As filed with the Securities and Exchange Commission on March 5,June 29, 2004
Registration No. 333-115306
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ZHONE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 22-3509099 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
7001 Oakport Street
Oakland, CA 94621
(510) 777-7000
(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)
Morteza Ejabat
Chief Executive Officer
Zhone Technologies, Inc.
7001 Oakport Street
Oakland, CA 94621
(510) 777-7000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Please send copies of all communications to:
PeterCraig M. Astiz,Garner, Esq.
Jim P. Schumacher, Esq.
Gray Cary WareLatham & FreidenrichWatkins LLP
2000 University Avenue12636 High Bluff Drive, Suite 300
East Palo Alto, California 94303San Diego, CA 92130
(650) 833-2000
fax: (650) 833-2001(858) 523-5400
Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective, as determined by market conditions and other factors.
If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ¨
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.¨
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities To Be Registered | Amount to be Registered (1)(2) | Proposed Maximum Aggregate Offering Price(1)(2)(3) | Amount of Registration Fee(3) | ||||||
Securities Registered for Primary Offering: | |||||||||
Preferred Stock(4) | |||||||||
Common Stock, $0.001 par value(5) | |||||||||
Warrants(6) | |||||||||
Total Offered in Primary Offering | $ | 100,000,000.00 | $ | 12,670.00 | (3) | ||||
Securities Registered for Selling Stockholders: | |||||||||
Common Stock, $0.001 par value | 32,269,876 | $ | 149,893,574.02 | $ | 18,991.52 | ||||
Aggregate Securities for Primary Offering and Selling Stockholders | $ | 249,893,574.02 | $ | 31,661.52 | (3) | ||||
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. Neither we nor theThe selling stockholderssecurity holders may not sell any of thethese securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 5,JUNE 29, 2004
PROSPECTUS
$100,000,0006,424,393 Shares
plus
32,269,876 shares of common stock to be offered by the selling stockholders.
ZHONE TECHNOLOGIES, INC.
PREFERRED STOCK
COMMON STOCK
WARRANTS
We mayThis prospectus relates to the offer and sell, from timesale of up to time, in one or more series or classes:
The aggregate initial offering pricesome of all securities we sell in the primary offering under this prospectus will not exceed $100,000,000. In addition, up to 32,269,876 shares of common stock, $0.001 par value, may be offered for sale by the selling stockholders named in this prospectus.our other security holders.
The securities may be sold by the selling security holders in one or more transactions, at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, at negotiated prices or by any other lawful method. See the “Plan of Distribution” section below. This prospectus describes the general terms of these securities and the general manner in which we may offer the securities. The specific terms of any securities we offer will be included in a supplement to this prospectus. The prospectus supplement will also describe the specific manner in which we will offer the securities, which may include sales to or through underwriters, agents, dealers or other purchasers. The prospectus supplement may also add, update or change information contained in this prospectus. You should read this prospectus and any prospectus supplements carefully before making an investment in our securities. This prospectus may not be used to offer or sell securities unless accompanied by a prospectus supplement.
This prospectus also relates to the public offering of shares of our common stock by the selling stockholders named in this prospectus. We will receive no part of the proceeds of the sale of any shares offered in this prospectus by the selling stockholders.security holders. All expenses of registration incurred in connection with this offering are being borne by us, but all selling and other expenses incurred by the selling stockholderssecurity holders will be borne by such selling stockholders.them.
Our common stock is quoted on the NASDAQNasdaq National Market under the symbol “ZHNE.” On March 4,June 23, 2004, the last reported sale price of our common stock on the NASDAQNasdaq National Market was $4.60.$3.88.
Investing in any of our securities involves risk. You should carefully consider therisk factors beginning on page 32 of this prospectus before you make an investment in the securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus ifis truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is March,[ ], 2004.
This prospectus is part of a registration statement that we have filed with the Securities and Exchange CommissionSEC utilizing a “shelf” registration process. Under a shelf registration process, we may, over time, sell any combination of the securities describedselling security holders identified in this prospectus may sell from time to time in one or more offeringsthe aggregate up to a total dollar amount of $100,000,000. In addition, up to 32,269,8766,424,393 shares of common stock may be offered by the selling stockholders named herein. This prospectus provides you with a general description of the securities we or the selling stockholders may offer. Each time we or the selling stockholders sell securities, we will provide a prospectus and a prospectus supplement that will contain specific information about the terms of that particular offering and the securities. The prospectus supplement may also add, update or change information contained in this prospectus. Any statement that we make in this prospectus will be modified or superseded by any inconsistent statement made by us in a prospectus supplement. The information in this prospectus is accurate as of March 5, 2004. You should read both this prospectus and the applicable prospectus supplement, if any, together with additional information described under the heading “Where You Can Find More Information.”stock.
You should rely only on the information contained or incorporated by reference in this prospectus and any prospectus supplement. We have not authorized any dealer, salesman or any other person to provide you with additional or different information. This prospectus and any prospectus supplement are not an offer to sell or the solicitation of an offer to buy any securities other than the securities to which they relate and are not an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. You should not assume that the information in this prospectus or any prospectus supplement or in any document incorporated by reference in this prospectus or any prospectus supplement is accurate as of any date other than the date of the document containing the information. We will disclose any material changes in our affairs in a post-effective amendment to the registration statement of which this prospectus is a part, a prospectus supplement, or a future filing with the SEC incorporated by reference in this prospectus.
The terms “Zhone,” “we,” “us,” “our,” and the “company” refer only to Zhone Technologies, Inc. and our consolidated subsidiaries.
i
PROSPECTUS SUMMARYZHONE TECHNOLOGIES, INC.
This summary highlights information contained elsewhere in this prospectus. We urge you to read this entire prospectus carefully, any accompanying prospectus supplement and the documents incorporated by reference before making an investment decision.General
ZHONE TECHNOLOGIES, INC.
Zhone Technologies, Inc. was founded in 1999 to offer network service providers a simplified, comprehensive architectural approach to delivering services over their access networks.
We have developeddesign, develop and market telecommunications hardware and software that simplify today’s telecommunications networks. Our products, which address the wayconnection between network service providers deliver communication services toand their subscribers. Our Single Line Multi-Service Architecture,subscribers, or SLMS™, is a simplifiedthe wireline access network, architecture that provides broadband and narrowband services over a scalable next-generation local-loop infrastructure. SLMS is designed to extend the speed, reliability and cost-efficiencies currently achieved in the core of the communicationsallow network to business and consumer subscribers. Our products enable service providers to use their existing networks to delivercombine voice, data, video, entertainment and entertainmentmanagement services over their existing copper wire infrastructure while supporting migration to fiber networks. Our products also enable network service providers to transition to more cost-competitive VoIP and packet-based services without compromising their customers.current ATM and circuit-based revenue streams. In addition, our products allow network service providers to add rich new subscriber services more quickly than is possible with conventional solutions.
We are the first company dedicated solely to developing the full spectrum of next-generation wireline network solutions. Our flagship products are based upon our Single Line Multi Service, or SLMS, architecture. This new approach was specifically developed to address the unmet challenges of managing the complex transition from legacy service delivery to packet-based voice, data and video solutions. We have designed our products to interoperate with different types of wiring and equipment already deployed in service providers’ networks.
networks and in subscribers’ homes. Our Zhone Management System, or ZMS™, provides the software tools necessary to manage all of the products services and subscribers in a SLMS network. ZMS is a single management tool that enablesenable network service providers to allow instant deliveryelegantly migrate their existing networks to deliver voice, data, video and upgrade of network services. In addition, ZMS is capable of interfacing with and managing other vendors equipment already deployed in service providers’ networks.entertainment services to their customers.
We currently haveOur strategy is to develop products in three categories: thethrough a combination of internal development and acquisitions of companies with applicable technology or market presence. This strategy has allowed us to rapidly advance our flagship products by incorporating key acquired technologies into our SLMS product family; the digital loop carrier, or DLC, product family and the multiplexer, or MUX, product family.
We believe that we have assembled the employee base, technological breadth and market presence to provide a simple yet comprehensive set of solutions to the complex problems encountered by network service providers when delivering communications services to subscribers.architecture.
Zhone was originally incorporated under the laws of the State of Delaware in June 1999 and completed its merger with Tellium, Inc., or Tellium, in November 2003. Following the merger, the combined company was renamed Zhone and its stock began trading on the NASDAQNasdaq National Market under the symbol “ZHNE”.“ZHNE.” Our principal executive offices are located at 7001 Oakport Drive,Street, Oakland, California 94621. Our telephone number is (510) 777-7000, and our website address is www.zhone.com. The information on our website does not constitute part of this prospectus. Investors can access the periodic report filings we make with the Securities and Exchange Commission, or SEC on our website or at www.sec.gov.
The Securities We May OfferRecent Developments
With this prospectus,On April 22, 2004, we may offer common stock, preferred stock,entered into an Agreement and warrants, or any combinationPlan of Merger with Sorrento Networks Corporation and our wholly-owned subsidiary, Selene Acquisition Corp., under which Selene will merge with and into Sorrento, with Sorrento surviving the foregoing. The aggregate initial offering pricemerger as our wholly-owned subsidiary. Under the Agreement and Plan of all securities that may be sold in the primary offering under this prospectus will not exceed $100,000,000. In addition, up to 32,269,876 shares of common stock, $0.001 par value, may be offered for sale by the selling stockholders named in this prospectus. Each time we offer securities with this prospectus,Merger, we will provideissue 0.9 of a prospectus supplement that will contain the specific terms of the securities being offered. The following is a summary of the securities we may offer with this prospectus.
Common Stock
We may offer sharesshare of our common stock par value $0.001 per share.for each outstanding share of Sorrento common stock. In this prospectus,addition, we providewill assume options, warrants, debentures and other securities exercisable or convertible into Sorrento common stock, and those securities will become exercisable or convertible into our common stock, with appropriate adjustments to reflect the application of the exchange ratio in the merger. On May 6, 2004, we filed a general descriptionregistration statement on Form S-4 relating to our proposed acquisition of among other things, our dividend policySorrento. The registration statement on Form S-4 was declared effective by the SEC on May 25, 2004, and the transferjoint proxy statement/prospectus contained therein was mailed to stockholders on or about June 1, 2004. The merger, which is structured to qualify as a tax-free reorganization, is subject to the approval of the stockholders of both Zhone and voting restrictions that applySorrento and other customary closing conditions. We currently expect to holders of our common stock.complete the merger in July 2004.
Preferred Stock
We may offer sharesSorrento is headquartered in San Diego, California, and makes optical networking equipment for carriers and enterprises worldwide. Sorrento’s products are designed to help improve transport efficiency and expand the addressable market of our preferred stock, par value $0.001 per share, in one or more series. Our Board of Directors will determine the dividend, voting, conversion and other rights of the series of shares of preferred stock being offered.
Warrants
We may offer warrants for the purchase of shares of preferred stock or shares of common stock. Our Board of Directors will determine the terms of the warrants.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This prospectus and the documents incorporated by reference herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or otherwise. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. We use words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “should”, “will”, “would” and similar expressions to identify forward-looking statements. Factors that might cause such a difference include, but are not limited to, the rate of product purchases by current and prospective customers, general economic conditions, conditions specific to the telecommunications and related industries, new product introductions and enhancements by us and our competitors, unanticipated regulatory changes, competition, manufacturing and sourcing risks. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed in any forward-looking statements. Readers are referred to risks and uncertainties identified below, under “Risk Factors” and elsewhere in other reports or documents we file from time to time with the Securities and Exchange Commission.its customers’ fiber networks.
Investing in our securities involves a high degree of risk. You should consider the following risk factors, as well as other information contained or incorporated by reference in this prospectus and any accompanying prospectus supplement, before deciding to purchase any of the securities offered by this prospectus and any accompanying prospectus supplement. If any of these risks occur, our business could suffer, the market price of our common stock could decline and you could lose all or part of your investment in our securities.
