Exhibit 10.5

 

EXECUTION COPY

 

SEPARATION AGREEMENT AND RELEASE

 

This Separation Agreement and Release (the “Agreement”) is made by and between
Avanex Corporation (the “Company”) and Charles Mao (“Employee”).

 

WHEREAS, Employee is employed by the Company;

 

WHEREAS, Employee signed an Employment, Confidential Information, Invention
Assignment and Arbitration Agreement with the Company on December 30, 1998 (the
“Confidentiality Agreement”);

 

WHEREAS, the Company and Employee have entered into stock option agreements
dated January 14, 1999, November 12, 1999, December 24, 1999, July 23, 2000,
April 17, 2001 and November 5, 2001, granting Employee options (the “Options”)
to purchase shares of the Company’s common stock subject to the terms and
conditions of the Company’s 1998 Stock Plan and the stock option agreements,
including any amendments thereto and the Holografix 2000 Stock Plan, as
applicable (collectively, the “Stock Option Agreements”), which Options are
further described on Exhibit A attached hereto;

 

WHEREAS, Employee has been provided with WARN (Workers’ Adjustment and
Retraining Notification) Act notice on October 2, 2002, that Employee’s
employment with the Company shall be terminated effective December 3, 2002, due
to business necessity as part of a permanent reduction in force (the
“Termination Date”);

 

NOW THEREFORE, in consideration of the mutual promises made herein subsequent to
the Termination Date, the Company and Employee (jointly referred to as “the
Parties”) hereby agree as follows:

 

1. Employment. Employee’s employment with the Company shall terminate as of the
end of the day on the Termination Date. The Company may choose to terminate
Employee’s employment prior to the Termination Date, provided that the Company
continues to pay Employee his bi-weekly salary of $7,692.13 and benefits at
current levels through the Termination Date.

 

2. Consideration.

 

  a.   Severance Payment. In consideration for the execution by Employee of this
Agreement, the Company agrees to pay Employee the following consideration:

 

  (1)   within ten (10) days of the Effective Date of this Agreement, the sum of
Eighty Thousand Dollars and No Cents ($80,000.00); and

 

  (2)  

the sum of Ten Thousand Dollars ($10,000.00) per month, less applicable
withholding, paid monthly in arrears, for the period of twelve (12) months OR
until Employee secures other employment with a passive or active optical
component or subsystem company, OR until Employee becomes a paid consultant for
a passive or active optical component or subsystem company other than the
Company (irrespective of the means of compensation), whichever occurs first.
Employee agrees to notify the Company immediately upon either securing new
employment or accepting a position as a paid consultant with a

 

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passive or active optical component or subsystem company other than the Company
(irrespective of the means of compensation). If Employee fails to inform the
Company of the new employment or consultant relationship and the Company
continues to pay Employee under this section, the Company reserves the right to
seek reimbursement of such payments from Employee.

 

 
  
 
The first compensation installment payment under this subsection (2) will be
made by the Company on the first regular pay date following the Effective Date
of this Agreement, as defined below. The Company, in its sole discretion,
reserves the right to discontinue these payments if Employee secures other
employment with a passive or active optical component or subsystem company OR
becomes a paid consultant to a passive or active optical component or subsystem
company other than the Company (irrespective of the means of compensation).

 

 
b.
 
Employer COBRA Payments. Employee’s health insurance benefits with the Company
shall cease on December 31, 2002, subject to Employee’s right to continue his
health insurance under COBRA. If Employee elects to continue his group health
insurance coverage pursuant to COBRA after the Termination Date, Employee must
continue to pay that portion of the premium for his group health insurance
coverage that he was required to pay as an active employee before the
termination of his employment. However, the Company agrees to pay for the
remaining portion of COBRA coverage (excluding Employee’s portion) for a period
of twelve (12) months beginning the first day of the new month after the
Termination Date, provided Employee timely elects and pays his portion of COBRA
coverage and otherwise remains eligible for COBRA Coverage.

 

 
c.
 
