ADVANCED FIBRE COMMUNICATIONS, INC.
STOCK PLEDGE AGREEMENT
AGREEMENT made as of this 30th day of June, 1997 by and between
Advanced Fibre Communications, Inc., a Delaware corporation (the "Corporation")
and Xxxxx X. Xxxxxx ("Pledgor").
RECITALS
A. In connection with the purchase of 2,484 shares of the
Corporation's Common Stock (the "Purchased Shares") on the date of this
Agreement from the Corporation, Pledgor has issued that certain promissory note
(the "Note") dated June 30, 1997 payable to the order of the Corporation in the
principal amount of One Hundred Forty-Nine Thousand Nine Hundred Seventy-Two
Dollars ($149,972).
B. Such Note is secured by the Purchased Shares and other collateral
upon the terms set forth in this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF SECURITY INTEREST. Pledgor hereby grants the
Corporation a security interest in, and assigns, transfers to and pledges with
the Corporation, the following securities and other property (collectively, the
"Collateral"):
(i) the Purchased Shares delivered to and deposited
with the Corporation as collateral for the Note;
(ii) any and all new, additional or different
securities or other property subsequently distributed with respect to
the Purchased Shares which are to be delivered to and deposited with the
Corporation pursuant to the requirements of Paragraph 3 of this
Agreement;
(iii) any and all other property and money which is
delivered to or comes into the possession of the Corporation pursuant to
the terms of this Agreement; and
(iv) the proceeds of any sale, exchange or
disposition of the property and securities described in subparagraphs
(i), (ii) or (iii) above.
2. WARRANTIES. Pledgor hereby warrants that Pledgor is the
owner of the Collateral and has the right to pledge the Collateral and that the
Collateral is free from all liens,
adverse claims and other security interests (other than those created hereby).
3. DUTY TO DELIVER. Any new, additional or different
securities or other property (other than regular cash dividends) which may now
or hereafter become distributable with respect to the Collateral by reason of
(i) any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the Common Stock as a class without
the Corporation's receipt of consideration or (ii) any merger, consolidation or
other reorganization affecting the capital structure of the Corporation shall,
upon receipt by Pledgor be promptly delivered to and deposited with the
Corporation as part of the Collateral hereunder. Any such securities shall be
accompanied by one or more properly-endorsed stock power assignments.
4. PAYMENT OF TAXES AND OTHER CHARGES. Pledgor shall pay,
prior to the delinquency date, all taxes, liens, assessments and other charges
against the Collateral, and in the event of Pledgor's failure to do so, the
Corporation may at its election pay any or all of such taxes and other charges
without contesting the validity or legality thereof. The payments so made shall
become part of the indebtedness secured hereunder and until paid shall bear
interest at the minimum per annum rate, compounded semi-annually, required to
avoid the imputation of interest income to the Corporation and compensation
income to Pledgor under the Federal tax laws.
5. STOCKHOLDER RIGHTS. So long as there exists no event of
default under Paragraph 10 of this Agreement, Pledgor may exercise all
stockholder voting rights and be entitled to receive any and all regular cash
dividends paid on the Collateral and all proxy statements and other stockholder
materials pertaining to the Collateral.
6. RIGHTS AND POWERS OF CORPORATION. The Corporation may,
without obligation to do so, exercise at any time and from time to time one or
more of the following rights and powers with respect to any or all of the
Collateral:
(i) subject to the applicable limitations of
Paragraph 9, accept in its discretion other property of Pledgor in
exchange for all or part of the Collateral and release Collateral to
Pledgor to the extent necessary to effect such exchange, and in such
event the other property received in the exchange shall become part of
the Collateral hereunder;
(ii) perform such acts as are necessary to preserve
and protect the Collateral and the rights, powers and remedies granted
with respect to such Collateral by this Agreement; and
(iii) transfer record ownership of the Collateral to
the Corporation or its nominee and receive, endorse and give receipt
for, or collect by legal proceedings or otherwise, dividends or other
distributions made or paid with respect to the Collateral, PROVIDED AND
ONLY IF there exists at the time an outstanding event of default under
Paragraph 10 of this Agreement. Any cash sums
2.
which the Corporation may so receive shall be applied to the payment of
the Note and any other indebtedness secured hereunder, in such order of
application as the Corporation deems appropriate. Any remaining cash
shall be paid over to Pledgor.
Any action by the Corporation pursuant to the provisions of this
Paragraph 6 may be taken without notice to Pledgor. Expenses reasonably
incurred in connection with such action shall be payable by Pledgor and form
part of the indebtedness secured hereunder as provided in Paragraph 12.