Risk Related to Our Business and Financial Results
We have incurred significant losses to date and expect that we will continue to incur losses in the foreseeable future. If we fail to generate sufficient revenue to achieve or sustain profitability,positive cash flow from operations, our stock price could decline.
We have incurred significant losses to date and expect that we will continue to incur losses in the foreseeable future. OurWe (not including Sorrento) had net losses applicable to holders of common stock of approximately $29.9 million for the fiscal year ended December 31, 2003 and 2002 were $17.2$13.4 million for the quarter ended March 31, 2004. Sorrento had net losses applicable to holders of common stock of approximately $6.2 million for the fiscal year ended January 31, 2004 and $108.6$4.7 million respectively, andfor the quarter ended April 30, 2004. As of March 31, 2004, we (not including Sorrento) had an accumulated deficit of $595.8 million at December 31, 2003.approximately $609.1 million. As of April 30, 2004, Sorrento had an accumulated deficit of approximately $198.4 million.
We have not generatedhad positive cash flow from operations since our inception, and expect this trend to continue forwe may not generate them in the foreseeable future. We have had significant fixed expenses and expect that we will continue to incur significant manufacturing, research and development, sales and marketing, customer support, administrative and other expenses in connection with the ongoing development of theour business. In addition, we may be required to spend more on research and product development than originally budgeted to respond to industry trends. We may also incur significant new costs related to possible acquisitions and the integration of new technologies. Further, as 2004 will be the first full year that we will be subject to SEC reporting obligations and givenin light of the increased costs associated with compliance with the Sarbanes-Oxley Act of 2002, we are likely to incur increased expenses related to regulatory and legal compliance. We may not be able to adequately control costs and expenses or achieve or maintain adequate operating margins. As a result, our ability to achieve and sustain profitability will depend on our ability to generate and sustain substantially higher revenue while maintaining reasonable cost and expense levels. If we fail to generate sufficient revenue to achieve or sustain profitability,positive cash flow from operations, we will continue to incur substantial operating losses and our stock price could decline.
Our stock has been and will likely continue to be subject to substantial price and volume fluctuations due to a number of factors, many of which will be beyond our control, that may prevent our stockholders from selling our common stock at a profit.
The market price of our common stock has fluctuated substantially, and there can be no assurance that such volatility will not continue. Since the consummation of our merger with Tellium, Inc. on November 13, 2003, the trading price of our common stock has ranged from a high of $7.38 per share to a low of $3.07 per share. The securities markets have experienced significant price and volume fluctuations in the past and the market prices of the securities of telecommunications related companies have been especially volatile. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock regardless of our actual operating performance.
The market price of our common stock may fluctuate significantly in response to a number of factors, including:
In addition sales of substantial amounts of our common stock in the public market in the future could reduce the prevailing market prices for our common stock. The registration statement of which this prospectus is a part covers the resale of up to 6,424,393 shares of common stock that may be offered for sale by the selling security holders. These sales, or the perception that these sales could occur, could adversely impact trading price of our common stock. Due to these factors, the price of our common stock may decline and investors may be unable to resell their shares of our common stock for a profit.
Your ability to influence key transactions, including changes of control, may be limited by significant insider ownership.
Upon completion of the merger with Sorrento our current directors, executive officers and principal stockholders and entities affiliated with them will own approximately 35% of the outstanding shares of our common stock, based on the number of shares outstanding for each of Zhone and Sorrento as of June 23, 2004 and after giving effect to the application of the exchange ratio in the merger with Sorrento. As a result, our directors, executive officers and principal stockholders and entities affiliated with them, if acting together, will be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. Circumstances may arise in which the interests of these stockholders could conflict with the interests of our other stockholders. These stockholders could delay or prevent a change of our control even if such a transaction would be beneficial to our other stockholders.
We have significant debt obligations, which may limit our financing options and could adversely affect our business, operating results and financial condition.
At April 30, 2004, Sorrento had $11.7 million principal amount of 7.5% senior convertible debentures due August 2, 2007 and other debt totaling $3.6 million, all of which we will assume upon the effective date of the merger with Sorrento. In addition, we had approximately $31.8 million of long-term debt at March 31, 2004. You should be aware that our level of debt could materially and adversely affect us in a number of ways, including:
We cannot assure you that we will generate sufficient cash flow or be able to borrow funds in amounts sufficient to enable us to service our debt or to meet our working capital and capital expenditures requirements. If
we are unable to generate sufficient cash flow from operations or to borrow sufficient funds to service our debt, due to borrowing base restrictions or otherwise, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of existing debt or obtain additional financing. We cannot assure you that we will be able to sell assets, refinance our debt or borrow more money on terms acceptable to us, if at all.
We have been, and may continue to be adversely affected by recent unfavorable developments in the communications industry, world events and the economy in general.
Our customers and potential customers continue to experience a severe economic slowdown that has led to significant decreases in their revenues. For most of the last five years, the markets for our equipment have been influenced by the entry into the communications services business of a substantial number of new telecommunications companies. In the United States, this was due largely to changes in the regulatory environment, in particular those brought about by the Telecommunications Act of 1996. These new companies raised significant amountsbillions of dollars in capital, much of which they invested in new equipment, causing acceleration in the growth of the markets for telecommunications equipment. More recently, there has been a reversal of this trend, including the failure of a large number of the new entrants and a sharp contraction of the availability of capital to the industry. This industry trend has been compounded by the slowing not only of the U.S. economy, but the economies in virtually all of the countries in which we market our products. This, in turn, has caused a substantial reduction in demand for our equipment.
The continuing acts and threats of terrorism and the geo-political uncertainties in other continents are also having an adverse effect on the U.S. economy and could possibly induce or accelerate the advent of a more severe economic downturn. The U.S. government’s political, social and economic policies and policy changes as a result of these circumstances could have consequences that we cannot predict, including causing further weaknesses in the economy. The long-term impact of these events on our business is uncertain. Additionally, the amount of debt incurredbeing held by our carrier customers, and the continued reductionscuts to capital spending, puts the businesses of certain of our customers and potential customers in jeopardy. As a result, our operating results and financial condition could be materially and adversely affected.
Capital constraints in the telecommunications industry could restrict the ability of our customers to buy our products.
As a result of the economic slowdown affecting the telecommunications industry and the technology industry in general, our customers and potential customers have significantly reduced the rate of their capital expenditures, and as result, our revenue declined by 26% from 2002a trend that is expected to 2003.continue for the rest of 2004. The reduction of capital equipment acquisition budgets or the inability of our current and prospective customers to obtain capital could cause them to reduce or discontinue purchase of our products, and as a result we could experience reduced revenues and ouror operating results could be adversely impacted.results. In addition, many of the current and prospective customers for our products are emerging companies with limited operating histories. These companies require substantial capital for the development, construction and expansion of their businesses. Neither equity nor debt financing may be available to these companies on favorable terms, if at all. To the extent that these companies are unable to obtain the financing they need, our ability to make future sales to these customers and realize revenue from any such sales could be harmed. In addition, to the extent we choose to provide financing to these prospective customers, we will be subject to additional financial risk, which could causeincrease our expensesexpenses.
If demand for our products does not develop, then our results of operations and financial condition will be adversely affected.
Our future growth depends significantly on our ability to increase.successfully develop, enhance and market our Single Line Multi Service (SLMS) and optical transport products to the network service provider market. Most network service providers have made substantial investments in their current infrastructure, and they may elect to remain with their current architectures or to adopt new architectures in limited stages or over extended periods of
time. A decision by a customer to purchase our products will involve a significant capital investment. We will need to convince these service providers of the benefits of our products for future upgrades or expansions. In addition, the success of our products will depend on factors outside of our control, including a resumption of increasing capital equipment purchases by network service providers, regulatory and legal developments and the addition of new, financially viable customers to the market. We do not know whether viable markets for our products will develop or be sustainable. If these markets do not develop or develop more slowly than we expect, our business, financial condition and results of operations will be seriously harmed.
Our future operating results are difficult to predict due to our limited operating history.
We began our business operations in September 1999.1999 and Sorrento Networks, Inc., the primary telecommunications operating subsidiary of Sorrento, began its operations in February 2000. Although we expect that our internally developed Single Line Multi-Service, or SLMS product line, which we developed internally, will account for a substantial portion of our revenue in the future, to date we have generated a significant portion of our revenue from sales of product lines that we acquired from other companies. Due to our limited operating history, we will have difficulty accurately forecasting our revenue, and wewill have limited historical financial data upon which to base our operating expense budgets. You should consider our business and prospects in light of the heightened risks and unexpected expenses and problems we may face as a company in a relatively early stage of development in the unpredictable telecommunications industry, which is in the midst of a prolonged downturn.
Any strategic acquisitions or investments by us could dilute our stockholders or result in the assumption of additional contingent liabilities, loss of sales and disruption of our business.
We expect that we will consider acquisitions of, or investments in, complementary companies, products or technologies to supplement our internal growth. Not including the proposed acquisition of Sorrento, we have acquired ten companies or product lines since our inception in 1999. We may encounter difficulties in identifying and acquiring suitable candidates on reasonable terms.
In the event of any future acquisitions, we could:
Any strategic acquisitions or investments that we make in the future will involve numerous risks, including the following:
We may not be able to successfully integrate the businesses, products, technologies or personnel that we might acquire in the future. We cannot assure you that any strategic investments we may make will meet our financial or other investment objectives. Any failure to do so could seriously harm our business, financial condition and results of operations.
Our success will depend on our executive officers and key employees, and the loss of the services of one or more of them could harm our business.
Our future success will depend on the continued services of our executive officers and other key engineering, manufacturing, operations, sales, marketing and support personnel who have critical industry experience and relationships on which we will rely to build our business, especially Morteza Ejabat, Jeanette Symons, Kirk Misaka, and other key engineering, sales, marketing and support personnel who have critical industry experience and relationships on which we will rely to implement our business plan. The loss of the services of any of our key employees could delay the development and production of our products and negatively impact our ability to maintain customer relationships, which would harm our business, financial condition and results of operations.
Because of the long and variable sales cycles our products, our revenue and operating results may vary significantly from quarter to quarter duequarter.
The target customers for our products have substantial and complex networks that they traditionally expand in large increments on a periodic basis. Accordingly, our sales efforts will be focused on prospective customers that may purchase our products as part of large-scale network deployments. Our target customers may require a lengthy evaluation, testing and product qualification process. Throughout this process, we may spend considerable time and incur significant expense educating and providing information to prospective customers about the uses and features of our products. Even after a company makes the final decision to purchase our products, it may deploy the products slowly. The timing of deployment of our products may vary widely, and will depend on a number of factors, many of which are outsideincluding:
As a result of any of these factors, we may receive purchase orders for significant dollar amounts on an irregular and unpredictable basis, which may cause our revenue and operating results to vary significantly and unexpectedly from quarter to quarter.
The markets that we serve are highly competitive and, as an early stage company, we may not be able to compete successfully.
Competition in the communications equipment market is intense. We are aware of many companies in related markets that address particular aspects of the features and functions that our products will provide. Currently, our primary competitors include larger equipment companies, such as Advanced Fibre Communications, Alcatel and Lucent Technologies. Sorrento’s primary competitors include ADVA AG Optical Networking, CIENA Corporation, Cisco Systems, Fujitsu, Lucent Technologies and Nortel Networks. We may also face competition from other large communications equipment companies or other companies with significant market presence and financial resources that may enter our markets in the future. In addition, a number of new public and private companies have announced plans for new products to address the same network needs that our products will address, both domestically and abroad. Some of these companies may have lower cost structures than us.