Options.

 
i. Option Acceleration. One hundred percent (100%) of the outstanding shares
subject to Employee’s Option granted on January 14, 1999 and one hundred percent
(100%) of the outstanding shares subject to Employee’s Option granted on
November 12, 1999 will accelerate and vest as of Employee’s Termination Date;
provided, however, that no such accelerated shares may be exercised by the
Employee until five (5) days following the Effective Date of this Agreement.
 
ii. Extension of Post-Termination Period of Exercisability. Employee’s
outstanding Option granted on January 14, 1999 will remain exercisable for
twenty-four (24) months following his Termination Date (but in no event later
than the expiration of the term of the Option as set forth in the related Stock
Option Agreement). The Employee acknowledges and agrees that (i) the extension
of the post-termination period to exercise such Option will cause a
“modification” of the unexercised Option within the meaning of Section 424(h) of
the Internal Revenue Code of 1986, as amended, and (ii) the Option will be
converted into a nonstatutory stock option (“NSO”). Upon exercise of an NSO,
Employee will be treated as having received compensation income equal to the
excess, if any, of the fair market value of the exercised shares over the
aggregate exercise price of such Option shares. Prior to the delivery of any
shares or cash pursuant to exercise of an NSO, the Company shall have the power
and the right to deduct or withhold, or require Employee to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes
required to be withheld with respect to the exercise of the NSO.

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d.
 
Severance Plan. Employee shall be a participant in the Avanex Corporation
Severance Plan (the “Severance Plan”). In that regard, this Agreement shall
constitute a “Supplement” (as defined in the Severance Plan) and the benefits
and payments payable under the Severance Plan shall be limited to the payments
and benefits set forth in this Agreement.

 
3. Stock. The Parties agree that the information set forth on Exhibit A is true
and correct. The exercise of Employee’s vested shares shall continue to be
governed by the terms and conditions of the Company’s 1998 Stock Plan and the
Stock Option Agreements.
 
4. Benefits. Except as provided in this Agreement, all benefits and incidents of
employment shall cease on the Termination Date.
 
5. Payment of Salary. Employee acknowledges and represents that the Company has
paid all salary, wages, bonuses, accrued PTO, interest, outplacement costs,
fees, stock, stock options, vesting, commissions and any and all other benefits
and compensation due to Employee as of the Effective Date of this Agreement.
Employee acknowledges and represents that Company will have paid all severance
pay and benefits due to Employee once the benefits outlined in Section 2(a)
through (c) have been provided to Employee.
 
6. Indemnification and Exoneration.
 
a. To the extent it is consistent with the Company’s treatment of other
similarly situated employees, the Company shall indemnify Employee for any suit,
investigation, or proceeding brought against him by reason of the fact that the
Employee is or was a director, officer, employee, or agent of, or is was serving
at the request of the Company as a director, officer, employee, or agent of
another entity, if Employee’s act or omission was in good faith. Notwithstanding
the foregoing, Employee agrees that the Company’s tender of a defense through
Company counsel shall satisfy the Company’s obligations pursuant to this
section.
 
b. In the event the Company is obligated to indemnify Employee, and subject to
Section 6(a) above, the Company shall advance Employee reasonable attorneys’
fees and costs. Notwithstanding the foregoing, Employee agrees that in the event
that it is subsequently determined that Employee is found liable any suit,
investigation, or proceeding or otherwise not entitled to indemnification,
Employee shall be obligated to reimburse the Company for any reasonable
attorneys’ fees and costs advanced.
 
c. The Employee will not be liable to the Company or any entity for which
Employee serves or has served at the request of the Company as a director,
officer, employee or agent, for any act or omission in the Employee’s capacity
as a director, officer, employee, or agent of the Company or such other entity
if the Employee’s act or omission was in good faith.
 
7. Release of Claims. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
the Company and its current and former: officers, directors, employees, agents,
investors, attorneys, shareholders, administrators, affiliates, divisions,
subsidiaries, predecessor and successor corporations and assigns (the
“Releasees”). Employee hereby and forever releases the Releasees from, and
agrees not to sue concerning, or in any manner to institute, prosecute or
pursue, any claim, complaint, charge, duty, obligation or cause of action
relating to any matters of any kind, whether presently known or unknown,
suspected or unsuspected, that Employee may possess against any of the Releasees
arising from any omissions, acts or facts that have occurred up until and
including the Effective Date of this Agreement including, without limitation,
 