7. CARE OF COLLATERAL. The Corporation shall exercise
reasonable care in the custody and preservation of the Collateral. However, the
Corporation shall have no obligation to (i) initiate any action with respect to,
or otherwise inform Pledgor of, any conversion, call, exchange right, preemptive
right, subscription right, purchase offer or other right or privilege relating
to or affecting the Collateral, (ii) preserve the rights of Pledgor against
adverse claims or protect the Collateral against the possibility of a decline in
market value or (iii) take any action with respect to the Collateral requested
by Pledgor unless the request is made in writing and the Corporation determines
that the requested action will not unreasonably jeopardize the value of the
Collateral as security for the Note and other indebtedness secured hereunder.
Subject to the limitations of Paragraph 9, the Corporation may at any
time release and deliver all or part of the Collateral to Pledgor, and the
receipt thereof by Pledgor shall constitute a complete and full acquittance for
the Collateral so released and delivered. The Corporation shall accordingly be
discharged from any further liability or responsibility for the Collateral, and
the released Collateral shall no longer be subject to the provisions of this
Agreement.
8. TRANSFER OF COLLATERAL. In connection with the transfer or
assignment of the Note (whether by negotiation, discount or otherwise), the
Corporation may transfer all or any part of the Collateral, and the transferee
shall thereupon succeed to all the rights, powers and remedies granted the
Corporation hereunder with respect to the Collateral so transferred. Upon such
transfer, the Corporation shall be fully discharged from all liability and
responsibility for the transferred Collateral.
9. RELEASE OF COLLATERAL. Provided all indebtedness secured
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full and there does not otherwise exist any event of
default under Paragraph 10, the Purchased Shares, together with any additional
Collateral which may hereafter be pledged and deposited hereunder, shall be
released from pledge and returned to Pledgor in accordance with the following
provisions:
(i) If one or more of Purchased Shares are to be
sold, then those shares shall be released from pledge hereunder upon
Maker's undertaking to apply the gross proceeds realized from the sale
of such shares immediately to the payment of (i) the portion of the
principal balance of this Note
3.
attributable to those Purchased Shares which are the subject of such
sale and (ii) the accrued and unpaid interest under the Note on that
principal portion.
(ii) Upon payment or prepayment of principal under
the Note, together with payment of all accrued interest to date, one or
more of the Purchased Shares held as Collateral hereunder shall (subject
to the applicable limitations of Paragraphs 9(iii) and 9(v) below) be
released to Pledgor within thirty (30) days after such payment or
prepayment. The number of the shares to be so released shall be equal
to the number obtained by multiplying (i) the total number of Purchased
Shares held under this Agreement at the time of the payment or
prepayment, by (ii) a fraction, the numerator of which shall be the
amount of the principal paid or prepaid and the denominator of which
shall be the unpaid principal balance of the Note immediately prior to
such payment or prepayment. In no event, however, shall any fractional
shares be released.
(iii) Any additional Collateral which may hereafter
be pledged and deposited with the Corporation (pursuant to the
requirements of Paragraph 3) with respect to the Purchased Shares shall
be released at the same time the particular shares of Common Stock to
which the additional Collateral relates are to be released in accordance
with the applicable provisions of Paragraph 9(i).
(iv) Under no circumstances, however, shall any
Purchased Shares or any other Collateral be released if previously
applied to the payment of any indebtedness secured hereunder. In
addition, in no event shall any Purchased Shares or other Collateral be
released pursuant to the provisions of Paragraph 9(i) or 9(ii) if, and
to the extent, the fair market value of the Common Stock and all other
Collateral which would otherwise remain in pledge hereunder after such
release were effected would be less than the unpaid principal and
accrued interest under the Note.
(v) For all valuation purposes under this Agreement,
the fair market value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(A) If the Common Stock is at the time traded on the
Nasdaq National Market, the fair market value shall be the closing
selling price per share of Common Stock on the date in question, as such
prices are reported by the National Association of Securities Dealers on
its Nasdaq system or any successor system. If there is no reported
closing selling price for the Common Stock on the date in question, then
the closing selling price on the last preceding date for which such
quotation exists shall be determinative of fair market value.
4.
(B) If the Common Stock is at the time listed on the
American Stock Exchange or the New York Stock Exchange, then the fair
market value shall be the closing selling price per share of Common
Stock on the date in question on the securities exchange serving as the
primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
reported sale of Common Stock on such exchange on the date in question,
then the fair market value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.
(C) If the Common Stock is at the time neither
listed on any securities exchange nor traded on the Nasdaq National
Market, the fair market value shall be determined by the Corporation's
Board of Directors after taking into account such factors as the Board
shall deem appropriate.