Many of our competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical, sales and marketing resources than we do. These competitors may be able to undertake more extensive marketing efforts, adopt more aggressive pricing policies and provide more customer financing than we can. Moreover, our competitors may foresee the course of market developments more accurately than we will and could develop new technologies that render our products less valuable or obsolete.
In our markets, competitive factors include:
If demand forwe are unable to compete successfully against our SLMS products does not develop, then our resultscompetitors, we may have difficulty obtaining customers, and we could experience price reductions, order cancellations, increased expenses and reduced gross margins, any of operations and financial condition will be adversely affected.
Our future revenue depends significantly on our ability to successfully develop, enhance and market our SLMS products to the network service provider market. Most network service providers have made substantial investments in their current infrastructure, and they may elect to remain with their current architectures or to adopt new architectures, such as SLMS, in limited stages or over extended periods of time. A decision by a customer to purchase our SLMS products will involve a significant capital investment. We will need to convince these service providers of the benefits of our products for future upgrades or expansions. We do not know whether a viable market for our SLMS products will develop or be sustainable. If this market does not develop or develops more slowly than we expect,which would harm our business, financial condition and results of operations will be seriously harmed.operations.
Our target customer base is concentrated, and the loss of one or more of our customers could harm our business.
The target customers for our products are network service providers that operate voice, data and video communications networks. Sorrento’s customer base is comprised primarily of major cable operators. There are a limited number of potential customers in our target market. During themarkets. We (not including Sorrento) realized 28% of our revenue from two customers in our fiscal year ended December 31, 2003, twoand Sorrento realized 48% of its net sales from five customers accounted for approximately 17% and 11% of our revenue, respectively. During thein its fiscal year ended DecemberJanuary 31, 2002, one customer accounted for approximately 12% of our revenue.2004. A significant portion of our future revenue will depend on sales of our products to a limited number of customers. Any failure of one or more customers to purchase products from us for any reason, including any downturn in their businesses, would seriously harm our business, financial condition and results of operations.
Acquisitions are an important partWe expect the average selling prices of our strategy,products to decline, which may reduce revenue and any strategic acquisitions or investments we make could disrupt our business and seriously harm our financial condition.gross margins.
As of December 31, 2003, we have acquired nine companies or product lines, and we are likely to acquire additional businesses, products or technologiesThe industry in the future. In November 2003, we completed our merger with Tellium, Inc., and in February 2004, we announced the acquisition of the assets of Gluon Networks, Inc. On an ongoing basis, we expect to consider acquisitions of, or investments in, complementary companies, products or technologies to supplement our internal growth. In the future, we may encounter difficulties identifying and acquiring suitable acquisition candidates on reasonable terms.
Ifwhich we do complete future acquisitions,business has experienced a rapid erosion of average product selling prices. Consistent with this general trend, we could:
Any acquisitions or investments that we make in the future will involve numerous risks,factors, including:
We do not know whether we will be able to successfully integrate the businesses, products, technologies or personnel that we might acquire in the future or that any strategic investments we make will meet our financial or other investment objectives. Any failure to do so could seriously harm our business, financial condition and results of operations.
The market we serve is highly competitive and, as a relatively early stage company, we may not be able to compete successfully.
Competition in the communications equipment market is intense. We are aware of many companies in related markets that address particular aspects of the features and functions that our products will provide. Currently, our primary competitors include large equipment companies, such as Advanced Fibre Communications, Alcatel, and Lucent Technologies. We also may face competition from other large communications equipment companies or other companies with significant market presence and financial resources that may enter our market in the future. In addition, a number of new public and private companies have announced plans for new products to address the same network needs that our products address, both domestically and abroad. Some of these companies may have lower cost structures than us.
Many of our competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical, sales and marketing resources than we do and may be able to undertake more extensive marketing efforts, adopt more aggressive pricing policies and provide more customer financing than we can. Moreover, our competitors may foresee the course of market developments more accurately than we do and could develop new technologies that render our products less valuable or obsolete.
In our markets, competitive factors include:
If we are unable to compete successfullyachieve sufficient cost reductions and increases in sales volumes, this decline in average selling prices of our products will reduce our revenue and gross margins.
Pending lawsuits against us could distract our currentmanagement and could result in substantial costs or large judgments against us.
We are a party to various lawsuits and claims in the normal course of our business. In addition, we are currently involved in several litigation matters that we inherited as a result of our acquisition of Tellium, Inc. These suits and any future litigation could result in substantial costs and the diversion of management’s attention and resources away from the operation of our business in order to respond to the litigation. There can be no assurance that actions that have been brought against us or that may be brought against us will be resolved in our favor. Regardless of whether they are resolved in our favor, these lawsuits are, and any future lawsuits to which we may become a party in the future will likely be, expensive and time consuming to defend or resolve. Any losses resulting from these claims could adversely affect our profitability and cash flow.
The communications industry is subject to governmental regulations that could negatively affect our growth and reduce our revenue.
The Federal Communications Commission, or FCC, has jurisdiction over the communications industry in the United States and, as a result, our products and our customers’ products are subject to FCC rules and regulations. Current and future competitors, weFCC rules and regulations affecting communications services or customers’ businesses or products could negatively affect our business. The uncertainty associated with future FCC decisions may have difficulty obtaining customers,result in network service providers delaying decisions regarding expenditures for equipment for broadband services. In addition, international regulatory standards will govern our products in foreign markets. Domestic and weinternational regulatory requirements could experience price reductions, orderresult in postponements or cancellations increased expenses and reduced gross margins, any of product orders, which would harm our business, financial condition and results of operations. Further, we cannot be certain that we will be successful in obtaining or maintaining any regulatory approvals that may, in the future, be required to operate our business.
The long and variable sales cycles for our products may cause revenue and operating results to vary significantly from quarter to quarter.
The target customers for our products have substantial and complex networks that they traditionally expandWe do not anticipate paying dividends in large increments on a periodic basis. Accordingly, our marketing efforts are largely focused on prospective customers that may purchase our products as part of a large-scale network deployment. Our target customers typically require a lengthy evaluation, testing and product qualification process. Throughout this process, we are often required to spend considerable time and incur significant expense educating and providing information to prospective customers about the uses and features of our products. Even after a company makes the final decision to purchase our products, it may deploy our products slowly. The timing of deployment of our products varies widely, and depends on a number of factors, including:
As a result of any of these factors, our revenue and operating results may vary significantly from quarter to quarter.
The success of our business depends on our executive officers and key employees, and the loss of the services of one or more of them could harm our business.
Our future success depends upon the continued services of our executive officers and other key engineering, manufacturing, operations, sales, marketing and support personnel who have critical industry experience and relationships that we rely on to build our business, including Morteza Ejabat, our co-founder, Chairman and Chief Executive Officer, Jeanette Symons, our Chief Technical Officer, and Kirk Misaka, our Chief Financial Officer. The loss of the services of any of our key employees, including Mr. Ejabat, Ms. Symons and Mr. Misaka, could delay the development and production of our products and negatively impact our ability to maintain customer relationships, which would harm our business, financial condition and results of operations.
If we are unable to successfully manage and expand our international operations, our business could be harmed.foreseeable future.
We currently have international operations consisting of sales, technical supportnever paid any dividends to our stockholders, and marketing teamswe do not anticipate paying a cash dividend to our stockholders in various locations worldwide.the foreseeable future. We expect to continue expandingretain our international operations inearnings, if any, for the future. The successful managementfuture operation and expansion of our international operations requires significant human and financial resources. Further, our international operationsbusiness. Accordingly, you will have to rely on sales of your common stock after price appreciation, which may be subjectnever occur, as the only way to certain risks and challenges that could harm our operating results, including:
Any of these factors could harm our existing international operations and business or impair our ability to continue expanding into international markets.return on your investment.
We have significant debt obligations, which could adversely affect our business, operating results and financial condition.Risks Related to Our Products
As of December 31, 2003, we had approximately $32.0 million in long-term debt. You should be aware that this level of debt could materially and adversely affect us in a number of ways, including:
We cannot assure you that we will generate sufficient cash flow or be able to borrow funds in amounts sufficient to enable us to service our debt or to meet our working capital and capital expenditures requirements. If we are unable to generate sufficient cash flow from operations or to borrow sufficient funds to service our debt, due to borrowing base restrictions or otherwise, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of existing debt or obtain additional financing. We cannot assure you that we will be able to engage in any of these actions on reasonable terms, if at all.
Because our products are complex and will be deployed in complex environments, our products may have defects that we discoverare discovered only after full deployment, which could seriously harm our business.result in us losing customers and revenue.
Our products are complex and are designed to be deployed in large quantities and across complex networks. Because of the nature of these products, they can only be fully tested when completely deployed in large
networks with high amounts of traffic. Our customersCustomers may discover errors or defects in our hardware or software, or our products may not operate as expected, after they have been fully deployed. If we are unable to fix defects or other problems that may be identified after full deployment, we could experience:
Defects, integration issues or other performance problems in our products could also result in financial or other damages to our customers. Our customersCustomers could seek damages for related losses from us, which could seriously harm our business, financial condition and results of operations. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly and would put a strain on our management and resources. The occurrence of any of these problems would seriously harm our business, financial condition and results of operations.
If we fail to enhance our existing products or develop and introduce new products that meet changing customer requirements and technological advances, our ability to sell our products would be materially and adversely affected.
Our target markets are characterized by rapid technological advances, evolving industry standards, changes in end-user requirements, frequent new product introductions and changes in communications offerings from network service providers. Our future success will significantly depend on our ability to anticipate or adapt to such changes and to offer, on a timely and cost-effective basis, products that meet changing customer demands and industry standards. We may not have sufficient resources to successfully and accurately anticipate technological and market trends, manage long development cycles or develop, introduce and market new products and enhancements. We currently license technology, and from time to time, we may be required to license additional technology from third parties to sell or develop our products and product enhancements. We cannot assure you that our existing and future third-party licenses will be available to us on commercially reasonable terms, if at all. Our inability to maintain or obtain any third-party license required to sell or develop our products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost. If we are not able to develop new products or enhancements to existing products on a timely and cost-effective basis, or if ourthe new products or enhancements fail to achieve market acceptance, our business, financial condition and results of operations would be materially adversely affected.
The communicationsIf our products do not meet industry is subject to government regulations, which could harmstandards that may emerge, or if some industry standards are not ultimately adopted, we will not gain market acceptance and our business.revenue will not grow.
Our success depends, in part, on both the adoption of industry standards for new technologies in our target markets and product compliance with these industry standards. The Federal Communications Commission, or FCC, has jurisdiction overabsence of industry standards may cause potential customers to delay purchases of new equipment until standards are adopted and prevent market acceptance of our products. In addition, in developing our products, we have made, and will continue to make, assumptions about the entire communications industry in the United Statesstandards that may be adopted by our competitors and as a result, our existing and futurepotential customers. If industry standards are adopted that are different from those that we have chosen to support, customers may not select and purchase our products, and our customers’ products are subject to FCC rulessales and regulations. Current and future FCC rules and regulations affecting communications services could negatively affect our business. The uncertainty associated with future FCC decisions may result in network service providers delaying decisions regarding expenditures for equipment for broadband services. In addition, internationalrevenue will be significantly reduced.
regulatory bodies establish standards that may govern our products in foreign markets. DomesticOur ability to compete could be jeopardized and international regulatory requirements could result in postponements or cancellations of product orders, which would harm our business financial condition and results of operations. Further, we cannot be certain that we will be successful in obtaining or maintaining any regulatory approvals that may, in the future, be required to operate our business.
We face certain litigation risks.
We are a party to lawsuits and claims in the normal course of our business. In addition, we are currently involved in several litigation matters which we inherited as a result of our acquisition of Tellium. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, operating results, or financial condition. For additional information regarding certain of the lawsuits in which we are involved, see Part I, Item 3 - “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2003.