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a. any and all claims relating to or arising out of Employee’s employment
relationship with the Company and the termination of that relationship;
 
b. any and all claims relating to, or arising from, Employee’s right to
purchase, or actual purchase of shares of stock of the Company, including,
without limitation, any claims for fraud, misrepresentation, breach of fiduciary
duty, breach of duty under applicable state corporate law, and securities fraud
under any state or federal law;
 
c. any and all claims for wrongful discharge of employment; termination in
violation of public policy; discrimination; harassment; retaliation; breach of
contract, both express and implied; breach of a covenant of good faith and fair
dealing, both express and implied; promissory estoppel; negligent or intentional
infliction of emotional distress; negligent or intentional misrepresentation;
negligent or intentional interference with contract or prospective economic
advantage; unfair business practices; defamation; libel; slander; negligence;
personal injury; assault; battery; invasion of privacy; false imprisonment;
conversion; and disability benefits;
 
d. any and all claims for violation of any federal, state or municipal statute,
including, but not limited to, Title VII of the Civil Rights Act of 1964; the
Civil Rights Act of 1991; the Americans with Disabilities Act of 1990; the Fair
Labor Standards Act; the Fair Credit Reporting Act; the Age Discrimination in
Employment Act of 1967; the Employee Retirement Income Security Act of 1974; the
Worker Adjustment and Retraining Notification Act; the Family and Medical Leave
Act; the California Fair Employment and Housing Act; the California Labor Code;
the Texas Commission on Human Rights and the Texas Labor Code;
 
e. any and all claims for violation of the federal, or any state, constitution;
 
f. any and all claims arising out of any other laws and regulations relating to
employment or employment discrimination;
 
g. any claim for any loss, cost, damage, or expense arising out of any dispute
over the non-withholding or other tax treatment of any of the proceeds received
by Employee as a result of this Agreement; and
 
h. any and all claims for attorneys’ fees and costs, except as otherwise
provided in this Agreement.
 
The Company, on behalf of itself and its officers, directors, shareholders and
employees, hereby acknowledges full and complete satisfaction of and releases
and discharges, and covenants not to sue, Employee from and with respect to any
and all claims, agreements, obligations, losses, damages, injuries, demands and
causes of action, known or unknown, suspected or unsuspected, arising out of or
in any way connected with Employee’s employment with or termination from the
Company, or any other occurrences, actions, omissions or claims whatever, known
or unknown, suspected or unsuspected, which the Company now possesses, owns or
holds or has at any time heretofore possessed, owned or held as against
Employee.
 
The foregoing releases do not abrogate either party’s rights or obligations
under applicable law to defend or indemnify the other party against a claim
filed by a third party.
 
The parties acknowledge and agree that any breach of any provision of this
Agreement or the Confidentiality Agreement shall constitute a material breach of
this Agreement.

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The parties agree that the releases set forth in this section shall be and
remain in effect in all respects as a complete general release as to the matters
released, to the maximum extent provided by law. These releases do not extend to
any obligations incurred under this Agreement.
 
8. Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges that he
is waiving and releasing any rights he may have under the Age Discrimination in
Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing and
voluntary. Employee and the Company agree that this waiver and release does not
apply to any rights or claims that may arise under ADEA after the Effective Date
of this Agreement. Employee acknowledges that the consideration given for this
waiver and release Agreement is in addition to anything of value to which
Employee was already entitled. Employee further acknowledges that he has been
advised by this writing that:
 
(a) he should consult with an attorney prior to executing this Agreement;
 
(b) he has up to forty-five (45) days within which to consider this Agreement;
 
(c) he has been advised in writing by the Company of the class, unit, or group
of individuals covered by the severance program, any eligibility factors for the
program, any time limits applicable to the program, and the job titles and ages
of all individuals who participated and did not participate in the program, as
reflected in Exhibits B and C, attached hereto;
 
(d) he has seven (7) days following his execution of this Agreement to revoke
the Agreement;
 
(e) this Agreement shall not be effective until the revocation period has
expired; and
 
(f) nothing in this Agreement prevents or precludes Employee from challenging or
seeking a determination in good faith of the validity of this waiver under the
ADEA, nor does it impose any condition precedent, penalties or costs from doing
so, unless specifically authorized by federal law.
 
9. Civil Code Section 1542/ Unknown Claims. Employee represents that he is not
aware of any claim by him other than the claims that are released by this
Agreement. Employee acknowledges that he has had the opportunity to be advised
by legal counsel and is familiar with the provisions of California Civil Code
Section 1542, which provides as follows:
 
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
 
Employee, being aware of said code section, agrees to expressly waive any rights
he may have thereunder, as well as under any other statute or common law
principles of similar effect, including those of the state of Texas.
 
10. No Pending or Future Lawsuits. Employee represents that he has no lawsuits,
claims, or actions pending in his name, or on behalf of any other person or
entity, against any of the Releasees. Employee also represents that he does not
intend to bring any claims on his own behalf or on behalf of any other person or
entity against the Company or any other person or entity referred to herein.
 

