow Instructions,
Shares shall be deemed to include any additional or substitute property. Holder does hereby
irrevocably constitute and appoint you as his attorney-in-fact and agent for the term of this
escrow to execute with respect to such Shares all documents necessary or appropriate to make such
Shares negotiable and to complete any transaction herein contemplated. Subject to the provisions
of this Section 1 and the terms of the Agreement, Holder shall exercise all rights and privileges
of a stockholder of the Company while the Shares are held by you.
2.
Forfeiture of Shares
. Upon any forfeiture of Shares to the Company pursuant to the
terms of the Agreement, you are directed (i) to date the stock assignment form or forms necessary
for the transfer of the Shares, (ii) to fill in on such form or forms the number of Shares being
transferred, and (iii) to deliver same, together with the certificate or certificates evidencing
the Shares to be transferred, to the Company.
3.
Sale of Shares upon Vesting
. Upon vesting of any Shares pursuant to the terms of
the Agreement, you are directed (i) to date the stock assignment form or forms necessary for the
transfer of such number of vested Shares as may be required to be sold to satisfy the Companys
minimum statutory withholding obligations as further described in Section 8 of the Agreement, (ii)
to fill in on such form or forms the number of Shares being sold, and (iii) to deliver same,
together with the certificate or certificates evidencing the Shares to be sold, to the Company.
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4.
Withdrawal
. The Holder shall have the right to withdraw from this escrow any
Shares which have vested pursuant to the terms of the Agreement.
5.
Duties of Escrow Agent
.
(a) Your duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
(b) 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 of Holder while acting in good faith and in the
exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of
your own attorneys shall be conclusive evidence of such good faith.
(c) You are hereby expressly authorized to disregard any and all warnings given by any of the
parties hereto or by any other person or entity, 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. If you are uncertain of any actions to be taken or instructions to be followed, you may
refuse to act in the absence of an order, judgment or decrees of a court. In case you obey or
comply with any such order, judgment or decree of any court, you shall not be liable to any of the
parties hereto or to any other person or entity, 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.
(d) You shall not be liable in any respect on account of the identity, authority 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.
(e) 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 and may rely upon
the advice of such counsel.
(f) Your rights and responsibilities as Escrow Agent hereunder shall terminate if (i) you
cease to be Corporate Secretary of the Company or (ii) you resign by written notice to each party.
In the event of a termination under clause (i), your successor as Corporate Secretary shall become
Escrow Agent hereunder; in the event of a termination under clause (ii), the Company shall appoint
a successor Escrow Agent hereunder.
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(g) 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.
(h) It is understood and agreed that if you believe a dispute has arisen 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 dispute 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.
(i) These Joint Escrow Instructions set forth your sole duties with respect to any and all
matters pertinent hereto and no implied duties or obligations shall be read into these Joint Escrow
Instructions against you.
(j) The Company shall indemnify you and hold you harmless against any and all damages, losses,
liabilities, costs, and expenses, including attorneys fees and disbursements, (including without
limitation the fees of counsel retained pursuant to Section 5(e) above, for anything done or
omitted to be done by you as Escrow Agent in connection with this Agreement or the performance of
your duties hereunder, except such as shall result from your gross negligence or willful
misconduct.
6.
Notice
. 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.
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COMPANY:
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Notices to the Company shall be sent to the address set
forth in the salutation hereto, Attn: Corporate Secretary.
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HOLDER:
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Notices to Holder shall be sent to the address set forth
below Holders signature below.
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ESCROW AGENT:
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Notices to the Escrow Agent shall be sent to the address set
forth in the salutation hereto.
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7.
Miscellaneous
.
(a) By signing these Joint Escrow Instructions, you become a party hereto only for the purpose
of said Joint Escrow Instructions, and you do not become a party to the Agreement.
(b) This instrument shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
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Very truly yours,
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OCLARO, INC.
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HOLDER:
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Employees Name
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Address:
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Date Signed:
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ESCROW AGENT:
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EXHIBIT B
(STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE)
FOR VALUE RECEIVED, I hereby sell, assign and transfer unto
(
)
shares of Common Stock, $0.01 par value per share, of Oclaro, Inc. (the Corporation) standing in
my name on the books of the Corporation represented by Certificate(s) Number
herewith,
and do hereby irrevocably constitute and appoint
attorney to transfer the
said stock on the books of the Corporation with full power of substitution in the premises.
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Dated:
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IN PRESENCE OF
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Employees Name
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NOTICE: The signature(s) to this assignment must correspond with the name as written upon the
face of the certificate, in every particular, without alteration, enlargement, or any change
whatever and must be guaranteed by a commercial bank, trust company or member firm of the Stock
Exchange.
- 16 -