Our business will be adversely affectedplan seriously compromised if we are unable to protect our intellectual property rights from third-party challenges.property.
We rely on a combination of copyrights, patents, trademarkspatent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our employees, consultants, and corporate partners and customers, and control access to, and distribution of, our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our technology is difficult, and we do not know whethercannot assure you that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.
In the future we may become involved in disputes over intellectual property, which could subject us to significant liability, divert the time and attention of our management and prevent us from selling our products.
We or our customers may bebecome a party to litigation in the future to protect our intellectual property or to respond to allegations that we infringe others’another party’s intellectual property. WeIn the future, we may receive in the future communications from third parties inquiring about theirour interest in licensing certain of the third party’s intellectual property or more generally identifying intellectual property that may be the basis of a future infringement claim. We have received letters from Lucent Technologies stating that many of our products are using technology covered by or related to Lucent patents and inviting us to discuss a licensing arrangement with Lucent. To date, no lawsuit or other formal action has been filed by Lucent. However, we cannot assure you that we would be successful in defending against any Lucent infringement claims. To the extent we are not successful in defending such claims, we may be subject to substantial damages (including possible treble damages and attorneys’ fees).
If a party accuses us of infringing upon its proprietary rights, we would have to defend ourselves and possibly our customers against the alleged infringement. We cannot assure you that we would prevail in any intellectual property litigation, given its complex technical issues and inherent uncertainties. If we are unsuccessful in any such litigation, we could be subject to significant liability for damages and loss of our proprietary rights. Intellectual property litigation, regardless of its outcome, would likely be time consuming and expensive to resolve. Any such litigation could force us to stop selling, incorporating or using our products that include the challenged intellectual property, or redesign those products that use the technology. In addition, if a party accuses us of infringing upon its proprietary rights, we may have to enter into royalty or licensing agreements, which may not be available on terms acceptable to us, if at all. Any of these results could have a material adverse effect on our business, financial condition and results of operations.
We rely on contract manufacturers for a significant portionRisks Related to the Expansion of our manufacturing requirements.
Through the third quarter of 2003, we utilized Solectron for the majority of our manufacturing requirements for all product lines. During the fourth quarter of 2003, we transitioned the manufacturing of certain product lines to
another contract manufacturer, and for another product line, transitioned the manufacturing process internally. We continue to use Solectron to manufacture certain product lines under an agreement which is scheduled to expire in March 2004. While we have become somewhat less dependent on Solectron for our manufacturing requirements, we expect to continue to rely on contract manufacturers to fulfill a significant portion of our product manufacturing requirements.
Any manufacturing disruption could impair our ability to fulfill orders. Our future success will depend, in significant part, on our ability to have Solectron or other contract manufacturers produce our products cost-effectively and in sufficient volumes. We face a number of risks associated with this dependence on third-party manufacturers including:
We have no long-term contracts or arrangements with any of our vendors that guarantee product availability, the continuation of particular payment terms or the extension of credit limits. We have experienced in the past, and may experience in the future, problems with our contract manufacturers, such as inferior quality, insufficient quantities and late delivery of products. To date, these problems have not materially adversely affected us. We may not be able to obtain additional volume purchase or manufacturing arrangements on terms that we consider acceptable, if at all. If we enter into a high-volume or long-term supply arrangement and subsequently decide that we cannot use the products or services provided for in the agreement, our business will be harmed. We cannot assure you that we will be able to effectively manage our relationship with our contract manufacturers, or that these manufacturers will meet our future requirements for timely delivery of products of sufficient quality or quantity. Any of these difficulties could harm our relationships with customers and cause us to lose orders.
Our existing contract with Solectron expires in March 2004. If we are unsuccessful in renegotiating this agreement, then we may be required to manufacture the products produced under this agreement internally or find another outside contract manufacturer. If we fail to successfully transition manufacturing operations in-house or fail to locate and qualify suitable manufacturing candidates capable of satisfying our product specifications or quantity requirements, then we may experience product shortages and, as a result, be unable to fulfill customer orders accurately and timely which could negatively affect our customer relationships and operating results. Further, new third-party manufacturers may encounter difficulties in the manufacture of our products resulting in product delivery delays.
We depend on sole or limited source suppliers for several key components. If we are unable to obtain these components on a timely basis, we will be unable to meet our customers’ product delivery requirements, which would harm our business.Business
We currently purchase several key components from single or limited sources pursuant to limited term supply contracts. If any of our sole or limited source suppliers experiences capacity constraints, work stoppages or any other reduction or disruption in output, they may be unable to meet our delivery schedule. Our suppliers may enter into exclusive arrangements with our competitors, be acquired by our competitors, stop selling their products or components to us at commercially reasonable prices, refuse to sell their products or components to us at any price or be unable to obtain or have difficulty obtaining components for their products from their suppliers.
In these events, we could be forced to commence a time consuming and difficult process of identifying and qualifying an alternative supplier of the key components. There is no guarantee that such a search would be
successful. If we do not receive critical components from our suppliers in a timely manner, we will be unable to meet our customers’ product delivery requirements. Any failure to meet a customer’s delivery requirements could harm our reputation and decrease our sales, which would harm our business, financial condition and results of operations.
Our headquarters and certain suppliers are all located in Northern California where natural disasters or service outages or restrictions could occur and harm our facilities and key personnel, which would restrict or prevent us from providing services to our customers.
Our corporate headquarters and principal research and development center and product testing facilities as well as many of our suppliers are located in Northern California, which has historically been vulnerable to natural disasters, such as earthquakes, fires and floods. In addition, this area has historically been rapidly growing and large demands on infrastructure services, including electrical and other utility services, could result in significant or more frequent outages or restrictions on the use of such services. The occurrence of a natural disaster or such service outages or restrictions might disrupt the local economy and pose physical risks to our employees and our property. We do not presently have redundant, multiple site capacity in the event of a natural disaster or service outages or restrictions. Accordingly, in the event of a disaster or service outages or restrictions adversely affecting our operations, our business would suffer.
If we fail to attract and retain qualified personnel, our business might be harmed.
Our future success will depend in large part upon our ability to identify, attract and retain qualified individuals, particularly research and development and customer service engineers and sales and marketing personnel. Our products are generally of a highly technical nature, and therefore require a sophisticated sales effort targeted at several key people within each prospective customer’s organization. Our target customers are large network service providers that require high levels of service and support from our customer service engineers and our sales and marketing personnel. Competition for these employees in our industry and in the San Francisco Bay Area in particular, as well as other areas in which we recruit, may be intense, and we may not be successful in attracting or retaining these personnel. If we are not able to hire the kind and number of research and development, sales and marketing and customer service personnel required to support our product offerings and customers, we may not reach the level of sales necessary to achieve profitability or may be impaired from meeting existing customer demands, either of which could materially harm our business.
Our business will suffer if we fail to properly manage our growth and continually improve our internal controls and systems.
We have expanded our operations rapidly since our inception. The number of our employees has grown from eight as of September 30, 1999 to 231 as of December 31, 2003. As our business grows, we expect to increase the scope of our business and operations and the number of our employees.over time. Our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning and management process. To manage our growth properly, we must:
Failure to do any of the above in an efficient and timely manner could seriously harm our business, financial condition and results of operations.
We may not achieve the benefits we expect from the merger with Sorrento, which may have a material adverse effect on our business, financial condition and results of operations and could result in the loss of key personnel.
In order to realize any benefits or synergies anticipated from the consummation of the merger with Sorrento, we will need to overcome significant challenges, including timely, efficient and successful execution of a number of post-merger strategies, which include:
The execution of these post-merger strategies will involve considerable risks and may not be successful. These risks include:
Our failure to overcome these risks or any other problems encountered in connection with the merger could slow our growth or lower the quality of our services, which could reduce customer demand and have a negative impact upon the price of our common stock.
The costs of completing the merger with Sorrento are substantial and will affect our results of operations.
We anticipate incurring transaction costs, including severance, of at least $2 million in connection with the merger with Sorrento. These, primarily, are costs associated with combining the businesses of the two companies and the fees of financial advisors, attorneys, consultants and accountants. Unanticipated events could increase the
costs of combining the two companies. If the benefits of the merger do not exceed the associated costs, including transaction and severance costs, costs associated with integrating the two companies and dilution of our stockholders resulting from the issuance of shares in connection with the merger, our financial results, including earnings per share, could be materially harmed. There can be no assurance that we will not incur additional material charges in subsequent quarters to reflect additional costs associated with the merger and the integration of the two companies.
Significant merger-related charges against earnings resulting from the application of the purchase method of accounting will reduce our earnings and may adversely affect the market value of our common stock following the merger with Sorrento.
In accordance with United States generally accepted accounting principles, we will account for the merger with Sorrento using the purchase method of accounting, which will require purchase accounting adjustments that could have a material adverse effect on the market value of our common stock following completion of the merger. Under the purchase method of accounting, we will allocate the total estimated purchase price to Sorrento’s net tangible assets and amortizable intangible assets based on their fair values as of the date of completion of the merger, and record the excess of the purchase price over those fair values as goodwill. We will incur amortization expense over the useful lives of amortizable intangible assets acquired in connection with the merger. In addition, to the extent the value of goodwill becomes impaired, we may be required to incur material charges relating to the impairment of that asset. These amortization and potential impairment charges could have a material impact on our results of operations.
If we do not successfully integrate with Sorrento or the benefits of the merger with Sorrento do not meet the expectations of investors or financial or industry analysts, the market price of our common stock may decline.
The market price of our common stock may decline as a result of the merger with Sorrento for a variety of reasons, including, among others, the following:
If we are unable to expand our sales, marketing and distribution channels, we may be unable to increase market awareness and sales of our products, which may prevent us from increasing our sales and achieving and maintaining profitability.
Our products require a sophisticated sales and marketing effort targeted towards a limited number of key individuals within our current and prospective customers’ organizations. These customers may have long-standing vendor relationships that may inhibit our ability to generate business. We currently use direct sales forces and we expect to develop a distribution channel as required in different regions, using both direct and indirect sales. We believe that our success will depend on our ability to establish successful relationships with various distribution partners as required by customer or region. Customer partnerships may be with vendors that are also competitors and as such we are at greater risk of failing to establish these potential customer-driven partnerships. If we are unable to expand our sales, marketing and distribution operations, we may not be able to effectively market and sell our products, which may prevent us from increasing our sales and achieving and maintaining profitability.
If we are unable to deliver the high level of customer service and support demanded by customers, we may be unable to increase our sales or may lose customers and our operating results will suffer.
Our products are complex, and customers demand that a high level of customer service and support be available at all hours. Customer service and support functions are provided by a small internal customer service
and support organization. We may need to increase our staff to support new and existing customers. The reduction of on-site and regional support personnel may negatively impact our ability to properly service customer activities in a timely manner and may also negatively impact customer satisfaction.
If we are unable to manage these functions internally and satisfy our customers with a high level of service and support, any resulting customer dissatisfaction could impair our ability to retain customers and make future sales. We may consider using third parties to provide certain customer support services. We may be unable to manage effectively those third parties who may provide support services, and the third parties may not provide adequate levels of customer support. If we are unable to expand our customer service and support organization (internally or externally) and rapidly train these personnel, we may not be able to increase our sales, which could cause our business, financial condition and results of operations to be materially and adversely affected.
If we are unable to successfully develop, manage and expand our international operations, our business could be harmed.
We currently have international operations consisting of sales, technical support and marketing teams in various locations worldwide. We expect that we will continue expanding our international operations in the future. The successful management and expansion of our international operations, including the development of sales and support channels, will require significant human and financial resources. Further, our international operations may be subject to certain risks and challenges that could harm our operating results, many of which will be beyond our control, including:
Any of these factors could harm our existing international operations and business or impair our ability to continue expanding into international markets.