(vi) In the event the Collateral becomes in whole or
in part comprised of "margin securities" within the meaning of Section
207.2(i) of Regulation G of the Federal Reserve Board, then no
Collateral shall thereafter be substituted for any Collateral under the
provisions of Paragraph 6(i) or be released under Paragraph 9(i) or
(ii), unless there is compliance with each of the following additional
requirements:
(A) The substitution or release must not increase
the amount by which the indebtedness secured hereunder at the time of
such substitution or release exceeds the maximum loan value (as defined
below) of the Collateral immediately prior to such substitution or
release.
(B) The substitution or release must not cause the
amount of indebtedness secured hereunder at the time of such
substitution or release to exceed the maximum loan value of the
Collateral remaining after such substitution or release is effected.
(C) For purposes of this Paragraph 9(v), the maximum
loan value of each item of Collateral shall be determined on the day the
substitution or release is to be effected and shall, in the case of the
shares of Common Stock and any additional Collateral (other than margin
securities), equal the good faith loan value thereof (as defined in
Section 207.2(e)(1) of Regulation G) and shall, in the case of all
margin securities (other than the Common Stock), equal fifty percent
(50%) of the current market value of such securities.
10. EVENTS OF DEFAULT. The occurrence of one or more of the
following events shall constitute an event of default under this Agreement:
5.
(i) the failure of Pledgor to pay, when due under
the Note, any installment of principal or accrued interest; or
(ii) the occurrence of any other acceleration event
specified in the Note; or
(iii) the failure of Pledgor to perform any
obligation imposed upon Pledgor by reason of this Agreement; or
(iv) the sale, transfer, assignment, encumbrance or
other conveyance, whether voluntarily or involuntarily or by operation
of law or otherwise, of any of the Purchased Shares in contravention of
the provisions of the Stock Issuance Agreement of even date herewith
between the Pledgor and the Corporation pursuant to which the Pledgor
has acquired the Purchased Shares; or
(v) the breach of any warranty of Pledgor contained
in this Agreement.
Upon the occurrence of any such event of default, the Corporation may,
at its election, declare the Note and all other indebtedness secured hereunder
to become immediately due and payable and may exercise any or all of the rights
and remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.
Any proceeds realized from the disposition of the Collateral pursuant
to the foregoing power of sale shall be applied first to the payment of expenses
incurred by the Corporation in connection with the disposition, then to the
payment of the Note and finally to any other indebtedness secured hereunder.
Any surplus proceeds shall be paid over to Pledgor. However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.
11. OTHER REMEDIES. The rights, powers and remedies granted to
the Corporation pursuant to the provisions of this Agreement shall be in
addition to all rights, powers and remedies granted to the Corporation under any
statute or rule of law. Any forbearance, failure or delay by the Corporation in
exercising any right, power or remedy under this Agreement shall not be deemed
to be a waiver of such right, power or remedy. Any single or partial exercise
of any right, power or remedy under this Agreement shall not preclude the
further exercise thereof, and every right, power and remedy of the Corporation
under this Agreement shall continue in full force and effect unless such right,
power or remedy is specifically waived by an instrument executed by the
Corporation.
12. COSTS AND EXPENSES. All costs and expenses (including
reasonable
6.
attorneys fees) incurred by the Corporation in the exercise or enforcement of
any right, power or remedy granted it under this Agreement shall become part of
the indebtedness secured hereunder and shall constitute a personal liability of
Pledgor payable immediately upon demand and bearing interest until paid at the
minimum per annum rate, compounded semi-annually, required to avoid the
imputation of interest income to the Corporation and compensation income to
Pledgor under the Federal tax laws.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without resort
to that State's conflict-of-laws rules.
14. SUCCESSORS. This Agreement shall be binding upon the
Corporation and its successors and assigns and upon Pledgor and the executors,
heirs and legatees of Pledgor's estate.
15. SEVERABILITY. If any provision of this Agreement is held to
be invalid under applicable law, then such provision shall be ineffective only
to the extent of such invalidity, and neither the remainder of such provision
nor any other provisions of this Agreement shall be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by Pledgor and
the Corporation on this 30th day of June, 1997.
ADVANCED FIBRE COMMUNICATIONS, INC.
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PLEDGOR
By: /s/ Xxxx Xxxxxxx /s/ Xxxxx X. Xxxxxx
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Title: President, Chief Address: One Willow Brook Court
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Executive Officer and Xxxxxxxx, XX 00000
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Chief Operating
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Officer
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Dated: June 30, 1997 Dated: June 30, 1997
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7.