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11. Application for Employment. Except as provided in Section 1 of this
Agreement, Employee understands and agrees that, as a condition of this
Agreement, he shall not be entitled to any employment with the Company, and he
hereby waives any right, or alleged right, of employment or re-employment with
the Company. Employee further agrees that he will not apply for employment with
the Company.
 
12. Confidentiality. Employee agrees to maintain in complete confidence the
existence of this Agreement, the contents and terms of this Agreement and the
consideration for this Agreement (hereinafter collectively referred to as
“Separation Information”). Except as required by law, Employee may disclose
Separation Information only to his immediate family members, the Court in any
proceedings to enforce the terms of this Agreement, Employee’s legal counsel,
his accountant and any professional tax advisor to the extent that they need to
know the Separation Information in order to provide advice on tax treatment or
to prepare tax returns, and must prevent disclosure of any Separation
Information to all other third parties. Employee agrees that he will not
publicize, directly or indirectly, any Separation Information.
 
Employee acknowledges and agrees that the confidentiality of the Separation
Information is of the essence. Employee hereby agrees to be responsible in
liquidated damages, as set forth below, if he breaches any of the foregoing
terms or in any way divulges any part of the Separation Information to any
unauthorized third party. Any such individual breach or disclosure shall not
excuse Employee from his obligations hereunder, nor permit him to make
additional disclosures. Employee warrants that he has not to date disclosed,
orally or in writing, directly or indirectly, any of the Separation Information
to any unauthorized party.
 
13. [intentionally omitted]
 
14. Trade Secrets and Confidential Information/Company Property. Except as
otherwise provided in this Agreement and provided that Employee’s obligation
under Section 2(a) of the Confidentiality Agreement shall terminate thirty-six
(36) months following the Termination Date, Employee reaffirms and agrees to
observe and abide by the terms of the Confidentiality Agreement, specifically
including the provisions therein regarding nondisclosure of the Company’s trade
secrets and confidential and proprietary information, and non-solicitation of
Company employees.
 
Employee’s signature below constitutes his certification under penalty of
perjury that he will return all documents and other items provided to Employee
by the Company, developed or obtained by Employee as a result of his employment
with the Company, or otherwise belonging to the Company.
 
15. No Cooperation. Employee agrees that he will not knowingly counsel or assist
any attorneys or their clients in the presentation or prosecution of any
disputes, differences, grievances, claims, charges, or complaints by any third
party against any of the Releasees, unless under a subpoena or other court order
to do so. Employee agrees both to immediately notify the Company upon receipt of
any such subpoena or court order, and to furnish, within three (3) business days
of its receipt, a copy of such subpoena or court order to the Company. If
approached by anyone for counsel or assistance in the presentation or
prosecution of any disputes, differences, grievances, claims, charges, or
complaints against any of the Releasees, Employee shall state no more than that
he cannot provide counsel or assistance.
 
16. Non-Disparagement. Employee agrees to refrain from any defamation, libel or
slander of the Releasees, and any tortious interference with the contracts,
relationships and prospective economic advantage of the Releasees. Employee
agrees that he shall direct all inquiries by potential future employers to the
Vice President of Human Resources.

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17. No Admission of Liability. Employee understands and acknowledges that this
Agreement constitutes a compromise and settlement of any and all potential
disputed claims. No action taken by the Company hereto, either previously or in
connection with this Agreement, shall be deemed or construed to be: (a) an
admission of the truth or falsity of any potential claims; or (b) an
acknowledgment or admission by the Company of any fault or liability whatsoever
to Employee or to any third party.
 
18. Costs. The Parties shall each bear their own costs, attorneys’ fees and
other fees incurred in connection with the preparation of this Agreement.
 