If we are unable to obtain additional capital to fund our existing and future operations, we may be required to reduce the scope of our planned product development and marketing and sales efforts, which would harm our business, financial condition and results of operations.
The development and marketing of new products and the expansion of our direct sales operation and associated support personnel requiresrequire a significant commitment of resources. We may continue to incur significant operating losses or expend significant amounts of capital if:
As a result, we may need to raise substantial additional capital. Additional capital, if required, may not be available on acceptable terms, or at all. If additional capital is raised through the issuance of debt securities, the terms of such debt could impose financial or other restrictions on our operations. If we are unable to obtain additional capital or are required to obtain additional capital on terms that are not favorable to us, we may be required to reduce the scope of our planned product development and sales and marketing efforts, which would harm our business, financial condition and results of operations.
Your abilityIf we fail to influence key transactions, including changes of control, mayattract and retain qualified personnel, our business might be limited by significant insider ownership, provisions of our charter documents and provisions of Delaware law.harmed.
At December 31, 2003,Our future success will depend in large part upon our executive officers, directorsability to identify, attract and entities affiliated with them beneficially owned,retain qualified individuals, particularly research and development and customer service engineers and sales and marketing personnel. Our products are generally of a highly technical nature, and therefore require a sophisticated sales effort targeted at several key people within each prospective customer’s organization. Our target customers will include large network service providers that require high levels of service and support from customer service engineers and sales and marketing personnel. Competition for these employees in the aggregate, approximately 43%communications industry and in the San Francisco Bay Area in particular, as well as other areas in which we will recruit, may be intense and we may not be successful in attracting or retaining these personnel. If we are not able to hire the kind and number of sales and marketing personnel and customer service engineers required by our product offerings and customers, we may not reach the level of sales necessary to achieve profitability or may be impaired from meeting existing customer demands, either of which could materially harm our business.
Risks Related to Our Product Manufacturing
We will rely on contract manufacturers for a significant portion of our outstanding common stock. These stockholders,manufacturing requirements.
Through the third quarter of 2003, we utilized Solectron for the majority of our manufacturing requirements for all product lines. During the fourth quarter of 2003, we transitioned the manufacturing of certain product lines to another contract manufacturer, and for another product line, transitioned the manufacturing process internally. We continue to use Solectron to manufacture certain product lines under the terms of an agreement that expired in March 2004. While we have become somewhat less dependent on Solectron for our manufacturing requirements, we expect to continue to rely on contract manufacturers to fulfill a significant portion of our product manufacturing requirements.
Any future manufacturing disruption could impair our ability to fulfill orders. Our future success will depend, in significant part, on our ability to have contract manufacturers produce our products cost-effectively and in sufficient volumes. We face a number of risks associated with our dependence on third-party manufacturers, including:
We currently do not have any long-term contracts or arrangements with any of our vendors that guarantee product availability, the continuation of particular payment terms or the extension of credit limits. We have experienced in the past, and we may experience in the future, problems with our contract manufacturers, such as inferior quality, insufficient quantities and late delivery of product. To date, these problems have not materially
adversely affected us. We may not be able to obtain additional volume purchase or manufacturing arrangements on terms that we consider acceptable, if acting together,at all. If we enter into a high-volume or long-term supply arrangement and subsequently decide that we cannot use the products or services provided for in the agreement, our business will be harmed. We cannot assure you that we will be able to influence significantly all matters requiring approval byeffectively manage our stockholders, including the electionrelationship with our contract manufacturers, or that these manufacturers will meet our future requirements for timely delivery of directors and the approvalproducts of mergerssufficient quality or other business combination transactions. Circumstances may arise in which the interestsquantity. Any of these stockholdersdifficulties could conflictharm our relationships with the interests of our other stockholders. These stockholders could delay or prevent a change in control of our company even if such a transaction would be beneficialcustomers and cause us to our other stockholders. In addition, provisions of our amended and restated certificate of incorporation, by-laws, and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to certain stockholders.lose orders.
Our stockholders will incur dilutionAlthough our existing contract with Solectron expired in March 2004, we continue to use Solectron to manufacture products under the terms of the expired agreement. If we are unable to continue to use Solectron for these manufacturing requirements, then we may be required to manufacture the products produced under this agreement internally or find another outside contract manufacturer. If we fail to successfully transition manufacturing operations in-house or fail to locate and qualify suitable manufacturing candidates capable of satisfying our product specifications or quantity requirements, then we may experience product shortages and, as a result, be unable to fulfill customer orders accurately and timely, which could negatively affect our customer relationships and operating results. Further, new third-party manufacturers may encounter difficulties in the manufacture of the exercise of outstanding options and warrants and any future sale of equity or equity-linked debt securities.
The exercise of outstanding options and warrants and the future sale of any equity or equity-linked debt securities, including any additional securities issuedour products resulting in connection with acquisitions, will result in dilution to our then-existing stockholders. Any dilution resulting from the future sale of equity or equity-linked debt securities will be more substantial if the price paid for such securities is less than the price paid by our then-existing stockholders for our outstanding capital stock.product delivery delays.
We do not planmay depend on sole or limited source suppliers for several key components. If we are unable to pay dividends in the foreseeable future.obtain these components on a timely basis, we will be unable to meet our customers’ product delivery requirements, which would harm our business.
We do not anticipate paying cash dividends to our stockholders in the foreseeable future. We expect to retain future earnings, if any, for the future operationcurrently purchase, and expansion of the business. In addition, our ability to pay dividends may be limited by any applicable restrictions under our debt and credit agreements. Accordingly, our stockholders must rely on sales of their capital stock after price appreciation, which may never occur, as the only way to realize a return on their investment.
Our stock has been and will likely continue to be subjectpurchase, several key components from single or limited sources pursuant to substantial price and volume fluctuations due to a number of factors, many of which will be beyond our control, that may prevent our stockholders from selling our common stock at a profit.
The market pricelimited term supply contracts. If any of our common stock has fluctuated substantially, and there can be no assurance that such volatility will not continue. Since the beginning of 2002, the trading price of our common stock (including Tellium common stock prior to our merger with Tellium), has ranged from a high of $27.52 per share to a low of $1.20 per share. The securities markets have experienced significant price and volume fluctuationssole or limited source suppliers experiences capacity constraints, work stoppages or any other reduction or disruption in the past and the market prices of the securities of telecommunications related companies have been especially volatile. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock regardless of our actual operating performance.
The market price of our common stock may fluctuate significantly in response to a number of factors, including:
In addition sales of substantial amounts of our common stock in the public market in the future could reduce the prevailing market prices for our common stock. The registration statement of which this prospectus is a part covers the issuance by the company of up to $100,000,000 in new securities as well as up to 32,269,876 shares of common stock that may be offered for sale by the selling stockholders. These sales, or the perception that these sales could occur, could adversely impact trading price of our common stock.
Due to these factors, the price of our stock may decline and investorsoutput, it may be unable to resellmeet our delivery schedule. Our suppliers may enter into exclusive arrangements with our competitors, be acquired by our competitors, stop selling their sharesproducts or components to us at commercially reasonable prices, refuse to sell their products or components to us at any price or be unable to obtain or have difficulty obtaining components for our products from their suppliers.
In these events, we could be forced to commence a time consuming and difficult process of identifying and qualifying an alternative supplier of the key components. There is no guarantee that such a search would be successful. If we do not receive critical components from our stock forsuppliers in a profit.timely manner, we will be unable to meet our customers’ product delivery requirements. Any failure to meet a customer’s delivery requirements could harm our reputation and decrease our sales, which would harm our business, financial condition and results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This prospectus and the documents incorporated by reference herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or otherwise. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. We use words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “should”, “will”, “would” and similar expressions to identify forward-looking statements. Factors that might cause such a difference include, but are not limited to, the rate of product purchases by current and prospective customers, general economic conditions, conditions specific to the telecommunications and related industries, new product introductions and enhancements by us and our competitors, unanticipated regulatory changes, competition, manufacturing and sourcing risks. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed in any forward-looking statements. Readers are referred to risks and uncertainties identified above, under “Risk Factors” and elsewhere in other reports or documents we file from time to time with the SEC.
Unless otherwise provided in a prospectus supplement, we intend to use the net proceeds from the sale of the securities offered by this prospectus and any prospectus supplement for our general corporate purposes, capital expenditures, future acquisitions and additions to our working capital. We will not receive any proceeds from any sales by the selling stockholderssecurity holders of itstheir shares of common stock.stock under this prospectus.
DIVIDEND POLICYSELLING SECURITY HOLDERS
We have never paid or declared any cash dividends on our common stock or other securities and do not anticipate paying cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretionare registering a total of the Board of Directors, subject to any applicable restrictions under our debt and credit agreements, and will be dependent upon our financial condition, results of operations, capital requirements, general business condition and such other factors as the Board of Directors may deem relevant.
Pursuant to certain contractual obligations, in connection with the filing of a registration statement for a primary offering of securities, the company is registering for resale certain shares of stock held by the stockholders set forth in the below table, which sets forth the number of6,424,393 shares of our common stock beneficially owned by each. Subjectunder this prospectus. On April 22, 2004, we entered into an Agreement and Plan of Merger with Sorrento and our wholly-owned subsidiary, Selene, under which Selene will merge with and into Sorrento, with Sorrento surviving the merger as our wholly-owned subsidiary. Under the Agreement and Plan of Merger, upon consummation of the merger, we will assume Sorrento’s outstanding warrants and debentures, and those securities will be exercisable or convertible into shares of our common stock, with appropriate adjustments to reflect the limitationsapplication of Rule 144the exchange ratio in the merger. In addition, we agreed to prepare and 145 underfile with the Securities Act,SEC a registration statement, of which this prospectus is a part, to register our common stock to be issued upon the expirationexercise or conversion of the lock-up agreements entered intowarrants and debentures. We are obligated to register for resale an aggregate of 5,392,269 shares of our common stock underlying those securities. In addition, we have agreed to register for resale an aggregate of 1,032,124 shares issued in connection with our mergeracquisition of Gluon Networks, Inc. (Gluon) in February 2004, and other shares issued to certain other security holders of ours.
The following table sets forth information with Tellium, which will occur on May 11, 2004, all of suchrespect to the shares will otherwise become freely tradeable without registration under the Securities Act. The only securities that may be offeredbeneficially owned by the selling stockholders are sharessecurity holders. Other than as described in the footnotes to the table below, none of Common Stock. Each Prospectus Supplement will name eachthe selling stockholder (if any) offering shares thereby, indicate the nature of anysecurity holders has held a position or office or otherhad a material relationship which the selling stockholder has hadwith us or any of our predecessors or affiliates within the past three years with the company or any of its predecessors or affiliates, and state the number of shares of Common Stock owned by the selling stockholder prior to the offering, the number of shares of Common Stock offered by the Prospectus Supplement and the number of shares of Common Stock and the percentage (if one percent or more)other than as a result of the outstanding Common Stock owned by the selling stockholder after the offering. The selling stockholders may include, but are not limited to, the stockholdersownership of the company named below. We cannot estimate the number of shares that will be held by the selling stockholders after the completion of any offering because the selling stockholders may decide to sell all, someour or none of the shares they are offering from time to time.our predecessors’ or affiliates’ securities.
Beneficial Owner(1) | Shares of Common Stock Beneficially Owned(2) | Percentage (3) | Shares of Common Stock Offered (4) | ||||
Entities affiliated with Texas Pacific Group (5) | 8,961,725 | 11.5 | % | 8,959,375 | |||
Entities affiliated with KKR 1996 GP LLC (6) | 8,959,375 | 11.5 | % | 8,959,375 | |||
Entities affiliated with New Enterprise Associates (7) | 6,171,480 | 7.9 | % | 6,030,754 | |||
Morteza Ejabat (8) | 3,909,536 | 5.0 | % | 3,651,036 | |||
Jeanette Symons (9) | 3,204,542 | 4.1 | % | 3,063,542 | |||
Entities affiliated with NIF Ventures Co., LTD (10) | 1,320,843 | 1.7 | % | 1,320,843 | |||
Kirk Misaka (11) | 190,833 | 0.2 | % | 97,462 | |||
Robert Dahl (12) | 187,489 | 0.2 | % | 187,489 |
Beneficial Owner(1) | Shares of Common Stock Owned Prior to the Offering | Shares of Common Stock Offered | Shares of Common Stock To Be Owned After Completion of the Offering(2) | Percentage of Common Stock to Be Owned After Completion of the Offering(2)(3) | ||||
Warrant and Debenture Holders | ||||||||
M Kingdon Offshore NV | 494,475 | 164,825 | 329,650 | * | ||||
Kingdon Associates | 176,599 | 58,866 | 117,733 | * | ||||
Kingdom Partners Kingdon | 66,714 | 22,238 | 44,476 | * | ||||
Kingdon Family Partnership, LP | 47,093 | 15,698 | 31,395 | * | ||||
Philip T. Hempleman | 675,000 | 225,000 | 450,000 | * | ||||
Beneficial Owner(1) Five Points Fund, LP Five Points Fund II, L. P. Five Points Offshore Fund, Ltd. Heimdall Investments Ltd. STG Capital Fund, Ltd. STG Capital Partners (QP), LP Colonial Fund, LLC CDIB Capital Investment America Ltd. Geduld Capital Partners LP ZLP Master Opportunity Fund, Ltd. MicroCapital Fund LP MicroCapital Fund Ltd. Bonanza Master Fund, Ltd. Proximity Fund LP Proximity Partners LP Bristol Investment Fund, Ltd. Gryphon Master Fund, L. P. Bluegrass Growth Fund LP Lakefront Partners, LLC Roth Capital Partners, LLC (4) Aman Ventures, L.L.C China Development Industrial Bank Inc. DVA Investment (BVI) Limited) Menlo Entrepreneurs Fund VIII, L.P. Menlo Ventures VIII, L.P. MMEF VIII, L.P. MC Silicon Valley, Inc. Mitsubishi International Corp. Mitsui & Co. (U.S.A.), Inc. Mobius Technology Ventures Advisors Mobius Technology Ventures Side Mobius Technology Ventures VI L.P. Softbank U.S. Ventures Fund VI L.P. New Enterprise Associates VIII, L.P.(5) New Enterprise Associates 8A, L.P.(5) Siemens Venture Capital GmbH Thomas Alexander TWP LuxN Investors II U.S. Venture Partners VI, L.P. W. R. Hambrecht/LuxN 3., LLC Wheatley Associates III, L.P. Wheatley Foreign Partners III, L.P. Wheatley Partners III, L.P. William Street Associates VII, LLC WS Investment Company, LLC (2002A) Deutsche Bank AG, London Branch Jeffrey Thorp IRA, Bear Stearns Custodian Riverview Group, LLC Elliott Associates L.P Langley Partners, L.P Belmarken Holding BV Shares of
Common Stock
Owned Prior
to the Offering Shares of
Common Stock
Offered Shares of
Common Stock
To Be Owned
After Completion
of the Offering(2) Percentage of
Common Stock to
Be Owned After
Completion of the
Offering(2)(3) 80,303 80,303 0 * 84,488 84,488 0 * 60,210 60,210 0 * 282,329 282,329 0 * 225,450 75,150 150,300 * 112,050 37,350 74,700 * 112,500 112,500 0 * 137,354 45,785 91,569 * 33,750 33,750 0 * 406,980 406,980 0 * 71,969 71,969 0 * 41,666 41,666 0 * 90,000 90,000 0 * 45,000 45,000 0 * 45,000 45,000 0 * 75,758 75,758 0 * 157,946 157,946 0 * 70,582 70,582 0 * 40,500 13,500 27,000 * 455,545 455,545 0 * 259,846 1,042 258,804 * 8,860 8,860 0 * 5,839 245 5,594 * 1,328 1,328 0 * 29,499 29,499 0 * 443 443 0 * 2,889 2,889 0 * 1,428 1,428 0 * 10,423 10,423 0 *
Fund VI L.P. 1,509 1,509 0 *
Fund VI L.P. 1,584 1,584 0 * 38,741 38,741 0 * 41,551 41,551 0 * 13,425 13,425 0 * 26,850 26,850 0 * 20,847 20,847 0 * 10,423 10,423 0 * 115 115 0 * 220,587 83,386 137,201 * 650 650 0 * 55,295 2,319 52,976 * 56,783 2,382 54,401 * 260,623 10,933 249,690 * 5,925 5,925 0 * 2,193 91 2,102 * 205,470 205,470 0 * 82,188 82,188 0 * 54,792 54,792 0 * 27,396 27,396 0 * 82,188 82,188 0 * 1,899,404 443,390 1,456,014 1.9 %
Beneficial Owner(1) Telcom—SNI Investors, L.L.C. James B. Fleming, Jr. Hamid Akhavan Sorrento Holdings, L.L.C Neeti Tandon/Ajay Gupta Rahul Prakash Universal Telecommunications, Inc. Anthony Sabatino Mark Schneider Farranfore Limited Rajendra Singh Neera Singh HRS Independent Trust SRS Independent Trust Inrange Technologies Corporation D.F. Fisher David Chapman Andersen Weinroth & Co., L.P. ASM Investments, L.L.C Fisher Capital Partners Six Rivers Group, Ltd Summit Capital Management Virgo Cap, Inc Renn Zaphiropoulos Michael S. Kagnoff GMS Holdings Corp. Shala Powell Mart Investment Holdings Shareholders of Record on May 29, 2003(6) Former Gluon Stockholders(7) Venture Lending & Leasing III, LLC US Venture Partners VIII, L.P. Vanguard VII, L.P. New Enterprise Associates 10, L.P.(5) Silicon Valley Bank ONST IV, L.P. New Enterprise Associates 9, L.P.(5) Pentech Financial Fred Fromm Aztek Engineering Jeanne Thomas Vanguard VII-A, L.P. Pillsbury Winthrop CoSystems, Inc. Gary Testa Chuck Harris Tam Dam Vanguard VII Accredited Affiliates JoAnne H. Miller Vanguard VII Qualified Affiliates Fund, L.P. Shirish Patel USVP Entrepreneur Partners VIII-A L.P. Shares of
Common Stock
Owned Prior
to the Offering Shares of
Common Stock
Offered Shares of
Common Stock
To Be Owned
After Completion
of the Offering(2) Percentage of
Common Stock to
Be Owned After
Completion of the
Offering(2)(3) 36,264 35,866 398 * 12,627 12,228 399 * 3,668 3,668 0 * 158,970 158,970 0 * 1,223 1,223 0 * 16,862 3,668 13,194 * 24,457 24,457 0 * 1,223 1,223 0 * 5,202 4,666 536 * 4,887 4,666 221 * 83,669 83,669 0 * 83,669 83,669 0 * 68,189 68,189 0 * 68,189 68,189 0 * 73,371 73,371 0 * 6,183 6,115 68 * 6,183 6,115 68 * 85,401 84,634 407 * 31,794 31,794 0 * 12,364 12,228 136 * 11,005 11,005 0 * 12,364 12,228 136 * 12,228 12,228 0 * 7,381 6,115 1,266 * 2,553 2,446 107 * 5,105 4,892 213 * 1,855 1,834 21 * 13,451 13,451 0 * 531,599 531,599 0 * 246,973 246,973 0 * 149,187 149,187 0 * 133,416 133,416 0 * 913,146 143,146 770,000 1.0 % 92,448 70,598 21,850 * 68,338 68,338 0 * 3,412,318 52,410 3,359,908 4.3 % 42,170 42,170 0 * 27,428 27,428 0 * 27,166 27,166 0 * 13,121 13,121 0 * 12,669 12,669 0 * 10,499 10,499 0 * 9,998 9,998 0 * 7,656 7,656 0 * 7,437 7,437 0 * 6,124 6,124 0 *
Fund, L.P. 4,363 4,363 0 * 3,407 3,407 0 * 1,998 1,998 0 * 1,750 1,750 0 * 1,419 1,419 0 *
Beneficial Owner(1) USVP VIII Affiliates Fund, L.P. USVP Entrepreneur Partners VIII-B L.P. Other Selling Security Holders Steven De George John & Karen Egan Bernard & Mary McKay Donald & Diane Plant John & Shelly Pittman Richard & Maria Schenk James Dee Massoud & Shohreh Amini Make a Wish Foundation Shares of
Common Stock
Owned Prior
to the Offering Shares of
Common Stock
Offered Shares of
Common Stock
To Be Owned
After Completion
of the Offering(2) Percentage of
Common Stock to
Be Owned After
Completion of the
Offering(2)(3) 1,104 1,104 0 * 736 736 0 * 4,687 4,687 0 * 4,687 4,687 0 * 4,500 4,500 0 * 4,500 4,500 0 * 1,250 1,250 0 * 625 625 0 * 1,250 1,250 0 * 625 625 0 * 10,000 10,000 0 *
| (*) | Less than 1%. |
| (1) | Except as otherwise indicated, the |
| (2) |
| (3) | Calculated on the basis of |
| (4) |
| (5) | This selling security holder is an affiliate of New Enterprise Associates, a venture capital firm which beneficially owns an aggregate of 7,024,864 shares, or approximately 9.0%, of our outstanding common stock as of June 23, 2004 (including the shares held by the selling security holder). The number of shares |
| (6) |
|
| (7) |
WeThe selling security holders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the selling stockholders, as the caseshares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may sell securities pursuant to this prospectus, as supplemented or amended, (1) through agents designated by us, (2) through underwriters or dealers, (3) directly touse any one or more purchasers, including our affiliatesof the following methods when selling shares:
UseThe selling security holders may also sell shares under Rule 144 under the Securities Act of Underwriters, Agents and Dealers1933, as amended (the Securities Act), if available, rather than under this prospectus.
WeBroker-dealers engaged by the selling security holders may offerarrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the securitiesselling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to the public through one or more underwriting syndicates represented by one or more managing underwriters, or through one or more underwriters without a syndicate. If underwriters are usedbe negotiated. The selling security holders do not expect these commissions and discounts to exceed what is customary in the sale, we will execute an underwriting agreement with those underwriters relating to the securities that we will offer and will name the underwriters and describe the termstypes of the transaction in the prospectus supplement. transactions involved.
The securities subject to the underwriting agreement will be acquired by the underwriters for their own account andselling security holders may be resold by them, or their donees, pledgees, or transferees, from time to time pledge or grant a security interest in onesome or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined atall of the timeshares (including shares issued upon exercise of sale. Subject to conditions specifiedthe warrants) owned by them and, if they default in the underwriting agreement, underwriters will be obligated to purchase all of these securities if any are purchased or will act on a best efforts basis to solicit purchases for the periodperformance of their appointment, unless we state otherwise insecured obligations, the prospectus supplement.
Wepledgees or secured parties may authorize underwriters to solicit offers by institutions to purchase the securities subject to the underwriting agreement from us at the public offering price stated in the prospectus supplement under delayed delivery contracts providing for paymentoffer and delivery on a specified date in the future. If we sell securities under delayed delivery contracts, the prospectus supplement will state that as well as the conditions to which these delayed delivery contracts will be subject and the commissions payable for that solicitation.
Underwriters may sell these securities to or through dealers. Alternatively, we may sell the securities in this offering directly to one or more dealers, who would act as a principal or principals. Dealers may then resell such securities to the public at varying prices to be determined by the dealers at the timeshares of the resale.
We may also sell the securities offered with this prospectus through other agents designated by uscommon stock from time to time. Wetime under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.