19. ARBITRATION. THE PARTIES AGREE THAT ANY AND ALL DISPUTES ARISING OUT OF THE
TERMS OF THIS AGREEMENT, THEIR INTERPRETATION, AND ANY OF THE MATTERS HEREIN
RELEASED, SHALL BE SUBJECT TO ARBITRATION IN COLLIN COUNTY, TEXAS, BEFORE THE
AMERICAN ARBITRATION ASSOCIATION UNDER ITS NATIONAL RULES FOR THE RESOLUTION OF
EMPLOYMENT DISPUTES AND TEXAS LAW. THE ARBITRATOR MAY GRANT INJUNCTIONS AND
OTHER RELIEF IN SUCH DISPUTES. THE DECISION OF THE ARBITRATOR SHALL BE FINAL,
CONCLUSIVE AND BINDING ON THE PARTIES TO THE ARBITRATION. THE PARTIES AGREE THAT
THE PREVAILING PARTY IN ANY ARBITRATION SHALL BE ENTITLED TO INJUNCTIVE RELIEF
IN ANY COURT OF COMPETENT JURISDICTION TO ENFORCE THE ARBITRATION AWARD. THE
PARTIES HEREBY AGREE TO WAIVE THEIR RIGHT TO HAVE ANY DISPUTE BETWEEN THEM
RESOLVED IN A COURT OF LAW BY A JUDGE OR JURY.
 
20. Tax Consequences. The Company makes no representations or warranties with
respect to the tax consequences of the payments provided to Employee or made on
his behalf under the terms of this Agreement.
 
21. Authority. The Company represents and warrants that the undersigned has the
authority to act on behalf of the Company and to bind the Company and all who
may claim through it to the terms and conditions of this Agreement. Employee
represents and warrants that he has the capacity to act on his own behalf and on
behalf of all who might claim through him to bind them to the terms and
conditions of this Agreement. Each Party warrants and represents that there are
no liens or claims of lien or assignments in law or equity or otherwise of or
against any of the claims or causes of action released herein.
 
22. No Representations. Employee represents that he has had the opportunity to
consult with an attorney, and has carefully read and understands the scope and
effect of the provisions of this Agreement. Employee has not relied upon any
representations or statements made by the Company which are not specifically set
forth in this Agreement.
 
23. Severability. In the event that any provision or any portion of any
provision hereof becomes or is declared by a court of competent jurisdiction to
be illegal, unenforceable or void, this Agreement shall continue in full force
and effect without said provision or portion of provision.
 
24. Attorneys’ Fees. In the event that the Company brings an action to enforce
or effect its rights under this Agreement, the Company shall promptly pay, as
and when incurred (or, at Employee’s request, make advances to Employee for)
Employee’s costs and reasonable attorneys’ fees; provided, however, that in the
event that the Company is the prevailing party, Employee shall be obligated to
reimburse the Company for any reasonable attorneys’ fees and costs advanced.
 
25. Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Employee concerning Employee’s employment
with and separation from the Company and the events leading thereto and
associated therewith, and supersedes and replaces any and all prior agreements
and understandings concerning Employee’s relationship with the Company, with the
exception of the Confidentiality Agreement, the Company’s 1998 Stock Plan and
the Stock Option Agreements.

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26. No Oral Modification. This Agreement may only be amended in writing signed
by Employee and the Company’s Chief Executive Officer.
 
27. Governing Law. This Agreement shall be governed by the laws of the State of
Texas without regard for choice of law provisions.
 
28. Effective Date. This Agreement will become effective after it has been
signed by both Parties and after seven days have passed since Employee signed
the Agreement. Each Party has seven days after that Party signs the Agreement to
revoke it.
 
29. Counterparts. This Agreement may be executed in counterparts and by
facsimile, and each counterpart and facsimile shall have the same force and
effect as an original and shall constitute an effective, binding agreement on
the part of each of the undersigned.
 
30. Voluntary Execution of Agreement. This Agreement is executed voluntarily and
without any duress or undue influence on the part or behalf of the Parties
hereto, with the full intent of releasing all claims. The Parties acknowledge
that:
 

 
(a)
 
They have read this Agreement;

 

 
(b)
 
They(a) They have read this Agreement; have been represented in the preparation,
negotiation, and execution of this Agreement by legal counsel of their own
choice or have elected not to retain legal counsel;

 

 
(c)
 
They understand the terms and consequences of this Agreement and of the releases
it contains; and

 

 
(d)
 
They are fully aware of the legal and binding effect of this Agreement.

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IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective
dates set forth below.

 

       

AVANEX CORPORATION

Dated:

 

12/2/02

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By:

 

    /s/ Walter Alessandrini

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    Walter Alessandrini, President and CEO

       

CHARLES MAO, an individual

Dated:

 

12/2/02

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                        /s/ Charles Mao        

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Charles Mao

 

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Exhibit A
 
Schedule of Employee Stock Options

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Exhibit B
 
Job Titles by Classification/Organizational Unit of Individuals not Selected for
Reduction in Force

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Exhibit C
 
Job Titles by Classification/Organizational Unit of Individuals Selected for
Reduction in Force

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