Upon us being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of our common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will identifybe filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (1) the name of each such selling security holder and of the participating broker-dealer(s), (2) the number of shares involved, (3) the price at which such the shares of common stock were sold, (4) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (5) that such broker-dealer(s) did not conduct any agentinvestigation to verify the information set out or incorporated by reference in this prospectus, and (6) other facts material to the transaction. In addition, upon us being notified in writing by a selling security holder that a donee or pledgee intends to sell more than 500 shares of our common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.
The selling security holders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling security holders and any broker-dealers or agents who are involved in selling the offer or sale of these securities whoshares may be deemed to be an underwriter under“underwriters” within the federal securities laws, and describe any commissions or discounts payable by us to these agents, in the prospectus supplement. Any such agents will be obligated to purchase all of these securities if any are purchased or will act on a best efforts basis to solicit purchases for the period of their appointment, unless we state otherwise in the prospectus supplement.
In connection with the salemeaning of the securities offered with this prospectus, underwriters, dealers or agents may receive compensation from us or from purchasers of the securities for whom they may act as agents, in the form of discounts, concessions or commissions. These discounts, concessions or commissions may be changed from time to time. Underwriters, dealers and/or agents may engage in transactions with us, or perform services for us, in the ordinary course of business, and may receive compensationSecurities Act in connection with those arrangements.
Underwriters, dealers, agents or purchasers that participate in the distribution of the securities may be deemed to be underwriters under the Securities Act. Broker-dealers or other persons acting on behalf of parties that participate in the distribution of the securities may also be deemed to be underwriters. Any discounts orsuch sales. In such event, any commissions received by themsuch broker-dealers or agents and any profit on the resale of the securities receivedshares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and commissionssimilar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling security holder and/or the purchasers.
We are required to pay all fees and expenses incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock. We have agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. If the selling security holders use this prospectus for any sale of the common stock, they will be subject to the prospectus delivery requirements of the Securities Act.
Underwriters and purchasers that are deemed underwriters under the Securities Act may engage in transactions that stabilize, maintain or otherwise affect the price of the securities, including the entry of stabilizing bids or syndicate covering transactions or the imposition of penalty bids. Such purchasers will be subject to the applicable provisions of the Securities Act and Exchange Act and the rules and regulations thereunder, including Rule 10b-5 and Regulation M. Regulation M may restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to those securities. In addition, the anti-manipulation rules under the Exchange Act may apply to sales of the securities in the market. All of the foregoing may affect the marketability of the securities and the ability of any person to engage in market-making activities with respect to the securities.
Indemnification and Contribution
We may provide underwriters, agents, dealers or purchasers with indemnification against civil liabilities, including liabilities under the Securities Act, or contribution with respect to payments that the underwriters, agents, dealers or purchasers may make with respect to such liabilities.
DESCRIPTION OF SECURITIES TO BE REGISTERED
With this prospectus, we may offer common stock, preferred stock, and warrants, or any combination of the foregoing. The aggregate initial offering price of all securities we sell in the primary offering under this prospectus will not exceed $100,000,000. In addition, the selling stockholders named in this prospectus may offer and sell, from time to time, up to 32,269,876 shares of common stock, $0.001 par value.
The following description of the terms of these securities sets forth some of the general terms and provisions of securities that we may offer. The particular terms of securities offered by any prospectus supplement and the extent, if any, to which the general terms set forth below do not apply to those securities, will be described in the related prospectus supplement.
OUR COMMON STOCK
The following summary is a description ofdescribes the materialgeneral terms of our common stock,stock. It does not purport to be complete and is subject in all respects to the applicable provisions of Delaware law and of our constituent documents and of the constituent documents of our subsidiaries. Our restated certificate of incorporation and bylaws are incorporated by reference as exhibits to the registration statement of which this prospectus is a part.
General
Our authorized capital stock consists of 900,000,000900 million shares of common stock and 25,000,00025 million shares of preferred stock, par value $.001$0.001 per share. At February 16,June 23, 2004, there were approximately 78,020,00078.2 million shares of common stock and no shares of preferred stock outstanding. Subject to the other provisions of our restated certificate of incorporation and any preferences applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably dividends as may be declared by our Board of Directors out of the funds legally available therefor. Each holder of common stock is entitled to one vote for each share held of record by the holder. If Zhone liquidates, dissolves,we liquidate, dissolve, or windswind up the company, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and any senior liquidation preference of any outstanding preferred stock. The outstanding shares of common stock have no preemptive, subscription, redemption or conversion rights. Cumulative voting for the election of directors is not authorized by our restated certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. All of the outstanding shares of common stock are, and the shares to be outstanding upon completion of this offering will be, fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock whichthat we may designate and issue in the future.
Obligations to Issue Common Stock
We have adopted and maintain equity incentive and stock purchase plans pursuant to which we are authorized to issue stock, stock options and other types of stock-based awards to employees, directors, consultants and other persons who provide services to us. As of January 31,June 23, 2004, we had outstanding options to acquire approximately 4.44.6 million shares of common stock under these plans. We have reserved approximately an additional 7.0 million shares of common stock for future issuance under our stock option plans, and 1.45 million shares of common stock for issuance under our employee stock purchase plan. We have also reserved approximately 5.4 million shares for issuance upon the exercise or conversion, as applicable, of options, warrants, debentures and other securities exercisable or convertible into Sorrento common stock that we will assume upon consummation of the merger with Sorrento.
Antitakeover Provisions
Effect of Delaware Law Statute.We are incorporated under the laws of the state of Delaware and therefore subject to Delaware corporate law, including Section 203 of the Delaware General Corporation Law regulating corporate takeovers, which prohibits a Delaware corporation from engaging in any business combination with an “interested stockholder,” unless:
Except as otherwise specified in Section 203, an “interested stockholder” is defined to include (a)(1) any person that is the owner of 15% or more of the outstanding voting securities of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the date of determination and (b)(2) the affiliates and associates of any such person.
Certificate of Incorporation and Bylaw Provisions.Provisions of our restated certificate of incorporation and bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire or gain control of us. These provisions could cause the price of our common stock to decrease. Some of these provisions allow us to issue preferred stock without any vote or further action by the stockholders. Moreover, our bylaws have eliminated the right of stockholders to act by written consent and do not allow for cumulative voting in the election of directors. These provisions may make it more difficult for stockholders to take specific corporate actions and could have the effect of delaying or preventing a change in control of us.
Our restated certificate of incorporation provides that any action required or permitted to be taken by the stockholders of the company must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by the stockholders. Our bylaws provide that special meetings of stockholders may be called only by the Board of Directors, the Chairman of the Board of Directors or the President and not by any other person. Business to be transacted at any special meeting of stockholders must be specified in and confined to the purpose or purposes stated in the notice of such meeting.
Our restated certificate of incorporation provides that we may amend or repeal any provision contained in the restated certificate of incorporation in a manner consistent with Delaware law. However, our restated certificate of incorporation also provides that 66 2/ 2/3% of the voting power of all shares entitled to vote generally in the election of directors is required to adopt any provision inconsistent with, to amend or repeal any provision of, or to adopt a bylaw inconsistent with the provisions of our certificate of incorporation regarding our board of directors (Article V), the liability of our directors (Article VI), indemnification of our directors and officers (Article VII), actions taken by our stockholders (Article VIII) and amendments to our restedrestated certificate of incorporation and bylaws (Article IX).
Our bylaws may be amended only in accordance with our restated certificate of incorporation, which provides that our bylaws may be adopted, amended or repealed by our board of directors or stockholders, provided that any such action by our stockholders must be approved by the affirmative vote of the holders of 66 2/3%3% of the voting power of all shares entitled to vote generally in the election of directors.
Classified Board of Directors. Our restated certificate of incorporation provides that the Board of Directors will be divided into three classes of directors, with each class serving a staggered three-year term. The classification system of electing directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of us and may maintain the incumbency of the Board of Directors, because the classification of the Board of Directors generally increases the difficulty of replacing a majority of the directors. Our authorized number of directors is nine and may be fixed from time to time exclusively by the Board of Directors, provided that the total number of directors may not be less than three nor more than eleven.
Our restated certificate of incorporation provides that, subject to the rights of the holders of our preferred stock then outstanding, any director may be removed from office at any time, but only for cause, at a meeting called for that purpose, and only by the affirmative vote of holders of at least 66 2/3%3% of the voting power of all shares of our common stock entitled to vote generally in the election of directors. Our restated certificate of
incorporation further provides that, subject to the rights of the holders of any class of our capital stock then outstanding, vacancies in our board of directors resulting from death, resignation, retirement, disqualification, removal from office or any other cause and newly created directorships resulting from any increase in the number of directors may be filled by (i)(1) the board of directors, provided that a quorum is then in office and present, (ii)(2) a majority of the directors then in office, if less than a quorum is then in office, or (iii)(3) by the sole remaining director. Our restated certificate of incorporation further provides that whenever the holders of one or more series of our preferred stock have the right, voting separately or together by series, to elect directors at an annual or special meeting of stockholders, the filling of vacancies and other features of such directorship shall be governed by the rights of our preferred stock as set forth in the certificate of designation governing such series.
Notice Procedures. Our bylaws establish advance notice procedures with regard to all stockholder proposals or nominations of candidates for election to the board of directors to be brought before meetings of our stockholders. These procedures provide that notice of such stockholder proposals or nominations must be timely given in writing to the secretary of Zhone prior to the meeting. To be timely, notice of stockholder proposals or nominations to be brought before an annual meeting of stockholders must be received by
the secretary of Zhone not less than 90 calendar days prior to the date of the anniversary of the previous year’s annual meeting. If the annual meeting is scheduled to be held on a date more than 30 days prior to or delayed by more than 60 days after the anniversary of the previous year’s annual meeting, notice will also be timely if received by us if it is received by the later of the close of business 90 days prior to the annual meeting or the tenth day following the day on which notice of the date of the annual meeting was mailed or publicly disclosed. To be timely, notice of stockholder nominations to be brought before a special meeting of stockholders called for the purpose of electing directors must be received by the secretary of Zhone by the close of business on the tenth day following the earlier of the day on which notice of the date of the special meeting was mailed or publicly disclosed. Any notice of a stockholder proposal or nomination must contain the relevant information specified in our bylaws.
Limitation of Director Liability. Our restated certificate of incorporation limits the liability of our directors to us or our stockholders to the fullest extent permitted by Delaware law. Specifically, directors will not be personally liable for monetary damages for breach of a director’s fiduciary duties as a director, except for liability:
Indemnification Arrangements. Our restated certificate of incorporation provides that any person who was or is a party or is threatened to be a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative or investigative, because that person is or was a director or officer, or is or was serving at our request as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, will be indemnified against expenses reasonably incurred or suffered by such person in connection therewith, including attorney’s fees, judgments, fines and amounts paid in settlement, and held harmless by us to the fullest extent permitted by the Delaware General Corporation Law. These indemnification rights are not exclusive of any other right to which persons seeking indemnification may be entitled under any statute, our restated certificate of incorporation or bylaws, any agreement, vote of stockholders or disinterested directors or otherwise.
Additionally, we will pay expenses incurred by our directors or officers in defending a civil or criminal action, suit or proceeding because that person is a director or officer, in advance of the final disposition of that action, suit or proceeding. However, such payment will be made only if we receive an undertaking by or on behalf of that director or officer to repay all amounts advanced if it is ultimately determined that he or she is not entitled to be indemnified by us, as authorized by our restated certificate.certificate of incorporation.
We have entered into indemnification agreements with our directors and executive officers, which provide them with rights to indemnification and expense advancement to the fullest extent permitted under the Delaware General Corporation Law. In addition, we are authorized to and have purchased and maintain liability insurance on behalf of our directors and officers.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, Inc.
CONVERTIBLE PREFERRED STOCK AND PREFERRED STOCKVALIDITY OF THE SECURITIES
The validity of the securities issued hereunder will be passed upon for us by our counsel, Latham & Watkins LLP, San Diego, California.
Our Boardconsolidated balance sheets as of Directors has the authority, without further action by our stockholders, to issue up to 25,000,000 shares of preferred stock in one or more series subject to any limitations prescribed by law. Our board of directors has the authority to issue preferred stock in one or more seriesDecember 31, 2003 and to fix the voting rights, if any, designations, powers, preferences and rights of the shares of such series, and any, qualifications, limitations or restrictions thereof2002, and the numberrelated consolidated statements of shares to be included in each such series, without any further action by the stockholders. Although it has no present intention to do so, our board of directors may issue preferred stock with terms that could adversely affect the voting power of the holders of common stock. If we issue preferred stock, it may have the effect of delaying, deferring or preventing a change of control.
Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control of Zhone or to make removal of management more difficult. Additionally, the issuance of preferred stock may decrease the market price of our common stock. The number of authorized shares of preferred stock may be increased or decreased, but not decreased below the number of shares then outstanding, by the affirmative vote of the holders of a majority in voting power of the capital stock entitled to vote without a vote of the holders of preferred stock as a class
The following description sets forth certain general terms and provisions of the preferred stock we may issue. If we offeroperations, redeemable convertible preferred stock such stock will be convertible into shares of our common stock. With respect to any convertible preferred stock or preferred stock (each referred to herein as preferred stock) we may choose to offer, the specific designations and rights will be described in the prospectus supplement relating to the preferred stock offered, including the following terms. Each time that we issue a new series of preferred stock, we will file with the SEC a definitive certificate of designation. In addition, the prospectus supplement relating to that new series of preferred stock will specify the particular amount, pricestockholders’ equity (deficit), and other terms of that new series. These terms will include:
Any prospectus supplement filed in connection with an offering of preferred stock will describe all material terms of such series of preferred stock and all material terms of any common stock, if any, issuable upon conversion of such preferred stock. However, the description of the terms of the preferred stock to be set forth in an applicable prospectus supplement will not be complete and will be subject to and qualified in its entirety by reference to the certificate of designation relating to the applicable series of preferred stock, together with our bylaws. The registration statement of which this prospectus forms a part currently does or will in the future include the certificate of designation and our bylaws as exhibits or incorporate them by reference.
The preferred stock will, if and when issued, be fully paid and non-assessable. The holders of the preferred stock will not have preemptive rights.
Transfer Agent and Registrar
We will specify each of the transfer agent, registrar, dividend disbursing agent and redemption agent for shares of each new series of preferred stockyears in the three-year period ended December 31, 2003 have been incorporated by reference in this prospectus supplement relating to that series.
WARRANTS
We may issue warrants to purchase common stock or preferred stock.
Each seriesin reliance upon the report of warrants will be issued either directly or under a separate warrant agreement to be entered into between a warrant agentKPMG LLP, independent registered public accounting firm, incorporated by reference herein, and us.upon the authority of said firm as experts in auditing and accounting. The warrant agent will act solely as our agent in connection with a series of warrants and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants. The following describes the general terms and provisionsaudit report dated February 3, 2004 contains an explanatory paragraph describing Zhone’s restatement of the warrants offered by this prospectus. The applicable prospectus supplement will describe anyfinancial statements for the year ended December 31, 2002 and an explanatory paragraph describing Zhone’s change in accounting for goodwill and other terms of the warrant and the applicable warrant agreement.
Equity Warrants
The applicable prospectus supplement will describe the terms of any equity warrants, including the following:
January 1, 2002.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-3 under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission (the “SEC”).SEC. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules whichthat are a part of the registration statement. For further information with respect to us and our securities, please refer to the registration statement and the exhibits and schedules filed with it. You may read and copy any document whichthat we file with the SEC at the SEC’s public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549.
We are also subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)Exchange Act). We file reports, proxy statements, and other information with the SEC to comply with the Exchange Act. These reports, proxy statements, and other information can be inspected and copied on the Internet at http://www.sec.gov; and at the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 to obtain information regarding the operation of the Public Reference Room.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the information we file with them under certain conditions, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus and any information that we file subsequent to this prospectus with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is complete.
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and prior to the termination of the offering of securities contemplated by this prospectus shall be deemed to be incorporated by reference in this prospectus. These documents that we file later with the SEC and that are incorporated by reference in this prospectus will automatically update information contained in this prospectus or that was previously incorporated by reference into this prospectus. You will be deemed to have notice of all information incorporated by reference in this prospectus as if that information was included in this prospectus.
We will provide to any person, including any beneficial owner, to whom this prospectus is delivered a copy of any or all of these filings, at no cost, upon request to us in writing or by telephone at the following address:
Investor Relations
Zhone Technologies, Inc.
7001 Oakport Street
Oakland, CA 94621
(510) 777-7013
The validity of the securities issued hereunder will be passed upon for us by our counsel, Gray Cary Ware & Freidenrich LLP, East Palo Alto, California. If the securities are underwritten, the applicable prospectus supplement will also set forth whether and to what extent, if any, counsel for the underwriters will advise the underwriters about other issues relating to any offering.
Our audited consolidated balance sheets as of December 31, 2003 and 2002, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2003 have been incorporated by reference in this Prospectus in reliance upon the report of KPMG LLP, independent auditors, incorporated by reference herein, and upon the authority of said firm as experts in auditing and accounting. The audit report dated February 3, 2004 contains an explanatory paragraph describing the Company’s restatement of the financial statements for the year ended December 31, 2002 and an explanatory paragraph describing the Company’s change in accounting for goodwill and other intangible assets.
ZHONE TECHNOLOGIES, INC.
COMMON STOCK
PROSPECTUS
, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14.Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with the issuance and distribution of the securities covered by this registration statement, other than underwriting discounts and commissions. All of the expenses will be borne by the registrant except as otherwise indicated.
SEC registration fee | $ | 31,662 | $ | 2,597 | |||
Fees and expenses of accountants | * | $ | 20,000 | ||||
Fees and expenses of legal counsel | * | $ | 20,000 | * | |||
Printing expenses | * | $ | 5,000 | * | |||
Miscellaneous expenses | * | $ | 2,403 | * | |||
Total | $ | * | $ | 50,000 | * | ||
| * |
Item 15.Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the “DGCL”) permits indemnification of officers, directors and other corporate agents under certain circumstances and subject to certain limitations. The registrant’s restated certificate of incorporation eliminates the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liabilities arising (a) from any breach of the director’s duty of loyalty to the corporation or its stockholders; (b) from acts or omissions not in good faith or whichthat involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the Delaware General Corporation Law; or (d) from any transaction from which the director derived an improper personal benefit.
The registrant’s restated certificate of incorporation also requires the registrant to indemnify its directors and officers to the extent permitted under Section 145 of the Delaware General Corporation Law. The registrant’s restated certificate of incorporation provides that the registrant shall indemnify any person who was or is a party or is threatened to be made a party to any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the registrant, or is or was serving at the request of the registrant as a director or officer of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, whether the basis of the proceeding is alleged action in an official capacity as a director or officer or in any other capacity while so serving, to the full extent authorized by the Delaware General Corporation Law. In addition, with the approval of the Board of Directors, the registrant has entered into separate indemnification agreements with its directors and officers which require the registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service and to obtain directors’ and officers’ insurance, if available on reasonable terms. The registrant has obtained such liability insurance for the benefit of its directors and officers.
These indemnification provisions may be sufficiently broad to permit indemnification of the registrant’s officers, directors and other corporate agents for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933, as amended (the “Securities Act”).Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving a director, officer, employee or other agent of the registrant in which indemnification is being sought nor is the registrant aware of any threatened litigation that may result in a claim for indemnification by any director, officer, employee or other agent of the registrant.
The above discussion of Section 145 and of our restated certificate of incorporation is not intended to be exhaustive and is qualified in its entirety by such statute and our restated certificate.certificate of incorporation.
II-1
Item 16.Exhibits.
The following documents are filed as exhibits to this registration statement, including those exhibits incorporated herein by reference to a prior filing under the Securities Act or the Securities Exchange Act of 1934, as amended, as indicated in parentheses:
Exhibit
| Description of Document | |
| 3.1 | Amended and Restated Certificate of Incorporation of Registrant. | |
| 3.2 | Amended and Restated Bylaws of Registrant. | |
| 4.1 | Form of | |
| 4.2 | Form of | |
| 4.3 | Form of Warrant | |
| 4.4 | Form of | |
| 5.1 | Opinion of | |
| 23.1 | Consent of | |
| 23.2 | Consent of | |
| 24.1 | Power of | |
| Previously filed as an exhibit to the registrant’s Registration Statement filed on Form S-1, Reg. Statement No. 333-46362, and incorporated herein by reference. |
| (2) | Previously filed as an exhibit to Sorrento Networks Corporation’s Proxy Statement on Schedule 14A filed with the SEC on April 16, 2003. |
| (3) | Previously filed as an exhibit to Sorrento Networks Corporation’s Current Report on Form 8-K filed with the SEC on December 31, 2003. |
| (4) | Previously filed as an exhibit to Sorrento Networks Corporation’s Current Report on Form 8-K filed with the SEC on January 27, 2004. |
II-2
Item 17.Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
II-2
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided,provided, however, that the undertakings set forth in paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of our annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefits plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, any information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
II-3
(d) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or person controlling the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-4II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oakland and State of California, on the 5th29th day of March,June, 2004.
ZHONE TECHNOLOGIES, INC. | ||
By: | /s/ MORTEZA EJABAT | |
Morteza Ejabat | ||
Chief Executive Officer | ||
II-5II-4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Morteza Ejabat and Kirk Misaka, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement on Form S-3, or any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-facts and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated on March 5,June 29, 2004.
/s/ Morteza Ejabat | Chairman of the Board of Directors and Chief Executive Officer | |
/s/ Kirk Misaka | Chief Financial Officer, Vice President, Finance and Treasurer (Principal Financial and Accounting Officer) | |
/s/ Adam Clammer | Director | |
/s/ Michael M. Connors | Director | |
/s/ James Coulter | Director | |
/s/ Robert Dahl | Director | |
/s/ James H. Greene, Jr. | Director | |
/s/ C. C. Richard Kramlich | Director | |
/s/ Barton Shigemura | Director | |
/s/ James Timmins | Director | |
| *By: | /s/ MORTEZA EJABAT | |
Attorney-in-fact | ||
II-6II-5
EXHIBIT INDEX
The following documents are filed as exhibits to this registration statement, including those exhibits incorporated herein by reference to a prior filing under the Securities Act or the Securities Exchange Act, of 1934, as amended, as indicated in parentheses:
Exhibit Number | Description of Document | |
| 3.1 | Amended and Restated Certificate of Incorporation of Registrant. | |
| 3.2 | Amended and Restated Bylaws of Registrant. | |
| 4.1 | Form of | |
| 4.2 | Form of | |
| 4.3 | Form of Warrant | |
| 4.4 | Form of | |
| 5.1 | Opinion of | |
| 23.1 | Consent of | |
| 23.2 | Consent of | |
| 24.1 | Power of | |
| Previously filed as an exhibit to the registrant’s Registration Statement filed on Form S-1, Reg. Statement No. 333-46362, and incorporated herein by reference. |
| (2) | Previously filed as an exhibit to Sorrento Networks Corporation’s Proxy Statement on Schedule 14A filed with the SEC on April 16, 2003. |
| (3) | Previously filed as an exhibit to Sorrento Networks Corporation’s Current Report on Form 8-K filed with the SEC on December 31, 2003. |
| (4) | Previously filed as an exhibit to Sorrento Networks Corporation’s Current Report on Form 8-K filed with the SEC on January 27, 2004. |